“Surging ahead in uncertain times” is the title of the annual economic and social survey of Asia and the Pacific released by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) in Hanoi on April 17. Vietnam is assessed with a high growth rate and numerous future prospects, but is exposed to numerous risks if the exchange rate management policy is irrational.
Under the annual report, Vietnam is regaining its momentum, thanks primarily to the development of textile and service sectors, mainly tourism and banking. ESCAP forecast the Vietnamese economy will grow 8.3 per cent in 2007. Ms Pham Lan Huong, Deputy Director of the Department for Trade Policy and International Integration Studies under the Central Institute for Economic Management, said the inflation rate in 2006 fell to 7.5 per cent compared with the 8.3 per cent rate in 2005. The price matter will be less serious as the inflation rate is predicted to slip to 6.2- 6.8 per cent in 2007 thanks to import tax cuts following Vietnam’s admission to the WTO.
From January to March 2007, Vietnam attracted US$2.41 billion foreign direct investment capital for 189 projects, mainly engaged in industry and construction. In addition, in the first four months of 2007, the Government mobilised VND2,160 billion (US$134 million) from selling five-year bonds at four auction sessions at the Ho Chi Minh City Securities Trading Centre (HSTC). The Ministry of Finance also plans to mobilise VND22,000 billion (US$1.37 billion) for transport and irrigation projects by issuing government bonds from mid-March to late 2007.
According to Ms Huong, with 2006 budgetary deficit equalling 5 per cent of GDP, Vietnam was named the largest budgetary deficit nation in Southeast Asia region. Vietnam is striving to reduce the budget deficit to 3 per cent of GDP. However, Mr Jonathan Pincus, UNDP Senior Country Economist, said there are still concerns over the Government’s control of financial deficit and restriction of debt increase. A prudent financial policy is forecast to be employed in the 2006-2010 period.
According to Mr Jonathan Pincus, the main concern for Vietnam during economic development is exchange rate management. If the management is not good, resources will be misallocated. In addition, the restraint of financial deficits, as well as the limit on debt increase and the absence of flexible monetary policies, will worsen inflation. “Because the inflation rate of Vietnam is high, it is essential to keep the suitable exchange rate and keep the VND/USD exchange rate lower,” Mr Jonathan Pincus stressed. He said a stronger VND lessens the competitiveness of Vietnamese exports, and lowers import prices, increases imports and affecting the trade balance. Monetary policy stability should be the top concern for Vietnamese policymakers to boost economic development.
Lan Anh
Vietnamese
