The Global Economy and Viet Nam: Current Situation and Perspectives

Transcription

1 2017/SOM1/EC/006 Agenda Item: 7c The Global Economy and Viet Nam: Current Situation and Perspectives Purpose: Information Submitted by: Central Institute for Economic Management First Economic Committee Meeting Nha Trang, Viet Nam February 2017

2 The Global Economy and Vietnam: Current Situation & Perspectives Vo Tri Thanh Nha Trang, 27 February 2017 World Economies Bumpy recovery (IMF): 5.2% 2010; 3.9% 2011, 3.2% 2012, 3.0% 2013; 3.4% 2014; 2015: 3.2%; 2016: 3.1% Forecast for 2017 : Recovery weak and with uncertainty IMF : 3.4% (Mainly driven by US & some emerging economies, but not China and ASEAN-5) Note: Forecast has been often subject to change frenquently 1

3 IMF Outlook (January 2017; Unit: %) Difference* World GDP (Growth rate, %) Advanced economies United States Japan Eurozone Emerging market and developing economies Emerging and developing Asia China ASEAN World trade volume (growth rate, %) None-fuel price (% increase, USD) Note: * Difference between the forecast in October ASEAN-5 includes Indonesia, Malaysia, the Philippines, Vietnam and Thailand. With high risks and uncertainties Geo-political situation (Wars & conflict potential; migration; terrorism ) Commodity price (oil price): Technology; USD; supply and demand?,.. Finance & capital flows: Fragile financial system (China?); conflicting monetary policy by developed countries; USD appreciation (Fed >< Donald Trump s policy?) and other countries responses Emerging protectionism, nationalism & anti-globalization sentiment (Brexit; US trade policy and TPP withdrawal; social issues: income stagnation and raising income inequality in developed countries) Maurice Obstfeld (IMF chief economist): Turning back the clock on trade can only deepen and prolong the world economy s current doldrums 2

4 Challenging reforms & opportunities The global economy is being in transition : minimizing risks, keeping recovery, but accelerating the restructuring process (for having a more balance between real sector and money sector, a more integrated economy, a more inclusive, sustainable development, and innovated growth) But with hard transition High adjustment costs short-run COST vs. long term (uncertain) BENEFIT Political cycles vs. long run development vision Complexity of new mega-trends to be dealing with Regional & global trends over next 20 years (VN 2035) 1. Multi polar world; geo-political and middle-class pressure 2. Aging population; urbanization ( green and smart city) 3. Artificial brain; 3-D printing; production upon request; new energy; SMAC; biotechnology. 4. Super FTAs (TPP?, TIIP?, RCEP, FTAAP) and regional linkages; regional and global institutional reforms 5. Resource competition (water, energy) and climate change 6. Arising Asia (China, India) 7. USD dominates then gradually decreases (Optimal currency group?) 3

5 Performance Vietnam Economy : Rather high growth (7.8% p.a.); increasing investment and trade; relatively stable macroeconomic environment (low inflation and current account balance) (5 years after WTO accession): Growth decelerated (6.5% p.a.); expansion of investment (I=42%GDP) and trade; serious macroeconomic instability (High budget deficit; Sizeable trade and current account deficits; High & volatile inflation; significant S-I gap: >> 10% GDP) In general, VN economy has suffered from structural problem (low quality of growth) and became less resilient to external & external shocks. Note: VN is very open economy (X+M)/GDP > 160%; FDI: 65% of export; >20% GDP; nearly 50% industrial output Significant policy shifts since To focus on macroeconomic stabilization (Gov t Resolution 11 in March 2011: Macro-policy tightening + Policies to prevent dollarization) To recover gradually the economic growth To initiate programs of restructuring the economy for greater efficiency (Financial & banking sector; SOE sector; Public investment) To deepen international integration (FTAs; strategic &/or comprehensive partnerships) 4

6 Economic performance Improved macroeconomic stability: Much lower inflation (from > 20% by the end 2011 to < 1% in 2015 and < 5% in 2016), BOP surplus; increasing international reserves, relatively exchange rate stability, but with still evident risks (high budget deficits; 2016 > 6% GDP; increasing public debt, nearly ceiling of 65% GDP; substantial bad debt) Signs of recovery (2012: 5.3%; 2013: 5.4%; 2014: 6.0%; 2015: 6.7%; 2016:6.3%); much driven by industrial production, FDI exports, and somehow consumption) but hardship remains (agriculture production; SMEs) 5

7 The structural reforms: so far implemented not fast as expected Issues for SOEs: Transparency; Ownership representation; Governance & management; Equitization (still not a real process: small share + few equitization of big corporations) Banking sector: Good news: Avoidance of system collapse in tandem with restructuring of most fragile banks (through M&As and nationalization) and progress in macro-stabilization. Issues: Improving the soundness and strengthening competitiveness of the system (Solving problems of bad debt, cross-ownership; strengthening transparency and supervision capacity; improving risk management in meeting inter. standards and best practices) Puiblic investment: Enforcement of Law of Public Invesment (2013) and Decree of PPP. Qs: Decentralization process; Amendment of legal framework in compliance with international commitments. Some other sectors?: Agriculture; Tourism; Education system 6

8 VN economy 2017 and in medium term 2017 Plan target Growth of GDP: 6.7% Inflation: 4% Forecats Growth of GDP: % Inflation: 4% - 5% Plan targets : Growth of % p.a; inflation: about 5%; I/GDP= 32-34% + efficiency improvement (TFP contribution: 25-30%; L-productivity growth:4-5%). 7

9 Short-term macro-policy choices Quite narrow room for macro-policies manipulation (2017) Monetary policy: Credit growth: about 18%; Credit vs. bad debt; Pressure on VND depreciation and more flexibility vs. interest rate parity condition (Ivnd vs Iusd + Depreciation Rate); Longer term interest rates vs. gov t bond issuance Fiscal policy: high deficits (pressures on both revenue and expenditure sides) + increasing public debt + Challenge to implement commitments on medium term budget deficits (from > 5% GDP to3.5% GDP by 2020) Medium & longer terms efforts The key is to regain confidence of the private sector and foreign investors for promoting I (and C to some extent) (Note: Domestic saving 30% GDP + FDI, ODA, while current total investment 30% GDP a significant share of domestic saving is of financial savings). This depends on Institutional reforms and business environment improvement (Resolutions 19 & 35; Implementation of new Investment Law, Enterprise Law; Law of Public Investment and new legal framework for PPP, Continuing efforts to stabilize macro-economy Structural reforms (SOEs, Financial & banking sector; Public investment, ) Effectiveness of integration and realization of FTAs 8

10 Can VN realize business opportunities taking advantages of FTAs? Exports of those sectors having comparative advantages (T&G, footwear, furniture, rice, coffee, aquaculture,..) Consumption goods (distributions; pharmacy; tourism & entertainment) Infrastructure dev t and logistics (ASEAN MPAC and APEC connectivity) Participation (esp. of SMEs) in production networks/industrial clusters led by TNCs (dev t of supporting industries) Emerging new sectors ( green industry; IT and e-commerce; creative industry) Note: There are also many industries/sectors under cooperation (i.e. VN- Japan: 6 industries) Turning point for VN reforms Concluding remarks VN is really in need of transforming the paradigm/pattern of development by establishing foundations for overcoming middle-income trap VN needs to have a new impetus for reforms as well as quality resources for development. Interaction between domestic reforms and integration becomes much more profound with challenges. Ambitious goals is to be realized in the context of Limited human & finance resources A more demanding society Institutional and political reforms 9

11 Thank you! 10