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Country Report

Vietnam

Generated on November 1st 2017

Economist Intelligence Unit
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London E14 4QW
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 Vietnam 1

Vietnam

Forecast
Highlights

Outlook for 2018-22

2 Political stability
3 Election watch
4 International relations
5 Policy trends
6 Fiscal policy
6 Monetary policy
6 International assumptions
7 Economic growth
8 Inflation
8 Exchange rates
8 External sector
8 Forecast summary

Data and charts

9 Annual data and forecast
10 Quarterly data
11 Monthly data
12 Annual trends charts
13 Monthly trends charts
14 Comparative economic indicators

Summary
14 Basic data
16 Political structure

Recent analysis
Politics
19 Forecast updates
21 Analysis

Economy
24 Forecast updates
29 Analysis

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 Vietnam 2

Highlights
Editor: Alice Mummery
Forecast Closing Date: October 13, 2017

Outlook for 2018-22

The Economist Intelligence Unit expects that Vietnam will remain a one-party
state in the forecast period, ruled by the Communist Party of Vietnam (CPV).
Nonetheless, some internal differences will be seen over policy positions.
Ties with China will be prone to setbacks owing to territorial disputes in the
South China Sea. Vietnam will persist with its omnidirectional policy, seeking
to deepen ties with regional powers, such as India and Japan, and the US.
The government will continue to liberalise the economy, especially
inter nationaltrade,whilerestructuringbanksandstateownedenterprises.
However, progress will remain uneven owing to strong vested interests.
The central bank will maintain an accommodative monetary policy stance
until mid-2018, when we expect it to start raising interest rates gradually amid
renewed price pressures and stronger depreciatory pressures on the dong.
Economic growth will remain strong in the first half of the forecast period,
averaging 6.4% a year in 2018-19. The pace of expansion will moderate only
slightly to 6.1% on average in 2020-22.
We estimate that the current account returned to deficit in 2017, reflecting a
declining trade surplus and shortfalls on the services and primary income
accounts. The deficit will widen in 2018-22 but remain at a manageable level.

Review
On September 29th the Hanoi People's Court sentenced Nguyen Xuan Son, a
former general director of OceanBank and chairperson of PetroVietnam, to
death after finding him guilty on charges of embezzlement. In addition,
a former OceanBank chairperson, Ha Van Tham, was given a life sentence.
The authorities have started tightening up control of the Da Nang city
government ahead of the Asia-Pacific Economic Co-operation (APEC)
summit that will be held there in November, after two top local officials were
implicated in corruption scandals.
Typhoon Doksuri badly affected parts of the central coastline in mid-
September. More than 150,000 homes across six provinces were damaged
and many more lost electrical power. The government mobilised
31,000 soldiers and police to help residents in the hardest-hit provinces.
The prime minister, Nguyen Xuan Phuc, gave his tentative approval on
September 6th for the administration of Ho Chi Minh City to take on more
decision-making powers.
Company data released on October 5th show that a state-owned enterprise,
PetroVietnam,postedastrongperformanceinJanuarySeptember.Revenue
was 16% above target, reaching D367trn (US$16.1bn).

Outlook for 2018-22

Political stability
Vietnam will remain a one-party state in The Economist Intelligence Unit's five year
forecast period. This was reaffirmed during the 12th congress of the Communist
Party of Vietnam (CPV), which was held in January 2016. The CPV's reappointment
of Nguyen Phu Trong as its general secretary indicated as much, given his more
conservative track record and ideological leanings. Differences of opinion over
policy and conflicting vested interests will persist, however, owing to the
challenges of handling competing international pressures and an increasingly vocal
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 Vietnam 3
citizenry. We nonetheless believe that an outright breakdown of the one-party
system remains highly unlikely.
Anti-corruption efforts will continue to pose an inherent risk to political stability,
especially if more senior officials are implicated. This was underscored in May
2017 by the removal of Dinh La Thang from the CPV's politburo, the most powerful
organ in Vietnam's political system, from which dismissals are rare. The move is
likely to send a warning to allies of Nguyen Tan Dung, an ex-prime minister, who in
2016 fell short in his attempt to replace Mr Trong as the CPV's chief. The sentencing
of Nyugen Xuan Son, a former general director of OceanBank and chairperson of
the flagship state-owned enterprise, PetroVietnam, to death in September 2017 on
charges of embezzlement and abuse of power underscores the seriousness of the
CPV's current crackdown. The decision to apply the severest possible sentence to
Mr Son was partly owing to the embarrassment the case has caused the CPV. It
undermined public trust in the government, as it revealed the high-level of graft in a
state-owned enterprise. It also shows that Mr Trong recognises that a failure to
tackle grand corruption could potentially lead to an uptick in social unrest, and we
expect that he will prioritise the anti-corruption drive through his tenure.
The CPV's decision to concentrate on tackling corruption is partly a bid to divert
attention from the 2016 scandal over a major toxic spill from a plant run by a local
unit of Formosa Plastics Group (Taiwan). The policy repercussions of that
environ mentaldisastercontinuetobefelt,withtheprimeminister,NguyenXuan
Phuc,sayingthateconomicdevelop mentshouldnotcomeatthecostofthe
environment. Mr Phuc's stance on environmental issues is prudent; being seen as
proactive on this front will help to mitigate the risk of political unrest, even if it
incurs extra costs for some industries. Nevertheless, environmental issues will have
the capacity to induce more social outbursts in 2018-22. Other social tensions,
including those stemming from land disputes, will come to the fore recurrently as
more Vietnamese call on the state to adhere to international norms of civil, political
and labour rights. The government will also continue to face public pressure over its
handling of territorial disputes with China in the South China Sea. Many Vietnamese
are critical of the reluctance of some within the CPV to respond more forcefully to
perceived Chinese provocation.
High-profile critics of the CPV will find it more difficult to express their opinions in
2018-22, especially following the controversial changes made to the penal code in
June. Among other things, the changes impose much harsher penalties on those
who speak out against the regime. Government concern over a potential for renewed
socialunrestlinkedtothe2016toxicspillandtheantiChinesetoneofsome
relateddemonstrationssofarisakeyfactorbehindthistightergrip.Another
factor is foreign governments' relative lack of interest in human rights violations in
Vietnam. Through the course of 2017 the authorities have stepped up the
clampdown on dissident activity and there has been a noticeable increase in arrests
and imprisonments on charges that are vaguely defined, such as defaming the state.
Such activity will continue in the coming weeks as the government will want to
ensure that dissident actions do not tarnish the CPV's image ahead of Vietnam's
hosting of the Asia-Pacific Economic Co-operation leaders' summit on November 11-
12th, which is expected to include world leaders including Donald Trump and his
counterparts from China, Japan, Russia and the rest of the Asia-Pacific region.

Election watch
The next election for the National Assembly (parliament) is due by mid-2021.
However, meaningful ballots do not exist in Vietnam, as candidates are vetted by the
Vietnam Fatherland Front, a CPV-controlled body. Appointments to the top political
posts will continue to take place behind closed doors at party congresses, which are
held every five years.

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 Vietnam 4

International relations
Ties with China will remain prone to setbacks resulting from the countries' territorial
disputes in the South China Sea, which are unlikely to be resolved in 2018-22.
China's moves to militarise the contested islands it controls will strain relations.
Both sides will make overt diplomatic efforts to prevent any escalation, but ties will
be characterised by an underlying mistrust. In a manifestation of this wariness,
Vietnam continues to enhance its maritime defence capabilities with the aid of a
number of countries, while bolstering its own facilities in the South China Sea.
Vietnam will remain wary of angering its neighbour even if the US's confirmation in
August that it would send an aircraft carrier in 2018 has led to a moderate uptick in
tensions. Overall, however, we do not expect ties to deteriorate to the degree that
the close economic relations between Vietnam and China are significantly affected.
Nevertheless, with the aim of reducing its dependence on China, Vietnam will seek
to maintain its omnidirectional foreign policy. A port in the strategic Cam Ranh Bay,
whichwasinauguratedin2016,allowsVietnamtobetteraccommo dateforeign
navalforces,bolsteringgovern menteffortstointernationalisethedisputesinthe
South China Sea. Vietnam will continue to forge stronger security ties with regional
powers that have their own territorial spats with China, such as India and Japan, and
countries that are supportive of its negotiating position on the South China Sea.
The government will also remain keen to strengthen defence ties with the US under
the administration of Donald Trump, despite his government's unease over the US's
trade deficit with Vietnam. Mr Trump's predecessor, Barack Obama, fully lifted the
US's arms embargo on Vietnam in 2016.

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 Vietnam 5

Policy trends
Mr Trong will oversee a period of continued economic liberalisation. One driver of
Vietnam's liberalisation will be international trade deals. In addition to its ongoing
implementation of the Association of South-East Asian Nations (ASEAN) Economic
Community(AEC),severalfree tradeagreements(FTAs)werefinalisedin2015.The
implementation of the AEC and the FTAs signed with South Korea, the Russian-led
Eurasian Economic Union and the EU will take place during the forecast period and
beyond.ThesewillprovidepolicyanchorstosupportVietnamslongterm
prospects. Discussions on the potential revival of a different form of the Trans-
Pacific Partnership between the 11 remaining signatories will encourage Vietnam to
continue with its economic liberalisation and support greater openness to trade.
Aided to an extent by these policy anchors, economic liberalisation will also entail
thecon tinued"equitisation"(partialprivatisation)ofstateownedenterprises
(SOEs) to improve efficiency and aid fiscal consolidation. In early 2017 the
government unveiled a list of 137 SOEs that it intends to equitise by 2020. More
recently, in June the politburo ordered the Ministry of Industry and Trade to end its
support for loss-making SOEs. The stockmarket's strong performance since 2016
should encourage the government to expedite this programme in order to take full
advantage of positive investor sentiment in our forecast period. However, the
planned sales of shares in a few high-profile SOEs will face repeated delays, as some
profitable SOEs provide a significant stream of revenue for the government.
Moreover, a number of SOEs are unlikely to attract significant interest, owing to the
frequently small minority stakes on offer.
Ridding the banking sector of bad debts will remain a policy priority, too, and the
National Assembly's Resolution 42, which came into effect in August, should help
to speed things up. Comprehensive data from the State Bank of Vietnam (SBV, the
central bank) on bad debt indicate that the ratio of non-performing loans (NPLs) to
total loans stands at above 10%. The authorities are moving fast on the
implementation of Resolution 42, which aims to more quickly resolve NPLs by
strongly incentivising borrowers to pay up or forfeit their collateral. The resolution
allows banks to process such pledged assets where appropriate if the borrower in
question is not co-operating, filling previous gaps in regulations. Resolution 42
should also aid the consolidation of Vietnam's crowded banking sector (another
policy objective), as healthier balance sheets give larger lenders the capability to
acquire or merge with smaller banks. Furthermore, it should make local banks
broadly more attractive to potential foreign investors. The authorities have long
discussed a plan to raise the 30% foreign-ownership cap on banks; our view is that
the cap is raised only on a case-by-case basis.

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 Vietnam 6

Fiscal policy
Fiscal consolidation will progress gradually in 2018-22 because of the government's
ambitious infrastructure development plans, growing welfare costs and revenue
reductions caused by phased cuts to import duties. In the near term the
government's determination to stick to its overambitious 6.7% economic growth
target for 2017 will limit the extent of fiscal consolidation. Our forecasts see the fiscal
shortfall narrowing from the estimated equivalent of 5.5% of GDP this year to 4.2%
by 2022.
Aidedbybriskeconomicgrowth,consolidationwillnonethelessbeunder pinned
by healthy consumption activity, as substantial revenue comes from indirect taxes.
Strong growth in payroll and corporate tax receipts will continue. Expenditure
consolidationwillbeunder pinnedbySOEreform,aswellasageneralpush
towards leaner government. The government remains committed to fiscal
consolidation as concerns grow about the likely negative impact on investor
confidence if Vietnam's debt-to-GDP ratios surpass the authorities' self-imposed
safety limits.

Monetary policy
In July the SBV announced a 25-basis-point reduction in its benchmark policy rate,
the refinancing rate, to 6.25%, marking the first cut since March 2014. The surprise
decision to lower the refinancing rate to its lowest level since 2005 was possible
because of the disinflationary climate. The decision also highlights the opacity of
monetary policymaking; the SBV's lack of independence (the cut was enacted to
support the government's 2017 growth target). A further reason for the cut was the
deterioration of Vietnam's merchandise trade balance since early this year.
The SBV will maintain this accommodative monetary policy stance until mid-2018,
when we expect it to start raising interest rates gradually amid renewed price
pressures and stronger downward forces on the dong. However, Vietnam's
tightening cycle is unlikely to be aggressive, as the SBV will be cognisant of the
government's ambitious medium-term growth targets, which range from 6.5% to 7%
per year.

International assumptions
2017 2018 2019 2020 2021 2022
Economic growth (%)
US GDP 2.2 2.2 2.2 0.8 1.9 2.0
OECD GDP 2.2 2.0 1.9 1.3 1.9 1.8
World GDP 2.9 2.7 2.7 2.3 2.7 2.6
World trade 4.0 3.4 3.4 2.5 3.6 3.5
Inflation indicators (% unless otherwise indicated)
US CPI 1.9 2.0 2.2 1.3 1.8 1.9
OECD CPI 2.0 1.8 1.9 1.7 1.8 2.0
Manufactures (measured in US$) 2.7 2.8 4.0 4.7 4.5 3.4
Oil (Brent; US$/b) 52.3 51.0 53.5 52.9 55.5 58.5
Non-oil commodities (measured in US$) 6.6 -0.2 1.2 -2.2 2.5 1.6
Financial variables
US$ 3-month commercial paper rate (av; %) 1.2 2.0 2.3 1.6 1.2 1.9
3monthmoneymarketrate(av%) 0.1 0.0 0.1 0.1 0.1 0.1
:US$(av) 111.09 108.74 106.73 104.00 100.03 100.20

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 Vietnam 7

Economic growth
Although risks are to the downside, we believe that the economy is still on track to
grow by 6.3% for the whole of 2017, which would mark a slight improvement from
the 6.2% rate registered last year. Despite a weak start to the year because of a
slump in the extractive sector, growth has since picked up, helped by some
measures taken by the authorities. The latest data show that real GDP grew by 6.4%
year on year in January-September. Although we believe that the government's
6.7% full-year growth target is still out of reach, the latest headline figure is largely
in line with our growth estimate of 6.3% for 2017. Real GDP growth will improve
marginallyin2018,to6.5%atthelowerendofthegovernment's6.46.8%target
bandfortheyearowingmainlytoasmallerdragfromnetexports.Nonetheless,
domestic demand will remain fairly robust in 2018 helped by rapid wage growth and
constructive government policies to encourage investment.
Overall, we expect GDP growth to average around its current rate of 6.2-6.3% a year
throughout our forecast period, making it still one of the fastest-growing emerging
markets in the region. Vietnam's economy will continue to be underpinned by
healthy growth in private consumption, meanwhile spending activity will also be
supported by rapid growth in tourist numbers. Increases in government spending
will slow as the authorities make progress on reforming SOEs and trimming the size
of the government more generally. However, private investment activity will be
spurred by policies to liberalise business regulations, deepen global economic
integration and reduce the level of NPLs in the banking industry.
Foreign investment, especially in the export-oriented electronics sector, will
continue to gather momentum, driving average annual growth of 8.2% in real exports
in 2018-22. This will be partly the result of the migration of low-cost export
manufacturing from China. However, net exports will exert a drag on GDP expansion,
as these will be outpaced by import growth. We expect a cyclical slowdown in GDP
growth to take hold from 2019, in part as monetary policy is gradually tightened and
as higher inflation and a weaker exchange rate impinge on spending activity. This
moderationingrowthwillalsoreflectananticipatedtechnicalrecessionintheUS
Vietnam'ssinglelargestexportmarketin2020(ayearlaterthanwehadforecasted
previously). The expected sharp slowdown in China's economy will have started to
affect parts of Vietnam's economy in 2018.
Economic growth
% 2017a 2018b 2019b 2020b 2021b 2022b
GDP 6.3 6.5 6.4 5.8 6.2 6.3
Private consumption 6.0 6.2 6.0 5.6 5.8 5.9
Government consumption 6.8 6.6 6.5 6.5 6.5 6.3
Gross fixed investment 10.0 9.6 9.0 8.8 9.2 9.2
Exports of goods & services 11.1 8.5 8.4 7.8 8.2 8.1
Imports of goods & services 11.8 9.0 8.7 8.3 8.6 8.4
Domestic demand 7.2 7.2 6.9 6.6 6.9 6.8
Agriculture 3.4 3.0 2.8 2.6 2.5 2.6
Industry 6.4 6.3 6.3 5.5 5.9 6.1
Services 7.3 8.1 7.9 7.2 7.7 7.5
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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 Vietnam 8

Inflation
Inflation will accelerate in the remainder of 2017, through to end-2019 on the back of
marginally stronger economic activity and more pronounced currency weakness,
particularly in 2018-19. We forecast average annual consumer price inflation of 4.1%
in 2018-19. Inflationary pressures will remain manageable in the latter part of our
forecast period too, and we forecast an average inflation rate of 3.9% in 2020-22. As
will be the case in the earlier part of the forecast period. Producer prices will also
provide renewed upward pressure, after escaping deflationary territory in late 2016.
Capacity constraints will be tested as business costs rise on account of faster
nominal wage growth.

Exchange rates
The Fed is expected to take a hawkish monetary policy stance and introduce
increment interest-rate increases, which will correlate with further downward
pressure on the dong in the period to 2019. Overall, the dong will continue to
weaken against the US dollar in 2018-22, with the government seeking to maintain
export competitiveness amid currency declines across the region. Depreciatory
pressure on the dong will strengthen compared with recent years as Vietnam's
current account returns to deficit. Our revised projections see the dong weakening
from an estimated average of D22,708:US$1 in 2017 to D25,705:US$1 in 2022.

External sector
We estimate that the current account will move into deficit in 2017, to the equivalent
of 1.1% of GDP, and will remain in the red in 2018-22. The deterioration will reflect a
declining trade surplus and widening deficits on the services and primary income
accounts. A pick-up in foreign investment will drive a rise in capital goods imports.
As a result, the trade surplus will decline from an estimated US$4.5bn in 2017 to
US$3bn in 2022. Although rising output in the foreign-investment-driven
manufacturing sector will continue to lift exports, it will also boost imports of
intermediategoods,assupportingindustriesremainunder developed,while
demand for imported consumer goods will remain strong.

Forecast summary
Forecast summary
(% unless otherwise indicated)
2017a 2018b 2019b 2020b 2021b 2022b
Real GDP growth 6.3 6.5 6.4 5.8 6.2 6.3
Industrial production growth 7.5 6.5 6.5 5.8 6.2 6.3
Gross agricultural production growth 3.4 3.0 2.8 2.6 2.5 2.6
Consumer price inflation (av) 3.4 4.0 4.2 3.6 4.0 4.1
Consumer price inflation (end-period) 3.5 4.2 4.3 3.8 4.2 4.2
Lending rate 6.8 6.9 7.6 7.4 7.0 6.9
Government balance (% of GDP) -5.5 -5.1 -5.1 -4.5 -4.3 -4.2
Exports of goods fob (US$ bn) 194.6 205.5 221.8 235.3 255.6 278.0
Imports of goods fob (US$ bn) 190.1 200.9 217.7 231.1 252.4 275.0
Current-account balance (US$ bn) -2.4 -3.5 -4.8 -5.4 -7.3 -8.3
Current-account balance (% of GDP) -1.1 -1.6 -2.0 -2.1 -2.7 -2.9
External debt (end-period; US$ bn) 91.8 99.3 104.3 109.2 112.7 115.9
Exchange rate D:US$ (av) 22,708 23,708 24,808 25,259 25,551 25,705
Exchange rate D:US$ (end-period) 23,208 24,258 25,034 25,405 25,628 25,782
ExchangerateD:100(av) 20,441 21,803 23,245 24,288 25,545 25,654
ExchangerateD:100(endperiod) 21,150 22,645 23,583 25,141 25,628 25,654
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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 Vietnam 9

Data and charts

Annual data and forecast
2013a 2014a 2015a 2016a 2017b 2018c 2019c
GDP
Nominal GDP (US$ bn) 170.5 185.8 191.4 201.4 215.0 225.8 235.2
Nominal GDP (D trn) 3,584 3,938 4,193 4,503 4,883 5,353 5,835
Real GDP growth (%) 5.4 6.0 6.7 6.2 6.3 6.5 6.4
Expenditure on GDP (% real change)
Private consumption 5.2 6.1 9.3 7.3 6.0 6.2 6.0
Government consumption 7.3 7.0 7.0 7.5 6.8 6.6 6.5
Gross fixed investment 5.3 9.3 9.4 9.9 10.0 9.6 9.0
Exports of goods & services 17.4 11.6 12.6 13.9 11.1 8.5 8.4
Imports of goods & services 17.3 12.8 18.1 15.3 11.8 9.0 8.7
Origin of GDP (% real change)
Agriculture 2.6 3.4 2.4 1.4 3.4 3.0 2.8
Industry 5.1 6.4 9.6 7.6 6.4 6.3 6.3
Services 6.7 6.2 6.3 7.0 7.3 8.1 7.9
Population and income
Population (m) 91.5 92.5 93.6 94.6 95.5 96.5 97.4
GDP per head (US$ at PPP) 5,200 5,546 5,914 6,297 6,744 7,270 7,753
Recorded unemployment (av; %) 3.6 3.4 3.4 3.2b 3.3 3.2 3.4
Fiscal indicators (% of GDP)
Central government balance -6.6 -6.3 -6.3 -5.6 -5.5 -5.1 -5.1
Net public debt 53.7 57.1 60.1 61.6 b 62.3 62.0 62.0
Prices and financial indicators
Exchange rate D:US$ (end-period) 21,095 21,373 22,485 22,740 23,208 24,258 25,034
ExchangerateD:(endperiod) 29,092 25,948 24,479 23,970 27,502 28,261 29,290
Consumer prices (end-period; % change) 6.0 1.8 0.6 4.7 3.5 4.2 4.3
Stock of money M1 (% change) 17.8 21.2 18.0 18.1 18.1 16.0 15.4
Stock of money M2 (% change) 21.4 19.7 14.9 17.9 18.3 17.3 15.7
Lending interest rate (av; %) 10.4 8.7 7.1 7.0 6.8 6.9 7.6
Current account (US$ m)
Trade balance 8,713 12,126 7,396 14,013 4,501 4,613 4,143
Goods: exports fob 132,032 150,217 162,112 176,632 194,556 205,513 221,803
Goods: imports fob -123,319 -138,091 -154,716 -162,619 -190,055 -200,900 -217,660
Services balance -3,109 -3,530 -4,300 -5,400 -6,032 -6,653 -6,736
Primary income balance -7,336 -8,844 -9,925 -8,363 -9,093 -9,748 -10,462
Secondary income balance 9,477 9,607 7,735 7,985 8,202 8,274 8,266
Current-account balance 7,745 9,359 906 8,235 -2,422 -3,514 -4,789
External debt (US$ m)
Debt stock 65,452 72,423 77,798 84,338b 91,817 99,272 104,314
Debt service paid 4,516 6,727 6,624 8,248b 10,192 12,147 14,513
Principal repayments 3,274 5,307 4,922 6,650b 8,185 9,710 11,678
Interest 1,242 1,420 1,702 1,597b 2,007 2,437 2,836
International reserves (US$ m)
Total international reserves 26,287 34,575 28,616 36,906 39,802 39,955 40,241
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: IMF, International Financial Statistics.

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 Vietnam 10

Quarterly data
2015 2016 2017
3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr
Prices
Consumer prices (2014=100) 100.1 100.1 100.6 102.0 102.9 104.6 105.6 105.4
Consumer prices (% change, year on year) 0.5 0.3 1.3 2.2 2.8 4.4 5.0 3.3
Financial indicators
Exchange rate D:US$ (av) 22,140 22,413 22,336 22,306 22,289 22,487 22,695 22,700
Exchange rate D:US$ (end-period) 22,470 22,485 22,280 22,295 22,290 22,740 22,745 22,735
Deposit rate (av; %) 4.7 4.7 5.0 5.3 5.1 4.8 n/a n/a
Lending rate (av; %) 7.1 7.0 7.0 7.0 7.0 7.0 n/a n/a
Refinancing rate (end-period; %) 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5
Treasury bill rate (av; %) n/a n/a n/a n/a n/a n/a n/a n/a
M1 (end-period; D trn) 1,274 1,415 1,439 1,518 1,529 1,671 1,670 n/a
M1 (% change, year on year) 21.4 18.0 19.1 21.4 20.0 18.1 16.0 n/a
M2 (end-period; D trn) 5,493 5,771 6,039 6,357 6,579 6,803 7,042 n/a
M2 (% change, year on year) 16.8 14.9 17.3 19.1 19.8 17.9 16.6 n/a
Foreign trade (US$ m)
Exports fob 42,459 41,867 38,784 43,460 46,313 48,024 44,693 53,262
Imports cif -42,710 -41,820 -37,464 -43,492 -44,573 -49,276 -46,687 -53,896
Trade balance -251 47 1,320 -32 1,740 -1,252 -1,994 -634
Foreign payments (US$ m)
Merchandise trade balance 2,446 3,225 3,962 3,068 4,927 2,056 -26 n/a
Services balance -1,194 -1,006 -930 -1,390 -1,539 -1,541 -600 n/a
Primary income balance -2,552 -3,100 -1,959 -2,017 -2,039 -2,348 -2,380 n/a
Net transfer payments 2,066 2,167 2,103 2,253 2,337 2,432 2,216 n/a
Current-account balance 479 1,077 3,013 1,642 3,425 155 -1,169 n/a
Reserves excl gold (end-period) 30,652 28,250 31,618 34,988 37,624 36,527 37,829 n/a
Source: IMF, International Financial Statistics.

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Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate D:US$ (av)
2015 21,356 21,338 21,435 21,584 21,735 21,796 21,798 22,148 22,476 22,331 22,415 22,494
2016 22,391 22,326 22,291 22,285 22,310 22,324 22,289 22,287 22,293 22,302 22,453 22,707
2017 22,587 22,718 22,781 22,699 22,698 22,704 22,724 22,718 n/a n/a n/a n/a
Exchange rate D:US$ (end-period)
2015 21,330 21,360 21,550 21,590 21,800 21,800 21,800 22,475 22,470 22,295 22,495 22,485
2016 22,190 22,290 22,280 22,275 22,390 22,295 22,285 22,290 22,290 22,310 22,650 22,740
2017 22,585 22,765 22,745 22,720 22,705 22,735 22,715 22,720 n/a n/a n/a n/a
Money supply M1 (% change, year on year)
2015 13.4 31.7 22.1 22.4 18.5 17.9 19.2 18.6 21.4 20.0 18.5 18.0
2016 28.3 14.1 19.1 18.3 22.0 21.4 23.8 21.5 20.0 19.2 16.9 18.1
2017 18.1 16.1 16.0 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Money supply M2 (% change, year on year)
2015 17.5 20.3 18.4 17.6 17.4 17.2 17.2 16.9 16.8 16.2 15.8 14.9
2016 16.5 14.7 17.3 17.9 18.7 19.1 19.3 18.8 19.8 19.8 11.6 17.9
2017 19.1 17.4 16.6 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Deposit rate (av; %)
2015 4.9 4.9 4.7 4.7 4.7 4.8 4.8 4.7 4.7 4.7 4.8 4.7
2016 4.8 4.9 5.3 5.3 5.3 5.3 5.3 5.3 4.8 4.8 4.8 4.8
2017 4.8 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Lending rate (av; %)
2015 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.0 7.0 7.0 7.0 7.0
2016 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0
2017 7.0 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2015 0.9 0.3 0.9 1.0 1.0 1.0 0.9 0.6 0.0 0.0 0.3 0.6
2016 0.8 1.3 1.7 1.9 2.3 2.4 2.4 2.6 3.3 4.1 4.5 4.7
2017 5.2 5.0 4.6 4.3 3.2 2.5 2.5 3.3 n/a n/a n/a n/a
Goods exports fob (US$ m)
2015 13,509 9,512 13,370 13,479 13,649 14,174 14,297 14,396 13,766 14,308 13,874 13,685
2016 13,603 10,096 15,085 14,397 14,341 14,722 14,845 16,099 15,369 15,369 16,103 16,552
2017 14,342 13,106 17,245 17,536 17,931 17,795 17,672 19,767 n/a n/a n/a n/a
Goods imports cif (US$ m)
2015 14,153 10,315 14,599 13,065 14,893 14,221 14,799 14,131 13,780 13,868 13,709 14,243
2016 12,774 10,261 14,429 14,132 14,560 14,800 14,410 15,551 14,612 15,863 16,415 16,998
2017 13,188 15,150 18,349 17,350 18,459 18,087 17,406 18,181 n/a n/a n/a n/a
Trade balance fob-cif (US$ m)
2015 -644 -803 -1,229 414 -1,244 -47 -502 265 -14 440 165 -558
2016 829 -165 656 265 -219 -78 435 548 757 -494 -312 -446
2017 1,154 -2,044 -1,104 186 -528 -292 266 1,586 n/a n/a n/a n/a
Foreign-exchange reserves excl gold (US$ m)
2015 34,696 37,307 36,911 36,464 37,222 37,334 36,909 32,914 30,652 31,002 30,290 28,250
2016 27,494 28,836 31,618 33,833 34,798 34,988 35,184 37,081 37,624 37,612 37,599 36,527
2017 37,937 37,682 37,829 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

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Annual trends charts

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Monthly trends charts

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Comparative economic indicators

Basic data
Land area
331,051 sq km

Population
94.4m (2016; UN)

Main towns
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Population(ofprovince)in000(2015GeneralStatisticsOffice)
Ho Chi Minh City: 8,146
Hanoi (capital): 7,216
Thanh Hoa: 3,514

Climate
Tropical monsoon; north cool and damp in winter (November-April), hot and rainy
in summer; south more equable; centre most subject to typhoons. The rains are
highly unpredictable

Weather in Hanoi (altitude 216 metres)

Hottestmonth,June,2633Ccoldestmonth,January,1320Cwettestmonth,
August, 343 mm average rainfall; driest month, January, 18 mm average rainfall

Weather in Ho Chi Minh City (altitude 9 metres)

Hottestmonth,April,2435Ccoldestmonth,January,2132Cwettestmonth,
September, 335 mm average rainfall; driest month, February, 3 mm average rainfall

Language
Vietnamese (spoken by about 90% of the population); English (increasingly
favoured as a second language); minority languages such as Hmong, Thai, Khmer
in more remote rural areas

Weights and measures

1 mau = 5,000 sq metres (centre)

Currency
Dong (D). Average exchange rate in 2016: D22,355:US$1

Time
7 hours ahead of GMT

Public holidays
January1st2nd(NewYears)January26thFebruary1st(Tet,LunarNewYear)
April 6th (Gio To Hung Vuong Day); April 29th-May 2nd (Liberation of Saigon and
Labour Day, observed); September 4th (National Day, observed)

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Political structure
Official name
Socialist Republic of Vietnam

Form of state
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One-party rule

The executive
The cabinet is constitutionally responsible to the Quoc Hoi (National Assembly),
which is elected for a five-year term

Head of state
The president, Tran Dai Quang

National legislature
The 500-member unicameral National Assembly meets biannually and typically
serves a five-year term. Its current chairman is Nguyen Thi Kim Ngan. The assembly
formally appoints the president, the prime minister and the cabinet

Local government
Centrally controlled provinces and municipalities are divided into towns, districts
and villages, which have a degree of democratic accountability through elected
peoplescouncils

Legal system
Theregionalpeoplescourtsandmilitarycourtsoperateascourtsoffirstand
second instance, with a Supreme Court at the apex of the system

National elections
An election for the National Assembly took place in May 2016: 496 candidates
secured enough valid votes to be lawmakers, with 475 of them directly affiliated with
the ruling Communist Party of Vietnam (CPV). The next poll is due by mid-2021

National government
The CPV, and in particular its politburo, controls both the electoral process and the
executive

Main political organisations

The CPV (general secretary: Nguyen Phu Trong); the Vietnam Fatherland Front

Members of the cabinet

Prime minister: Nguyen Xuan Phuc
Deputy prime ministers:
Vuong Dinh Hue
Truong Hoa Binh
Trinh Dinh Dung
Vu Duc Dam
Pham Binh Minh

Key ministers
Agriculture & rural development: Nguyen Xuan Cuong
Construction: Pham Hong Ha
Culture, sports & tourism: Nguyen Ngoc Thien
Education & training: Phung Xuan Nha
Finance: Dinh Tien Dung
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Foreign affairs: Pham Binh Minh

Health: Nguyen Thi Kim Tien
Industry & trade: Tran Tuan Anh
Information & communications: Truong Minh Tuan
Justice: Le Thanh Long
Labour, war invalids & social affairs: Dao Ngoc Dung
National defence: Ngo Xuan Lich
Natural resources & environment: Tran Hong Ha
Planning & investment: Nguyen Chi Dung
Public security: To Lam
Transport: Truong Quang Nghia

Central bank governor

Le Minh Hung

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Recent analysis
Generated on November 1st 2017

The following articles were published on our website in the period between our previous forecast and this one,
and serve here as a review of the developments that shaped our outlook.

Politics
Forecast updates
September 15, 2017: International relations
China woos South-east Asia with noises on co-operation
Event
On September 11th China's senior vice-premier, Zhang Gaoli, held meetings with a
number of South-east Asian leaders on the sidelines of the China-ASEAN Expo,
held in Nanning in southern China.

Analysis
The China-ASEAN Expo represents a chance for China to improve its relationship
with ASEAN. Some members of ASEAN are being encouraged to slot their
development plans into China's Belt and Road Initiative (BRI) of regional integration
and infrastructure development. Mr Zhang used a speech at the Expo to call for an
expansion of the China-ASEAN Free-Trade Area.
The sultan of Brunei, Hassanal Bolkiah Mu'izzaddin, the Cambodian prime minister,
Hun Sen, Vietnam's deputy prime minister, Truong Huo Binh, and the Lao deputy
prime minister, Sonexay Siphandone, have all taken the opportunity to hold bilateral
meetings with Mr Zhang. Cambodia and Laos play an interesting role in ASEAN-
China relations as they are not involved in a long-running dispute over the
sovereignty of the South China Sea. Both Cambodia and Laos are more open to co-
operation with China. On the sidelines of the Expo, Cambodia expressed hope for
more agricultural investment and an increase in its agricultural exports to China.
Laos confirmed its continuing interest in co-operation in trade, tourism and
infrastructure.
Relations with Vietnam are more strained, but both sides agreed to continue to
promoteeconomictiesandtoadheretoabilateralconsensusinaformulationthat
skirtsaroundtherivalryintheSouthChinaSeathatthetwocountriesshouldco
operate in maritime affairs and resolve differences through dialogue.
Brunei was guest of honour at the Expo. The meeting with the sultan of Brunei
allowed China to highlight trade and investment links and the growing flow of
tourists from China. Although Brunei is a fellow claimant to part of the disputed
South China Sea, China has stressed the mutual advantages to Brunei and other
states of focusing on economic co-operation. Brunei reiterated its interest in
Chinese investment in tourism, energy, ports and education.

Impact on the forecast

The dispute over the South China Sea will make China's relationship with Vietnam
prone to setback. Meanwhile, Brunei, which is more reliant on investment from
China, will continue to favour economic co-operation over standing up overtly to
China on the South China Sea. Relations with Cambodia and Laos will remain good
and we expect to see further investment from China under the Belt and Road
Initiative.

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September 15, 2017: Political stability

CPV making a strong statement with high-profile graft case
Event
On September 14th state prosecutors called for Nguyan Xuan Son, the ex-
chairperson of a state-owned oil and gas company, PetroVietnam, to face the death
penalty on charges of abuse of power and embezzlement. The case also involves Ha
Van Tham, the former chairperson of OceanBank.

Analysis
The scandal surrounding PetroVietnam and OceanBank is growing as state
prosecutors have identified some 50,000 people and 400 businesses that allegedly
benefitted from higher-than-market interest rates on deposits. The trial is turning
into one of the centrepieces of the efforts of the Communist Party of Vietnam (CPV)
to root out corruption, a drive that has intensified over the past 12 months.
TheinvestigationsarguablylargelyrevolvearoundDinhLaThang,aprotgofthe
ex-prime minister, Nguyen Tan Dung, who was ousted from the CPV's politburo
earlier this year, having been accused of causing losses to the state, a serious crime
in Vietnam. Mr Thang headed PetroVietnam from 2009 to 2011, which held a US$35m
stake in OceanBank before the State Bank of Vietnam (SBV, the central bank) took
control of the lender in 2015. Much of the bank's lending was directed to
PetroVietnam officials, including those who are now facing embezzlement charges.
State prosecutors allege that Mr Tham offered deposit rates to select individuals
and enterprises at above the rates set by the SBV, causing losses of some US$70m.
They have said that US$11m in interest was paid to Mr Son, who served as the CEO
ofOceanBankin200810.MrSonhasdeniedtheallegations,sayingthathedidnot
take the money himself but distributed it to other employees and government
officials. Other alleged beneficiaries of the excessive high interest payments include
subsidiaries at PetroVietnam and state-owned shipbuilder, Vinashin.
Revelations of who received what are likely to continue for weeks, providing an
insight into the petty corruption that dogs many Vietnamese enterprises, especially
those with links to the state. It is highly likely that more high-level business figures
will be identified, and Mr Thanh, whose political career has nose-dived since his
ousting, is likely to be reprimanded further as the secretary-general of the CPV,
Nguyen Phu Trong, doubles down on his anti-corruption drive to clean up the
party's image and enforce internal discipline.

Impact on the forecast

The developments highlight our view that anti-corruption efforts will continue in
201721,ifnotintensifyfurther,posinganinherentrisktopoliticalstabilityifmore
senior officials are implicated.

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October 4, 2017: Political stability

Da Nang officials under the spotlight as APEC summit nears
Event
The authorities are tightening up control of the city government in Da Nang ahead
of the Asia-Pacific Economic Co-operation (APEC) summit to be held there in
November, after two top local officials were implicated in corruption scandals.

Analysis
The problems in the city administration in Da Nang, Vietnam's third-largest
economic centre, emerged in September, when the local chief of the ruling
Communist Party of Vietnam (CPV), Nguyen Xuan Anh, and the city's chairman,
Huynh Duc Tho, were caught up in corruption scandals. The former allegedly
received two houses and a car from companies, while the latter was said to have
made illegal decisions on land allocation for business use.
Land-use rights in Vietnam, where all land is theoretically owned by the state, are a
sensitive topic. There is widespread abuse by civil servants who have the power to
decide how certain plots of land are used, and it appears that this is why Mr Anh
and Mr Tho are being investigated. Mr Tho has received an official warning from
the CPV (the second least severe form of punishment dispensed by the ruling
party), although it is unclear what punishment Mr Anh might receive.
The local government is now moving to ensure that the APEC summit, which is
expected to attract leaders including the US president, Donald Trump, and his
counterparts from China, Japan, Russia and the rest of the Asia-Pacific region, goes
ahead smoothly. It has now instructed all officials to cancel all overseas trips to
focus instead on the preparations for the summit. The authorities in Da Nang have
also introduced new guidelines to limit future overseas travel, with government
executives now limited to just two trips abroad per year.
Although the travel directive is emerging from the government in Da Nang, it is
highly likely that it has been ordered by the national government, which has been
engaged in a sweep of allegedly corrupt officials. Corruption, which has been a
long-standing problem in Vietnam, has come under fresh scrutiny in recent months.
The party chief of Ho Chi Minh City, Dinh La Thang, was removed from the CPV
politburo in May, and in September the former head of OceanBank was sentenced to
death after being convicted of embezzlement.

Impact on the forecast

The latest developments are in line with our view that the CPV's anti-corruption
efforts will persist, partly in a bid to clean up its image before the APEC summit.

Analysis
September 1, 2017
South China Sea: Beijing deals, ASEAN plays
The territorial disputes in the South China Sea have been a high-profile issue in
the years since Chinese leaders declared the area to be a "core interest". So ill-
tempered have the disputes between China, Taiwan and various South-east Asian
states become that they have drawn in regional and Western powers. Although all
reject China's expansive claims, its growing economic and military clout mean
that none dares to try and force the issue directly. The impasse is likely to
continue even if the waters decline in importance to China's economy, and joint
development appears to be the only way that other claimants can get something out

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 Vietnam 22
of a tough situation.
As things stand, China appears to be holding all the cards in the South China Sea.
Western naval protests aside, the South China Sea is an area where China has
stacked the deck quite heavily in its favour through slow but shrewd manoeuvring.
As well as modernising and expanding its navy, China has created "facts on the
ground" through artificial island building, while using malleable non-claimants such
as Cambodia and Laos to disrupt attempts to condemn its actions in the
Association of South-East Asian Nations (ASEAN).
China is clearly the driving force in the South China Sea in view of its ability and
willingness to act decisively in what it sees as its home ground while the US wavers,
and its overwhelming military advantage against claimants in ASEAN (primarily
Brunei, Malaysia, the Philippines and Vietnam). Quite simply, its ambitious claim, as
defined by the so-called nine-dashed line, is the reason that the South China Sea is
an international hotspot, instead of a series of maritime boundary disputes.

On trade: China's got options (over the long run)

Observers have long suspected that China's vulnerability to a blockade of the
adjacent Strait of Malacca is what really lies behind its vigorous policy in the South
China Sea. Typical estimates since 2010 held that annual trade passing through the
South China Sea was worth US$5.3trn per year. A recent study by the Centre for
Strategic and International Studies (CSIS), a US think-tank, put such trade at
US$3.4trn in 2016.
Nevertheless, even though these figures show that trade through these waters is
less important globally than had once been believed, the lion's share still goes to
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 Vietnam 23
and from China. China was the top exporter through the South China Sea in 2016,
sending US$874bn-worth of goods, according to the CSIS. This far outstripped its
nearest competitors in the region, South Korea (US$249bn) and Singapore
(US$214bn). The shipments of other ASEAN states totalled: Thailand (US$170bn),
Vietnam (US$158bn), Indonesia (US$121bn) and Malaysia (US$106bn). Moreover,
close to two-thirds of China's maritime trade crossed the waters of the South China
Sea last year, compared with around 40% for rival Japan and roughly 15% for
the US.
Yet as important as the South China Sea is for China, in many ways its position is
stronger than its ASEAN disputants, whose options are far more limited. China is
working hard under its Belt and Road Initiative to give itself more trade routes in
and out of its vast Eurasian borders. Crucially, the creation from scratch of
alternative trade routes is simply not as viable to the smaller, littoral claimant states
in ASEAN. In short, China's economy over the long run could arguably outlast
those of its ASEAN rivals should their disputes lead to a suspension of trade
through the South China Sea and adjacent maritime areas.

Little that ASEAN claimants can do, for now

Apart from protecting their respective territorial claims, and putting aside for the
moment their various claims against each other, claimant states in ASEAN have two
major concerns. First and foremost is that recent history has shown that they
cannot rely solely on the influence of international law. China is a signatory to the
UN Convention on the Law of the Sea (UNCLOS), although it has ignored the
Permanent Court of Arbitration's verdict last year, which in theory dealt a serious
blow to the legitimacy of China's claims in the South China Sea under the scope of
UNCLOS. Tellingly, the Philippines, which brought the case against China,
nowadays thinks little of the ruling, as well.
Second, the South China Sea is thought to be extremely rich in both oil and gas,
which energy-hungry ASEAN states are loath to secede to China. The Council on
Foreign Relations, a US think-tank, has stated that there are an estimated 11bn
barrels of oil under these waters and 190trn cu ft of natural gas. The past few
months have shown, however, how these resources are implicitly off-limits.
Reported threats of hostile action by China against the Philippines in May and
against Vietnam in July with regard to both countries' desire to start unilateral oil
exploration in the area underscore the effectiveness of China's rhetorical strong-arm
tactics.

Joint development: possible, but mostly on

China's terms
Against this backdrop are signs that the Chinese government is somewhat prepared
tocompromiseoncertainissuesifclaimantsinASEANgiveitmuchofwhatit
wants. The Philippines, which under its previous administration was once the most
vocal against China's claims, now seems to acknowledge the practicality of co-
operation over confrontation. In August the country's foreign secretary, Alan
Cayetano, announced that the two countries were working on a deal to co-operate
with one another on energy exploration, with the aim of possibly drilling within the
next 12 months.
Not surprisingly, the announcement was met with some scepticism in the
Philippines, whose national pride was bruised by its stand-off with China at the
Scarborough Shoal about five years ago. The proposed exploration deal suggests
that although China is not yet ready to back down over its claims in the South China
Sea, it is at least prepared to cut ASEAN countries in on some of the economic
benefits to be made if they are prepared to come to the table on its terms. Indeed,
the Philippine government has decided to air out its complaints over territory
bilaterally and directly to China, instead of through regional platforms such
as ASEAN.

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If this approach is extended to other claimant countries, the international hotspot
that is the South China Sea could return to the more dormant status it occupied
before the 2000s. This would by no means be a perfect solution for the claimant
states in ASEAN to the territorial disputes, but it is better than most of the current
alternatives when considering that China is likely to hold all the cards over the
long run.

Economy
Forecast updates
September 7, 2017: Policy trends
Prime minister mulls giving more power to Ho Chi Minh City
Event
The prime minister, Nguyen Xuan Phuc, gave his tentative approval on September
6th for the administration of Ho Chi Minh City (HCMC) to take on more decision-
making powers.

Analysis
The move would help HCMC to look for new ways to cope with the economic and
social pressures of a growing population. Vietnam's largest city was, for years, its
primary economic engine and it continues to attract a lot of foreign investment. It is
also the home to many local private businesses, including success stories such as a
budget airline, VietJet.
From 2011 to 2015 HCMC's economy grew by an average of 9.6% a year, well above
the national average of 5.6% during this period. According to state media, per-head
income averages over US$5,000 a year, and the city contributes close to 30% of the
government's budget. Growth rates will slow as the local economy matures,
however,andsoofficialsarenowlookingatwaystohelptospurthecityonupto
and including a greater degree of decentralisation.
The argument is that more autonomy will help HCMC to tackle specific problems
moreefficiently,suchashowtomanagetheneedsofalargepopulationfor
example, the provision of adequate transport and housing options. Nguyen Thien
Nhan, the secretary of the municipal committee of the ruling Communist Party of
Vietnam (CPV), told state media that the city requires more investments in water
supply and waste treatment, in addition to more education and healthcare facilities.
On that note, Mr Phuc has agreed in principle to decentralise the administration of
HCMC to the furthest degree possible under Vietnamese law in order to help it to
meet these growing challenges.
HCMC has developed differently from much of the rest of Vietnam, and therefore
the notion of providing more autonomy to its leaders to address the city's specific
issues is welcome. However, the CPV will probably maintain close scrutiny of how
this is done in practice, given HCMC's reputation for corruption and the ruling
party's stated goal of eliminating graft. Those chosen to administer the busy
commercial hub are likely to be closely vetted.

Impact on the forecast

No changes to our forecasts are necessary, as the plan is yet to obtain final
approval. However, regardless of whether HCMC is given more autonomy, the city
will continue to play a pivotal role in Vietnam's solid economic growth prospects.

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September 26, 2017: Economic growth

Doksuri underscores the threat posed by climate change
Event
Accordingtoareportbystate runVietnamNewsonSeptember24th,thefloodsthat
were triggered by Typhoon Doksuri remain an issue in parts of Quang Binh
province.

Analysis
Vietnam was badly affected by Typhoon Doksuri when it hit the country's central
coastlineinmid September,killingatleastninepeopleandcausingwidespread
damage. The country's Disaster Management Authority has said that a handful of
people went missing after the storm made landfall, while just over 110 were injured.
More than 150,000 homes across six provinces have been damaged and many more
lost electrical power. The government mobilised 31,000 soldiers and police to help
residents in the hardest-hit provinces.
The country is used to typhoons, given its long and vulnerable coastline on one of
the busiest storm paths in the world, but the increasing intensity of storms owing to
climate change pose a much greater risk to economic development. State media
reportedthatDoksurihascausedanestimatedUS$80m worthofdamage,theworst
of it in Quang Binh province. More than 1,000 hectares of rubber plantations were
affected, while many villages were flooded. Part of the problem was that this
particular storm was relatively slow-moving. Indeed, Vietnam's minister for
agriculture, Nguyen Xuan Cuong, noted on state television that Doksuri sat over
some of the most vulnerable areas for eight consecutive hours.
Around 40 flights between the two economic hubs of the capital, Hanoi, and the
commercial centre, Ho Chi Minh City, were cancelled, although the worst of the
storm bypassed the important coffee-growing areas in the Central Highlands region.
If anything, the additional rains brought by the storm could prove beneficial for
these particular plantations. Overall, Doksuri, while devastating lightly built
infrastructure, will have little in the way of lasting economic impact. Crucially, the
deployment of large numbers of troops to enforce evacuation orders in areas in the
firing line appears to have prevented what could have been a far worse loss of life.

Impact on the forecast

Ourfull yearrealGDPgrowthforecastof6.3%remainsunchanged.However,the
severity of Doksuri underscores our view that the effects of climate change will limit
the economy's ability to grow much faster over the long term.

September 27, 2017: Economic growth

Benchmark stock index at its highest in nearly 10 years
Event
Ending the trading day at 805.4 on September 26th, Vietnam's benchmark
HoChiMinhStockIndex(VN Index)isontracktoclosethemonthatafresh
multi yearhigh.

Analysis
The strong performance of Vietnam's stockmarket since 2016 is underpinned by
robust economic growth and it supports our view that confidence in the market as a
source of finance will return fully in the forecast period. Such confidence was
shatteredwhenthebubbleburstin2008 09inthemidstoftheglobalfinancialcrisis:
theVN Indexcollapsedfromapeakof1,170.7inMarch2007toatroughof235.5in
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February2009.Themarket'spost crisisrebounddidnotlastlongandittook
roughlyfiveyears(to2014)fortheVN Indextorecovertothehighitsetinlate
2009.Stocksthenmovedlargelysidewaysin2014 15.

While all major stockmarkets in South-east Asia have done well since the start of
last year, Vietnam's benchmark index is notable for its outperformance. As of
September27ththeVN Indexisupbynearly40%comparedwithend 2015an
increase that far outstrips the gains to date for the benchmark indices in Thailand
(30%), Indonesia (28%) and the Philippines (18%). The positive wealth effects
stemming from the rise seen in Vietnam's stockmarket have no doubt been a boon
for consumer confidence. Retail sales have grown at an average rate of 12% year on
year so far in 2017, which is an average rate of expansion not seen in three years.
At the margins, Vietnam's healthy stockmarket should help to speed up the
government's long-running equitisation (part-privatisation) drive. Indeed, compared
with recent years, the authorities should be able to fetch a higher price for shares in
some of the country's more lucrative state-owned enterprises (SOEs), incentivising
them to sell sooner rather than later while the market is booming. That said, buoyant
investor sentiments alone will not be enough for these stake sales to achieve
markedly greater success. Overall, equitisation will remain a gradual process as the
government, for the most part, still appears to be reluctant to give up a controlling
interest in SOEs, among other structural issues.

Impact on the forecast

No changes are necessary as the outperformance of Vietnam's stockmarket adds
weight to our view that the country will remain one of the more promising prospects
intheregion.OurforecastsseerealGDPgrowthaveraging6.2%ayearin2017 21.

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September 27, 2017: Fiscal policy outlook

Piloting a quicker way for customs payments
Event
Starting in November, five banks will pilot an electronic customs payment system
that is designed to be available 24 hours a day and seven days a week, according to
a report from state media in mid-September.

Analysis
Once the new system is up and running it will help to ensure more seamless
customs payments, thereby making it easier for businesses to conduct external
trade. Among the five banks selected by the General Department of Vietnam
Customs are the country's three largest partly private banks by assets: BIDV,
Vietinbank and Vietcombank. The decision to include major banks from the get-go
signals a sound commitment on the part of the government to see this initiative
succeed, although teething issues are likely. Moves to better facilitate exports and
imports, including the launch of the National Single Window in 2015, show that
Vietnam is keen to become a regional manufacturing hub.
Improvements in tax administration will remain a key feature of fiscal policy reform in
the years ahead, as the government works to consolidate the budget and slow, if
not halt, the rapid rise in the public debt: our forecasts see the latter hitting the
equivalent of 62.3% of GDP this year, up from just over 40% a decade ago. More
ambitious tax reforms in pursuit of these goals will continue to struggle, however,
owing to the authorities' arguably stronger desire to maintain the rapid pace of
economic growth.
Such policy incoherencies were in full public view in early September when,
according to various reports, the Ministry of Finance was asked from within the
establishment to hold off on its planned tax increases to support the government's
real GDP growth target of 6.7% for 2017. One of the finance ministry's more
contentious plans is a rise in the standard value-added tax (VAT) rate to 12%, from
10% currently. The shelving of the more direct revenue-enhancing measures
supports our view that fiscal consolidation will proceed only gradually in Vietnam.

Impact on the forecast

We anticipate that the pilot project will provide a small boost to revenue by
reducing the scope for corruption in the collection of customs payments. However,
this is unlikely to be sufficient to lead to a significant change to our fiscal forecast.
We continue to expect the budget deficit to narrow from the equivalent of 5.6% of
GDP in 2016 to 4.1% by 2021.

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October 2, 2017: Policy trends

Former general director of OceanBank sentenced to death
Event
On September 29th the Hanoi People's Court sentenced Nguyen Xuan Son, a former
general director of OceanBank, to death.

Analysis
Prior to his arrest, Mr Son was seen as a powerful player in Vietnamese business
circles. After his tenure at OceanBank, in 2014 he was promoted to chairperson of
PetroVietnam, one of the country's largest state-owned enterprises. Mr Son was one
of 51 former officials and bankers who faced trial on a number of charges, including
embezzlement and abuse of power, for unorthodox proceedings at OceanBank.
The court found Mr Son guilty on charges of directly embezzling US$2.2m and
using his influence to obtain another US$8.7m from OceanBank, which was 20%
owned by PetroVietnam. In addition to Mr Son's death penalty, a former OceanBank
chairperson, Ha Van Tham, was given a life sentence. Twelve other defendants were
convicted and given sentences of up to 30 years, while 32 received suspended
sentences of up to three years, and five were sentenced to two years of re-
education.
Messrs Son and Tham were accused of coming up with a scheme to pay out interest
higher than the rate set by the State Bank of Vietnam (SBV, the central bank), which
they offered to more than 50,000 people and nearly 400 companies. The higher rates
caused the bank to lose US$69m directly. The embezzlement scandal and other
problems at OceanBank forced the SBV to take it over in 2015, after it was estimated
to have lost an accumulated US$445m.
The case has been a source of embarrassment to the Communist Party of Vietnam
(CPV). Summarising the case, one of the two judges, Truong Viet Toan, said that
corruption by senior CPV members and senior civil servants such as Mr Son had
damaged public trust in the government and threatened its long-term survival. The
CPV's general secretary, Nguyen Phu Trong, realises that the government is
vulnerable to corruption allegations, particularly those relating to graft in the state
sector. The Economist Intelligence Unit believes that Mr Trong will continue to
focus on tackling graft during his leadership, primarily by going after grand
corruption.

Impact on the forecast

The decision to select the harshest sentence possible for Mr Son is in line with our
viewthattheCPVleadershipwillprioritiseanticorruptioneffortsin201721.We
believe that such efforts pose an inherent risk to political stability, as it threatens to
upset the balance of power between factions within the CPV.

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October 6, 2017: Economic growth

PetroVietnam posts a strong performance
Event
Vietnam's flagship state-owned enterprise (SOE), PetroVietnam, posted a strong
performanceinJanuarySeptember,accordingtocompanydatareleasedon
October 5th.

Analysis
PetroVietnam data show that it outperformed its financial plan over the first nine
months of the year. Revenue soared to 16% above target, reaching D367trn (around
US$16.1bn). The better than targeted performance was primarily owing to the
government's decision to bump up PetroVietnam's oil output in 2017 after a
disappointing economic outturn in the first quarter, when real GDP growth slowed
to 5.1% year on year, from 5.5% a year earlier. In the first quarter of 2017 crude oil
output fell by 15.4%, to 3.4m tonnes, the deepest annual contraction since mid-2010.
As requested by the government, PetroVietnam announced in mid-April 2017 that it
had increased its annual oil extraction target by 1m tonnes this year to support
economic growth. PetroVietnam's increased output contributed to the economy's
robust performance in the first nine months of 2017, when real GDP grew by 6.4%.
As a result of the authorities' directive, domestic crude production was 3% higher
than the official plan for the first nine months of the year, reaching 10.25m tonnes.
Meanwhile,totaloiloutputreached19mtonnesinJanuarySeptember,meeting
73.6% of the company's full-year target. Besides crude production, PetroVietnam
also surpassed other targets. Output of fertiliser in the first nine months of 2017
exceeded the target by 10%, while petroleum production was 22% higher than
planned, underlining Vietnam's growing capabilities as a refiner.
The company's strong output this year will have positive wider economic
implications. PetroVietnam is among the country's most important SOEs and a
significant contributor to the state budget. In the first nine months of 2017 the
companycontributedUS$3bntothestatebudget21%higherthanitstargetfor
the period. The outlook for the sector and, consequently, economic growth in 2018
is also positive; The Economist Intelligence Unit forecasts that crude oil prices
(dated Brent Blend) will average US$51/barrel next year, down only modestly from
US$52.3/b in 2017. We anticipate that hydrocarbons production will pick up
modestly in 2018.

Impact on the forecast

We will not be adjusting our estimate for real GDP growth this year, which stands at
6.3%, as we have already incorporated the robust performance of the oil sector. The
modest uptick we expect in hydrocarbons production in 2018 supports our view for
marginally stronger real GDP growth of 6.5%.

Analysis
September 29, 2017
GDP growth spikes in the third quarter
In line with The Economist Intelligence Unit's expectations, Vietnam's economy is
on track to record marginally strong growth in 2017, despite a weak start to the
year. According to data released by the General Statistics Office (GSO) on
September29th,realGDPgrewby6.4%yearonyearinJanuarySeptember.
Although we believe that the government's 6.7% full-year growth target is still
out of reach, the latest headline figure is largely in line with our forecast of 6.3%.

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 Vietnam 30
Vietnam should be able to do better next year, however, even if 2018 presents some
new challenges.
The acceleration in economic activity registered in the third quarter of 2017 was
relatively broad-based: headline GDP growth shot up to 7.5% year on year, from
6.3% in the second quarter. Vietnam's agricultural sector continued its recovery from
theslowdownitexperiencedin201516,whenextremelyadverseweatherconditions
significantly affected farmers. The sector's year-to-date growth rate improved
marginally from 2.7% in the first half of the year to 2.8% in the nine months to
September. This upswing is likely to stall temporarily, however, following the
massive storm that hit the country's central coastline earlier this month.
Nevertheless, a renewed period of softness in the agricultural sector will not
significantly affect overall economic growth, as the other parts of Vietnam's
economy are continuing to perform well. The services sector, in particular, looks set
torecorditshighestrateofannualgrowthsince2011.InJanuarySeptemberthe
sector expanded by 7.3% year on year in real terms, thanks in part to robust
consumer spending and the huge inflows of tourists that continue to pour into the
country.
Indeed, the average rate of retail sales growth in the third quarter was 12.4% year on
year, compared with 8.7% in the same period of 2016, and the number of foreign
visitors to Vietnam will reach a new high this year. The country's tourism sector
already experienced a stellar performance in 2016, with a record 9.9m visitors coming
into the country. The annual tally to date stands at 9.4m tourists, with three months
stilltogobeforetheendof2017crucially,Vietnamtendstoreceivethemost
number of visitors from October to December.

Industry surge: probably a one-off, but welcome

nonetheless
The main reason why Vietnam's economy performed so well in the third quarter of
2017 was the surge in growth witnessed in the industrial sector. On a year-to-date
basis, the sector's real growth rate jumped to 7.2% year on year, from 5.8% in
JanuaryJune.Thisstrongquarterlyperformance,whilewelcome,willbehardto
sustain as it is flattered by an unusual spike in manufacturing in September.
According to the GSO's data on industrial production, manufacturing output rose
by 19.5% year on year in that month, which is well above the relatively stable 12%
average seen since the start of the second quarter.

Fiscal and monetary policy to remain supportive

Accordingly, we will not be revising our 6.3% full-year growth forecast for 2017,
even though the economy's expansion to date is already slightly above this rate. On
a related note, we expect government policy to remain broadly supportive as the
authorities strive to meet their 6.7% full-year growth target. As a result, we expect
that fiscal consolidation will continue to be pursued only half-heartedly by the
government, while the State Bank of Vietnam (SBV, the central bank) will remain
biased towards an accommodative monetary policy stance. Earlier this month, for
example, the SBV raised the credit growth limits for many banks for the remainder of
2017, just a few months after its surprise interest-rate cut in July.

Prospects look good for 2018

The current momentum that the Vietnamese economy is enjoying bodes well for its
prospects heading into 2018, when we expect full-year real GDP growth to improve
further, to 6.5%. We expect domestic demand to remain fairly robust next year,
supported by rapid wage growth and constructive government policies to
encourage investment. Healthier balance sheets in the banking system, aided by the
continued implementation of Resolution 42 to resolve non-performing loans, will
improve the ability of lenders to extend credit.

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 Vietnam 31
Externally, global economic conditions will weaken, as we expect a sharp economic
slowdown in China as the authorities there take more aggressive steps to tame the
build-up in debt following the Chinese Communist Party congress in October. That
said, demand from Vietnam's largest export market, the US, will remain strong and,
on balance, we expect the country's net exports to exert less of a drag on headline
GDP growth, with import growth also expected to moderate. Altogether, we do not
expect Vietnam to disappear from investors' radars, as it will continue to be one of
the fastest-growing economies in Asia.

Country Report October 2017 www.eiu.com EconomistIntelligenceUnitLimited2017