The Asian Development Outlook (ADO) 2017 released in Hanoi on Monday, 10th April forecasts Vietnam’s economy to grow by 6.5% in 2017 and 6.7% in 2018, as a result of the development of the manufacturing, construction, wholesale and retail trade, banking and tourism sectors.

Continued record levels of foreign direct investment (FDI) will significantly increase domestic manufacturing and Vietnam’s export earnings despite of depressed global and regional trade flows. Besides, Vietnam’s rapidly expanding middle-class, which is expected to reach 33 million people in 2030, will contribute to boost consumer spending and retails.

In addition, agricultural production is expected to pick up somewhat in 2017 given the outlook for higher global food prices and a come back to better weather. However, the agriculture sector continues to underperform relative to the rest of the Vietnamese economy, dragging down overall growth.

According to ADB Country Director for Vietnam, Eric Sidgwick, agriculture has been a vital impact in growth, poverty reduction, food security, and exports since the government began reforming the sector in the late 1980s. Nevertheless, in recent years, due to the growing international competition and low domestic labour productivity, the agriculture sector’s growth has slowed to an average of just 2% annually since 2011.

The report emphasises that agriculture output per worker in Vietnam is one-third of Indonesia’s and less than half of Thailand’s and the Philippines’. The report also highlights that as Vietnam recovers from its most severe drought in a decade, boosting growth in the agriculture sector will be crucial for Vietnam to achieve its aspirations of becoming an upper-middle income nation by 2030.

“While Vietnam continues to address the worsening impacts of climate change on agriculture, deeper reforms and higher investment in the sector will be critical to boost agricultural productivity and long-run growth that is inclusive and environmentally sustainable,” Sidgwick said.

The report underlines that to transform agriculture will need to address some major policy challenges—including introducing greater competition into agricultural supply-chains and postharvest processing, developing rural infrastructure to support higher-value adding cash crops, adopting more sustainable natural resource management practices, and better integrating climate change considerations into policy making processes.

The outlook also highlights that as growth strengthens, inflation is expected to edge up to 4 per cent this year and 5 per cent next year. The expected rise in world food and fuel prices, higher US interest rates and a stronger dollar will add to imported inflation. Another likely source of inflation is the continued implementation of the Government roadmap on administered prices for education, health, electricity, water tariffs and minimum wages.

Merchandise exports are seen rising by an annual rate of 10 per cent over the next two years as new foreign-invested factories start producing and new trade agreements take effect.

“Imports are likely to rise even faster as larger FDI inflows draw in additional import of capital goods and manufacturing inputs. The current account surplus is thus expected to moderate to 2 per cent of the GDP this year and 2.5 per cent in 2018,” the report states.

Public debt pressures have prompted the Government to set ambitious targets for the budget deficit, reining it to the equivalent of 3.5 per cent of the GDP this year and holding it to some 4 per cent next year. However, most of the reduction in the fiscal deficit would be due to higher receipts from the sale of equity in State-owned enterprises, which the Government treats as revenue.

On the expenditure side, the Government plans to cut recurrent expenditure by 6 per cent while raising capital expenditure by 36 per cent.

“Achieving fiscal consolidation over the medium term will be challenging and require deeper tax reform, better revenue administration and much more efficient public expenditure,” the report notes.

(ThS. Lương Thị Quỳnh Mai - Theo Báo Công Thương, 4/2017