Heavy growth burden lies on year's second half

With the gross domestic product growing by a less-than-expected 5.52% in the first half of the year, a heavy burden weighs on the remaining half if Vietnam wants to meet the growth target of 6.7% for the whole year.

However, no significant progress was seen in July when agriculture was still struggling due to natural disasters and climate change while industrial production rose by only 7.2% compared with a 10% increase a year earlier, of which the mining industry continued to shrink, 2.9% last month.

In July, in addition to the 9,621 newly established enterprises (down 1.4%), up to 5,933 and 915 enterprises were forced to close temporarily and permanently, 10.6% and 5.9% from the previous month, respectively.

The budget was also strained when income as of July 15 reached only 49.4% of the whole year’s target, with revenues from crude oil meeting a mere 39.6% of the target and those from State-owned enterprises reaching 38.4%. As such, spending deficit has amounted to more than VND105 trillion (US$4.7 billion) or 41.6% of the limit for 2016, although spending was equivalent to only 47.6% of the whole year’s estimate.

Exports, one of the main drivers of growth, continued to struggle with value in July down by a slight 0.2% against the previous month. The domestic sector reported a 0.6% drop. On aggregate, exports in the first seven months of the year rose by only 5.3%, half of the growth target for all of 2016. If the price factor was excluded, exports would grow by 9.5% since the prices of many exports fell sharply. For example, crude exports fell 21.8% in volume but 44.5% in value. Rubber revenues were down 10.4% despite a 4.9% rise in quantity. Consumer demand also showed little signs of improvement with total retail sales and consumer services up by only 9% in July and 9.4% in the first seven months of 2016.

It has become apparent that if Vietnam wants to achieve the 6.7% growth target, the government must stimulate growth in the non-State sector, including foreign-invested enterprises, particularly support for manufacturing and services enterprises. Instead of focusing on the State sector, policies should shift towards the non-State sector on three pillars: credit growth, tax burden reduction and administrative reform.

These policy areas are certain to be productive thanks to a stable macroeconomic environment with the consumer price index rising by only 2.48% compared with December 2015 and 2.39% compared with a year earlier. Average interest rates are only slightly volatile and foreign exchange rates fairly stable while both trade surplus and foreign reserves are increasing.

(Source: NDO)