Vietnam’s economy continues to perform well but is being hindered by a number of challenges caused by contractions in the agriculture and mining sectors in the first half of the year, the Asian Development Bank (ADB) said in a new flagship report launched on September 27.
Eric Sidgwick, ADB Country Director for Vietnam, said drought in the Mekong Delta and Central Highlands regions and low global commodity prices eased economic growth in the first half of the year, but other sectors have grown strongly.
“Manufacturing expanded by double-digits as new foreign-invested factories ramped up production, while services picked up as a result of rising domestic trade, growing bank lending and a 25 percent jump in tourism arrivals,” he said.
The Asian Development Outlook Update (ADOU) 2016 forecasts a downward revision in Vietnam’s economic growth to 6.0 percent in 2016, and 6.3 percent in 2017.
The country’s economic growth is expected to rise in the second half of the year, buoyed by further increases in foreign direct investment and exports, domestic credit growth, a slight recovery in agriculture and accelerating disbursements of capital expenditure on national infrastructure programs.
The report stressed that while Vietnam’s economy is performing reasonably well against a challenging back-drop, a number of issues will need to be addresses to ensure growth remains sustainable.
A recent surge in bank lending increases the importance of efforts to tighten regulations to prevent a rise in financial sector risks.
Further, to ease public debt pressures a growth-friending fiscal consolidation is needed, including a rationalisation of recurrent expenditure and tightening of the public sector wage bill.
Administration costs as a share of total state budget spending have risen from an average of 8 percent between 2007 and 2009 to 11 percent during the 2013-2016 period.
The report noted that trade performance remains a bright spot for Vietnam’s economy. In the first six months of 2016, the country produced a large merchandise trade surplus equal to estimated 8.2 percent of GDP. This outcome was a big improvement on 2015 and reflects continued growth in exports while import demand has eased.
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