Taking Stock: Coverage

External economic environment

Recent economic developments in Vietnam

Special topic 1: Trade facilitation, competitiveness, and growth in Vietnam

Special topic 2: Corruption and economic growth in Vietnam

Special topic 3: Poverty and inequality in Vietnam

External economic environment

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

-4

-2

0

2

4

6

United States Euro AreaJapan

perc

ent

Despite gradual recovery, EAP to remain global growth leader

Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-134

6

8

10

Developing East Asia Developing countries (all)

Risks to the global economy

• Less-than-orderly tapering of QE in the US• Prolonged fiscal deadlock in the US• A sharper than expected slowdown of

investment in China

• Stronger than projected recovery of global economy

• Japan successful in reflating and reviving its economy

Macro stability in Vietnam has improved…1-

Oct

-09

26-N

ov-0

921

-Jan-

1018

-Mar

-10

13-M

ay-1

08-

Jul-1

02-

Sep-

1028

-Oct

-10

23-D

ec-1

017

-Feb

-11

14-A

pr-1

19-

Jun-

114-

Aug-

1129

-Sep

-11

24-N

ov-1

119

-Jan-

1215

-Mar

-12

10-M

ay-1

25-

Jul-1

230

-Aug

-12

25-O

ct-1

220

-Dec

-12

14-F

eb-1

311

-Apr

-13

6-Ju

n-13

1-Au

g-13

26-S

ep-1

3

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

550.0

600.0

CDS spread , 5 years (basis points)

Source: Bloomberg

Oct-09

Jan-10

Apr-10Jul-1

0Oct-

10Jan

-11

Apr-11Jul-1

1Oct-

11Jan

-12

Apr-12Jul-1

2Oct-

12Jan

-13

Apr-13Jul-1

3Oct-

130

10

20

30

40Year-on-Year Inflation (%)

HeadlineFoodCore

State Bank of Vietnam

…growth however stagnant at modest levels

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20134.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

Vietnam

Constraints to growth

• Growth remains stagnant at modest levels– Short run:

• Subdued private sector confidence• Shrinking fiscal space

– Long-term: • Evaluating the role of the state in a market economy• Structural constraints – SOE and banking sector issues • Declining competitiveness and productivity growth• Tight supply of market-oriented technical skills

Short-term constraints to growth

• Subdued private sector confidence– Sharp drop in private investment rate, from 15%

from 2007-10 to 11.5% in 2013– The Provincial Competitiveness Index indicates

firms less likely to invest or expand production– PMI has mostly been in –ve territory– Subdued HH consumption growth: 5.1% in 2009-

12, compared to 8.9% in previous 4 years

Short-term growth: Global situation has important implications

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20134.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

World Average

East Asia Average

Vietnam

ST growth constraints: Shrinking fiscal space

• Crucial fiscal policy choices: balance between supporting growth and sustainability– Low debt distress, but fiscal expansion is

stretching limits of this assessment• Even a small increase in pace of spending will lead to a

rapid deterioration in debt dynamics.– Consolidation of capital spending welcome move– Greater fiscal transparency needed

Longer-term growth: getting the business climate right

Starting a business

Dealing with construction permits

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across borders

Enforcing contracts

Resolving insolvency

Getting electricity

Vietnam ASEAN-4, average

LT growth: getting SOE reforms right

1992-98

1998-00

2000-02

2003 2004 2005 2006 2007 2008-11

2012 20130

200

400

600

800

1000

0

1000

2000

3000

4000

5000

127

461506

621

856813

359

116 11713 43

Number of firms equitized in the year Cummulative number of equitized firms

LT growth: getting SOE reforms right

• Relatively slow SOE reforms on account of:– Lack of clarity of state ownership plans

• Top-down approach, lacking policy and implementation coordination

• Restructuring targets not kept realistic– Unclear, and fragmented regulatory framework– Limited underlying financial and operational

analysis for divesture– Weak market conditions lately

LT Growth: Getting banking reforms right

• Banking sector fragilities remain– High NPL ratios (financial disclosure &

transparency big concerns)– Loan classification not per international stds– State retains a big share in banks– Regulations on bankruptcy, insolvency, creditor

rights need attention– VAMC an important step: its organizational and

financial capacity needs bolstering

Medium-term outlook and risks• Medium-term outlook is favorable on balance, albeit with

considerable downside risks

• Downside risks– Forex reserves still low– Weak private sector demand vulnerable to further bad news– Possibility, though diminished, of departure from prudent macro

policies– Structural reforms could further slow down– Banking sector highly fragile with weak financial position

2012 2013 (p) 2014 (p) 2015 (p)

GDP Growth (%) 5.2 5.3 5.4 5.5

Special topic 1: Trade facilitation, competitiveness and growth in VN

• Impressive gains in leveraging benefits of global integration• However, export growth mostly low tech

Special topic 1: Trade facilitation, competitiveness and growth in VN

• Attention needed in the three pillars of trade facilitation and competitiveness– Transport infrastructure and logistics– Regulatory procedures for trade– Supply chain organization

• Adopt dual-track approach– Long run: Upgrade tech &move up value chain– Short run: Get more value addition in existing

exports

Special topic 2: Corruption and growth

• Corruption long seen as a serious problem• A few troubling cross-country comparisons

0

25

50

75

100

Global Integrity Assessment ofAnti-Corruption & Rule of Law

Vietnam

0

25

50

75

100

Enterprises Saying They Paid Bribes Overall (%, WBES)

Vietnam

Special topic 2: Corruption and growth

-0.3

-0.1

0.1

0.3

0.11

0.03

-0.20

Firm

's o

pera

tiona

l eff

icie

ncy

com

pare

d to

2

year

s bef

ore

-1=m

uch

wor

se +

1=m

uch

bette

rVietnamese firms that paid bribes have done worse!Need for: administrative reforms and greater transparency

Special topic 3: Poverty and inequality

Special topic 3: Poverty and inequality

• Poverty remains concentrated among ethnic minorities. HOWEVER,– Even ethnic minority poverty has improved

significantly– The situations of the 53 ethnic minority groups are

diverse– Observed pathways out of poverty for ethnic

minorities are similar to rest of population

Thank you!