October brought some good news on two lingering challenges faced by Vietnam, which are the widening fiscal deficit and the crowding out of efficient private enterprises by state-owned enterprises (SOEs), HSBC
said in a report entitled “Vietnam at a glance.”
HSBC highlighted the conclusion of the landmark Trans-Pacific Partnership trade pact as the first good news.
“Vietnam is likely to reap substantial trade gains stemming from reduced tariffs and improved market access, especially to the US – its key trading partner. Furthermore, membership in the TPP has raised Vietnam’s attractiveness as a manufacturing hub, boosting foreign investment,” says the report.
HSBC forecast Vietnam’s annual disbursed FDI is on track to rise from $12.5 billion in 2014 to $14 billion this year and to exceed $20 billion by 2020.
The Ministry of Finance’s possibility to issue bonds with tenors equal to or longer than three years came in as other good news in the context the ministry is struggling to raise debt due to a ban on the issuance of shorter-dated government bonds.
In 2015, the government planned to equitize 289 SOEs but only 94 had been equitized as of September. “While equitization has been proceeding slowly, we think the focus on numbers is misleading. Instead, the real test is the degree of privatization the government is willing to achieve, and the extent of foreign ownership permitted,” said HSBC economist Izumi Devalier.
The other positive news was the government’s announcement of a plan to divest all of its shares in 10 companies. “Though the timeline for the government’s withdrawal from these firms is unclear, we think the focusing on SOE reform efforts on the quality, rather than the quantity of equitized enterprises is a step in the right direction.”
The UK-based bank commented that fears of deflation are overblown although headline inflation was unchanged at 0% year-on-year in October. A large part of the slowdown in the CPI is due to declining energy prices, the economist said.
“For now, low inflation and a benign outlook for global energy prices should allow the central bank to keep rates steady. But as price pressures build up next year, we expect the State Bank of Vietnam to deliver a 50-basis-point hike in Q3 2016, taking the OMO rate to 5.5%, from 5.0% currently,” the economist added.