Challenges ahead for 2018 economic growth

Wednesday, 2018-01-03 17:05:04
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Although the whole banking system has made efforts to set up provisions and step up the capturing and liquidating of collateral to recover debts, bad debt handling is still quite slow.
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NDO – The economic growth in 2017 has witnessed bright colours but it cannot be confirmed that such positive signs would continue to show in 2018 as big challenges still exist.

The year of recovery and acceleration

2017 marked a range of economic imprints for Vietnam. In addition to the record M&A deal worth US$ 4.8 billion in the case of Saigon Alcohol Beer and Beverages Corporation (Sabeco), the economic growth suddenly increased by 6.81% - the highest increase since 2011 - has become a "phenomenon" that the world admired. "I think 2018 will be similar or even better. The increase is not yet a culmination," said optimistically Dustin Daugherty, senior director of consultancy Dezan Shira & Associates.

There is no denying the great efforts from domestic enterprises, but according to economists, this year's strong growth is significantly influenced by the agricultural recovery and the dynamics of foreign direct investment enterprises.

Accordingly, the agro forestry and fishery sector recorded a 2.9% increase, higher than the 1.36% increase in 2016 due to favourable weather conditions and without affects from major environmental incidents as in 2016.

Along with that, the attraction of US$35.88 billion from foreign investors (up 42.3%) has turned Vietnam into a "phenomenon" of the whole Asia, while proving that the investment environment in the nation of over 92 million people is very attractive in the eyes of global investors, both in terms of consumption potential and labour size.

2017 is also the year the country recorded over 153,000 enterprises newly established and returned to operation. In particular, the number of new businesses has set a new record of nearly 127,000.

In the World Bank's Doing Business 2018 report, Vietnam has significantly improved its position by increasing its ranking by 14 levels compared to the previous year where it ranked 68 out of 190 economies. This shows that the government's efforts to reform and create a fair and transparent business environment have finally brought about positive signals, although there is still a lot of work ahead to catch up with the ASEAN-6.

In 2018, Vietnam's strong growth prospects are expected to continue thanks to foreign direct investment and the recovery of the world commodity market. In addition, a number of large policies, most notably the special economic zone model or equitisation of State-owned corporations, are expected to bring new growth engine for the economy. "GDP would continue to remain at 6.5-6.7%. The government is capable of supporting growth targets at reasonable levels with its balanced policies in hand," Vietcombank Securities Company optimistically said.

Challenges still ahead

Despite the potential for strong growth in 2018, there is no denying that major challenges still exist, threatening the economic outlook. Banks’ bad debt, slowing down real estate market’s growth, increased trade protection policies by developed economies, and especially the zero percent tax roadmap from the beginning of 2018 can threaten the viability of domestic firms in several key industries.

According to assessment from the National Financial Supervisory Commission (NFSC), banks’ bad debts are still relatively high at 9.5%. In the past year, although the banking system has made efforts to set up provisions and step up capturing and liquidating collateral to recover debts, the bad debt handling is still quite slow. "This is due to the restriction of the sale of bad debt at market prices and the weak restructuring of the banking system, while the buying of weak banks at a rate of zero dong is still slow," the NFSC assessed.

The bad debt continues to threaten to interest rate maintaining or lowering to support economic growth. This pressure may even increase if the housing market slows down or is affected by the Fed's continued interest rate hikes in 2018.

In addition, it cannot be denied that internal resources of domestic enterprises are still limited with low diversification. "Vietnam's economic growth is still dependent on a number of key sectors such as manufacturing, real estate and services. These sectors may continue to grow for the new year, but the possibility of making a breakthrough as strong as 2017 is not high,” said economist, Dr. Vo Tri Thanh.

On the threshold of the new year, the fear of domestic enterprises also comes from the risk of losing market share when a variety of important areas, including automobile, motorcycle, spare parts, electronic components and agricultural products such as fruits and sugar have to cut import tariffs to 0-5%, under the roadmap for the implementation of the ASEAN Free Trade Area.

Of course, it is also a challenge from the explosion of the Industrial Revolution 4.0, which has brought about a fierce “war” on IT and automation with clear knowledge content that the majority of domestic companies are still outsiders.

"Vietnam needs to take advantage of the technology platform brought about by the Industrial Revolution 4.0 to avoid the risk of falling behind," said NFSC Acting Chairman Truong Van Phuoc.