Despite numerous challenges making dents in all trade and investment activities, Vietnam’s economic growth quality has seen significant improvements over the past five years in general,
eliciting praise from the National Assembly Standing Committee and high-profile international organisations.
|Labour productivity rates in Vietnam increased 6.2 per cent on-year in 2019. Photo: VIR|
Moody’s Investors Service on March 18 reaffirmed the Vietnamese government’s long-term issuer and senior unsecured ratings at Ba3 and changed the outlook to positive from negative.
The drivers of the positive outlook include signs of improvements in fiscal strength and potential improvements in economic strength that may strengthen Vietnam’s credit profile over time. Sustained fiscal consolidation has led to improvements in fiscal and debt metrics, which Moody’s expects to be only briefly interrupted by the pandemic.
Moreover, Vietnam’s economic strength may benefit from global shifts in production, trade and consumption following the coronavirus pandemic and support Vietnam’s economy. Over time, indications of higher fiscal and economic strength may point to improving policy effectiveness, also putting upward pressure on Vietnam’s credit profile.
Meanwhile, Moody’s has determined that the drivers of the previous negative outlook assigned in December 2019 have receded. The negative outlook, which followed a review for downgrade, related to the risks posed to Vietnam’s credit profile from administrative failures leading to payment delays on government guaranteed debt. In Moody’s assessment, the government has enhanced administrative scrutiny on forthcoming payments.
The affirmation of the Ba3 rating is underpinned by ongoing credit strengths and weaknesses, including a large, diversified economy with high growth potential offering resilience to shocks, and increasing capacity in the domestic financial system to finance government borrowing at low costs. At the same time, ongoing risks stem from persistent governance weaknesses related to the lack of transparency of the management of state-owned enterprises and lingering risks in the banking system. Source: Moody’s Investors Service
About two weeks ago Standard Chartered Bank hosted an investment webinar on Vietnam’s Investment Landscape for 2021, drawing the participation of clients based in Vietnam and overseas who are seeking opportunities in the country.
The presentations focused on giving clients the latest information about the investment landscape in real estate, stocks, fixed-income, and funds in Vietnam in the context of a post-pandemic era and the strategies they can devise to capitalise on the prospects.
“Standard Chartered Global Research forecasts that Vietnam’s economic growth will get back to 6-8 per cent in 2021 and onwards. Given its economic prospects, advantages of social stability, and success in managing the pandemic along with profitability of the local stock market and real estate market, which is growing at a higher pace than that of ASEAN, Vietnam continues to offer exciting investment opportunities,” said Harmander Mahal – consumer, private, and business banking head for Vietnam and Asia Cluster Markets at Standard Chartered Bank.
The bank’s acknowledgement of Vietnam’s economic prospects and attractive investment climate is not irrational as since 2016 the economy has been weathering numerous difficulties to reap impressive growth achievements, with growth quality increasingly improved and a rise in investors’ confidence like Standard Chartered.
The 11th session of the 14th National Assembly, scheduled to be wrapped up on April 8, officially will elect the new state president, vice president, prime minister, deputy prime ministers, chair of the National Assembly, deputy chairs of the National Assembly, members of the cabinet, chief justice of the Supreme People’s Court of Vietnam, and prosecutor general of the Supreme People’s Procuracy.
At this session, the National Assembly will use half of a day to consider and approve the revised Law on Preventing and Fighting Drugs.
Deputies will also discuss the report on the NA’s 14th term and summary reports of the state president, government, National Assembly Standing Committee, Ethnic Council, the National Assembly’s Committees, Supreme People’s Court, Supreme People’s Procuracy, and State Audit of Vietnam.
In the last government tenure (2016-2020), the Vietnamese boat has been riding out economic storms and since early 2020, COVID-19 has been sabotaging the global economy with aftermaths yet to be calculated.
“In the last tenure and amid the ongoing pandemic, the government and the prime minister have taken timely solutions to remove difficulties for domestic production and business, boosting public investment, ensuring social security and order, and recovering the economy in the new normal,” Prime Minister Nguyen Xuan Phuc told the National Assembly (NA) last week.
Vietnam’s GDP in 2020 increased 2.91 per cent, making it the sole economy amongst Southeast Asia’s six largest economies with positive growth.
Vietnam’s average annual growth in the 2016-2019 period hit 6.8 per cent, higher than the 5.91 per cent of the 2011-2015 period, belonging to the world’s group of nations with the highest economic growth.
“Thanks to accumulated incomes and significant improvements in the fiscal space, especially during 2016-2019, great contributions have been made to helping the whole economy and the public to weather difficulties caused by the pandemic,” PM Phuc said. “According to many international rating organisations, Vietnam’s rank has been on the rise. On March 18, Moody’s raised Vietnam’s economic outlook to ‘positive’ from ‘negative’ (see box 1). This shows that Vietnam has a solid foundation for further growth which continues being improved even during COVID-19.”
Vietnam has taken advantage of new-generation free trade agreements to develop export markets and partner networks. Its total export-import has risen by seven times, from $328 billion in 2015 to $545 billion in 2020, with five consecutive years of increased trade surplus.
Analysis from the Ministry of Planning and Investment (MPI) showed that the economy’s growth quality has significantly improved over the past few years. Specifically, the industrial-construction sector and the service sector are occupying over 76 per cent of GDP, and creating 95 per cent of the economy’s growth in 2019.
Meanwhile the ratio of the total-factor productivity (TFP) in the economy’s growth rose from 33.6 per cent on average in the 2011-2015 to 44.5 per cent on average in the 2016-2019 period, exceeding the strategic goal of 35 per cent earlier set for the 2011-2030 period. This has helped the economy improve its competitiveness.
“Science and technology have been playing a very important role in the economy’s growth,” said MPI Minister Nguyen Chi Dung.
The economy’s productivity was calculated at $4,790 per labourer in 2019, up by $272 against 2018, while labour productivity increased 6.2 per cent on-year in 2019.
Moreover, the economy’s incremental capital output ratio (ICOR), which is the additional capital required to increase one unit of output, has also clearly improved. The ICOR was 6.25 in the 2011-2015 period to 6.14 in the 2016-2019 period. In 2020, due to COVID-19, the ICOR rose to 14.28, leading to an average ICOR of 7.04 in the 2016-2020 period.
The NA Standing Committee has praised the great efforts, responsibility of, and impressive achievements created by the government in the 2016-2021 tenure.
“Amid difficulties, the government has increasingly renewed itself, with strong reforms which have accomplished all goals and duties set out in resolutions of the Party and the NA, making important contributions to the national socioeconomic achievements,” said a committee statement on assessing the work of the government in the 2011-2016 tenure.
Global analysts FocusEconomics last week told VIR that it highly values the government’s efforts to drive the economy forward.
“Economy activity has likely gained further momentum in the first quarter of the year. Vaccination of frontline workers began in early March, although difficulty in sourcing sufficient doses could hamper the campaign to vaccinate the wider population,” the analysts said.
“This year, economic activity is forecast to accelerate rapidly, with growth set to outstrip regional peers on improving domestic and foreign demand dynamics. Our panelists expect GDP to expand 7.4 per cent in 2021, and 6.9 per cent in 2022.”
Fitch Solutions under global rating firm Fitch Group also told VIR that one of the key drivers for Vietnam’s economic growth in 2021 will be a climb in public investment initiated by the government and foreign direct investment.
“In 2021, we forecast state budget expenditures to grow by 16.6 per cent as a rebound of economic activity as well as government exorts to expedite public capital expenditure should drive rapid growth in expenditures,” said the statement. “We forecast real GDP growth to recover to 8.2 per cent in 2021, from 2.91 per cent in 2020, although we do ﬂag some downside risks to our 2021 forecast from persisting economic challenges brought about by the pandemic.”
Meanwhile, the World Bank attributes Vietnam’s good economic performance to the government’s good management and resilience of both its domestic economy and external sector.
“Beyond the containment of the pandemic by bold, early, and innovative measures, the government has also used its fiscal and monetary policies to provide breathing space to the private sector and jumpstart the recovery. For example, public spending started rising again after three years of fiscal consolidation. The first nine months of 2020 saw a 40 per cent year-on-year increase in the disbursement of the public investment program,” said a World Bank report recently released. “Looking ahead, Vietnam’s prospects appear positive as the economy is projected to grow by about 6.8 percent in 2021 and, thereafter, stabilise at around 6.5 per cent.”
A few weeks ago, Standard Chartered also released its fresh forecast for Vietnam’s 2021 GDP growth, saying that with its bright economic outlook, Vietnam’s GDP growth will largely come from manufacturing and help the country outperform the rest of Asia.
“The economy emerged from the worst of the downturn in the third quarter of 2020, and we think recovery remains intact. Vietnam has been one of the best-performing economies for the past decade, and we expect this to continue,” said Tim Leelahaphan, Standard Chartered economist for Thailand and Vietnam.
VN-Index drops with trade value surges
Vietnam’s benchmark VN-Index fell 0.7 percent to 1,241.81 points Friday with trading value hitting a 10-session high.
The index stayed in the red throughout the day, dipping to around 1,231 points in the early afternoon before climbing and ending with a near 9-point fall. This is its biggest plunge in the last seven sessions.
Trading value on the Ho Chi Minh Stock Exchange (HoSE), on which the index is based, rose 10 percent to VND22.4 trillion ($975 million), the highest of the past 10 sessions.
The VN30 basket, comprising the largest 30 capped stocks, saw 22 tickers in the red, with VCB of state-owned lender Vietcombank and VNM of dairy giant Vinamilk the biggest contributors to the drop of VN-Index.
VCB fell 2.3 percent. The ticker has been going sideways around the VND100,000 level since February after climbing to a new historic peak of VND107,000 in early January.
VNM dropped 2.9 percent to a nine-month low. The ticker continued its downward trend that began in January, having lost 25 percent in four months.
VHM of real estate giant Vinhomes fell 1.6 percent to its lowest level since March 30.
BID of state-owned lender BIDV lost 1.5 percent, having fallen nearly 17 percent since its mid-January peak.
On the winning side, HPG of steelmaker Hoa Phat Group rose 2.4 percent, and CTG of state-owned lender VietinBank gained, 2.1 percent. They were the top tickers pushing up the VN-Index this session.
Foreign investors were net sellers for the fifth session in a row to the tune of VND330 billion, with the strongest pressure on VPB of private lender VPBank and HPG.
The HNX-Index for stocks on the Hanoi Stock Exchange, home to mid and small caps, fell 0.44 percent while the UPCoM-Index for the Unlisted Public Companies Market dropped 0.41 percent.
Inflation fears begin as economy recovers
HCM CITY — The cost of raw materials used in many industries have risen sharply in the last few months, putting pressure on the prices of many essential goods.
Instant noodles, seasoning, cooking oil, and others have seen prices increase by 7 -10 per cent since the end of 2020.
The price of meat and poultry has increased by 10 -15 per cent.
Nguyễn Thị Trâm, a pig farmer in Đồng Nai Province’s Thống Nhất District, said the price of a 25kg bag of bran has increased from VNĐ245,000 in October last year to VNĐ295,000 now.
Prices of raw materials used to make feed, such as corn, rice bran and fish flour, are also rising.
But farmers cannot hike poultry price since they have to compete with cheap imported products.
Globally, the prices of raw materials and fuels are expected to rise again as COVID is gradually controlled, vaccination is done on a large scale and production and trade recover.
Dr Nguyễn Ngọc Tuyến of the Academy of Finance predicted the consumer price index (CPI) to rise more than last year but remain below 4 per cent for the year, the target set by the National Assembly.
Nguyễn Anh Tuấn, director of the Ministry of Finance’s price management department, warned there would be pressure on prices this year because of the rise in fuel prices.
But a spokesperson for a large supermarket chain in HCM City said the price of each item would be carefully considered before any increase is made, and essential goods are not expected to be affected much in general. —
FTA providing impetus for Việt Nam – Chile trade
HÀ NỘI — Despite there being no commitments on services and investment in the Việt Nam – Chile Free Trade Agreement (FTA), the pact has boosted trade and economic ties between the two countries.
The view was shared at the fourth meeting of the Việt Nam – Chile free trade council, which was held online and chaired by Deputy Minister of Industry and Trade (MoIT) Đỗ Thắng Hải and Vice Minister of Trade at Chile’s Ministry of Foreign Affairs, Rodrigo Yanez on Thursday.
According to the Ministry of Industry and Trade’s European – American Market Department, the two countries have enjoyed robust relations over the years.
Despite the difficulties posed by the COVID-19 pandemic, two-way trade in 2020 topped US$1.28 billion, up 4.43 per cent year-on-year and 2.5-fold higher than the figure recorded in 2013, prior to the FTA coming into effect.
Chile is one of Việt Nam’s four largest trade partners in Latin America, while Việt Nam is the largest trade partner of Chile in ASEAN.
Goods trade in the first four months of this year rose 15.3 per cent year-on-year to $401.1 million, with Việt Nam’s exports standing at $321.3 million, up 11.8 per cent.
Both sides recognised the efforts made to implement the FTA.
The subcommittee for trade in goods discussed matters regarding tariffs and origin of goods and considered the application of electronic certificates of origin to simplify procedures for exporters in both countries.
Meanwhile, the subcommittee for hygiene and phytosanitation worked on import procedures for several agricultural products.
Việt Nam has begun risk analysis on Chilean kiwi fruit while the South American country said it will begin analyses of Vietnamese rambutan in July.
Both agreed to step up measures to help Vietnamese and Chilean businesses capitalise on the Việt Nam – Chile FTA as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after it is ratified by Chile. —
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