The Asian Development Bank (ADB) has launched the Asian Development Outlook Update (ADOU) 2017 which forecasts a downward revision in Viet Nam’s economic growth to 6.3 per cent in 2017, and 6.5 per cent in 2018 due to an eight per cent contraction in mining and oil output in the first half of the year. However, according to The Asian Development Bank (ADB)'s Country Director for Viet Nam Eric Sidgwick, Vietnam’s economy will be still resilient against unexpected shocks.
TheLEADER had a talk with Eric Sidgwick on this issue.
Mentioning the drop in the output of mining and oil sector, you still believe in the potential of Vietnam’s economy. What are you basing on?
Eric Sidgwick: The mining output is only a relatively small share of the total output but that share trimmed quite a bit in the first half of the year and may be stabilizing now while we’re not quite sure yet. But the other parts of the economy, the manufacturing sector, even construction, agriculture and service sectors continue to do well and be improved.
Vietnam’s economy will be still resilient against unexpected shocks thanks to its twin engines of export-orientated manufacturing and rising domestic consumption. Manufacturing expanded by 10.5 per cent in the first half of the year as new foreign-invested factories ramped up production, while the services sector continued to pick up steam as a result of rising retail trade, growing bank lending and a 30 per cent jump in tourist arrivals.
Viet Nam’s economic growth is expected to rise in the second half of the year, buoyed by further increases in foreign direct investment (FDI) and exports, domestic credit growth, a further recovery in agriculture from the 2016 drought and accelerating disbursements of capital expenditure on national infrastructure programs.
Can you clarify the risks of the increasing credit ratio in Vietnam's economy?
Eric Sidgwick: We identified two major risks. The first risk related to the fiscal deficit and measures to reduce the fiscal deficit which will help to reduce the level of public debt. Vietnam needs to correct the imbalance between the capital spending and the recurrent spending to maintain its long-term growth performance.
And the second risk was the reduction in interest rates and increase in credit growth in the economy. So we are concerned about the quality of that credit growth to make sure that it contributes to the growth while at the same time not undermining the banking system and the already high level of non-performing loans in the banking system.
Do you think that Public-Private Partnership (PPP) is a good model for the development of Vietnam?
Eric Sidgwick: Some of Vietnam’s investment needs can be funded by the government, some of them can be funded by institutions such as ADB and other development partners. However, it is not enough to match the investment needs, so there’s a need to bring in private sector funding for the development of Vietnam and PPP is one avenue to help achieve that and there’s a great potential for doing more PPPs in Vietnam.
The tax system in Vietnam is quite appropriate to encourage investments; however, there are still problems need addressing. Specifically, the current tax rates in Vietnam are not high compared to other countries while there is a higher level of tax exemption, which is not necessarily sustainable. Therefore, Vietnam needs to have a tax system that grows with the economy.
Thank you very much.
