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Vietnam vows to keep inflation below 4%

Despite difficulties, the government has been striving for a GDP growth rate of 7 percent, an inflation rate of below 4 percent and a credit growth rate of 14 percent this year.

VietNamNet presents a speech of Deputy Minister of Planning and Investment Tran Quoc Phuong at a discussion on solutions to stabilize the macro economy and control inflation to ensure fast recovery and sustainable development. The discussion took place on July 30.

International institutions have made many positive comments about the economic development in Vietnam. Its forecasted GDP growth rate has been regularly lifted. Most recently, IMF predicted that Vietnam’s GDP would grow by 7 percent this year, higher than the previously predicted 6 percent on May 16.

Vietnam has a ranking of good government, achieving strong growth in income equality and investment attraction indexes (up 33 places and 18 places, respectively, compared to 2021).

However, the institutions have also pointed out some problems in the economy.

The bad debt ratio of the entire banking system is at a high level, while risks exist in the credit structure, especially retail credit and investments in corporate bonds, which have been increasing rapidly.

The slow disbursement of public investments for many years still has not been solved. This affects capital mobilization and national prestige, and reduces the confidence of investors, donors and the people.

The openness of Vietnam’s economy is at a high level with an import and export turnover of over 200 percent of GDP, and therefore, is vulnerable to external upheavals. The foreign invested sector is controlling the openness of the economy. Meanwhile, the domestic economic sector is inclined to look inward and poorly connects with the foreign invested sector in particular and global supply chains in general. 

The quality of FDI (foreign direct investment) in Vietnam is not high and Vietnam still cannot attract high technologies and implement technology transfer as expected. The country often accepts small-scale FDI projects (most of the projects are registered by Chinese investors) which do not bring effectiveness to the national economy.

In industry, Vietnamese enterprises do simple assembling, and still cannot develop source technologies, core technologies and supporting industries. 

Challenges ahead

The challenges are increasing towards the end of the year.

First, the challenges in controlling prices, and regulating production and supply-demand of some categories of goods.

The pressure on goods prices is escalating as inflation in the world has begun affecting domestic production, especially agriculture. Many farmers have restricted investment for production expansion as fertilizer and animal feed prices are on the rise.

Meanwhile, industrial production is also under pressure because input and transportation costs are increasing. The sharp increases in building material prices have affected the execution of public investment projects. 

Contractors are implementing projects at a moderate level, while waiting for material prices to decrease, or seeking jobs at foreign invested projects, thus causing labor shortages for national key projects.

Second, delays in disbursement for public projects. As some policies and solutions are slow to be implemented, efficiency from using monetary and fiscal resources to support growth is limited.

The disbursement by the end of July was 34.47 percent of the plan assigned by the Prime Minister, lower than that of the same period last year (36.71 percent)

Third, the stock market, corporate bond market and real estate market are vulnerable with risks, which may have impact the economy and cause serious consequences.

Real estate prices have been escalating in most localities, thus putting pressure on investors.

Fourth, the quality of FDI is not high and has declined since 2020, which brings challenges to domestic production development and macro stability. FDI registered in the first seven months of the year was 92.9 percent of the same period last year.

Fifth, the complicated developments of the Covid-19 pandemic and the outbreak of A-type influenza may cause difficulties for domestic production, the labor force and essential goods supplies.

Goals

The difficulties will challenge long-term development plans. Vietnam is among the countries with lower average income and it needs to maintain high growth rates and escape from the middle-income trap.

Vietnam is striving for a GDP growth rate of 6.5-7 percent in 2021-2025; total investment capital of the entire society of 32-34 percent of GDP; state budget collection of no less than 16 percent GDP; and overexpenditures of 3.7 percent of GDP.

In 2022, the economic growth rate is expected to reach 7 percent, while inflation is expected to be curbed at below 4 percent and the credit growth rate at 14 percent.

Lan Anh

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