Vietnam: Staff Report for the 2016 Article IV Consultation—Informational Annex
Author: International Monetary Fund. Asia and Pacific Dept
Publication Date:
18 Jul 2016
eISBN:
9781498373890
Language:
English
Keywords:
ISCR; CR; foreign direct investment inflow; policy repo rate; headline inflation; core inflation; WB Program; development policy finance operation; IBRD operations; Socio-Economic Development Strategy; government financing data; Government finance statistics; External sector statistics; Loans; trade price
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This 2016 Article IV Consultation highlights that Vietnam's economy has experienced solid growth with low inflation, reflecting policy attention to maintaining macroeconomic stability. Economic performance was robust through most of 2015, driven by rapid export growth, foreign direct investment, and strong domestic demand. Manufacturing and exports moderated near year-end, reflecting slowing external demand. Inflation declined below 1 percent in 2015 before ticking upward in early 2016 owing to higher food and administered prices. For 2016, growth is projected to moderate to about 6 percent, reflecting the adverse agriculture shock, lower external demand, and spillovers of tighter global financial conditions.

Abstract

This 2016 Article IV Consultation highlights that Vietnam's economy has experienced solid growth with low inflation, reflecting policy attention to maintaining macroeconomic stability. Economic performance was robust through most of 2015, driven by rapid export growth, foreign direct investment, and strong domestic demand. Manufacturing and exports moderated near year-end, reflecting slowing external demand. Inflation declined below 1 percent in 2015 before ticking upward in early 2016 owing to higher food and administered prices. For 2016, growth is projected to moderate to about 6 percent, reflecting the adverse agriculture shock, lower external demand, and spillovers of tighter global financial conditions.

Fund Relations

(As of April 30, 2016)

Membership Status

Joined: September 21, 1956; Article VIII

General Resources Account

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SDR Department

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Outstanding Purchases and Loans: None

Latest Financial Arrangements

In millions of SDRs (mm/dd/yyyy)

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Formally PRGF.

Projected Payments to Fund

In millions of SDRs (based on existing use of resources and present holdings of SDRs)

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Exchange Arrangement

The exchange rate arrangement is classified as defacto stabilized. The de jure arrangement is managed floating. The State Bank of Vietnam (SBV) is gradually increasing exchange-rate flexibility. In August 2015 it widened the VND/USD trading band to +/-3 percent from +/-1 percent while devaluing the central parity by one percent. In January 2016 it announced the VND/USD rate would be adjusted daily rate based on: (i) the previous day’s weighted average dong/USD exchange rate; (ii) a weighted average of movements in dong exchange rates vis-à-vis seven other important trading partners’ currencies; and (iii) domestic macroeconomic conditions.

Vietnam maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for those exchange restrictions imposed for security reasons of which Vietnam has notified the IMF pursuant to Executive Board Decision No. 144-(52/51), 8/14/52.

Article IV Consultations

Vietnam is on a 12-month consultation cycle. The last Article IV consultation was held in Hanoi during May 28–June 11, 2014, and was concluded by the Executive Board on July 30, 2014.

Technical Assistance

In recent years, Vietnam has received technical assistance (TA) in the areas of statistics (government finance, external sector, price, and national accounts), reserve management, debt management, bank resolution, stress testing the banking sector, and monetary operations and liquidity management. From December 2008 to January 2012, a resident advisor assisted the authorities in improving banking supervision. The IMF-World Bank Financial Sector Assessment Program was undertaken during 2012–13.

Resident Representative

Mr. Jonathan Dunn is the Resident Representative for Vietnam and Lao P.D.R., based in Hanoi.

Relations and Collaboration with the World Bank Group1

(As of April 25, 2016)

Partnership in Vietnam’s Development Strategy

The current World Bank Country Partnership Strategy (CPS) for Vietnam was presented to the Board of Directors in December 2011 and adjusted through the Performance and Learning Review in March 2015. The CPS is aligned with Vietnam’s Socio-Economic Development Strategy (SEDS) 2011–15 and sets out the World Bank’s planned support for Vietnam between FY12 and mid-FY17. The CPS program supports investments and policies organized into a strategic framework of three pillars and three cross-cutting themes. The pillars are: (i) strengthening Vietnam’s competitiveness in the regional and global economy, (ii) increasing the sustainability of its development, and (iii) broadening access to opportunity. Key cross-cutting themes are: (i) strengthening governance; (ii) supporting gender equity; and (iii) improving resilience in the face of external economic shocks, natural hazards, and the impact of climate change.

An underlying theme in the CPS is the importance of building on the country’s strong track record of growth and poverty reduction to partner with Vietnam in its effort to achieve success as a middle-income country (MIC). The CPS program supports reforms for Vietnam’s multiple transitions, notably, from an agrarian economy toward one that is more urban and industrialized; from a focus on quantity toward a greater focus on quality of production and service provision; and from a factor driven to an efficiency driven economy.

World Bank Group Strategy and Lending

The World Bank Group uses a broad range of instruments including development policy financing, program for results (PforR) and investment project financing, and advisory services and analytics; the IFC’s equity, loan, and technical assistance (TA) participations and the Mekong Private Sector Development Facility (MPDF); and Multilateral Investment Guarantee Agency (MIGA) activities. The World Bank Group cooperates with various development partners partnerships and takes and an active role in ODA coordination.

Scale of the World Bank Group program: The WB Program is large, with a significant new IDA Allocation amounting to US$3.6 billion under IDA17. The program has grown and diversified over the past several years. As of April 20, 2016, the portfolio consisted of 45 IDA/IBRD operations and seven stand-alone Global Environment Facility (GEF), Chlorofluorocarbon (CFC), and large Recipient Executed Trust Funds (RETF) projects, with the total net commitments of US$9.0 billion. Vietnam became an IDA/IBRD blend country in FY10. So far, IBRD resources of US$2.9 billion have been used to finance two DPO series, an expressway, a transmission and distribution project, and a hydro-power project. International Finance Corporation (IFC) commitments totaled US$1.97 billion over the three-year period of FY14–FY16, including mobilization through its asset management business and commercial banks.

Lending program: The World Bank has a diverse lending program supporting infrastructure, rural development, human resources, and improvement in economic and financial sector management. Support to infrastructure includes energy generation, transmission and distribution; rural and national road development and inland waterways; water supply and wastewater treatment, irrigation systems rehabilitation, and natural resources management. The program also supports development of health systems to ensure increased access to quality health services and education quality improvements. The lending instrument is also diverse, with the bulk provided through investment finance and selected development policy finance operations. Key elements of economic management support include a multi-year development policy loan linked to reforms on economic management and competitiveness, tax system reform, and development and modernization of public financial management and financial systems. Since the first Program for Results operation for Vietnam was approved in support of Vietnam’s Rural Water Supply and Sanitation Program in FY13, the number of PforRs have grown and two more PforR operations are currently under preparation.

Knowledge program: The World Bank supports the government’s efforts to strengthen institutional capacity through its extensive program of analytical and advisory services. Especially in the context of Vietnam’s transition to upper middle income status the partnership with the Bank is evolving and generating knowledge and sharing global experiences is becoming even more important. In 2014 the Government of Vietnam invited the World Bank to jointly prepare the Vietnam 2035 report which aims to identify policy reforms to achieve Vietnam’s long term development aspiration of sustaining rapid growth and social inclusion. While reflecting Vietnam’s remarkable development trajectory, the report identifies emerging structural constraints to the existing mostly factor driven growth model, including stagnating labor productivity growth and rising investment inefficiency. The report lays out an ambitious reform agenda structured around three pillars: (i) balancing economic prosperity with environmental sustainability, (ii) promoting equity and social inclusion and (iii) bolstering the state’s capacity and accountability. Other recent reports include a study of low carbon development prospects and a public expenditure review, which examines major fiscal trends of the last decade. In addition, work is underway on Vietnam Development Report on Transforming Vietnamese Agriculture and on a Systematic Country Diagnostic which will lay the analytical foundation for identifying the Bank’s priorities during the upcoming preparation of the new Country Partnership Framework (2016–21). In addition, the World Bank continues to provide technical assistance in areas such as governance, social protection, renewable energy, climate change adaptation, financial sector reform, public financial management and debt management.

IMF-World Bank Collaboration in Vietnam

Specific Areas: Since the expiration of the PRGF in April 2004, the two institutions have closely collaborated on monitoring the macroeconomic situation and routinely exchanging views on macroeconomic and fiscal management as well as key structural reforms, such as SOE and banking sector reforms. The two institutions consult during Article IV consultations in order to share information and help coordinate on key policy messages. The IMF has provided macroeconomic assessment letters in support of Economic Management and Competitiveness development policy operations. Building on joint IMF and World Bank Financial Sector Assessment Program (FSAP), which was completed during 2012–13, joint work has continued in supporting central bank operations, with the IMF providing TA on monetary policy and operations, and both the World Bank and IMF providing support on banking supervision. In the areas of fiscal management, the World Bank and the IMF are coordinating the policy dialogue on fiscal consolidation and debt sustainability, including on policy options to enhance resource mobilization and improve the efficiency of public spending. Finally, the IMF and the World Bank also collaborate in the development and timely dissemination of reliable economic and financial statistics. The IMF focuses on improving balance of payments, national accounts, price, and government finance statistics, while the World Bank provides assistance on issues related to the production of high-quality household and enterprise surveys and facilitate the implementation of National Gender Indicators System.

World Bank Lending Program FY15–16

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Relations with the Asian Development Bank

(As of April 30, 2016)

The Asian Development Bank (ADB) has been working in partnership with the Government of Vietnam—a 1966 founding member of ADB—since the resumption of operations in 1993. ADB’s Country Partnership Strategy (CPS), 2012–2015 is fully aligned with the Socio-Economic Development Plan (SEDP), 2011–2015, and supports issues arising from Vietnam’s recent transition to a middle-income country. The CPS focuses ADB assistance to Vietnam through three pillars of inclusive growth, enhancing economic efficiency, and environmental sustainability. To maximize ADB’s development impacts, ADB prioritizes six sectors: (i) agriculture and natural resources; (ii) education; (iii) energy; (iv) finance; (v) transport; and (vi) water supply, and other municipal infrastructure and services. Public sector management is crosscutting and mainstreamed in terms of sector operations through reform and policy-oriented support.

ADB is supporting the implementation of structural reforms that increase competitiveness and assist Vietnam in transitioning to become an upper middle-income country. This includes lending assistance and policy dialogue on financial sector and state-owned enterprise (SOE) reform issues. To increase the efficiency of public expenditure and improve the quality of infrastructure and public services ADB is also working with government to strengthen fiscal and budgetary management.

Vietnam is one of the largest concessional Asian Development Fund (ADF) recipients, with projected ADF allocation of US$733.6 million for 2015–2016. Ordinary capital resources (OCR) are also actively being used for projects with higher rates of return, such as infrastructure, which had an allocation of US$326 million in 2016 (Table 1).

From October 1993 until December 31, 2015, ADB has provided 157 sovereign loans totaling US$14.4 billion, 296 technical assistance grant projects amounting to US$276.61 million and 35 grant projects totaling US$318 million to Vietnam (Tables 2–4). As a catalyst for private investments, ADB also provides direct financial assistance to nonsovereign public sector and private sector projects in the form of direct loans, equity investments, guarantees, B loans, and trade finance. Since its inception to end-2015, ADB has approved a total of US$280 million in non-sovereign financing for Vietnam, all of which was for seven private sector projects. ADB’s Trade Finance Program (TFP) fills market gaps in trade finance by providing guarantees and loans through over 200 partner banks in support of trade. The TFP has supported US$16 billion in trade involving almost 6,500 small and medium-sized enterprises. In Vietnam, the TFP works with twelve banks and has supported over US$4.7 billion in trade between 3,200 transactions by almost 2,000 small- and medium-sized enterprises. In addition to filling market gaps, the TFP’s objective is to mobilize private sector capital/ involvement in developing Asia. In Vietnam, over 69 percent of the US$3.6 billion in trade supported through the TFP was co-financed by the private sector. Vietnam also receives substantial support under the Greater Mekong Sub-region initiatives, involving Cambodia, China, Lao P.D.R., Myanmar, Thailand, and Vietnam. As part of its regular operations, ADB coordinates closely with Vietnam’s development partners to improve the effectiveness, efficiency, and impact of its lending and nonlending programs. ADB also works closely with civil society organizations and the private sector in Vietnam to mobilize financial resources and expertise from other partners. ADB is an active member of the the Six Banks Initiative—comprising ADB, Agence Française de Développement (AFD), KfW, Japan International Cooperation Agency, Export Import Bank of Korea, and the World Bank. Co-financing operations enable ADB’s financing partners, governments or their agencies, multilateral financing institutions, and commercial organizations, to participate in the financing of ADB projects. The additional funds are provided in the form of official loans and grants, and commercial financing, such as B loans, risk transfer arrangements, parallel loans, and co-financing for transactions under ADB’s TFP. As of December 31, 2015, cumulative direct value-added official co-financing for Vietnam amounted to US$4.63 billion for 56 investment projects and US$102.9 million for 83 co-financing technical assistance projects. The ADB and IMF staffs coordinate through ad hoc information exchange information on policy matters.

Table 1.

Lending (Approved Amount)* and Disbursement by Year, 1993–2015

(In millions of U.S. dollars)

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Source: Asian Development Bank.

Includes loan components of regional projects in Vietnam.

Excludes a guarantee of $325 million for EVN (Loan No. 2604, approved on 12/11/09).

Table 2.

Technical Assistance by Sector, December 2015

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Source: Asian Development Bank.
Table 3.

Loan by Sector, December 2015

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Source: Asian Development Bank.
Table 4.

Grants by Sector, December 2015

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Source: Asian Development Bank.

Statistical Issues

(As of May 4, 2016)

Assessment of Data Adequacy for Surveillance

General: Data provision has some shortcomings, but is broadly adequate for surveillance. Most affected areas are: financial sector, national accounts, government finance, and external sector statistics.

National accounts: The General Statistics Office (GSO) provides quarterly (cumulative) and annual data on GDP by type of economic activity and by expenditure (both in current and constant prices), and monthly and annual data on external trade, industrial output, retail sales, and prices. The GSO recently rebased the national accounts to 2010 as the base year from 1994. While the national accounts methodologies are broadly consistent with the SNA93, the data collection practices and coordination between data collection agencies could be strengthened. The latest National Accounts technical assistance mission made the following recommendations: (i) adoption of labor input methods to improve the coverage of the nonobserved economy, (ii) estimation of capital stock, consumption of fixed capital and change in inventories, (iii) allocation of financial intermediation services indirectly measured (FISIM), (iv) expansion of production and asset boundaries according to 1993/2008 SNA, (v) use of the supply-use framework to ensure consistency between production and expenditure GDP data, and (vi) the use of double deflation methods for constant price estimates.

Prices statistics: The CPI methodology is largely in line with international standards. However, there is only a notional inclusion of owner-occupied and rental housing. Also, there is a need to adopt a geometric mean of price relatives at the lower level of aggregation, instead of the upward biased arithmetic mean. Trade price indices are also compiled, but not used in the national accounts. The GSO has developed a work program with assistance of Fund TA to improve the accuracy of the consumer, producer and trade price indices, and is working toward the development of construction and services price indices.

Government finance statistics: Government operations data reflect the consolidated operations of the state budget, which cover all four levels of government (central, provincial, district, and commune). However, data exclude quasi fiscal activities of the central bank (and state-owned enterprises (SOEs)), and extra-budgetary funds, among which are the Social Security Fund, Enterprise Restructuring Fund, Development Assistance Fund, Export Support Fund, local development funds, and the Sinking Fund (for repayment of on-lent funds), for which data are not compiled/disseminated on a regular basis. Compilation is on a cash basis for final annual data, but varies for provisional data depending on their source. As a result, government financing data, in particular domestic bank financing, cannot be reconciled as reported in the fiscal and monetary accounts. The World Bank and the IMF have recommended improving the coverage of fiscal data and aligning definitions with the GFSM 2001. The authorities expect to provide GFSM 2001 consistent data from 2018.

Monetary statistics: The IMF’s Statistics Department (STA) has encouraged the State Bank of Vietnam (SBV) to develop a reporting scheme for a comprehensive break-down of banks’ credit to the economy by borrowing sectors and subsectors. In addition, STA has recommended that: (a) a list of SOEs that have been privatized and, therefore, should be classified as private enterprises should be distributed to banks in order to guide their data reporting on enterprises; (b) funds for on-lending should be reclassified out of banks’ “unclassified liabilities” to “other deposits.”

External sector statistics: Balance of payments statistics rely on limited source data, resulting in gaps in several areas of the external accounts (current, capital, and financial). The authorities are working on implementing balance of payment reporting following BPM6 edition as well as improving data quality on foreign direct investment, international investment position and external debt, supported by IMF’s STA TA. STA technical assistance missions have made the following observations and recommendations: (i) the available resources are not sufficient to ensure effective implementation of an International Transaction Reporting System; (ii) further improvements are still needed in the treatment of goods for processing in line with BPM6, improvement of remittances estimates, and further study on unrecorded trade in gold; (iii) to establish a uniform concept of direct investment (DI) in the national legislation and develop a reliable data source on DI stocks (at present DI data are based on regulatory approvals) given that it is an important component of the International Investment Position; (iv) address significant errors and omissions in the balance of payments, which could be related to underestimation of DI flows and estimates of changes in household holdings of foreign exchange in cash; (v) international reserves transactions need to be distinguished from valuation changes; (vi) dissemination of external sector statistics, in line with internationally accepted practices.

Financial sector statistics: The availability of data on the financial sector is very limited, and the quality of data requires substantial improvement, even on key financial soundness indicators.

Data Standards and Quality

Vietnam is a participant in the General Data Dissemination System (GDDS) since September 2003. In conjunction with the authorities, staff from STA have developed a roadmap for Vietnam’s eventual subscription to the Special Data Dissemination Standard (SDDS).

No data ROSC are available.

Reporting to STA

Currently, no government finance statistics (GFS) are reported for publication in the IMF’s Government Finance Statistics Yearbook (GSY) or International Financial Statistics (IFS). Annual GFS data through 2004, excluding extra-budgetary funds and social security funds, based on the 1986 GFS format, have been reported for publication in the GFSY. No sub-annual fiscal data have been reported for publication in IFS since 2001.

Table of Common Indicators Required for Surveillance

(As of May 4, 2016)

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Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); and Not Available (N/A).

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency, but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Services data available on an annual basis.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

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Questions may be referred to Mr. Sebastian Eckardt (+84439378232).

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Cover IMF Staff Country Reports
Vietnam: 2016 Article IV Consultation- Press Release; Staff Report; and Statement by the Executive Director for Vietnam
Author: International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2016: Issue 240
Publisher:
International Monetary Fund
ISBN:
9781498373890
ISSN:
1934-7685
Pages:
82
DOI:
https://doi.org/10.5089/9781498373890.002