Vietnam New Premier Faces Economic Challenges

Tuan Minh

11:37 07/04/2016

BizLIVE - Vietnam’s new prime minister will have to deal with a number of economic headwinds in the context of volatile geographical changes and adverse weather conditions.

Vietnam New Premier Faces Economic Challenges

Nguyen Xuan Phuc is sworn in as Vietnam's new prime minister. (Photo: Nhat Bac/VGP)

Vietnam’s newly-elected Prime Minister Nguyen Xuan Phuc will have to strive to repair economic problems as part of the legacy left by his processor Nguyen Tan Dung, who stepped down on April 6 after nearly 10 years in charge of the cabinet.
Economic Growth Slows
Achieving the country’s 2016 economic growth target of 6.7% will be among the major hurdles for the new government as drought in the central region and salinization in the Mekong Delta hit agricultural production.
According to the General Statistics Office (GSO), Vietnam’s gross domestic product (GDP) grew 5.46% in the first three months of this year, lower than a 6.12% growth rate in the same period of 2015, showing signs of stagnation.
Agricultural production declined 1.23% in the period due to cold spells in the north, the prolonged drought in the central region and saline intrusion in the Mekong Delta.
Vietnam’s GDP is expected to remain stable in 2016 with growth of 6.7% followed by a modest slowing of growth to 6.5% in 2017, the Asian Development Bank (ADB) said in its latest report released on March 30.
The growth rates can be attained if the country speeds up the overhaul of banks and state-owned enterprises (SOEs).
The bank pointed out five economic challenges that Vietnam could face in the coming two years. They are (i) exposure to global market instability, especially a growing export link with China, (ii) restoring fiscal sustainability, (iii) rebuilding external balance, (iv) resolving problem loans, and (v) speed up and deepening SOE reform.
“They need to show Vietnam continues to be an attractive destination for foreign investment and a relevant economy in the region,” Nguyen Xuan Thanh, a lecturer at the Fulbright Economics Teaching Program told Bloomberg. “They need to provide growth and job creation. A less than 7% growth will be very, very disappointing.”
State Budget Has Little Room Left
Former Nguyen Tan Dung and his successor Nguyen Xuan Phuc at a National Assembly session. (Photo: 
Under Nguyen Tan Dung’s 10-year premiership, the country’s public debt increased dramatically, reaching 62.2% of GDP at the end of 2015, up from 49.7% in 2011 and 22.7% in 2006, according to the government report and official data.
Senior economist Le Dang Doanh, a former advisor to the prime minister, told British Broadcasting Corporation (BBC) that Nguyen Tan Dung left an undesired economic legacy, particularly the struggling state budget.
“The budget overspending and regular expenditure are very large, and budget collections are not sufficient to cover regular expenditure and debt payments. Vietnam is taking out new loans to pay interests,” he added.
Echoing with Mr. Doanh, Vu Thanh Tu Anh, a lecturer at the Fulbright Economics Teaching Program, said in a publication that Vietnam hardly has room left for budget spending, which is much needed to fuel economic expansion.
Regular expenditure [which aims to keep the administrative apparatus running] increased by an average of 19.6% per year in the 2003-2015 period. As such, the share of regular expenditure over budget spending increased from 57.4% in 2003 to an estimated 80% in 2015.
The Vietnamese government now finds itself in a dilemma: it keeps investing to maintain economic growth pace, but the more it invests, the larger its fiscal deficit and public debt become, Mr. Tu Anh said.
This fact has resulted in the country’s budget deficit at 5.3% in the 2000-2015 period while public debt would have breached the 65%-of-GDP limit a long time ago if it is fully calculated, he noted.
Vietnam is expected to spend some 150 trillion dong ($6.7 billion) to repay debts and aids this year. To make ends meet, the government plans to increase borrowing at home and sells $3 billion worth of sovereign bonds in international markets this year.
Tight budged performance means that the new government doesn’t have significant resources to carry out major economic stimulus if needed.
Increasing Economic Reliance on FDI and China
Foreign investments have helped propel Vietnam’s GDP growth over the past decade under the management of Nguyen Tan Dung, who was active in opening up the economy and global integration.
Foreign direct investment (FDI) remains a main driver of Vietnam’s economic growth. Exports by foreign-invested enterprises account for approximately 70% of Vietnam’s total export turnover.
New FDI commitments came in relatively flat at $22.8 billion in 2015, which suggests that disbursement of FDI could level out this year and decline in 2017, ADB said in its latest report.
Vietnam raked in $162.11 billion from external shipments last year, a 7.9% increase from a year earlier, according to data of the General Department of Vietnam Customs.
Foreign firms’ export turnover was $110.59 billion, up 17.7% year-on-year, while they spent $97.26 billion on imports, resulting in a trade surplus of $13.33 billion, helping narrow the country’s trade gap to $3.54 billion.
On the other hand, bilateral trade with China has been on the rise and so has Vietnam’s trade gap with the neighboring country although a number of lawmakers have called for less dependence on China after Beijing deployed a $1 billion oil drilling platform within Vietnam’s exclusive economic zone in May 2014.
Trade between Vietnam and China reached $62.66 billion in 2015, with the former reporting a trade gap of $32.39 billion.
To deepen its economic integration and reduce reliance on China, Vietnam has signed landmark trade deals with other 11 Pacific Rim countries and the EU.
The Southeast Asian country’s apparel and footwear industries are said to be the largest beneficiaries of these accords when tariffs are gradually reduced. However, local manufacturers now have to import around 60%-70% of materials from China and India.


Tin liên quan

Cùng dòng sự kiện