Vietnam is likely to hit its 8.5 per cent GDP growth target this year, but economists have warned that the government’s key emphasis should be on reform not growth figures.
Ayumi Konishi, country director of the Asian Development Bank in Vietnam, said the Vietnamese economy would continue to grow quickly and he was optimistic about prospects for 2007, particularly as Vietnam benefits from increased FDI and administrative and economic reforms.
Last year, the ADB forecasted Vietnam’s 2007 economic growth at around 8.0 per cent and later revised it upwards to 8.3 per cent. In the first six months of this year, GDP growth was measured at 7.87 per cent, the highest rate over the same period over the past five years, according to the General Statistics Office.
“Vietnam’s GDP will expand, thanks to continued robust export performance, investment growth and domestic demand,” said Il Houng Lee, senior resident representative of the International Monetary Fund in Vietnam. However, Konishi said it would be a bad idea to focus too greatly on the GDP growth target and the figure should be treated as a ‘projection’ rather than a goal.
“We keep making this point because what is most important for Vietnam right now is to accelerate reforms, particularly in public administration and finances, control corruption, improve efficiency and equitise state-owned commercial banks and enterprises,” added Konishi.
Focusing on reforms was particularly important in the medium- to long-term for Vietnam’s sustainable development, he said.
Current limitations including weak governance, low labour productivity, a skilled worker shortage and inadequate infrastructure must also be tackled, he said. Despite the GDP growth optimism, Vietnam is faced with a number of risks including a potential soaring trade deficit and high inflation. Vietnam incurred a trade deficit of $4.78 billion in the first six months of this year, surpassing the 2007 forecast of $4.7 billion.
However, Konishi maintained it was incorrect to judge WTO impacts or benefits based on short-term changes in trade figures.
He said that it was essential to carefully analyse and understand trade flows. As FDI increases and domestic industries modernise, the country could see an increase in the import of equipment or capital goods.
“The true impact of the WTO accession will become clear through medium- to long-term changes in Vietnam’s economic structure, particularly as the new globalised economy requires Vietnam’s economic and administrative systems to become more efficient in order to remain competitive,” Konishi said.
Konishi said the Vietnamese Government should carefully monitor prices, particularly as Vietnam becomes more directly exposed to world market volatility.
“The risk of rising inflation could be heightened if a large positive fiscal impulse were to further add to the demand pressures in 2007. The risk of inflation, and the need to protect medium-term debt sustainability, calls for a more cautious fiscal stance,” added Lee of the IMF. Konishi, however, said that current levels of inflation were not yet at an alarming point, despite the fact that the consumer price index has risen 5.2 per cent since January.