Overcoming challenges to create momentum for economic growth

The year of 2016 was considered as a year full of challenges for Vietnam's economy as internal problems remained cumbersome while the international situation witnessed unpredictable developments. Nevertheless, Vietnam’s macro-economy continues to be maintained and consolidated, creating momentum for economic growth in 2017.

Overcoming challenges to create momentum for economic growth

Bright outlook

According to the Ministry of Planning and Investment, GDP growth in 2016 was estimated at around 6.21%, macroeconomic stability was maintained, and inflation was controlled at 4.75%. Economic experts said that amidst difficult conditions, Vietnam's economic growth of over 6% showed a remarkable effort. More importantly, Vietnam saw steady economic development, macroeconomic objectives related to growth, inflation, employment, money value, foreign exchange reserves, macroeconomic stability, were all on the whole achieved.

Specifically, in 2016, Vietnam's budget collection increased while interest rates were reduced, foreign currency and gold markets also maintained stability. Foreign exchange reserves of Vietnam reached a record high of about US$41 billion. In 2016, Vietnam still recorded a trade surplus of US$2.68 billion as exports rose by 8%. Meanwhile, total social investments accounted for 32.5% of GDP. Disbursement of foreign direct investment (FDI) capital in 2016 was estimated at US$15.8 billion. The stability of the economy recorded positive outcomes in regards to the inflation index. 2016 was a successful year in controlling inflation amidst rebounding prices of some essential goods, as the CPI in December increased by 4.75% from 2015, lower than the 5% target set by the National Assembly.

Another positive signal for the economy is that the number of newly-established firms hit a record high of 110,100 in 2016, up 16.2% from 2015, according to the Business Registration Management Agency under the Ministry of Planning and Investment. The new enterprises have a combined registered capital of VND891 trillion (US$39.2 billion), a year-on-year increase of 48.1%. The number of businesses resuming operations in 2016reached 26,689, up 43.1% from 2015.

Deputy Minister of Planning and Investment Dang Huy Dong said the figures reflect the recent growth of Vietnamese enterprises and improvements in the investment climate, creating an impetus for the country’s economic development in the period of international integration. The newly-established firms created jobs for nearly 1.3 million workers. Most of them are operating in real estate, health care and social assistance, and education and training.

Exerting efforts to reach 2017 target

Despite the encouraging results achieved in 2016, Vietnam’s economy is still facing many difficulties and challenges in the coming year, notably the slow process of economic restructuring, bad debt, and high public debt, among others. This has put tremendous pressure on the State budget collection, and economic growth.

The National Assembly has adopted a resolution on the socio-economic development plan for 2017, which aims for a gross domestic product (GDP) growth rate of about 6.7%. The plan also targets a 6-7% rise in export-import revenue, and a trade deficit accounting for some 3.5% of the total trade turnover.

While the consumer price index is hoped to increase byaround 4%, total social development investment is expected to reach 31.5% of the national GDP. Vietnam is set to have its household poverty rate decline by 1-1.5% under the multidimensional measurement. The respective health insurance and forest coverage is hoped to reach 82.2% and 41.45% next year. The plan targets a stable macro-economy, economic restructuring associated with growth model reform, and improvement of the economy’s competitiveness. It also looks to encourage sustainable start-ups, ensure social welfare, proactively respond to climate change, increase environmental protection, and step up administrative reforms.

According to Le Quoc Phuong, Deputy Director of the Vietnam Industry and Trade Information Centre, if the regional and global economic situations witness favourable developments, Vietnam could reach 6.5% of GDP growth in 2017.

Meanwhile, the World Bank (WB) and Asia Development Bank (ADB) have forecast that Vietnam’s GDP growth will reach 6.3% this year, while the International Monetary Fund (IMF) have set the figure to 6.2%.

The National Financial Supervisory Commission of Vietnam (NFSC) has predicted that this year Vietnam’s economy will improve due to the reform of institutions and the investment environment, as well as the price recovery of energy and farming products on the world market, creating a new impetus for the private sector.

The National Centre for Socio-economic Information and Forecast (NCIF) under the Ministry of Planning and Investment has two scenarios for domestic economic development this year based on the impact of the Government’s directions and an IMF forecast of global GDP growth of 3.4%.

According to the more likely first scenario, the domestic economy will remain stable and development and local investment will continue to improve. Vietnam will benefit from its global integration to improve exports and investment. That would translate into 6.44% GDP growth and inflation of 5% in 2017.

The second scenario forecasts a 6.72% GDP growth rateand inflation of 6% if it further improves the structure and efficiency of the economy. Policy management as well as legal and investment environment reforms in 2016 have begun to have an effect, the NCIF says. The consumption index is increasing slowly and steadily. The State implemented flexible management of monetary and exchange rate policies, in the hope of achieving an average basic interest rate of 6% in 2017. The nation is forecast to achieve its money supply and credit growth goals.