At Hai Phong port (Photo: VNA)

The Vietnamese economy has recorded an impressive recovery over the past nine months, and the Asian Development Bank (ADB) is confident of the country’s bright prospects for its medium- and long-term growth, said Nguyen Minh Cuong, chief economist of ADB Vietnam, on October 27.

He said factors behind the strong recovery include macro-economic and political stability as well as success in containing COVID-19. The recovery was relatively even across all growth engines, from industry, agriculture to services while export rebounded. Foreign and domestic investors’ confidence also fueled economic growth.

According to him, the biggest risk faced by the Vietnamese economy was the impact of external factors such as global inflation and depreciation of several domestic currencies against US dollarm according to the VNA.

Even though the inflation rates in Southeast Asia, including Vietnam, were lower, there is a big risk of rising, he said, adding that the Vietnamese currency devalued little against US dollar, which helped with macro economic stability but putting increasing pressure on the foreign reserves. However, it appreciated against those of trade partners that directly compete with Vietnam like Malaysia, Thailand and the Philippines.

The depreciation of the Vietnamese dong, a trend that is likely to continue, will support export but damp imports. However, Vietnam still posted a trade surplus of 8 billion USD as of mid-October.

ADB is optimistic about Vietnamese economic recovery post COVID-19 pandemic. (Illustration image)

In his opinion, Vietnam needs to flexibly adjust the exchange rate band and raise interest rates at an appropriate level while closely managing foreign exchange and bank markets following lessons from 2008-2010 crisis.

As long as trust of foreign investors and the public remain, Vietnam’s measures are proving effective.

However, the ADB expert pointed out that the biggest risk to the Vietnamese economy is the impact of external factors that becoming increasingly apparent. Recent decisions made by developed countries to raise interest rates in order curb the impact of inflation have exerted a strong impact on growth, thereby having a knock-on effect on capital markets and on developing economies. Despite inflation being lower in Southeast Asia, including Vietnam, the inflation rate is likely to rise, and the risk of imported inflation is huge.

Amid the appreciation of the US dollar, the State Bank of Vietnam has decided to raise the deposit and lending rates, and widen the exchange rate band from ±3% to ±5%. Cuong therefore hailed the bank’s moves as being completely appropriate and contributing to stabilising macro conditions for medium- and long-term growth, reported the VOV.

According to the expert’s analysis, the VND is in the process of depreciating its value against the US dollar, a factor which will certainly impact import and export activities. This depreciation trend is likely to increase moving forward, however, Vietnam still yielded a trade surplus of US$8 billion as of mid-October.

The country needs therefore competently manage its foreign exchange and banking markets following lessons learnt from the 2008 - 2010 crisis in order to avoid putting too much pressure on monetary policy, said the ADB expert.

The most important thing is that the confidence of foreign investors and people is still increasing and Vietnam’s adopted measures are proving effective, he added

In its latest economic outlook, the Asian Development Bank anticipates the Vietnamese economy is likely to expand by 6.5% this year and 6.7% next year.

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