The Vietnamese economy is heading to a higher growth in 2010, but a lot of challenges are waiting ahead.
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| As public investments keep on expanding, efficiency continues to raise questions |
Since
Economists have credited this continued growth to the global economic recovery and the government’s stimulus measures such as tax exemption and deferment, lowered base interest rate and public investment expansion.
At a press conference in
However, economists predict that the slow global recovery will continue to challenge economic growth in
At the seminar “Vietnam Economy 2010: Investment Opportunities” held by VIR and the Ministry of Planning and Investment’s National Centre for Socio-Economic Information and Forecast (NCSIF) in Hanoi last week, Professor Vo Dai Luoc, former head of the Institute of World Economics and Politics in Vietnam, said the global economic recovery would strongly influence the country’s growth as it was an export-dependent economy.
However, Luoc said whether the 9 per cent rate could be reached or not depended on the pace of the global economic recovery. “Furthermore, many countries are increasing protectionism for the sake of their businesses. That will be a real challenge for
In his speech on the eve of the New Year, Prime Minister Nguyen Tan Dung said further investment, including FDI, was a major measure to push economic growth this year In 2009, dibursed FDI capital in
Luoc said as the global economy was recovering slowly, foreign investors could be expected to hold onto their money rather than expanding their investments.
World Bank economist Doan Hong Quang told the seminar participants that economic growth in 2009 mainly based on stimulus measures and public investment expansion, not on exports and private expenditures, and “contrary to what the local media have said, 2010 will be a tough year”.
Economists said although inflation was kept below 7 per cent last year after peaking at 19.89 per cent in 2008, it would continue to haunt the economy. NCSIF director Le Dinh An said major causes of high inflation remained, such as high credit growth, state budget deficit and ineffective investments.
Figures from the General Statistic Office (GSO) showed a 37.73 per cent credit growth in 2009 and the state budget deficit was equivalent to 7 per cent of gross domestic product (GDP). The high credit growth and state budget deficit came as the government implemented a stimulus package worth $8 billion last year to prevent economic slowdown. The total social investment in 2009 was around 42.8 per cent of GDP, according to the GSO.
Meanwhile, An estimated the incremental capital output ratio (ICOR), a key indicator of investment effectiveness, was eight last year, meaning inefficient investment capital usage in Vietnam.
“When credit and state budget deficit increase, a high ICOR is very dangerous. That’s a good condition for the return of high inflation,” An said.
As the government is set to continue expanding public investments to attain a higher economic growth this year, Nguyen Mai, former deputy chairman of the State Committee for Cooperation and Investment, and chairman of the Foreign Invested Enterprises Association, noted that the economy remain facing challenges from three bottlenecks, namely poor infrastructure, complicated administrative procedures and an unskilled workforce.
“When economic growth is just based on quantity, not quality, the economy is unstable,” Mai said, adding that the stimulus measures applied in 2009 had not solve the economy’s weaknesses.
Professor Vo Dai Luoc said the government’s stimulus measures resulted in “all positive effects in 2009 and pushed the negative consequences to 2010”. These consequences were the current account deficit, state budget deficit and high inflation, he said.
Economists also pointed out that another lingering challenge for 2010 would be rising production costs for domestic enterprises. Since early this year, the government has nullified its interest rate subsidy for short-term commercial loans. For long and medium-term loans, the subsidy has been reduced from 4 per cent to 2 per cent.
Furthermore, all of the tax exemptions and reductions that formed part of the stimulus package have been stopped this year. Meanwhile, the State Bank of Vietnam announced it would limit credit growth at 25 per cent in 2010 to control inflation.
“That means enterprises will face higher operating costs and it will be difficult for them to access commercial loans at banks,” said Nguyen Dinh Cung, deputy director of the Ministry of Planning and Investment’s Central Institute for Economic Management.
The World Bank’s Doan Hong Quang said it would be hard for the economy to grow by 6.5 per cent as targeted by the government if credit growth was limited to 25 per cent. He suggested that a 30 per cent cap would be appropriate. Increased global prices of oil and commodities are also expected to pose a challenge to Vietnam’s economy.
Currently, Vietnam has to import about 80 per cent of raw materials for manufacturing exports. The recent increase of crude oil and expanded stimulus packages in other countries are said to be signs of returning high inflation worldwide in upcoming time. Natural disasters such as floods, droughts and climate change would also pose further challenges to economic growth in 2010.
Mai said that these challenge were unpredictable but would have a strong impact on Vietnam’s economic development. In recent years, many strong storms have hit Vietnam, causing severe losses to local agriculture, forestry and fisheries sectors. In 2008, a record-long spell of cold weather killed more than 8,000 cattle and 10,000 hectares of paddy rice in northern provinces. Last year, an historic flood also swept central and highland provinces.
Economists have called on the government to comprehensively implement necessary economic measures and recommended that economic growth should be focused on quality instead of quantity, implying the measures must contribute to increased exports and further effective investments.
Luoc said that the government could allow the dong to depreciate to increase exports to countries such as China and Japan. He stressed the government should not implement as many temporary measures as it had previously. “Too many temporary measures will not bring effectiveness to the economy but will create negative consequences.”
Mai said it was essential to watch on the movements of the global economy to apply suitable measures that would facilitate exports and attract investments. At the same time, he said, the government had to focus on easing economic bottlenecks as soon as possible to improve investment effectiveness.
VietNamNet/VIR
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