Why IMF forecasts Vietnam to be one of the nations with highest GDP growth in 2020?
VietReader 19-11-2020, 14:07
Why IMF forecasts Vietnam to be one of the nations with highest GDP growth in 2020?

Vietnam’s growth would be among the highest in the world, thanks to its successful containment of the Covid-19 pandemic, Era Dabla Norris, mission chief to Vietnam and division chief in the IMF’s Asia and Pacific department, said at the end of her team’s virtual mission to Vietnam from October 15 to November 13.

In October, the IMF had forecast 1.6 percent growth.

Related: Vietnam surpasses Singapore and Malaysia to become the 4th largest economy in Southeast Asia: IMF

Vietnam has benefited from prudent fiscal policies, largely geared toward supporting vulnerable households and firms, Norris said.

Monetary policy easing and financial relief provided by the State Bank of Vietnam (SBV) have alleviated liquidity pressures, lowered the cost of funding and facilitated the continued flow of credit, she said.

She expected a strong economic recovery in 2021, with GDP projected to grow by 6.5 percent and inflation contained at 4 percent.

But these are subject to uncertainties from possible renewed outbreaks, a protracted global recovery, ongoing trade tensions, and corporate distress, which could translate into firm closures and bankruptcies and labor market and banking system strains, she warned.

“Given these uncertainties, being flexible about the size and composition of the policy support will be important. Fiscal policy should play a larger role in the policy mix,” she said.

This year, the fiscal deficit is expected to widen due to a decline in revenues and higher cash transfers and capital spending, and so fiscal support should prioritize improvement in efficiency in the short term, she said.

But she suggested that in the medium and long terms the emphasis should be on mobilizing revenues for green infrastructure projects, strengthening social protection systems and safeguarding debt sustainability.

“Monetary policy should remain supportive in the near term. Greater two-way exchange rate flexibility within the current framework would reduce the need to build reserve buffers and facilitate the adjustment to a potentially more challenging external environment.”

The IMF also believed that the SBV has struck an appropriate balance between supporting the recovery and banking system resilience.

State Bank of Vietnam (SBV) office

Close monitoring of risks in the banking sector remains crucial given that capital buffers are weaker than in other regional countries and uncertainties are associated with the economic outlook, it said.

Vietnam also needs to further strengthen its banks’ capital positions and develop its capital markets to improve financial resilience and promote long-term financing, it said. Vietnam should give priority to improving access to land and financial resources, particularly for small and medium enterprises (SMEs), it said.

Establishing an expedited SME-specific insolvency regime would help unlock capital and prevent unnecessary liquidations, while reducing labor skill mismatches and increasing human capital and technology access would boost labor productivity, it added.

Last year, GDP growth was 7.02 percent, the second highest growth figure in the last decade, after the record 7.08 percent in 2018, according to the VNExpress.

By Phuong Anh

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