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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
External Economic Environment
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 0-2 -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: World Bank.
Regional growth strengthening or stable almost everywhere Percent annual GDP growth 8 7 2012 2013 2014 2015 2016 6 5 4 3 2 1 0 East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle-East & North Africa South Asia Sub-Saharan Africa Source: World Bank. 5
percent Growth has picked up in high-income countries in more recent months 6 4 2 0-2 -4 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 United States Euro Area Japan
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
USD price, 2005=100 240 220 200 180 160 140 120 100 80 60 Commodity prices have eased or are stabilizing Metals and Minerals Food Energy 40 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: World Bank, Datastream, Bloomberg. 8
Key Risks to the Global Economy
#1: The End of Quantitative Easing 6 Yield 10 year US T-bills 5 4 3 2 1 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: US FED 10
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 40 35 Change in Credit level 30 25 20 15 10 5 - Source: World Bank, IMF. 11
#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) 0 20 40 60 80 100 120 140 160 Source: World Bank, International Debt Statistics. 12
#3: Excessive Chinese investment poses risks to activity and banking-sector Chinese Investment as a share of GDP, % 50 Average 2009-2013,45% 45 Average 2004-2008, 40% 40 Average 1991-2003, 35% 35 Average 1970-1990, 28% 30 25 20 15 10 5 0 1960 1970 1980 1990 2000 2010 Source: World Bank. 13
Recent Economic Developments in Vietnam
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 600.0 550.0 500.0 450.0 400.0 350.0 300.0 CDS spread, 5 years (basis points) 40 30 20 Year-on-Year Inflation (%) Headline Food Core 250.0 200.0 10 150.0 100.0 0 Source: Bloomberg GSO
growth however stagnant at modest levels 8.00 7.50 7.00 6.50 6.00 5.50 5.00 Vietnam 4.50 4.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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
Short-term constraints to growth Subdued private sector confidence Sharp drop in private investment rate, from 15% from 2007-10 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 2009-12, compared to 8.9% in previous 4 years
Short-term growth: Global situation has important implications 8.0 East Asia Average 7.5 7.0 6.5 6.0 World Average 5.5 5.0 Vietnam (left axis) 4.5 4.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0-3.0
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
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
LT growth: getting SOE reforms right 1000 800 856 813 5000 4000 600 461 506 621 3000 400 359 2000 200 0 127 116 117 13 43 1000 0 Number of firms equitized in the year Cummulative number of equitized firms
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
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
Medium-term outlook and risks Medium-term outlook is favorable on balance, albeit with considerable downside risks Downside risks 2012 2013 (p) 2014 (p) 2015 (p) GDP Growth (%) 5.2 5.3 5.4 5.5 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
Special Topics in Taking Stock December 2013
Special topic 1: Trade facilitation, competitiveness and growth in VN Impressive gains in leveraging benefits of global integration However, export growth mostly low tech 80 70 Technology Classification of Total Exports (%) 60 50 40 30 Low Tech Primary Products High Tech Resource Based 20 10 0
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 0.3 0.1 0.11 0.03-0.1-0.20-0.3 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
Special topic 3: Poverty and Inequality
Thank you!