Timely action from International Monetary Fund
NDO - United Nations Secretary-General Antonio Guterres hailed the establishment of the Resilience and
According to the Board of Executive Directors of the International Monetary Fund (IMF), a fairly large domestic bank had its deposits withdrawn en masse in October 2022 and was placed under the control of the State Bank of Vietnam.
However, Vietnam still has a record-high GDP increase of over 8%, and at the same time, IMF experts affirm that Vietnam will return to a growth rate of 6%-7%, much higher than most countries in the world.
The IMF recommends that Vietnam strengthen the financial system's resilience, prevent and manage banking crises through strengthening bank resolution frameworks and providing emergency liquidity.
Despite headwinds, Vietnam still has record growth.
On September 27, the Board of Executive Directors of the International Monetary Fund (IMF) issued a press release announcing the conclusion of the Article IV Consultation of the Fund's Charter with Vietnam.
Under Article IV of the IMF's Charter, the IMF conducts bilateral discussions, usually annually, with member countries. In this case, Vietnam.
The IMF will also send a delegation of officials to work in that country, collect economic and financial information, and discuss the country's economic situation and policies with authorities. Upon returning to headquarters, IMF staff will draft a report, which will be the basis for discussion by the Executive Board.
As usual, the Article IV Consultation Team report is always one of the important input information for the policy planning and implementation of the Government and ministries and branches of Vietnam.
This year, according to the Executive Board of the International Monetary Fund (IMF) 's conclusions, Vietnam has achieved significant progress. Specifically, in 2022, Vietnam's economy recovered strongly after the pandemic thanks to strong economic fundamentals and prudent public health management during the pandemic.
A fairly large domestic bank had its deposits withdrawn en masse
However, the International Monetary Fund pointed out that this recovery has stalled due to strong "headwinds" affecting the economy at the end of 2022 and in the first half of 2023.
The economy continues to suffer from falling foreign demand since the end of 2022, with exports falling 12% in the first half of 2023. Liquidity, foreign exchange, and inflation pressures have eased, but growth has accelerated significantly and is expected to slow to 4.7% in 2023, thanks to increased exports and loosening policies (especially fiscal policies).
“Exchange rate pressure increased throughout 2022 when global interest rates increased sharply, and a fairly large domestic bank had its deposits withdrawn en masse in October 2022 and was placed under the control of the State Bank. Vietnam", IMF emphasized the Saigon Commercial Joint Stock Bank (SCB) case.
Regarding the inflation situation, the Board of Executive Directors of the International Monetary Fund (IMF) said that Vietnam can still maintain inflation below the target level of 4.5%.
Experts say that Vietnam can return to high growth in the medium term with the support of structural reforms.
Vietnam will return to a higher growth rate than many countries worldwide.
Mr. Paulo Medas, Head of the Vietnam team of the International Monetary Fund (IMF), assessed that Vietnam has a great advantage compared to many other countries that he has worked with and seen, which is that Vietnam has many fiscal spaces and has low debt levels.
Vietnam has been very cautious recently, while many countries worldwide have high debt levels. When there are high debt levels, it is easier for the Government to help the economy. Fiscal policy is a very effective tool that Vietnam can use to promote growth while many other countries still need it.
Mr. Medas said that Vietnam's economy is relatively stable and well-managed, which is very important for investors. Investors also believe that Vietnam has a very large domestic market in the medium and long term.
Recommendations for Vietnam
According to the assessment of the Board of Executive Directors, Vietnam's authorities have acted quickly to maintain macro-financial stability when the post-pandemic economic recovery faces adverse winds both at home and abroad.
The Board of Executive Directors believes that because there is still much fiscal space, while the room to loosen monetary policy is limited, Vietnam's fiscal policy needs to play a leading role in supporting economic operations if necessary.
The IMF welcomed the plan to promote public investment, which requires removing bottlenecks, and emphasized the importance of expanding social safety nets to support the vulnerable.
The Executive Directors recommended strengthening the fiscal framework and budgeting process and increasing revenue mobilization over the medium term to support Vietnam's ambitious socio-economic development plan.
Although Vietnam has effectively controlled inflation risks, the IMF representative said that monetary policy needs to be cautious in a complex context and limited policy space.
The IMF welcomes steps towards greater exchange rate flexibility, encourages continued progress, and modernizes Vietnam's monetary policy framework.
Vietnam needs to strengthen the financial system's resilience by strengthening capital buffers, gradually removing regulations that allow debt extension while maintaining the same debt group, and handling rising bad debt.
The regulator must improve the authorities' toolkit to prevent and manage banking crises by strengthening bank resolution frameworks and providing emergency liquidity. The IMF also welcomes the ongoing amendments to the Law on Credit Institutions and recommends continued efforts to strengthen legal regulations and banking supervision.
The IMF Managing Directors acknowledged the swift action by Vietnamese authorities to contain risks in the real estate and corporate bond markets.
However, the IMF recommends that resolute actions be taken to address other risks, such as strengthening the insolvency resolution framework, strengthening institutions and increasing transparency in the corporate bond market.
Welcoming Power Plan 8 towards strengthening energy security and achieving climate goals, the IMF said that Vietnam must aim for green, inclusive and sustainable growth. Vietnam needs to improve its business environment, key infrastructure and investment in human capital.
The Government also needs to move forward in implementing the strategy and building an appropriate legal framework to promote investment in renewable energy and mobilize capital to finance the green transition. According to the IMF, conducting the Climate-Public Investment Management Assessment would be useful.
The Managing Directors of the IMF welcomed the anti-corruption efforts of the authorities and emphasized the need to continue to strengthen governance and improve the Anti-Money Laundering and Terrorist Financing (AML) framework. /CFT), as well as simplifying the legal regulatory framework. Vietnam also needs to make more efforts to overcome data weaknesses.
As expected, the next Article IV Consultation with Vietnam will follow a standard 12-month cycle.
