Taking Stock: Coverage

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2 Taking Stock: Coverage External Economic Environment Recent Economic Developments in Vietnam Special Topic 1: Trade Facilitation, Competitiveness, and Growth in Vietnam Special Topic 2: Corruption and Economic Growth in Vietnam Special Topic 3: Poverty and Inequality in Vietnam

3 External Economic Environment

4 A gradual pick up in growth, led by high-income countries Percent annual GDP growth 10 Middle Income 8 Low Income 6 4 World 2 High Income Source: World Bank.

5 Regional growth strengthening or stable almost everywhere Percent annual GDP growth East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle-East & North Africa South Asia Sub-Saharan Africa Source: World Bank. 5

6 percent Growth has picked up in high-income countries in more recent months Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 United States Euro Area Japan

7 The World Bank Business confidence in high-income countries has also picked up 60 Purchasing Managers, indexes (50 or more indicates expansion) Expansion 55 Other high-income Developing excl. China 50 China Contraction Euro Area 45 Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Jul '13 Source: World Bank, Markit, Haver Analytics 7

8 USD price, 2005= Commodity prices have eased or are stabilizing Metals and Minerals Food Energy Source: World Bank, Datastream, Bloomberg. 8

9 Key Risks to the Global Economy

10 #1: The End of Quantitative Easing 6 Yield 10 year US T-bills Source: US FED 10

11 Thailand Bhutan Botswana Armenia Serbia China St. Lucia Vanuatu Vietnam Malaysia Morocco Gambia Turkey Venezuela Lesotho Cambodia Paraguay Lao PDR Malawi Romania Kosovo Brazil #2: Risk from High Level and Rapid Growth in Domestic Change in Credit level Source: World Bank, IMF. 11

12 #2: Risk from High Level and Rapid Growth in Colombia Macedonia, FYR Russian Federation Samoa Costa Rica Serbia Bangladesh Honduras India Turkey Bhutan Mongolia St. Vincent and the Grenadines Nepal Lithuania Maldives Bosnia and Herzegovina Montenegro Ukraine Dominica Belize Brazil Cape Verde Vanuatu Chile Morocco Bulgaria Jordan Fiji Tunisia Grenada Latvia Lebanon Mauritius Thailand Panama St. Lucia Vietnam Malaysia South Africa China Domestic Private Domestic banking claims (% GDP) Source: World Bank, International Debt Statistics. 12

13 #3: Excessive Chinese investment poses risks to activity and banking-sector Chinese Investment as a share of GDP, % 50 Average ,45% 45 Average , 40% 40 Average , 35% 35 Average , 28% Source: World Bank. 13

14 Recent Economic Developments in Vietnam

15 1-Oct-09 1-Jan-10 1-Apr-10 1-Jul-10 1-Oct-10 1-Jan-11 1-Apr-11 1-Jul-11 1-Oct-11 1-Jan-12 1-Apr-12 1-Jul-12 1-Oct-12 1-Jan-13 1-Apr-13 1-Jul-13 1-Oct-13 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Macro stability in Vietnam has improved CDS spread, 5 years (basis points) Year-on-Year Inflation (%) Headline Food Core Source: Bloomberg GSO

16 growth however stagnant at modest levels Vietnam

17 Constraints to growth Growth remains stagnant at modest levels Short run: Subdued private sector confidence Shrinking fiscal space Long-term: Structural constraints SOE and banking sector issues Declining competitiveness and productivity growth Market economy institutions and level playing field Tight supply of market-oriented technical skills

18 Short-term constraints to growth Subdued private sector confidence Sharp drop in private investment rate, from 15% from to 11.5% in 2013 The Provincial Competitiveness Index indicates firms less likely to invest or expand production PMI has mostly been in ve territory Subdued HH consumption growth: 5.1% in , compared to 8.9% in previous 4 years

19 Short-term growth: Global situation has important implications 8.0 East Asia Average World Average Vietnam (left axis)

20 ST growth constraints: Shrinking fiscal space Crucial fiscal policy choices: balance between supporting growth and sustainability Low debt distress, but fiscal expansion is stretching limits of this assessment Even a small increase in pace of spending will lead to a rapid deterioration in debt dynamics. Consolidation of capital spending welcome move Greater fiscal transparency needed

21 Longer-term growth: getting the business climate right Getting electricity Starting a business Dealing with construction permits Resolving insolvency Registering property Enforcing contracts Getting credit Trading across borders Paying taxes Protecting investors Vietnam ASEAN-4, average

22 LT growth: getting SOE reforms right Number of firms equitized in the year Cummulative number of equitized firms

23 LT growth: getting SOE reforms right Relatively slow SOE reforms on account of: Lack of clarity of state ownership plans Top-down approach, lacking policy and implementation coordination Restructuring targets not kept realistic Unclear, and fragmented regulatory framework Limited underlying financial and operational analysis for divesture Weak market conditions lately

24 LT Growth: Getting banking reforms right Banking sector fragilities remain High NPL ratios (financial disclosure & transparency big concerns) Loan classification not per international stds State retains a big share in banks Regulations on bankruptcy, insolvency, creditor rights need attention VAMC an important step: its organizational and financial capacity needs bolstering

25 Medium-term outlook and risks Medium-term outlook is favorable on balance, albeit with considerable downside risks Downside risks (p) 2014 (p) 2015 (p) GDP Growth (%) Weak private sector demand vulnerable to further bad news Possibility, though diminished, of departure from prudent macro policies Structural reforms could further slow down Banking sector still fragile

26 Special Topics in Taking Stock December 2013

27 Special topic 1: Trade facilitation, competitiveness and growth in VN Impressive gains in leveraging benefits of global integration However, export growth mostly low tech Technology Classification of Total Exports (%) Low Tech Primary Products High Tech Resource Based

28 Firm's operational efficiency compared to 2 years before -1=much worse +1=much better Special topic 2: Corruption and Growth Vietnamese firms that paid bribes have done worse! Need for: administrative reforms and greater transparency Firms that do not present gifts or money to the incharge officers Occasionally presents gifts or money to the incharge officers Frequently presents gifts or money to the in-charge officers

29 Special topic 3: Poverty and Inequality

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31 Thank you!