Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded on August 30 the 2024 Article IV Consultation1 with Vietnam.
In the challenging year of 2023, the Vietnamese economy grew by 5 percent thanks to determined actions by the government. The economy was hit by turbulence in the real estate sector, financial distress, and a significant drop in exports. A recovery began in late 2023, fueled by a rebound in exports, tourism, and appropriately expansionary fiscal and monetary policy support. Inflation picked up in 2024, driven mainly by rising food prices, though core inflation remained relatively low and stable. The external current account posted a large surplus in 2023, at 5.8 percent of GDP, mainly reflecting a significant contraction in imports.
Economic growth is projected to recover to 6.1 percent in 2024, supported by continued strong external demand, resilient foreign direct investment, and accommodative policies. Domestic demand growth is expected to recover gradually as corporates navigate through high debt levels while the real estate sector will only fully recover over the medium term. Inflation is expected to hover around the State Bank of Vietnam's target of 4-4.5 percent this year.
Downside risks are high. Exports, a key driver for Vietnam's economy, could weaken if global growth disappoints, global geopolitical tensions persist, or trade disputes intensify. Given easy monetary conditions, if exchange rate pressures were to persist for longer, it could lead to a larger pass-through to domestic inflation. Persistent weakness in the real estate sector and corporate bond market could weigh more than expected on banks' ability to expand credit, hurting economic growth and undermining financial stability.
Executive Board Assessment2
Executive Directors 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.
1 Under 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.
2 At the conclusion of the discussion, the Managing Director, as Chair 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.
