Private sector crucial to unlocking economic growth potential

While Viet Nam’s economic performance continues to improve, further structural reforms that allow greater participation of local firms in global value chains is needed to enable the economy to reach its full growth potential, ADB said in a news flagship report released on March 24th 2015.

Photo for Illustration (Photo: Thai Thien)

The Asian Development Outlook (ADO) 2015 forecast Viet Nam’s Gross Domestic Product (GDP) growth to edge up to 6.1% in 2015 and 6.2% in 2016, assuming the Government maintains expansionary monetary and fiscal policies and continues to accelerate structural reforms. Annual inflation is projected at 2.5% in 2015, quickening to 4.0% in 2016 as domestic demand and global oil prices pick up.

“Better economic performance in the major industrial economies—particularly the US, Viet Nam’s biggest export market—will help to spur export growth, although this positive effect will be partly offset by slowing growth in the PRC,” said Mr. Tomoyuki Kimura, ADB Country Director for Viet Nam. “Viet Nam is also expected to be a net beneficiary of lower global oil prices which will increase disposable incomes and lower business costs.”

The ADO highlights that while Viet Nam’s economic performance slowly improves, a number of structural factors continue to limit its ability to reach its full growth potential.

In the short term, priority should be placed on strengthening the banking system and outlining a clear strategy to resolve non-performing loans. Growth will also be supported by new laws to guide divestment of state owned enterprises and accelerate their commercialization.

Lifting economic growth over the longer term however will rely on Viet Nam’s ability to undertake deeper structural reform, in particular to support local firms’ integration into global value chains.

“To strengthen SME’s capacity to participate in global supply chains, efforts will be needed to strengthen inter-agency coordination, particularly in the formulation and implementation of SME policies, Mr. Kimura urged. “Greater consultation with the private sector would also help to identify constraints that inhibit links with production networks. Industry-specific strategies that support industry clusters and economies of scale are also needed”.

(Source: CPV)