Bidv forecasts macro-economic outlook
Source: 25-JUL-2008 Intellasia | 22Jul/2008 Thoi Bao Kinh Te Vietnam
Jul 25, 2008 - 7:00:00 AM Bank for Investment and Development of Vietnam (Bidv) has established an independent study group in charge of researching domestically and internationally economic issues and offering assessment and predications on Vietnam's economy.

Bidv chair Tran Bac Ha revealed the group will update information about economic situation, monetary market and carry out advisory exchange with local and foreign economists with an aim to help Bidv's management board gain initiatives in operation administration and counter with the market move movement and the state's monitoring on time.

The study group recently just released the first report titled "Vietnam's macro-economic situation in first six months of 2008 and forecast for last six months" that was assessed to be fairly thorough and serious in giving macro-economic forecast in the last half of this year.

First off, the report collected and described details on reasons causing economic changes in Jan-June and statistics used in the report were quoted from reliable sources such as general Statistical Office (GSO), reports made by ministries and assessment of foreign institutions such as HSBC, Morgan Stanley, and Standard & Poor's.

Also, the study group wrote, CPI of this year could be at 24-26% based on international organisations' judgment along with the supposed factor that the world's fuel price will still stand at US$140 a barrel

The country's balance of payments could be US$1 billion or minus US$2 billion dong according to two scenarios given by the study group. However, the first case could likely happen because the non-resident accounts were estimated at minus US$17.1 billion dong while the capital accounts could reach US$18.1 billion.

Demonstrating the independence in study and predication, Bidv's research group also existing adequacies needed to be solved absolutely to avoid potential consequences.

First problem is balance of payments. Usually, the trade deficit in last months of a year is higher than earlier months. Typically, the trade gap in July-December of 2007 equalled to 63% of the total trade gap of the whole year. Thus, if the task of curbing imports is less efficient, the trade deficit could be higher than the previously predicted figure of US$20 billion and the payment balance will be minus US$2 billion, causing heavy pressure on the dong/US dollar forex rate and foreign currency reserve.

As for the monitoring of basic interest rates, the research group assessed, the administration agencies still go behind practical requirements of the monetary market that itself is seeing strong changes at the moment. Therefore, the monitoring tool has not really directed the market, ensured the transparency of commercial bank system and stabilised the monetary market yet.

Thirdly, the move that State Bank of Vietnam raised the forex trading amplitude to +/-2% and lifted the interbank market's trading forex was regarded as a fairly flexible adjustment as for the real value of the dong. Yet, the importance is that there is the existence of two-forex system including forex rates of official market and free market, which caused difficulties for the forex monitoring assignment.

Lastly, Vietnamese economy's FDI absorbing ability remains small while the foreign capital continues flowing into the country. So the management of capital flows, improvement of investment environment to create better conditions for highly effective FDI usage are urgent goals.

Especially, the study group also concerned deep on social security issue. The increase of 10-12% a year in the labourer's income as compared with price storm (CPI) is not enough to compensate.

In addition, although the economy recorded certain growth achievements, the gap between the poor and the rich remains large. It is easy to see that the Gini index measuring the gap between the poor and the rich of Vietnam now stands at high level in the world. The discrimination led to the inequality in living enjoyment and the approach of social services. High economic growth but the poor still have to suffer the hits from increasing inflation.

Moreover, as a result of inflation, the unemployment and reduced living quality caused social problems shown that there were 127 strikes in the first six months of 2008 against 115 cases of the whole last year.

From the reality, the state was proposed to have suitable policies to compensate income losses caused by inflation and limit the poverty and rich discrimination. Especially, there must be to have policies to support farmers such as reduce tax and fee, and give a suitable food consolidation scheme, and curb the price pressure.

Some macro-economic forecasts in 2008 by Bidv's research group

* Economic growth: 6.8-7%

* Inflation: 24-26%

* Lending growth: less than 30% and should be at 25%

* Forex rate: 17,000-17,200 dong per US dollar

* FDI disbursement: US$10-11 billion

* Trade deficit could be ballooned to US$20-22 billion

* Balance of payment: US$1 billion surplus

* Foreign currency reserve: US$19-21 billion

* VN Index: 500-550 points