ADB trims Vietnam’s growth forecast, warns of lending growth risks

Tuesday, 2017-09-26 16:45:55
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The release of the Asian Development Outlook Update 2017 report
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NDO - The Asian Development Bank (ADB) has revised its 2017 growth forecast for Vietnam, decreasing it to 6.3%, and warned of the risks associated with strong credit growth as the government seeks to boost the economy by lowering interest rates.

The ADB’s latest forecast, part of the Asian Development Outlook Update 2017 report, was down from its 6.5% projection made in an earlier report, as a result of weaker-than-expected growth in the first half of 2017, due to contracted mining output.

The growth forecast for 2018 has also been trimmed by 0.2 percentage point to 6.5%.

Despite weak mining and oil outputs, other sectors of the Vietnamese economy, especially export-led manufacturing and domestic consumption, have continued to perform relatively well, said ADB Country Director for Vietnam Eric Sidgwick.

Manufacturing expanded by 10.5% in the first half of the year, as new foreign-invested companies ramped up production, while the services sector also continued to pick up steam as a result of rising domestic consumption, growth in bank lending and a 30% jump in tourist arrivals.

While the outlook for Vietnam remains bright, the country needs to deal with the two emerging challenges to ensure sustainable growth, said Sidgwick.

According to the ADB report, recent efforts to raise the already strong bank lending growth by lowering interest rates could lead to increased financial risks, particularly when a large proportion of bad debt remains unresolved.

Therefore it is advised that the government strengthen their regulations and supervision on loan quality and continue the introduction of more stringent regulatory standards over the next 12-18 months in order to manage these risks adequately.

The other challenges relate to Vietnam’s progress in its efforts to reduce the budget deficit.

The ADB director in Vietnam stated that reducing government expenditure growth will help ease public debt pressures, but this has been largely achieved due to tighter control of capital spending, while recurrent spending has continued to grow.

The ADB warns that if this imbalance is not corrected, it could erode Vietnam’s long-term growth performance.

It is recommended that the Vietnamese government focuses on adopting additional taxation measures, while reducing non-essential public expenditures, such as administrative expenses which have crowded out infrastructure in recent years.