Washington, DC: On August 30, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV Consultation1with Vietnam.
Vietnam experienced a robust post-pandemic economic recovery in 2022 thanks to strong economic fundamentals and prudent public health management during the pandemic. GDP rose by a historically high 8 percent—the highest since the 1990s—driven by strong domestic and external demand. Average inflation was kept at 3.2 percent, well below the (4 percent) inflation target, although price pressures picked up during the year.
The recovery was cut short, however, as strong headwinds hit the economy in late 2022 and during the first half of 2023. Financial stress among real estate developers emerged due to tighter funding conditions, a slowdown in sales, and legal hurdles, while the corporate bond market froze amidst a loss of investor confidence. Exchange rate pressures mounted throughout 2022 as global interest rates rose sharply, and a major domestic bank suffered a deposit run in October 2022 and was placed under the State Bank of Vietnam's control. The economy was further hit by a sharp deterioration in external demand since late 2022, with exports declining by 12 percent in the first half of 2023. Liquidity, foreign exchange, and inflationary pressures have eased, but growth decelerated significantly and is expected to slow to 4.7 percent in 2023—supported by a rebound in exports and expansionary (especially fiscal) policies. Inflation is expected to remain contained below the 4.5 percent ceiling. Vietnam can return to high growth rates over the medium term supported by structural reforms.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities' swift actions to maintain macro-financial stability as the economic recovery from the pandemic faced domestic and external headwinds. They noted that risks remain elevated, and that further efforts are required to safeguard macro-financial stability and deepen reforms to address vulnerabilities and ensure robust, green, and inclusive growth over the medium term. Continued capacity development will be important to support reforms.
Directors noted that, given ample fiscal space and limited room for monetary policy loosening, fiscal policy should take the lead in supporting economic activity if needed. In this context, Directors welcomed the authorities' plans to speed up the implementation of public investment, which will require tackling bottlenecks, and stressed the importance of expanding social safety nets to support the most vulnerable. Directors recommended strengthening the fiscal framework and budget process and increasing revenue mobilization over the medium term to support the ambitious development agenda.
Directors commended the authorities for effectively containing inflation risks but stressed that monetary policy should continue to be cautious under a complex environment and limited policy space. They welcomed steps toward greater exchange rate flexibility and encouraged continued progress in this area, along with modernizing the monetary policy framework.
Directors underscored the importance of strengthening the resilience of the financial system by bolstering capital buffers, phasing out regulatory forbearance, and addressing rising non-performing loans. They also stressed the need to enhance the authorities' toolkit to prevent and manage banking crises by strengthening the resolution and emergency liquidity frameworks, and welcomed the ongoing revision of the law on credit institutions. Efforts to strengthen bank regulation and supervision should continue.
Directors acknowledged the authorities' swift actions to contain risks in the real estate and corporate bond market. They urged decisive steps to address remaining risks, including by strengthening the insolvency framework, bolstering institutions, and increasing transparency in the corporate bond market.
Directors stressed the importance of structural and climate reforms to achieve sustainable, green, and inclusive growth. Accelerating the transition to upper-middle income status will require further efforts to improve the business environment, step-up critical infrastructure, and invest in human capital. Directors welcomed the latest Power Development Plan and the planned Emissions Trading System to help achieve Vietnam's climate goals and promote energy security. They emphasized the importance of moving ahead with implementation of the strategy and developing the appropriate regulatory framework to promote investment in renewable energy and secure funding for the green transition. Conducting a Climate-Public Investment Management Assessment would be useful.
Directors welcomed the authorities' anti-corruption efforts and emphasized the need to continue strengthening governance, improving the AML/CFT framework, and simplifying regulatory frameworks. Greater efforts in closing data gaps will be important.
The next Article IV Consultation with Vietnam is expected to be held on the standard 12-month cycle.
Vietnam: Selected Economic Indicators, 2019–2024
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1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
