Vietnam. Summary. Economic Indicators

Transcription

1 Vietnam Summary Moody s B1 / S&P BB- / Fitch BB- 1 Economy: Agriculture 16%, Industry 33%, Services 41% Vietnam has been among the fastest-growing economies in Asia over the past decade, increasing GDP per capita considerably. The country enjoys macroeconomic stability as a result of government directives aimed at inflation, exchange rates, and interest rates. Foreign direct investment (FDI) remains strong and is increasingly shifting toward higher value-added activities, such as electronics. Vietnam s banking system has improved, with nonperforming loan (NPL) issues stabilizing, although the sector remains highly fragmented. Other challenges facing the country are the lack of infrastructure and a strong public-private partnership (PPP) framework that encourages private participation. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 1,900 2,049 2,088 2,172 2,306 2,482 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, Haver Analytics, IMF 93

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency BB+ BB B+ B Local Currency BB- BBB- BB+ BB BB- B+ B B B Moody s S&P Fitch Moody s S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Vietnam 2010 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 94

3 Vietnam Strengths High GDP Growth with Positive Demographics Vietnam has been one of the fastest-growing economies in Asia, trailing only China. From , GDP growth averaged 6%, and as a result, GDP per capita has increased considerably, from US$400 in 2000 to an estimated US$2,482 in It has a well-diversified economy in which the service sector accounts for 44% of GDP; industry and construction, 39% of GDP; and agriculture and fisheries, 18%. 3 Vietnam s economy is driven by domestic consumption, which represents 70% of GDP, and its demographic profile is favorable, with 40.5% of the population of 95.2 million under 25 years old. 4 According to the Boston Consulting Group, Vietnam has the fastest-growing middle and affluent-class population, which is defined in Vietnam as people with a monthly income above US$190, and it expects that this middle class will reach 33 million by Macroeconomic Stability After years of high growth, the government adopted a new approach to managing the economy in February 2011, emphasizing macroeconomic stability over rapid growth, marking a decisive policy shift to control an overheated economy and provide a more stable macro environment. This focus on macro stability was reaffirmed when parliament approved Vietnam s Socio-Economic Development Plan , which sets targets of 6.5% to 7% annual GDP growth, US$3,200 $3,500 GDP per capita, and a reduction in the fiscal deficit to 4% of GDP by A potential challenge to macro stability is the deteriorating fiscal deficit, which reached 6.6% in 2016 and is expected to remain relatively high; the IMF forecasts a deficit of 5.79% of GDP in 2017 and 5.819% of GDP in Natural Resources Vietnam has the third-largest proven oil reserves in Asia at 4.4 billion barrels, an amount that is only surpassed by China s 25.7 billion barrels and India s 4.8 billion barrels. For comparison, Malaysia and Indonesia have 3.6 billion of reserves each. Current production in Vietnam is 333,000 barrels per day and is expected to remain in this range for the next few years. Vietnam is a net exporter of crude oil but an importer of refined oil products, as its average daily demand is 407,000 barrels per day. 7 Vietnam also has natural gas, but all of its production is consumed domestically, and while it is currently self-sufficient, Petro-Vietnam expects that by 2025, it will be forced to import gas to meet the increased needs of a larger population. Additionally, Vietnam s climate is ideal for agriculture. While potential for the agriculture sector is significant, productivity needs to be improved. The country s most important agricultural product is rice; Vietnam is one of the top rice exporters in the world. Other important products include coffee, cotton, peanuts, and peppers. Agriculture accounts for 22% of GDP, about 12% of exports, and 48% of employment; thus, crop performance is extremely important. 8 Finally, the fishing industry has significant potential due to Vietnam s long coastline. Improving Quality of FDI and Manufacturing Competitiveness Vietnam continues to receive a steady flow of FDI in excess of $10 billion per year, with the IMF forecasting FDI in 2017 of $13 billion 9 while the Government expects disbursed FDI of $16 billion. 10 One positive feature of increased FDI is that investments are now moving away from the agricultural and mining sectors and up the value chain as investments in manufacturing, and wholesale and retail trade increase. The country has attracted high-profile investors such as Samsung to build display components for mobile devices; in addition, 95

4 Lazard Emerging Markets Debt 80% of Intel s latest CPUs are made in Vietnam. The country is becoming a regional manufacturing powerhouse due to its low labor and energy costs, and to further support the manufacturing sector, the government is concurrently developing the logistics sector, which it expects to contribute up to 10% of GDP by In the latest World Economic Forum competitiveness report , Vietnam ranked 55th, 12 an improvement from its 56th position a year ago and a significant improvement from its 75th position four years ago. Weaknesses Banking Sector NPLs Weakness in the banking sector has been a major bottleneck for faster economic growth. The sector is experiencing overhang from the country s past credit boom, and a key issue has been the level of NPLs, estimated at some point in the range of 8% 15%. The government has sought to address the problem by creating the Vietnam Asset Management Company (VAMC) to purchase NPLs from banks, and, by law, banks were required to sell all NPLs on their balance sheets in excess of 3% to the VAMC by September 2015, 13 thus strengthening the sector s overall balance sheet. As of June 2017, reported NPLs were 2.48%. 14 While the sector reports low NPLs, the fact remains that NPLs are still residing at the VAMC, which has not been very successful in selling the NPLs. Another structural issue is the large number of small banks in Vietnam that lack both the scale and capital to compete with larger rivals, such as state-owned banks. The IMF recommends that to strengthen its banking sector, Vietnam should recognize NPLs faster, recapitalize some banks, and resolve non-viable banks. 15 Slow Pace of State-Owned Enterprise Reform An important pillar of sustained economic growth is state-owned enterprise (SOE) sector reform, which accounts for 30% of GDP. While former Prime Minister Nguyen Tan Dung advocated for measures that accelerate SOE privatization, such as setting a target for share sales in 432 SOEs, that goal has not been met, and progress has been slow as the government sold stakes in only 182 out of a target of 289 SOEs by Current PM Nguyen Xuan Phuc has made SOE privatization a priority, targeting a reduction in the numbers of 100% SOEs to 137 by 2020, and raising $11 billion from SOEs privatization during the period Poor Infrastructure and PPP Laws Vietnam s infrastructure is deficient compared to neighboring countries. According to the World Economic Forum s ranking of overall infrastructure, Vietnam ranks 79 out of 137 countries, behind competing economies such as Malaysia (rank 22), Thailand (rank 43), and Indonesia (rank 52). 18 The government estimates that it needs to invest US$170 billion in physical infrastructure such as electricity, transportation, and water supply in the years Despite the large need for infrastructure, little progress has been made as the government is already fiscally constrained, and private-sector investment in infrastructure has been limited due to weak PPP laws and an opaque bidding process. The government is aware of this shortfall and has made improvements to the regulatory framework, making the process more transparent and competitive, and has enacted a new PPP law (Decree 15) that took effect in April The World Bank indicated that the law has a positive impact on the economy and expects to attract $16 billion per year through

5 Vietnam Lack of Transparency Vietnam s economic data has traditionally been limited or published with a significant lag, making economic analysis more difficult. In the Open Budget Index 2015, Vietnam s budget openness was considered Scant or No Information, 22 the lowest category. For example, issues with fiscal information have included large off-budget expenditures, revisions of fiscal numbers, and delays in releasing final fiscal numbers, although the Ministry of Finance is now more proactive and timely in publishing certain statistics. Similarly, the lack of information on SOEs makes it challenging to evaluate their balance sheets, adding to the difficulties to privatize them. 97

6 Lazard Emerging Markets Debt Country Background Size 331,210 KM 2 (66th) Capital Hanoi Population 96.2 Million Religion Buddhist 7.9%, Catholic 6.6%, HaoHao 1.7%, Cao Dai 0.9%, Protestant 0.9%, Muslim 0.1%, Other 81.8% Median Age 30.5 Years Literacy Rate 94.5% Independence 2 September 1945 Political System Communist State Government Leadership President Tran Dai Quang; Prime Minister Nguyen Xuan Phuc Next Election 2021 Economy Agriculture 16.3%, Industry 32.7%, Services 40.9% Labor Force Agriculture 48.0%, Industry 21.0%, Services 31.0% Merchandise Exports Clothes, Shoes, Electronics, Seafood, Crude Oil, Rice, Coffee, Wooden Products, Machinery Export Partners United States 20.2%, China 14.2%, Japan 8.2%, South Korea 3.2%, Germany 4.1% Currency Vietnamese Dong (VND) As of November 2017 Source: CIA 98

7 Vietnam Country Timeline 1976 Socialist Republic of Vietnam proclaimed. Saigon is re-named Ho Chi Minh City. Hundreds of thousands flee abroad, including many boat people New constitution adopted allowing certain economic freedoms. The Communist Party remains the leading force in Vietnamese society Vietnam and US restore full diplomatic relations. Vietnam becomes full member of Association of Southeast Asian Nations (Asean) After 12 years of talks Vietnam becomes the 150th member of the World Trade Organization. Government approves a $33bn plan to build a high-speed rail link between Hanoi and Ho Chi Minh City. US agrees for the first time to help fund a study into the removal of Agent Orange, the highly toxic defoliant used by US forces, from a former US base. President Nguyen Minh Triet makes first visit to the US by a Vietnamese head of state since the Vietnam War ended. Reappointed Prime Minister Nguyen Tan Dung promises to push through economic reforms The United States says it will partially lift its embargo on arms sales to Vietnam, which has been in place for three decades. Washington says the move applies to weapons for maritime purposes only. Prime Minister Nguyen Tan Dung meets Pope Francis in Rome. Both say they are committed to restoring diplomatic ties broken off in Prominent dissident blogger Nguyen Van Hai is released from prison and flies to the US after serving two years of a 12-year sentence for conducting anti-state propaganda. Source: BBC 99

8 Lazard Emerging Markets Debt Notes 1 As of Decmeber World Economic Outlook Data, October Vietnam Bond Prospectus, October Vietnam Demographics Profile 2017, Index Mundi, accessed on 23 October 2017, 5 Vietnam s middle class set to double by 2020: BCG, American Chamber of Commerce, Vietnam, AmChamVietnam.com, accessed on 28 October 2015, vietnams-middle-class-set-to-double-by-2020-bcg/. 6 WEO Outlook Data October Statistical Review of World Energy 2017, BP, accessed on 23 October 2017, content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of-worldenergy-2017-full-report.pdf 8 Agriculture Business and development exchange summary, The Overseas Development Institute, July 2013, and Macdonald, Madeleine, 2013 Queen s Institute of Trade Policy Trans-Pacific Partnership Trade Negotiation, October 2013, AgricultureVietnam.pdf. 9 IMF Vietnam Article IV July Vietnam to develop seven logistics centers in 2020, Vietnamnet, 14 July 2015, accessed on 28 October 2015, Doanh, Doanh, New NPL Target Set, Vietnam Economic Times, 26 June 2015, accessed on 28 October 2015, afrloop= #%40%3f_afrloop%3d %26centerwidth%3d80%2525% 26leftWidth%3D20%2525%26rightWidth%3D0%2525%26showFooter%3Dfalse%26showHeader%3Df alse%26_adf.ctrl-state%3d7yrjdu9q8_ Release-Staff-Report-and-Statement-by-the Asian Development Outlook 2014, Asian Development Bank, 2014, accessed on 28 October 2015, adb.org/sites/default/files/pub/2014/ado-2014.pdf. 20 Lam, Quynh-Ahn and Mayer Brown, Vietnam: new Decree on public-private partnership investments, Financier Worldwide, June 2015, accessed on October 28, 2015, vietnam-new-decree-on-public-private-partnership-investments/#.vjdvt9wrtry

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