20230926-IMF-Vietnam_2023_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Vietnam_95页_4mb

2023 Article IV Consultation with Vietnam Summary

Core Content

The 2023 Article IV Consultation with Vietnam, conducted by the International Monetary Fund (IMF), assessed the country's economic recovery post-pandemic, current challenges, and policy responses. The consultation concluded on August 30, 2023, with the Executive Board approving the staff report and expressing support for Vietnam's policies while highlighting areas needing further reform.

Vietnam experienced a robust post-pandemic recovery in 2022, with GDP growth reaching 8%, the highest since the 1990s. This was driven by strong domestic and external demand. However, the recovery was disrupted in late 2022 and early 2023 due to domestic and external headwinds, including financial distress in the real estate sector, a freeze in the corporate bond market, and a sharp decline in exports. Inflation remained below the 4.5% target, with core inflation rising.

The economic outlook for 2023 is 4.7% growth, supported by a rebound in exports and expansionary fiscal policies. The financial system is expected to stabilize, with liquidity and foreign exchange pressures easing, but risks remain elevated. The real estate and corporate bond markets continue to be vulnerable, with 56 developers defaulting on bond payments in the first five months of 2023.

Main Views

Economic Recovery and Challenges

• Vietnam's economy rebounded strongly in 2022 due to prudent public health management and strong demand.
• GDP growth in 2022 reached 8%, the highest since the 1990s.
• Inflation remained below the 4% target, averaging 3.2%, though core inflation increased.
• External demand weakened sharply in late 2022, with exports declining by 12% in the first half of 2023.

Policy Response

• Monetary policy was nimble, with the State Bank of Vietnam (SBV) raising main policy rates by 200 basis points in late 2022 and lowering them by 150-200 basis points in March 2023.
• Fiscal policy is central to supporting economic activity, with ample fiscal space and room for expansion of social safety nets.
• The financial sector requires reforms to enhance resilience, including strengthening capital buffers, modernizing the monetary policy framework, and improving debt enforcement and insolvency frameworks.

Real Estate and Corporate Bond Market

• The real estate sector faced liquidity crunches and financial distress, especially due to tightened funding conditions, slowed sales, and legal hurdles.
• The corporate bond market froze due to loss of investor confidence and regulatory crackdowns.
• 56 developers, including the second largest, defaulted on bond payments in early 2023.
• The authorities have introduced temporary measures to address the crisis, but long-term reforms are needed to restore confidence.

Climate and Structural Reforms

• Climate and structural reforms are essential for sustainable, green, and inclusive growth.
• The Power Development Plan and Emissions Trading System (ETS) are key initiatives to meet climate goals.
• Improving the business environment, critical infrastructure, and human capital will be crucial for transitioning to upper-middle income status.

Key Information

Economic Indicators (2019-2024)

Policy Recommendations

• Monetary Policy: Enhance exchange rate flexibility and modernize the monetary policy framework.
• Fiscal Policy: Strengthen the fiscal framework, increase revenue mobilization, and expand social safety nets.
• Financial Sector: Strengthen capital buffers, phase out regulatory forbearance, and enhance the resolution and emergency liquidity frameworks.
• Real Estate and Corporate Bond Markets: Improve insolvency frameworks, bolster institutions, and increase transparency.
• Climate and Structural Policies: Implement the Power Development Plan and ETS, and develop regulatory frameworks for renewable energy investment.

Conclusion

The Executive Board commended Vietnam's swift actions to maintain macro-financial stability and contained inflation, but emphasized the need for further reforms to deepen stability and support long-term growth. The next Article IV Consultation is expected to follow the standard 12-month cycle.

The IMF encourages continued efforts in governance, AML/CFT, and capacity development to address data gaps and enhance policy effectiveness. The financial stress index (FSI) indicates rising market turbulence, but remains below the peak of the Asian financial crisis. The impact of financial stress on GDP is estimated to be significant, with potential losses of 0.15% in 2023 and 0.35% annually through 2027.

Key Figures and Tables

• GDP growth in 2022 was 8%, but slowed to 3.7% in the first half of 2023.
• Inflation averaged 3.2% in 2022, but core inflation rose to 4.2% in 2023.
• Exports declined by 12% in the first half of 2023 due to declining foreign demand.
• Public debt is expected to fall to 32.3% of GDP by 2024.
• Financial Stress Index (FSI) shows increasing market turbulence, with potential GDP losses if stress continues.

Additional Notes

• The IMF allows for the deletion of market-sensitive information in published reports.
• The next Article IV Consultation with Vietnam is expected to occur on the standard 12-month cycle.
• Vietnam's economic performance is closely monitored, with ongoing reforms and policy adjustments being critical for sustained growth.