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Vietnam’s economic growth to expand 6.9 pct in 2016-2017: UN report

By    April 28, 2016 | 02:55 am PT
Vietnam’s economic growth is expected to grow 6.8 percent - 6.9 percent in 2016 and 2017 mainly on the back of continued consumer demand, said the United Nations on Thursday in its latest report for the Asia-Pacific region.

The report, titled “Economic and Social Survey of Asia and the Pacific 2016”, points out that the country’s domestic demand has gained momentum due to low inflation, which significantly dropped to only 0.6 percent last year from 4.1 percent of the year before and sharply fell from more than 11 percent on average in the preceding three years.

The Southeast Asia country’s total investment grew by 9 percent last year amid strong foreign direct invested inflows and rising government expenditure, marking the completion of the country’s five-year planning cycle.

Vietnam’s export revenues, which are traditionally underpinned by commodity exports, have picked up and are continuing to expand rapidly due to exports of higher-value products such as mobile telephones and electronics.

The central bank’s decision to devalue the dong three times last year by a cumulative 3 percent, according to the report, was a step towards ensuring the stability of the currency market.

The Trans-Pacific Partnership trade agreement is also expected to attract more foreign investment to build export capacity, although more stringent environmental and labor requirements may raise production costs in the short term.

However, the UNESCAP report specifies challenges such as bad debts in the banking sector and the country's fiscal deficit.

Total non-performing loans in the Vietnamese banking sector have dropped to about 3 percent of total outstanding loans, and this decline is partly due to the fact that the government has transferred toxic debts from banks to the state-run asset management company the Vietnam Asset Management Company (VAMC).

The VAMC had helped banks offload bad debts worth roughly $10 billion as of October 2015, said the report.

The UNESCAP said Vietnam’s fiscal position has weakened in the past few years, referring to the fact that the budget deficit reached 6.6 percent of gross domestic product (GDP) in 2015, while public debt jumped to 61 percent of GDP.

Sustainable economic growth is based on labor productivity so there is an urgent need to increase productivity in Vietnam through continued economic reform, loosened market conditions and better education and training, said Nguyen Anh Duong, deputy head of Macroeconomic Policies of the Central Institute for Economic Management.

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