Vietnam Needs Structural Reforms to Foster Growth in Business Environment: IMF Representative

IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud said, besides fiscal, monetary and financial policies to support growth, Vietnam needs to focus on policies on structural reforms that can help promote the business environment.
September 20, 2022 | 09:58
Vietnam Needs Structural Reforms to Foster Growth in Business Environment: IMF Representative
Vietnam socio-economic forum 2022. Photo: quochoi.vn

IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud shared about the external factors affecting the economic prospects of Vietnam.

He said that 2022 has witnessed complicated developments, world economic shocks such as high inflation worldwide, financial tightening measures, low expectations about China's economic prospects, and the complicated geopolitical situation in Ukraine.

These developments show that the economic outlook is declining, and the inflation outlook is increasing. The international environment is witnessing high inflation, difficult financial conditions and many risks.

On that basis, the IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud said that in 2022, Vietnam has made an impressive economic recovery, forecasting economic growth prospects to 7%. This is relatively impressive growth compared to other developed economies in 2023.

Although this growth contrasts with the economic outlook in other countries, Vietnam has the highest growth rate among Asian economies.

However, Francois Painchaud realized that Vietnam's economic outlook still has risks, and inflation may still increase rapidly.

Vietnam's recovery will be hit by slowing global growth and tighter financial conditions.

The IMF Resident Representative for Lao PDR and Vietnam said that monetary policy needs to be careful against inflation risks. If inflationary pressures continue to increase, the State Bank needs to tighten monetary policy and communicate clearly because policy drivers help curb inflation.

The State Bank also needs to consistently implement current monetary policies and tools such as interest rates, credit growth and foreign exchange interventions.

Vietnam Needs Structural Reforms to Foster Growth in Business Environment: IMF Representative
IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud. Photo: quochoi.vn

For example, Vietnam's exchange rate fell, but less than other countries in the region because the State Bank sold foreign exchange reserves to maintain exchange rate stability and limit inflationary pressures, while allowing domestic short-term interest rates to rise. The IMF Resident Representative said that these two policies are consistent with monetary policy, focusing on controlling inflation.

In the current context, raising the credit growth ceiling will not be consistent with the exchange rate and interest rate policy.

Fiscal policy needs to be quick and flexible. When facing inflationary pressures, fiscal policy should play a larger role without additional monetary policy support.

The policy needs to provide clearly targeted fiscal support to household enterprises and enterprises in general so that it can reduce the trade-offs the State Bank faces when implementing monetary policies on a large scale.

The State Bank should continue to handle bad debts in the banking system, closely monitor possible risks in the future and in the real estate market.

With Vietnam's credit-to-GDP ratio at 125 percent in 2021, the IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud said that increasing GDP credit to around 100 percent could increase negative risks to macroeconomic growth and stability.

Therefore, the State Bank of Vietnam needs to increase the resilience of the banking system by increasing capital, strengthening the macroprudential framework, developing capital markets and managing risks.

Besides fiscal, monetary and financial policies to support growth, it is also necessary to pay attention to structural policies, structural reforms need to be implemented.

It can help promote the business environment, access to finance and land, and reduce regulatory burdens, especially for SMEs.

Vietnam needs to make more efforts to improve the quality of workforce management and reduce the mismatch in labor skills.

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