Statement by the Staff Representative on Vietnam, June 10, 2016

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.

1. This statement provides information that has become available since the staff report (SM/16/124) was circulated to the Executive Board on June 3, 2016. This information does not alter the thrust of the staff appraisal.

2. The State Bank of Vietnam announced a tightening of macroprudential policy. The risk weight for real estate loans will be increased at the beginning of 2017 and the prudential ratio governing maturity mismatches for lending will be tightened in two steps at the beginning of 2017 and 2018. The loan-to-deposit ratio limit for state-owned banks remains unchanged.

3. Monetary conditions have eased. The overnight interbank interest rate has declined well below the policy repo rate of 5 percent. Credit growth increased further in March to 19.9 percent (y/y). The exchange rate has remained relatively stable with small variations in the daily central rate.

4. Headline inflation increased to 2.3 percent (y/y) in May, reflecting higher food, energy, and administered health care prices. Core inflation edged up very slightly to 1.9 percent (y/y).

5. The trade balance registered a surplus of US$5.7 billion in the first five months of the year, reflecting a weakening of imports amid a leveling-off of export growth. Foreign direct investment inflows remain robust. International reserves increased to US$33.9 billion in April.