HSBC Warns Vietnam of ‘Achilles’ Heel’

Tuan Minh

13:46 03/11/2016

BizLIVE - HSBC has pointed out key weaknesses that may hinder Vietnam’s economic growth.

HSBC Warns Vietnam of ‘Achilles’ Heel’

Prospects look bright for Vietnam's manufacturing sector. Photo: Internet

Weaker external demand and the burgeoning fiscal deficit are among factors that may keep Vietnam’s economy from growing at the desired pace in the medium term, HSBC said in a reported released Tuesday.
Vietnam’s trade performance is likely to remain impressive in the near term but it could slow if key industrial economies fail to gather pace, or if China, the country’s biggest trade partner, slows, the UK bank warned.
In addition, the room for further fiscal accommodation remains small. Public debt is set to reach 64% of GDP this year, by the parliament has expressed qualms about public debt breaching its ceiling of 65% of GDO, if growth falls short of its target.
Prime Minister Nguyen Xuan Phuc has recently tipped that the local economy would expand 6.3%-6.5% this year, missing the initial target of 6.7%. However, some economists have even cast doubt over the latest goal as growth needs to reach 7.1%-7.3% in the final quarter to hit the new target.
HSBC also suggested careful handling of credit growth.
In August, total outstanding credit growth moderated to the slowest pace in 17 months, but remains elevated nonetheless at 16.7% year-on-year.
“While increased leverage spurs economic growth, it also adds to the debt burden. However, more than overall debt, it is the “bad debt” that we need to keep an eye on,” the bank’s researchers emphasized.
HSBC noted that the settlement of lingering bad debts needs a special policy focus as the bad loan ratio has dropped considerably thanks to the operation of the Vietnam Asset Management Company (VAMC), which buy the bad debts of banks.
“Still, the underlying credit and associated capital impairment risks have not been fully eliminated,” the researchers commented.
“We think that both economic and credit growth may run out of steam unless a few structural issues are addressed in time. In contrast, prospects look bright for the manufacturing sector. We believe that the strength of this sector will be able to partially compensate for weaknesses elsewhere,” they said.