VietNamNet Bridge - It is expected that Vietnam’s GDP growth rate will be 6.1-6.3 percent this year. Under looser monetary policies, the inflation rate could increase, which would interfere with macroeconomic stability in 2016.

The annual economic report released by the Vietnam Institute for Economic and Policy Research (VEPR) includes several economic development scenarios similar to forecasts by international institutions.

Two growth scenarios have been projected by VEPR for Vietnam’s economy in 2015. With the first, the GDP growth rate would be 6.1 percent with inflation rate at 1.9 percent.

If this occurs, 2015 would be the year with the lowest inflation rate in the last 15 years, below 2 percent.

With the second scenario, the GDP growth rate would be higher, at 6.3 percent, but the inflation rate would be 3.2 percent. 

VEPR’s director Nguyen Duc Thanh noted that the inflation rate was a bit higher than zero percent after the first five months of the year, which means that the government is likely to loosen monetary and fiscal policies. 

One of the biggest problems in 2015 for Vietnam is the anticipated state budget deficit. 

This would force the government to seek loans from different sources to offset the budget deficit, which would lead to higher inflation by the end of the year.

If the National Assembly does not come up with a compromise on the amount of government bonds to be issued, or on the public debt ceiling, the government may be pushed into a difficult situation. 

If so, the government may have to seek temporary financial support from the State Bank. 

This would interfere with monetary and fiscal policies and create a bad precedent, and therefore, would erode confidence about the policies. 

This, plus the stabilization in the dong/dollar exchange rate, will make Vietnam’s products less competitive in the world market.

A high inflation rate and exchange rate policies, according to the research team, are closely linked. 

Financing the state budget would trigger inflation by early 2016, which would put pressure on the exchange rate. If Vietnam has to adjust the exchange rate, an inflation and exchange rate spiral would take shape.

“Though the spiral is believed to be not as stiff as in 2011, this will still be an unwanted scenario,” Thanh said, adding that if Vietnam follows such a policy, macroeconomic stability would be affected by 2016.

Dr. Le Dang Doanh, a renowned economist, also thinks the obligations for public debt payments will surely increase, which will be a burden on the macro economy.

“The budget deficit has put pressure on prices and tax rates,” he said.

“Therefore, when the government has to cut the petroleum import tariff, the Ministry of Finance will raise the petroleum environmental protection tax to 300 percent,” he added.

Pham Huyen