taking stock an update on vietnams recent economic developments

1

World Bank – Vietnam

h2p://www.worldbank.org/vn/takingstock

2


MACRO STABILITY REMAINS A KEY CONCERN FOR MOST VIETNAMESE CITIZENS

(% of ci*zens who viewed the below issue as a serious problem)

15

21

22

24

31

34

34

34

40

44

0 5 10 15 20 25 30 35 40 45 50

Jobs/Employments

Income

Quality of educa*on

Quality of healthcare

Environment pollu*on

Corrup*on

Social evil

Food safety

Traffic accident

Cost of living

Macroeconomic stability Versus Growth

Source: Corrup+on from the Perspec+ve of Ci+zens, Firms and Public Enterprises, GI and World Bank (2012)

3


RELATIVELY STABLE MACROECONOMIC SITUATION

7

2.1

11

0

10

20

30

40

O-‐09 F-‐10 J-‐10 O-‐10 F-‐11 J-‐11 O-‐11 F-‐12 J-‐12 O-‐12

Headline, food and core inflaQon rate (yoy, %)

Headline Food Core

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

Nov-‐09 May-‐10 Nov-‐10 May-‐11 Nov-‐11 May-‐12 Nov-‐12

Parallel market (mid) Official rate (SBV) Official upper band

Exchange rate (VND: USD)

0

100

200

300

400

500

600

700

800

J-‐09 M-‐09 S-‐09 J-‐10 M-‐10 S-‐10 J-‐11 M-‐11 S-‐11 J-‐12 M-‐12 S-‐12

Sovereign spreads

CDS, 5 years

Pricing of risks

1.9 1.8 2.1 2.0

1.7 2.0

2.3 2.5

0

1

2

3

q4-‐10 q1-‐11 q2-‐11 q3-‐11 q4-‐11 q1-‐12 q2-‐12 q3-‐12

InternaQonal reserves (in months of imports)

UNDERPINNED BY A STEADY TURNAROUND IN THE EXTERNAL ACCOUNTS

4


(% of GDP)

1.1 0.3

9.8

11.9

6.6

4.1

-0.2

-2.7

4.6 4.6

14.6 14.2

8.9

5.0

0.4

-4.7

-8

-4

0

4

8

12

16

2005 2006 2007 2008 2009 2010 2011e 2012f

Current account deficit Trade deficit (BOP definition)

Deficit

Surplus

5


GROWTH SLOWDOWN: CYCLICAL VS. STRUCTURAL?

Real GDP Growth Rate (%): Cyclical Upturn and Structural Downturn

6.9

6.9 7.5 7.9

7.1

7.2 7.8 8.

8 7.3 7.8 9.

1 9.1

7.1 7.5 8.

7 9.2

7.8 8.0 8.6 9.2

7.5

5.7 6.0

5.9

3.1 4.

5 6.0 6.9

5.8 6.4 7.2 7.3

5.6

5.7 6.1

6.1

4.0 4.7 5.4 6.

5

7.3 7.8

8.5 8.2 8.5

6.3

5.3

6.8

5.9 5.2

0

2

4

6

8

10

q1-‐03

q2-‐03

q3-‐03

q4-‐03

q1-‐04

q2-‐04

q3-‐04

q4-‐04

q1-‐05

q2-‐05

q3-‐05

q4-‐05

q1-‐06

q2-‐06

q3-‐06

q4-‐06

q1-‐07

q2-‐07

q3-‐07

q4-‐07

q1-‐08

q2-‐08

q3-‐08

q4-‐08

q1-‐09

q2-‐09

q3-‐09

q4-‐09

q1-‐10

q2-‐10

q3-‐10

q4-‐10

q1-‐11

q2-‐11

q3-‐11

q4-‐11

q1-‐12

q2-‐12

q3-‐12

q4-‐12(P)

Growth rate (Quarter-‐on-‐Quarter )

Growth rate (Year-‐on-‐Year)

6


GROWTH OUTLOOK 2010 2011e 2012p 2013f

Real GDP (% change y-‐y) 6.8 5.9 5.1 5.5 Consumer price index (% change, period avg.) 9.2 18.6 9.2 8.0 Government revenues (% GDP) 29.6 27.7 26.1 25.4 Government expenditures (% GDP) 32.7 30.9 31.3 29.2 Fiscal balance, official (% GDP) -‐0.7 -‐1.5 -‐3.7 -‐2.3 Fiscal balance, general (% GDP) -‐3.1 -‐3.2 -‐5.2 -‐3.8 Public sector debt (% GDP) 54.0 55.4 53.7 53.3 Trade balance (billions US$) -‐5.1 -‐0.5 6.4 5.8 Current account balance (billions US$) -‐4.3 0.2 3.7 1.9 Foreign direct investment (billions US$) 7.1 7.1 7.2 7.3 External debt (billions US$) 45.4 50.1 54.7 59.8 Interna*onal reserves, gross (months of imports) 1.8 1.5 2.3 .. Domes*c credit (% change y-‐y) 32.4 14.3 6.0 12.0 Memo: Nominal GDP (billions US$) 103.6 122.7 135.9 150.0 See the report for detail defini*on and es*mates.

7


RISKS TO VIETNAM ECONOMY

!  Core infla*on is s*ll very high !  Low level of foreign exchange reserves by interna*onal norms !   Premature loosening of fiscal and/or monetary policy promp*ng resurgence of infla*on !  Worsening of asset quality in credit ins*tu*ons; public debt could rise sharply if con*ngent liabili*es in banking sector and SOEs are realized !  Delayed and inadequate implementa*on of structural reforms including the resolu*on of bad debts in the banks and SOEs are dragging down the country’s long-‐term growth poten*al

8


UNDERSTANDING THE INFLATION DYNAMICS Administra*ve controls may lead to price stability in the short-‐run,

but higher and vola*le infla*on in the medium-‐term (% change in CPI, year-‐on-‐year)

0

5

10

15

20

25

30

35

40

Jan-‐10

Apr-‐10

Jul-‐1

0

Oct-‐10

Jan-‐11

Apr-‐11

Jul-‐1

1

Oct-‐11

Jan-‐12

Apr-‐12

Jul-‐1

2

Oct-‐12

Sectors where prices are largely determined by market forces

Beverage and tobacco

Clothing, hats, footwear

Household goods and appliances

Cultural and recrea*on

0

5

10

15

20

25

30

35

40

Jan-‐10

Apr-‐10

Jul-‐1

0

Oct-‐10

Jan-‐11

Apr-‐11

Jul-‐1

1

Oct-‐11

Jan-‐12

Apr-‐12

Jul-‐1

2

Oct-‐12

Sectors where there are sQll considerable administraQve price controls

Housing and construc*on materials

Transport

Educa*on

Medical and health care ar*cles

9


LOW LEVEL OF FOREIGN EXCHANGE RESERVES

Vietnam’s Level of Interna*onal Reserves from A Regional Perspec*ve

22.4

16.7

13.0

8.7 8.5 8.0 7.3 7.2 7.1

2.3

0

5

10

15

20

25

China Taiwan Philippines Thailand Malaysia Singapore Hong Kong Indonesia Korea Vietnam

InternaQonal Reserves (in months of imports)

21% 22%

28%

42%

32%

25%

54%

25%

40%

32%

14%

7%

26%

18%

25%

29% 30% 34%

46%

20%

29%

33%

12% 11%

0%

10%

20%

30%

40%

50%

60%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Credit Total Liquidity

10


RISK OF PREMATURE LOOSENING OF POLICY

(% annual change)

11


RESTRUCTURING OF THE FINANCIAL SECTOR

!   More clarity on the size of the non-‐performing loans !   Exact mechanism to resolve bad debts; If a public asset management

company is to be created, issues for considera*on include: o  Sources of funding, o  Asset transfer pricing principles, o  Appropriate accountability and liability of borrowers and so on.

!   New guidelines with stricter loan classifica*on and provisioning requirements

!   Consolida*on of the banking sector including allowing greater ownership for foreign banks

!   More investment on developing risk management systems, and !   Strengthening regulatory and supervisory framework.

12


RESTRUCTURING OF THE SOES

!   Prime Minister Decision 929 and Decision 704 have set a number of important deadlines: o  Preparing restructuring plan for all State Economic Groups and General

Corpora*ons, o  Ini*a*ng divestment of non-‐core business, o  Pukng in place a framework to monitor opera*onal and financial performance

of SOEs, o  Law on state (equity) capital investment, o  Improved corporate governance and greater disclosure of informa*on to the

Na*onal Assembly and the public at large o  Strengthening regulatory and supervisory framework.

!   No silver bullet: there is need for simultaneous and visible progress on all fronts.

taking stock an update on vietnams recent economic developments

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