Vietnam's economy is projected to grow 6.5 percent this year, the Asian Development Bank said in a new report released on Monday, adjusting its forecast of 6.3 percent made in September last year.
The bank said growth could pick up to 6.7 percent next year.
With strong growth in manufacturing and services likely to continue, a modest pickup in agriculture and mining output should also give a boost to the economy, the Manila-based lender said.
Manufacturing will be lifted by more new foreign-invested factories on the back of record foreign direct investment (FDI) disbursements pledged last year, according to the ADB.
Construction will continue to benefit from high FDI disbursements for new factories, housing and continued high investment in transport and energy.
Growth in services, strong in 2016, is projected to remain strong in 2017 and 2018, with tourist arrivals rising thanks to a new e-marketing campaign launched recently by the government.
As growth strengthens, inflation is expected to edge up by 4 percent this year, and 5 percent in 2018.
The expected rise in global food and fuel prices and higher U.S. interest rates will add to inflation. Another likely source of inflation is the continued implementation of the government's road map on prices for education, health, electricity, water and minimum wages.
Eric Sidgwick, ADB's country director for Vietnam, said agriculture has been a significant driver of growth, poverty reduction and exports since the government reformed the sector in the late 1980s by removing trade barriers and abolishing collective farming.
But stronger competition from international rivals and low domestic productivity has slowed agricultural growth to only 2 percent annually since 2011, he said.
The ADB also addressed the worsening impacts of climate change on agriculture, saying Vietnam is among the countries most vulnerable to climate change, with agriculture particularly at risk because it relies heavily on stable agro-ecological and climatic conditions.
Aside from drought, water resources will likely be affected by increasingly unreliable river flow patterns, which force farmers to depend more on groundwater, it said.
In November last year, the government set an economic growth target of 6.7 percent in 2017, and an inflation rate at 4 percent.