Economic Review

2006 sees most economic targets met

VNECONOMY updated: 02/01/2007

The national economic picture of 2006 was bright with almost all targets set by the National Assembly either fulfilled or surpassed, said General Director Le Manh Hung of the Viet Nam General Statistics Office. Speaking with the press on Dec 29, Hung said this year's national gross domestic product increased 8.17% from last year. The industry and construction sectors grew by 10.37%, followed by the service sector with 8.29% and the agroforestry and fisheries sector, 3.4%. Social investment capital hit a record of almost VND399tril, making up 41% of the country's GDP with the State contributing one-third of the figure. Foreign direct investment rose to a record high of US$9.9bil and the disbursed capital was US$4.1bil, also a record so far. The US$1.126bil project of the Posco Steel Company and the US$605mil project of the Intel Products Viet Nam Ltd. Co. were among the largest licensed in 2006. Committed official development assistance (ODA) capital for Vietnam reached almost US$4.45bil, with 2006 the second consecutive year that ODA disbursement, at around US$1.8bil, exceeded the target. The price consumer index increased by 6.6%, lower than the GDP growth rate and much lower than the target set by the NA. Industry kept its high growth trend with a record rate of 17% in 2006, the 16th consecutive year with a double digit growth, fuelled by a 9.1% increase in the State sector, 23.9% in the private sector, and 18.8% in the foreign-invested sector. Export revenues set a new record with US$39.6bil, surpassing the yearly plan by 5%, and a year-on-year rise of 22%. The US$1bil earners' club admitted two new members: rubber and coffee, bringing its total number to Despite the impressive rate, the General Statistics Office chief shared the opinions with other economic experts that the low quality of growth continues to be a problem for Vietnam's economy at this moment. He said after joining the WTO, Vietnam needs to make strong and suitable restructuring of both sectors and products while improving the growth quality, the investment efficiency and increasing the competitiveness in both domestic and international markets.

Vietnam Consultative Group Meeting

Statement by the Representative of the International Monetary Fund Hanoi, December 14-15, 2006

1. Vietnam's overall record of economic performance has continued to be impressive over the last year. GDP growth was sustained at around 8 percent in 2006, brisk export growth and buoyant capital inflows led to a continuing strengthening of the balance of payments, and poverty continued to decline rapidly. With the government's continuing efforts to improve the economy's market orientation, Vietnam has attracted a record amount of foreign direct investment in 2006, and it is now poised to join the WTO as its 150th member. 2. WTO membership will undoubtedly provide Vietnam with enhanced opportunities for continued rapid economic development and sustained poverty reduction in the coming years. The prospect of membership already appears to have encouraged a surge of foreign portfolio investment, contributing to an ongoing boom in Vietnam's emerging stock market. The market's warm reception of recent issues of dong-denominated corporate bonds further attests to the possibilities for financing a growing share of Vietnam's large investment requirements through the capital market. 3. However, as the authorities clearly recognize, a number of challenges remain, and the outlook is not without risks. As we were reminded at yesterday's Vietnam Business Forum (VBF), investors in the capital market need to be wary about the risks posed by irrational exuberance. Sizeable foreign participation, in particular, while desirable in principle as a way to improve the structure of financing and corporate governance of Vietnamese firms, could also increase the economy's vulnerability to changes in market sentiment down the road. To enable the economy to reap the full benefits from increasing global integration, macroeconomic management will need to be increasingly vigilant, reforms of previously-protected industries will need to be stepped up, and financial system regulation and supervision upgraded. Short-Term Outlook and Risks 4. The short-term outlook for growth and the external finances is positive, but mediumterm prospects are subject to some uncertainties. While the average rate of inflation has edged down to about 7 percent in 2006, it remains higher and more entrenched than in most other Asian countries. Despite a large oil revenue windfall, the stock of public debt has remained on a path of rapid expansion, reaching a level of about 45 percent of GDP in 2006. This trend is likely to continue in the coming years, as the Socio-Economic Development Plan (SEDP) for 2006-2010 envisages sustained heavy reliance on public investment to remove infrastructure bottlenecks. While we recognize the need to support growth, care also needs to be taken to improve the quality of investment, and aim for a more balanced composition between public and private financing. This would help keep the public debt burden within a manageable range, and would also serve to protect poverty-reducing outlays, especially if world growth or oil prices were to decline. Macroeconomic Policies 5. The need to protect medium-term debt sustainability, together with the economy's strong cyclical position, calls for a more prudent fiscal stance. While the substantial recent reduction in oil subsidies is welcome, the leveling off of international oil prices has reinforced the need to rein in the growth in public spending and place the non-oil deficit on a declining path. To these ends, future increases in public wages need to be contained, and the screening of new investment projects improved. Effective enforcement of the new laws to curb corruption and prevent the waste of public funds would need to be an integral part of the effort to improve the quality of investment. In this regard, we welcome the recent adoption of a new framework to improve the management and utilization of ODA and look forward to the report from the Government Inspectorate on the status of the government's anti-corruption initiatives. 6. The rate of growth of credit to the economy has decelerated considerably in 2006, and continuation of this trend would help contain inflation and slow the growth of banks'