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In 2020, HSBC thinks continued reforms are needed to buttress growth and tackle economic challenges. For one, infrastructure is a key area to focus on.

Vietnam Needs Aggressive Reforms in Infastructure and Banking
Over the years, Vietnam has pushed for many reforms that have supported sustained high growth. In 2020, HSBC thinks continued reforms are needed to buttress growth and tackle economic challenges. For one, infrastructure is a key area to focus on. 
As Vietnam’s fiscal space has been limited but the need to upgrade and build new infrastructure is urgently required, we think Public-Private Partnerships (PPP) would provide an ‘ideal’ s ource to fund large infrastructure projects (Vietnam at a glance: Can’t take eyes off infrastructure , 2 August 2019). 
Yet, more reforms are needed to solve PPP-related issues to incentivize participation of private investors. It’s positive to see the authorities having already taken steps in this direction. The revised PPP Law, looking to strengthen the legal framework and laying the ground for addressing lingering issues concerning investors, is expected to pass in 2020.
Meanwhile, reforms are also needed in the banking sector. From 1 January 2020, all banks in Vietnam will have to adopt Basel II standards, which requires a minimum capital adequacy ratio (CAR) of 8%. CARs on average have declined steadily since 2013, particularly among the stateowned banks. 
The good news is that the CAR in SOE banks has stabilized at 9.8% y-o-y as of September 2019, likely meeting the Basel II standards in 2020. That said, only 18 banks (16 domestic + 2 foreign) have met the requirements so far (Vietnam News, 25 December 2019). 
In particular, small banks are under pressure to increase their capital to meet the new standard. HSBC also think that improvements in data releases on a timely basis are needed for better economic assessment and risk management. More comprehensive and consistent data on the real estate sector, private sector debt and public spending and revenue would also enhance information availability for more calibrated decision-making by all economic agents.
Recently, Vietnam’s General Statis tics Office (GSO) released upward revisions of historical GDP data for the period of 2010-17. After the revisions, real GDP growth was raised by 0.3ppt per year on average and nominal GDP by 26% for the whole period, rapidly closing the gap of Vietnam’s economic s ize with that of the Philippines. 
According to the GSO, with the help of the IMF and the UN, the revisions are aimed at meeting international norms and better reflects s trong growth in Vietnam’s private s ector (Nikkei Asian Review, 4 November 2019). 
This will have profound implications in many respects. For example, based on initial information, it appears that the public debt-to-GDP ratio would be lowered by 11.5ppt annually on average, falling below 50% in 2017. 
That said, as historical data in 2018 was unchanged, it still remains to see how the authorities will reconcile data discrepancy between 2017 and 2018.
All in all, HSBC believe that Vietnam’s 2020 econom ic outlook remains positive and expect the economy to grow 6.6% y-o-y. As FDI inflows continues to add production capacity, its manufacturing sector is likely to remain robust. 
New trade agreements, such as the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans - Pacific Partnership (CPTPP), will bring opportunities for Vietnam’s exports . 
Meanwhile, services are likely to maintain its strong momentum as a result of continued thriving tourism and strong growth in domestic consumption. That said, Vietnamese economy still faces challenges in the 2020. Thus, pushing forward with reforms is increasingly needed to buttress growth.

DIEP NGUYEN