IMF report calls for reforms to mitigate economic risks

With its low buffers in the private sector and inflexible macroeconomic policy framework, there is a rising risk that Vietnam would be vulnerable to external and internal shocks, the International Monetary Fund (IMF) 2018 Article IV Consultation report for Vietnam said.

With the country’s relatively high public debt, infrastructure investments could be limited, the report, which assesses economic health to predict future financial issues, said.

High credit growth, low bank capital buffers and an inflexible exchange rate could also lead to vulnerabilities, it added.

“Vietnam’s institutions and information systems are not fully ready to proactively detect and manage” these risks, it said.

Besides these internal factors, Vietnam could also be affected by increasing protectionism by its major trade partners, the report warned.

“These shocks could affect Vietnam through trade and financial channels, given large capital inflows recently.”

To prepare for these challenges, the IMF said that Vietnam should carry out more ambitious reforms in tax policy and expenditure management, which would allow more spending on infrastructure.

The country needs to reduce its administrative and wage-related funding, and improve the quality of public investment, the report said.

But it also recognised Vietnam’s strong economic momentum. It projected the country’s GDP growth to remain robust at an estimated 6.6 percent, with inflation rising to just under the 4 percent target.

GDP growth last year was 6.8 percent. Public debt accounted for 61.3 percent of GDP, close to the 65 percent limit the country has set for itself.