GDP grew by 7.8 percent in the first nine months of the year, compared with 8.1 percent in the same period of 2005. With growth expected to remain strong in the fourth quarter, the government’s target of 8 percent is likely to be met. In the first nine months, industrial value added grew nearly 10 percent year-on-year, followed by services at 8 percent and agriculture at 3.3 percent. Within the industrial sector, the turnover of the domestic private sector expanded 22 percent while that of state-owned enterprises grew 9.4 percent year-on-year. Retail sales, an indicator of consumption, grew by 20.4 percent in the first nine months of 2006, about the same as in the equivalent 2005 period. Implemented investment, which is different from the standard measure of gross capital formation, was estimated to reach 76 percent of its annual forecast of 377 trillion dong (or 38.6 percent of GDP).
Resources on Vietnam | | Country Overviews | |
| | | e-Newsletter | | Subscribe to receive updates on World Bank reports in the East Asia & Pacific region. |
| | |
|
Foreign direct investment commitments have surged 26 percent year-on-year in the first nine months of the year to reach US$5.1 billion. Foreign direct investment disbursements, including domestic borrowing of foreign enterprises, rose 8.8 percent to reach US$2.87 billion. Export growth in the first nine months of the year stood at 24.2 percent year-on-year, supported by strong garment and footwear export growth, the latter despite an antidumping suit in the EU, their largest market. Exports of crude oil benefited from higher prices, even though there was some fall in volumes. Rice and coffee also experienced volume declines owing to weather related shocks. However, with Vietnam being a key coffee producer, a sharp rise in prices more than compensated the volume decline. Imports grew by 19.3 percent in the first nine months. Capital goods imports recovered strongly to record a growth of 22.1 percent compared with less than 2 percent in first nine months of 2005. Fabric imports also rose by a sharp 25 percent, reflecting the input requirements of garment exports. The trade balance swung from deficit to a small surplus in the first nine months of 2006. Helped by strong remittance flows, the current account recorded a surplus of 0.4 percent of GDP in 2005, and a similar surplus is anticipated in 2006 as well. Inflows of foreign direct investment and ODA have been robust, leading to a rapid rise in foreign reserves. By end-June reserves reached nearly 11 billion dollars (11 weeks of imports) compared with 8.6 billion dollars at end-2005. Vietnam has concluded all the bilateral agreements needed for WTO accession. According to trade minister Truong Dinh Tuyen, Vietnam's entry to the WTO will then be approved at a general meeting of the WTO Secretariat on November 6-8. Vietnam also requires a vote on Permanent Normal Trade Relations in the US congress. This vote is expected to be concluded in Vietnam’s favor prior to the APEC summit meeting in Hanoi in late November 2006. Fiscal revenues and expenditures look on track to meet budget targets. The target for the budget deficit in 2006 is 2.6 percent of GDP, and on-lending of ODA is projected to add another 1.3 percent. Revenues were buoyed by high oil prices in the first half, but will be dampened by lower prices in the third quarter. To partially compensate, the government reintroduced tariffs on certain oil products which had earlier been eliminated to stabilize domestic prices. On the expenditure side, a pay rise for state employees is expected to cost the government 6.2 trillion in the final quarter of 2006, and 26.6 trillion dong in 2007. This pay hike is related to an increase in the minimum wage in state owned and private enterprises from 350,000 dong (22 dollars) per month to 450,000 dong (28 dollars). The adjustments will further narrow the minimum wage gap between domestic and foreign invested sectors. The gap is to be reduced to zero by 2010 as part of WTO commitments. The minimum wage hike will also be a basis for adjustment of government pensions and other social security payments. In an effort to enhance transparency, the Ministry of Finance has begun to post quarterly budget execution reports on its website. Off-budget expenditures have been reported for 2004 and 2005. Regulations to publish local budgets have also been issued. The State Audit of Vietnam became an independent body reporting to the National Assembly in 2005, and has made its audit of the state budget public for the first time. The report, which has been widely quoted in the press, sheds light on loss making SOEs, tax arrears, and funds that had hitherto been “secret.” Inflation fell to 6.9 percent in September 2006, its lowest level since April 2004, and down from 7.7 percent year-on-year in the first eight months. Poor weather conditions have continued to exert upward pressure on food prices. Domestic oil price adjustments have lagged behind international price movements, but the lags have become smaller in recent months. With the recent softening in international prices, the domestic price for gasoline has been reduced, although the price of diesel, which is currently below international levels, has not been adjusted downwards. The stock market has grown rapidly during 2006. The number of listed companies increased from 36 at the end of 2005 to 67 in early October 2006. Fifty of these are listed on the Ho Chi Minh City securities trading center (HSTC), and the other 17 on the organized over-the-counter market in Hanoi. Market capitalization of the HSTC has increased from under-500 million dollars in December 2005 to nearly 3.3 billion (5.5 percent of annualized GDP) in October 2006. The stock price index has increased by over 70 percent since December 2005. Foreign investors have been net buyers and have accounted for around 13 percent of trading activity in 2006. Enterprises are keen to list before January 2007, when tax incentives available to listed companies will be removed. Credit growth slowed to 21 percent at the end of June, compared with nearly 32 percent in December 2005. The decline was mainly due to slower lending by State Owned Commercial Banks (SOCBs). The sharper slow down in SOCBs credit may be related to their efforts to conform to stricter prudential standards that were introduced in 2005. However, deposit growth at both the SOCBs and JSBs has remained high at 40 percent. Deposit rates have been rising especially as joint stock banks have competed for funds and currently stand at 8.4 percent for a one year deposit. With deposit growth far exceeding lending growth, SOCBs have experienced a build-up of excess liquidity. On the policy front, the government recently announced that SOCBs will now conduct their equitizations by 2008, two years earlier than previously stated. The state is expected to retain a 51 percent stake, with foreign ownership restricted to 30 percent. The limit on a single foreign investor is likely to be raised from 10 to 20 percent. In coming months Vietnam may issue international bonds to finance projects that are deemed strategic. The proceeds are likely to be on-lent to state owned corporations executing the projects. These corporations have not yet established their own creditworthiness in international markets, and the financing requirements are likely too large to be met through domestic commercial banks. Last year the government raised US$750 million to on-lend to a shipbuilder. The bond currently trades at a spread of 160 basis points over U.S. treasuries. In September, Standard and Poor's upgraded Vietnam's foreign currency rating by one notch to BB, its local currency rating to BB+ from BB, and assessed the outlook as stable.
Back to top
|
RSS