The Government has set a target of achieving a GDP growth rate of 6.7% and consumer price index (CPI) of 4% for 2018.
Prioritize the quality of growth
This year the government has set a target of maintaining the CPI at 4%, a rate equal to 2017’s level but experts warn that there should be caution in price management.
Nguyen Tien Thoa, vice president and secretary of Vietnam Pricing Evaluation Association says that although this year likely see no economic shocks there are still underlying factors in the market which hinder inflation control, for example credit expansion, growing exchange rates, fluctuations in energy prices, minimum wage increases, and impacts of price volatility in the world commodity market on domestic prices of oil, natural gas, and coal.
Due attention should be given to controlling CPI growth over the early months of the year in order to create headroom for management during the remainder of the year. To such ends it is important to ensure a sufficient supply of goods, reduce expenses like production costs, interest rates and BOT fees, implement a tightened fiscal policy, and properly adjust prices fixed by the State. With the above measures, the target of keeping inflation rate at 4% is feasible, says Mr Thoa.
Economic expert Ngo Tri Long says changes in the prices of food and public services will put pressure on inflation controls this year. The price of pork will see a rebound while supplies decline due to adjustments in the livestock sector.
Stimulus measures will be taken to create the demand necessary for an economic growth rate of 6.7% building on the foundation of 2017’s high growth, which may put pressure on demand-pull inflation. However, Mr Long forecasts that inflation for 2018 and 2019 will stand at around 4%.
With the momentum from 2017’s growth, experts say socio-economic targets set by the Government for 2018 will be achievable with major a focus on improving the quality rather than rate of growth, reforming the model of growth, macroeconomic stability, and better inflation controls.
Economic restructuring should go along with a transformation of the growth model and creating a strong domestic business network able to compete in the integration process. If the pace of growth is maintained, the growth target set by the National Assembly will be met, says Nguyen Duc Thanh, director of Vietnam Institute for Economic and Policy Research.
Institutional reform and increasing labour productivity
Economic experts say the driving force behind economic growth for 2018 will rely on the three fields of agriculture, industry, and services.
According to Thanh there is still room for economic growth by improving the State-owned economic sector and public investment disbursement, stimulating the development of private economy, and attracting more foreign direct investment.
2018 is set to be a pivotal year for progress in implementing the five-year socio-economic development plan for 2016-2020 but the country is encountering still low quality of growth and labour productivity, major unsteady balances of the economy and the effects of unpredictable weather events which also impact daily life and production.
Moreover, there are projections for knock on effects from difficulties in the world economy which may cause negative impacts on the domestic economy. Therefore, to achieve an average economic growth rate of 6.7% for 2018 and maintain an average growth rate of 6.5% across the 2016-2020 period, higher concentration should be on institutional and administrative reforms, and improvements in State management as well as the business environment and infrastructure so as to facilitate business operations and gradually increase labour productivity, Thanh emphasizes.
According to the forecast from the World Bank, Vietnam’s medium-term growth will be kept stable at 6.5%.
Sebastian Eckardt, the World Bank’s lead economist for Vietnam, says the country should take advantage of the cyclical uptick to strengthen macroeconomic resilience. In the short run, the country should focus on the quality and sustainability of growth, instead of merely the pace of growth. It should also insist on a sustainable, growth-friendly fiscal consolidation, with responsive monetary and exchange rate policies, while addressing non-performing loans, raising capital buffers, and managing credit growth.
Foreign and domestic organizations have signaled positive outlooks for Vietnam’s economic growth this year. According to a National Financial Supervisory Commission of Vietnam (NFSC) report on the financial market in 2017, 6.5-6.8% growth is forecast for this year thanks to the thriving private economic sector. If the outlined economic policies prove effective the economy will reach the higher growth rate of 6.8%.