HSBC Alerts Vietnam to Economic Spoilers

Tuan Minh

12:08 30/12/2016

BizLIVE - Inflation, bad debt and fast-growing public debt are risks that Vietnam needs to watch out for, HSBC has said.

HSBC Alerts Vietnam to Economic Spoilers

A street vendor pushes a bicycle loaded with china items in a street in Hanoi, Vietnam. Photo: Internet

Although prospects remain bright, the Vietnamese government should keep a close watch on major economic risks that an uptick of inflation, capital impairment at banks and sluggish public finance reforms, HSBC has said in its latest report.
According to HSBC researchers, the re-emergence of inflationary pressures could be one key concern in the months to come.
The recent pickup in inflation is driven primarily by one-off factors like higher costs of education and healthcare, which together contributed 3.2 percentage points to headline inflation in November. This implies that when the effects of these “one-off factors” wear off, inflation is likely to turn benign.
“Given that it is edging closer to the 5.0% upper limit set out by the central bank, inflation is worth keeping an eye out for, but it isn’t an outright concern,” says the report. However, robust credit growth could further stock inflation.
The UK bank warned that the banking sector is not “out of the woods yet.” The non-performing loan ration has declined as the Vietnam Asset Management Company continues to buy bad debts from banks.
“However, the underlying credit and associated capital impairment risks continue to lie with the banks,” says the report, cautioning that settlement of lingering bad debts needs special policy focus, and could add to the public debt burden.
HSBC also reminded the Vietnamese government of speeding up public finance reforms to ensure sustainable long-term economic growth.
“Restructuring of public finance is one of the major reforms that the government will need to undertake, as the economy relies heavily on public expenditure to boost development,” it said.
Reforms around public finance not only include more effective management of public funds and better management of debt, but also a speedy equitization of state-owned enterprises.
According to the Finance and Budget Commission, all Vietnam public debt indicators, including the public debt-to-GDP ratio, government revenue, debt service-to-GDP ratio, as well as government revenue, are set to approach or exceed their comfort levels.
Against this background, the Vietnamese parliament in November agreed to raise the upper bound of government debt to 54% of GDP from 50% previously, while leaving the public and foreign debt ceilings unchanged at 65% and 50% of GDP, respectively.
The government has vowed to restructure public debt with tighter monitoring of projects that are funded by the state budget to ensure that they are efficient and being used for the right purposes.
The government will also restrict issuing loan guarantees, and closely supervise debt incurred by provincial and municipal authorities.
Further, it will try to reduce loan costs, revise laws on the State Budget and public debt management, and review strategies and programs to manage public debt in the medium term, HSBC observed.

 

TUAN MINH