The report outlined that domestic demand growth is expected to recover gradually as corporates navigate through high debt levels while the real estate sector will only fully recover over the medium term.
Inflation is expected to hover around the State Bank of Vietnam (SBV)’s target of 4-4.5% this year.
“Inflation picked up in 2024, driven mainly by rising food prices, though core inflation remained relatively low and stable,” the IMF stated.
“The external current account posted a large surplus in 2023, at 5.8% of GDP, mainly reflecting a significant contraction in imports.”
The IMF's executive directors commended the Vietnamese authorities’ swift actions to maintain macro-financial stability after the economic recovery from the pandemic faced domestic and external headwinds. However, it noted that downside risks remain elevated.
Exports, a key driver for Vietnam’s economy, could weaken if global growth disappoints, global geopolitical tensions persist or trade disputes intensify. Given easy monetary conditions, if exchange rate pressures were to persist for longer, it could lead to a larger pass-through to domestic inflation.
“Persistent weakness in the real estate sector and corporate bond market could weigh more than expected on banks’ ability to expand credit, hurting economic growth and undermining financial stability,” the report highlighted.
Given these challenges, further efforts are required to safeguard macro-financial stability and deepen reforms to address vulnerabilities and ensure robust, green and inclusive growth over the medium term.
The IMF's directors noted that fiscal policy should take the lead in supporting economic activity if needed. In this context, they welcomed the authorities’ plans to speed up the implementation of public investment, which will require tackling bottlenecks and stressed the importance of expanding social safety nets to support the most vulnerable. They also recommended strengthening the fiscal framework and budget process and increasing revenue mobilisation over the medium term to support the ambitious development agenda.
According to the IMF, the authorities have effectively contained inflation risks. However, they stressed that monetary policy should continue to be cautious under a complex environment and limited policy space.
The IMF's directors also acknowledged the authorities’ swift actions to contain risks in the real estate and corporate bond market but urged more decisive action to tackle remaining vulnerabilities. This includes strengthening the insolvency framework, bolstering institutions and increasing transparency in the corporate bond market.
In addition, Vietnam has also made structural and climate reforms to achieve sustainable, green and inclusive growth. Accelerating the transition to upper-middle income status will require further efforts to improve the business environment, step up critical infrastructure and invest in human capital.
The latest Power Development Plan and the planned Emissions Trading System can help achieve Vietnam’s climate goals and promote energy security, according to the IMF's directors.
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