VietNamNet Bridge - Global economic instability and high inflation could put a serious dent in Vietnam’s growth plans this year.
While the government is upbeat about the initial effectiveness of Resolution 11/NQ-CP which aimed at tightening monetary and fiscal policies, economic analysts argue Vietnam might struggle to reach its revised growth target of 6 per cent, set in May.

In a report sent to the National Assembly last week, Ministry of Planning and Investment (MPI) outlined that the uncertainties in the global economy and a continuously accelerating consumer price index (CPI) were hampering economic growth.

The government last month announced it trimmed back its growth target from 7-7.5 per cent to 6 per cent and targeted inflation of 15 per cent. Late last year, the National Assembly said its inflationary goal for 2011 was 7 per cent.

The year-on-year economic growth in the first half of this year is estimated at 5.6 per cent.

In its report, MPI stated that the country would have to strive very hard over the rest of the year if it wanted to reach 6 per cent of growth for the whole year.

“It is not easy to have economic growth at 6 per cent in 2011,” said Mai Thi Thu, director for the National Centre for Socio-Economic Information and Forecast.

Meanwhile, the MPI’s Central Institute for Economic Management (CIEM) recently forecasted economic growth this year could be as low as 5.3 per cent.

The prediction was based on the dong seeing 14 per cent devaluation, the average price of import products climbing 3 per cent and money supply at 16 per cent.

The CIEM forecast was also based on lending interest rates at 22–24 per cent and economic growth in key export markets of around 5 per cent.

Thu said the current state of the global economy would have a significant influence on Vietnam as this was an export dependent economy.

Although export turnover in the first half this year is estimated at $41.5 billion, or three times higher than initial National Assembly target, the MPI warned the instability of global economy caused by events including the political crisis in the Middle East and North Africa, the earthquake and tsunami in Japan, and the public debt crisis and budget deficit in Euro zone and the United States would negatively impact on Vietnam’s export performance.

Other big challenges for economic growth are accelerating inflation and high lending interest rates. MPI reported inflation in June was up to 13.29 per cent against last December.

The soaring inflation has forced the government to tighten fiscal and monetary policies to bring the economy back on an even keel. The average lending interest rate at local commercial banks is around 25 per cent.

“Tightened monetary policy has had a negative impact on enterprises, especially small and medium- sized firms. Many enterprises have seen profits fall while many others have cut production,” said the MPI report.

But CIEM director Le Xuan Ba said a tough policy was needed at a time when the government was striving to rein in inflation and stabilise the macroeconomy.

In its report, the MPI proposed the continuation of tightened and cautious monetary policy until inflation was under control.

Source: VIR