Vietnam may have overcome the worst period but there is still plenty left to do, said HSBC in its latest report on Vietnam’s economic outlook.
In the report released on Tuesday, HSBC noted the world is transfixed on the eurozone, with low expectations that European leaders will figure out concrete solutions to completely solve the crisis. Meanwhile in Vietnam, it is hoped that the slowing of growth could be a catalyst for the country to get rid of the burden on the economy.
The main issue in Vietnam is that the State corporate sector is still predominating over the economy, accounting for some 40 percent of GDP. The State sector utilises capital in the least efficient way but makes up the majority of total investment in Vietnam, said HSBC.
The average credit growth in the past ten years exceeded 30 percent, fuelling demand and exuberant investment. However, the return of high inflation in 2011 put an end to high credit growth.
The government has signaled that it favours macroeconomic stability over rapid growth. As a result, credit growth in 2011 dropped to 14.4 percent.
HSBC remarked some reforms are moving faster, including requiring State-owned enterprises to disclose their earnings and ongoing banking sector restructuring. The most promising, according to the bank, is the Ministry of Industry and Trade’s draft strategy to lure foreign small and medium enterprises into Vietnam to develop industrial clusters.
“These steps, along many others, are necessary for Vietnam to increase its productivity and be less dependent on input-led growth,” said HSBC in the report.
The report showed an optimistic view on easing inflation, which will likely stay at a single-digit level this year or the next. Growth will likely accelerate in the second half, but with low demand and bad debts overhanging in the system, there is still plenty left to do to unburden the economy, stated the report.
HSBC forecast credit growth would only reach 13 percent this year despite the central bank’s efforts to encourage lending.