Hanoi (VNS/VNA) – Vietnam’s economic growth could reach 6.9 percentin 2019, an increase of 0.1 percent compared to the 2019 socio-economic developmentplan adopted by the National Assembly, in the context that Vietnam isbenefiting from the US-China trade tension.

The statement was made by Nguyen Duc Thanh, Director of the Vietnam Institutefor Economic and Policy Research (VEPR) at a conference held in Hanoion January 10.

However, Thanh noted the use of foreign exchange reserves to stabilise thevalue of the Vietnamese dong (VND), as the State Bank of Vietnam (SBV) has donein recent years, is not a long-term solution when Vietnam’s foreign exchangereserves are in fact small in scale.

The pressure of exchange rates and inflation along with the regulation ofrestricting the use of short-term capital for medium- and long-term loans hascaused the interest rate of VNĐ to increase significantly at the end of 2018.However, the solution of raising interest rates will lead to implications forbusinesses when pushing up the cost of capital due to the modest size of thecorporate bond market, so the burden on bank credit has not been reduced.

Therefore, the proactive reduction of VND between the depreciation of the yuan(CNY) against the US dollar (USD) is necessary for Vietnam to adapt in thetrade war. Such adjustment of exchange rates helps Vietnam take advantage oftwo large markets to improve production as well as the trade balance, VEPR’sdirector suggested.

“If there is an appropriate exchange rate policy, Vietnam can benefit from thiswar, besides receiving many orders shifted from China,” Thanh said.

In terms of long-term impact when the production supply chain shifts from Chinato neighbouring countries, Vietnam needs to improve the institutional, businessand labour quality environments to grasp this opportunity. The challenge for Vietnamis also not small when the infrastructure is not yet ready to receive waves ofproduction, with no economies of scale like China and India.

Such findings from a macroeconomic report released on Wednesday by VEPR showedthat Vietnam’s economy in 2018 saw the highest growth in 10 years, at 7.08percent year-on-year.

Growth came from the solid recovery of the agriculture, forestry, fishery andservice sectors, along with the breakthrough of the manufacturing industry. Theforeign direct investment (FDI) sector continued to be the main contributor togrowth through exports. This sector in 2018 saw an export surplus of 32.81billion USD (equal to nearly 14 percent of GDP).  

As regards business activities, while the number of newly establishedenterprises and new jobs did not differ much from that of 2017, the number oftemporarily ceased enterprises in 2018 was unusually high, which yieldquestions whether that is because of the economic structural shift or thefundamental risk of the economy.

According to the report, Vietnamese inflation in the fourth quarter of 2018showed signs of decline thanks to the sudden drop in energy prices. Averageinflation (3.54 percent) reached the National Assembly’s target. In the contextof erratic global commodity prices, along with the increase of the environmentalprotection tax on petroleum to maximum level since January 1, 2019, the SBVstill needs to evaluate inflation risks in the future to take appropriatemeasures.  

VEPR forecast Vietnam’s economic growth prospects in the long term willcontinue to depend on foreign direct investment (FDI), resulting in the removalof institutional barriers, improved business environment and equitisation ofState-owned enterprises (SOEs).

International trade and investment activities are expected to flourish undernew-generation trade deals such as CPTPP and the European Union-Vietnam FreeTrade Agreement (EVFTA).

In addition, the US-China trade war is placing Vietnam in front of a rareopportunity that supply chain production is going to leave China. However, totake advantage of this opportunity, it requires a lot of improvements to theinstitutional environment, as well as business and domestic labour quality, Thanhsaid.

Speaking at the conference, economist Pham The Anh also recommended that theGovernment can continue to respond to risks with a more flexible exchange ratepolicy. In the context that the price of US dollar can increase even though itis not as strong as in 2018, the VND exchange rate should go between bigcurrencies of major export markets with Vietnam to reconcile positive andnegative impacts.

“The financial system must be reduced based on leverage when credit growth isvery strong in risk areas such as real estate, BOT(Build-Operate-Transfer), BT (Build-Transfer) and consumer credit,”Anh added.-VNS/VNA