Vietnam’s Economic Highlights in 2010

According to the General Statistics Office (GSO), many industrial products had higher than average growth. For instance, liquefied petroleum gas (LPG) production expanded 93.6 percent; chemical paint, 28.5 percent; and formula milk, 22.7 percent. Besides, according to the Ministry of Planning and Investment, in 2010, Vietnam attracted US$18.59 billion of foreign direct investment (FDI) capital (both fresh and incremental capital), down 19.8 percent year on year but almost equal to the full-year plan. FDI capital accounted for 25.8 percent of Vietnam’s total social investment capital in 2010, a bit higher than in 2009 (with 25.5 percent). This economic sector saw industrial production growth of 17.2 percent from 2009, higher than the country’s average of 14.7 percent, earned total export revenue of US$38.8 billion, rising 27.8 percent from 2009 and accounting for 53.1 percent of the country’s total, spent US$36.4 billion on imports, up 39 percent year on year and equal to 42.8 percent of the country’s total. Thus, the trade surplus of foreign-invested companies was US$2.35 billion in 2010, helping ease the trade deficit of Vietnam. Registered FDI capital improved in quality. Specifically, the processing industry took the lead with 385 new projects valued at US$5.1 billion, accounting for 27.3 percent of the total registered FDI capital.

 

Total retail sales of consumer goods and services increased 15 percent, excluding the price-rise factor. The trade deficit was estimated at US$12 billion, lower than the initial forecast of US$13.5 billion and than US$18 billion in 2008 and US$13 billion in 2009.

Although Vietnam had its long-term foreign currency sovereign credit rating lowered to BB- from BB, the quality of investment environment improved significantly, according to the Doing Business Report.

 

In general, macroeconomic balances are basically stable. State Budget revenue increased, development investment accelerated, social security and welfare was ensured, political and social security was maintained, social and cultural aspects were developed.

Vietnamese enterprises, particularly textile and garment producers, actively sought new markets and new export contracts. This helped Vietnam to have three more commodities with export value of more than US$ one billion in 2010. International visitor arrivals to Vietnam grew 39 percent from 2009. Particularly, business visitors increased 42.9 percent.

 

In 2010, the government continued to apply consistent policies to uphold macroeconomic stability, basing on increased investment, attached importance to both domestic and international markets, and paid special attention to attracting non-State investment sources. At the same time, the government also took into account comments, opinions and criticisms from the National Assembly and enterprises to adjust its administration in the spirit of respecting the law and protecting the legitimate interests of investors.

 

In 2010, Vietnam still faced many problems. Inflation escalated (9.19 percent in the year and 11.75 percent from December 2009) while the world features very low inflation or deflation. Deposit and lending interest rates soared to record highs while the rates in the world were very low. USD prices continuously climbed while official rates were pegged. Imbalances were also serious problems against Vietnam. Deficit of payment balance was US$2.84 billion in the first six months of 2010; deficit of current account balance was US$3.87 billion in the six months; trade deficit was estimated to reach US$12 billion in 2010; and foreign exchange reserves dropped. If these imbalances persist or are resolved too slowly, Vietnam will surely face macroeconomic risks. A spiral appeared. A higher USD price led to trade deficit as well as foreign exchange reserve decline, forcing Vietnam to adjust exchange rates but the change was not enough. Then, the spiral continued to develop in a more negative way. Without an active exchange rate policy, Vietnam had to passively deal with this problem and risks accumulated.

Macroeconomic management in a transitional developing economy in the context of international volatility is not easy. It is necessary to conduct serious scientific research, analyses and objective assessments, and update all developments in order to launch appropriate macroeconomic management solutions.

 

In a report submitted to the government in the monthly August 2010 meeting, the Ministry of Planning and Investment presented a bright growth scenario for 2011. Key economic sectors are expected to increase their contribution levels to overall growth. The additional value of agriculture, forestry and fisheries is expected to rise from 2.8 percent to 3 percent; the value of industry and construction is hoped to climb from 7.5 percent to 8.2 percent; and the value of service sector is forecast to grow from 8.2 percent to 8.5 percent (respective growths for 2010 were forecast at 2.6 percent, 7.6 percent and 7.5 percent). The USD/VND exchange rate is expected at 20,000. State Budget revenue was estimated to increase 16.7 percent over 2010 and equal 26.7 percent of the country’s GDP. Budget deficit is hoped to stay at 5.5 percent of GDP. The economy’s savings are falling, expected to sink from 30.4 percent of GDP in 2010 to 27.6 percent in 2011. Investment expenditures are weighing on the resilience of the economy. Foreign direct investment (FDI) capital is expected to increase 15.5 percent in 2011 to VND198.6 trillion (about US$20 billion), accounting for 21.4 percent of the total social investment capital. Businesses and high-income earners’ payments to the state budget will rise. State-run companies are expected to pay 9.5 percent more to the state budget; and non-state enterprises and citizens will pay 37.9 percent more to about VND344 trillion. State credit for development investment will be raised nearly 18.2 percent from the estimation for 2010. Thus, the economic growth will still depend heavily on capital increment. Exports and imports are expected to expand only 10 percent or so. The trade gap is forecast to reach US$14.5 billion, or 19.6 percent of total exports, which is higher than the estimate in 2010. The current account balance is likely to incur a deficit of US$10.9 billion in 2011 because the deficit of trade will be about US$9.51 billion, the deficit of services will be US$1.75 billion, the deficit of investment income will be US$5.12 billion, and a money transfer surplus will be U$5.5 billion. This deficit is offset by a surplus in the capital balance of US$11.8 billion. Electricity demand in 2011 is expected to grow about 14 - 15 percent, or an equivalent of 97 billion kWh of commercial electricity. Power supply and import is estimated to reach 110.5 billion kWh. In 2011, the country will have an additional 4,585 MW of electric generators in 2011. The supply is susceptible to delay in power plant construction projects or unfavourable weather conditions.

 

However, it is noted that in 2011 and in the near future, Vietnam continues to face complex problems, both traditional and new ones arising from international regulations. It also faces requirements to deal with institutional bottlenecks, infrastructure and human resources.

 

The economy continues to have to solve problems of sustainable growth, slow economic restructuring and low investment efficiency. Especially, prices of many goods will increase rapidly because Vietnam plans to increase many commodity prices.

 

To overcome these difficulties, capitalise on potential and achieve the important development indicators in 2011 approved by the lawmaking National Assembly like GDP growth of 7 - 7.5 percent, export growth of 10 percent, consumer price index (CPI) growth of 7 percent or lower, and forest coverage of 40 percent, Vietnam should work out the following tasks:

 

One, strengthening measures to stabilise prices and the market; reviewing mechanisms and policies to make appropriate adjustments and supplementations to promote production and trade, ensure supply/demand balance of essential commodities, end unlawful speculation and monopoly, mobilise all resources and cash in on opportunities to boost exports.

 

Second, accelerating economic restructuring; developing supporting industries, processing industries and high-tech agriculture; investing in economic and social infrastructure along with creating a favourable environment and encouraging investment in competitively advantageous sectors; applying advanced science and technology; developing labour-intensive sectors; increasing investments to develop key economic zones, creating economic growth momentum, as well as in far-lying areas to narrow the income gap among geographic regions; increasing investments to modernise educational, scientific and technological establishments; prioritising investments for poverty alleviation, job creation, healthcare facility construction, and other cultural and social fields; increasing investments for environmental pollution prevention, ecological environment protection; and ensuring sustainable development.

 

Perfecting mechanisms and policies to mobilise more domestic and foreign investment capital for infrastructure development; attracting investment capital from private and foreign enterprises to restructure production to boost efficiency and advantage of specific industries, regions and products; using advanced and modern equipment and technologies for industrial production with priority given to industries and products of competitive advantage. Particularly, Vietnam should restructure electricity to draw investment capital of all economic sectors.

Promoting the signing and disbursement of ODA capital, creating a more favourable environment to draw more FDI capital, supplementing, expanding and completing BOT, BT, BO and PPP investment regimes to boost investment for social and economic infrastructure construction; applying strict, proactive and flexible monetary policies; adjusting fiscal policies to cut off unreasonable spending and trim budget deficit.

 

Third, putting an end to pressing social problems, ensuring better social security and welfare; perfecting mechanisms and policies to widen the participation of the entire community in providing better public services; promoting proactive and effective prevention of and response to natural disasters to minimise human and property loss, particularly in regions suffering frequent flooding; developing human resources, especially high-level ones; standardising education; developing science and technology to improve hi-tech application; alleviating poverty; completing legal document system of environmental protection; rationally and effectively using natural resources; continuing dealing with environmental pollution; enhancing the awareness of environmental protection and environmental issues.

 

Fourth, renovating and improving public administration, administrative reform, thrift practicing, waste prevention, anti-corruption; completing and improving the quality of planning and development management to ensure smooth interconnectivity of regions; Reviewing and adjusting development plans for all sectors, with first priority given to imbalanced ones like energy (shortage), steel and cement (oversupply); Ensuring a balance of investment plans and capital availability and dealing with ineffective massive investment; restructuring public service, improving business environment, and enhancing competitiveness of companies; accelerating the reshuffle and privatisation of SOEs.