Macro Factors: What Is Working For Vietnam and What Is Failing? 2

Vietnam: The positives

In terms of macroeconomic fundamentals, Vietnam is quite solidly placed. It is one of the fastest growing economies in the world as displayed by its strong gross domestic product (GDP) growth in the graph below. The country’s economy had grown 6.21% in 2016, and it has been maintaining a 6% pace for several years now.

The government has set a goal of 6.7% growth for this year, and even after a slow start to the year, Prime Minister Nguyen Xuan Phuc has expressed confidence that the country will still be able to achieve it. In an interview with Bloomberg Television, he said that the growth aim, “is difficult but it is possible.”

Meanwhile, the government targets inflation at 4%, and the latest reading for May came in at 3.19% – the slowest pace in nine-months. There is some risk to inflation from the brisk pace of economic growth, but it remains contained for now.

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Further, its exports remain strong, surging by 17.4% in 2017 until May compared to the same period a year ago. Phuc expects agriculture exports to be higher than the $32 billion level last year. Overseas investment remains plentiful as well with foreign direct investment up by 10.4%.

Thus, there’s plenty in the way of optimism when it comes to Vietnam. Ratings major Moody’s Investors Service, which maintains a positive outlook on the country’s B1 rating, recently expressed that it expects foreign investment to continue to flow into the country and help it diversify its economic base.

Vietnam: The negatives

However, some challenges remain for the country. Corruption is the foremost.

With a score of 33 out of 100, Vietnam ranks 113 in 176 countries according to Transparency International’s Corruption Perceptions Index 2016.

In an article written for The Diplomat, James Birkett noted that “In its 2016 annual provincial competitiveness index, a survey of business conditions in the country, the Vietnam Chamber of Commerce and Industry announced that 49 percent of the firms consulted had admitted paying bribes within the last year – with many other companies choosing not to respond to the question.”

The other major challenge, especially from an investment perspective, is its banks.

Moody’s noted this in its report, calling banking “a system still encumbered by poor capital adequacy and legacy non-performing loans.” Poor governance is another major issue surrounding the country’s banks.

One factor that the government is particularly worried about is its trade performance, especially with the US. We’ll look at this aspect more closely in the next article.

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