Vietnam Economic Update December 2013

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Taking Stock: Coverage
External economic environment
Recent economic developments in Vietnam
Special topic 1: Trade facilitation,
competitiveness, and growth in Vietnam
Special topic 2: Corruption and economic
growth in Vietnam
Special topic 3: Poverty and inequality in
Vietnam
External economic environment
10
6
4
percent
8
2
0
6
-2
4
-4
Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13
United States
Euro Area
Japan
Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13
Developing East Asia
Developing countries (all)
Despite gradual recovery, EAP to remain global growth leader
Risks to the global economy
• Less-than-orderly tapering of QE in the US
• Prolonged fiscal deadlock in the US
• A sharper than expected slowdown of
investment in China
• Stronger than projected recovery of global
economy
• Japan successful in reflating and reviving its
economy
100.0
Source: Bloomberg
0
State Bank of Vietnam
Oct-13
Jul-13
30
Apr-13
400.0
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
200.0
Oct-10
CDS spread , 5 years (basis points)
Jul-10
300.0
Apr-10
450.0
Jan-10
550.0
Oct-09
1-Oct-13
1-Jul-13
1-Apr-13
1-Jan-13
1-Oct-12
1-Jul-12
1-Apr-12
1-Jan-12
1-Oct-11
1-Jul-11
1-Apr-11
1-Jan-11
1-Oct-10
1-Jul-10
600.0
1-Apr-10
1-Jan-10
1-Oct-09
Macro stability in Vietnam has improved…
Year-on-Year Inflation (%)
40
500.0
Headline
Food
Core
350.0
20
250.0
10
150.0
…growth however stagnant at modest levels
8.00
7.50
7.00
6.50
6.00
5.50
5.00
Vietnam
4.50
4.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Constraints to growth
• Growth remains stagnant at modest levels
– Short run:
• Subdued private sector confidence
• Shrinking fiscal space
– Long-term:
•
•
•
•
Evaluating the role of the state in a market economy
Structural constraints – SOE and banking sector issues
Declining competitiveness and productivity growth
Tight supply of market-oriented technical skills
Short-term constraints to growth
• Subdued private sector confidence
– Sharp drop in private investment rate, from 15%
from 2007-10 to 11.5% in 2013
– The Provincial Competitiveness Index indicates
firms less likely to invest or expand production
– PMI has mostly been in –ve territory
– Subdued HH consumption growth: 5.1% in 200912, compared to 8.9% in previous 4 years
Short-term growth: Global situation has
important implications
8.00
East Asia Average
8.00
7.00
7.50
6.00
7.00
5.00
6.50
4.00
6.00
3.00
World Average
2.00
5.50
5.00
1.00
Vietnam
0.00
-1.00
4.50
-2.00
4.00
-3.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ST growth constraints: Shrinking fiscal space
• Crucial fiscal policy choices: balance between
supporting growth and sustainability
– Low debt distress, but fiscal expansion is
stretching limits of this assessment
• Even a small increase in pace of spending will lead to a
rapid deterioration in debt dynamics.
– Consolidation of capital spending welcome move
– Greater fiscal transparency needed
Longer-term growth: getting the
business climate right
Starting a business
Dealing with
construction permits
Getting electricity
Resolving insolvency
Registering property
Enforcing contracts
Getting credit
Trading across
borders
Protecting investors
Paying taxes
Vietnam
ASEAN-4, average
LT growth: getting SOE reforms right
1000
5000
856
813
800
4000
621
600
461
359
400
200
3000
506
127
2000
116
1000
117
13
0
43
0
Number of firms equitized in the year
Cummulative number of equitized firms
LT growth: getting SOE reforms right
• Relatively slow SOE reforms on account of:
– Lack of clarity of state ownership plans
• Top-down approach, lacking policy and implementation
coordination
• Restructuring targets not kept realistic
– Unclear, and fragmented regulatory framework
– Limited underlying financial and operational
analysis for divesture
– Weak market conditions lately
LT Growth: Getting banking reforms right
• Banking sector fragilities remain
– High NPL ratios (financial disclosure &
transparency big concerns)
– Loan classification not per international stds
– State retains a big share in banks
– Regulations on bankruptcy, insolvency, creditor
rights need attention
– VAMC an important step: its organizational and
financial capacity needs bolstering
Medium-term outlook and risks
• Medium-term outlook is favorable on balance, albeit with
considerable downside risks
GDP Growth (%)
2012
2013 (p)
2014 (p)
2015 (p)
5.2
5.3
5.4
5.5
• Downside risks
– Forex reserves still low
– Weak private sector demand vulnerable to further bad news
– Possibility, though diminished, of departure from prudent macro
policies
– Structural reforms could further slow down
– Banking sector highly fragile with weak financial position
Special topic 1: Trade facilitation,
competitiveness and growth in VN
• Impressive gains in leveraging benefits of global integration
• However, export growth mostly low tech
Special topic 1: Trade facilitation,
competitiveness and growth in VN
• Attention needed in the three pillars of trade
facilitation and competitiveness
– Transport infrastructure and logistics
– Regulatory procedures for trade
– Supply chain organization
• Adopt dual-track approach
– Long run: Upgrade tech &move up value chain
– Short run: Get more value addition in existing
exports
Special topic 2: Corruption and growth
• Corruption long seen as a serious problem
• A few troubling cross-country comparisons
Global Integrity Assessment of
Anti-Corruption & Rule of Law
100
75
Enterprises Saying They Paid Bribes
Overall (%, WBES)
100
Vietnam
75
Vietnam
50
50
25
25
0
0
Special topic 2: Corruption and growth
Vietnamese firms that paid bribes have done worse!
Need for: administrative reforms and greater transparency
Firm's operational efficiency compared to
2 years before
-1=much worse +1=much better
0.3
0.11
0.1
0.03
-0.1
-0.20
-0.3
Firms that do not present Occasionally presents Frequently presents gifts
gifts or money to the in- gifts or money to the in- or money to the in-charge
charge officers
charge officers
officers
Special topic 3: Poverty and inequality
Special topic 3: Poverty and inequality
• Poverty remains concentrated among ethnic
minorities. HOWEVER,
– Even ethnic minority poverty has improved
significantly
– The situations of the 53 ethnic minority groups
are diverse
– Observed pathways out of poverty for ethnic
minorities are similar to rest of population
Thank you!
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