Citigroup Highlights Marco Risks of Vietnam's Economy

Citigroup has warned that macro risks of ’s economy have heightened, which are mainly attributed to rising inflation and surging trade and current accounts deficit, the Saigon Times Daily newspaper said.

A ballooning goods trade deficit caused a substantially larger current account deficit last year, which could have reached 8.5 per cent-9 per cent of the country’s GDP, and trade deficit soared to US$12.4 billion, much higher from US$4.8 billion in 2006, the newspaper cited Citigroup as saying.

It will likely remain substantial, or widen further this year with exports facing downside risks from a sharp slowdown and weaker demand from Europe while the Southeast Asian country’s imports of capital goods and raw materials probably stay strong, Citigroup said, predicting its current account deficit could widen if the domestic savings rate strengthens.

’s domestic investment will be likely to rise to 40 per cent of GDP-the official target-or higher on heavy infrastructure spending, while the domestic savings rate has hovered 30 per cent-35 per cent over the past few years, it noted.

Citigroup also proposed that to curb challenges of elevated inflation and a substantial current account deficit should focus on measures to rein in credit growth by raising the bank reserve requirement ratio and accelerating monetary operations to drain liquidity.

However, the Ministry of Industry and Trade said widening trade deficit is mainly attributed to the country’s growing imports of machinery, equipment, facilities and input materials, which will help boost the economic growth rate.

Local economists noted with surplus foreign direct investment which surpassed US$20 billion last year, foreign assistance aids of more than US$5.4 billion and more than US$5 billion overseas remittance, Vietnam can compensate the gap and maintain the growth pace.

The Asian Development Bank president favored ’s tightened monetary policy, called it a right direction and was optimistic about medium and long term prospects of ’s economic growth rate of between 8.5 per cent-9 per cent.

The government of expects combined public and private investment to rise 22.1 per cent to VND567.3 trillion (US$35.5 billion) this year, or 42 per cent of its GDP. Of which, VND195 trillion is expected from domestic private companies, up 21.9 per cent from 2007, VND98.13 trillion from the state budget, down 3.4 per cent, and VND85 trillion from state-owned enterprises.

Local foreign-owned companies are expected to invest VND96 trillion, up 25 per cent from 2007, official development assistance from foreign donors is to rise 23.5 per cent to US$3.9 billion, and the remainder will come from government bonds and bank loans.

Prime Minister Nguyen Tan Dung emphasized during his meeting with leading state-owned companies that will strive to achieve the economic growth rate of 8.5 per cent this year. ( Saigon Times Daily)