At the announcement of the East Asia and Pacific economic report update on October 5th, the World Bank (WB) keep the forecast on the Gross Domestic Product (GDP) growth of Vietnam unchanged at six percent, lower than the target of 6.3-6.5 percent approved by the government at the regular meeting on October 4th.
In July 2016, WB unexpectedly lowered the forecast on the growth of Vietnam to six percent and 6.3 percent given in the last year. The causes included the reduction of agriculture sector which has been suffering severe drought and the slowdown of industrial growth. However, the macro-economic stability will still be maintained and the pressure on inflation will be inconsiderable.
Answering question of BizLIVE, Sebastian Eckardt, chief economist of the WB in Vietnam said that although the six percent growth forecast is lower than the target set by the government, experts believed that the growth of Vietnam still has the resistance to external impacts and the gloomy global economy.
Although there are reduction of agriculture and mining sectors, Vietnam’s economy can still grow at six percent or higher this year, said Eckardt. He emphasized that Vietnam should pay more attention to sustainability and quality of growth, rather than following the target by implementing non-durable measures.
According to WB’s report, the prolonged fiscal imbalance is still causing concerns. The fiscal results in early 2016 showed that the budgetary pressure still exists due to the decline of oil prices and weaker economic activities which led to revenue decline.
WB’s report mentioned that the fiscal deficit will remain high this year but it will decrease after that, thanks to the government’s plan on fiscal tightening. Accordingly, the budget deficit of Vietnam is forecasted at 5.9 percent this year and gradually decline to 5.7 percent in 2017 and five percent in 2018.
Meanwhile, the public debt ratio is predicted to increase to 64.1 percent of GDP in the end of the year and it will reach the ceiling limit of 65 percent in the next two years. Talking more about the public debt situation, Eckardt confirmed that the public debts of Vietnam may be close to the ceiling limit in the context when GDP growth is slowing down this year, but it will not exceed the limit set by the National Assembly.
The matter of concern is the prolongation of budget deficit for many years. In documents, the government of Vietnam always affirmed to curb the fiscal deficit to bring public debts to a stable level and gradually decrease in medium term. Eckardt stressed that in any case, WB finds that the government should solve budget imbalances in order to maintain public debt at a stable level in the medium term.
He added that the WB did not focus on the public debt limit of 65 percent of GDP, as it is just a reference to assess the public debts. The more important thing is to focus on the developments of budget deficit and propose policies to reduce this shortage. Eckardt recommended that the government should expand the revenues from budget, including the tax base and regular cut on spending.