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Vietnam Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

We expect the Vietnamese dong to remain fairly stable against the US dollar over the short-term as the SBV continues to neutralise upside pressures on the currency resulting from strong investment inflows by shoring up its foreign reserves buffer. Over the longer term, however, we forecast the dong will weaken gradually against the greenback as inflation is likely to average higher than in the US.

Additionally, further CNY weakness could prompt a slight devaluation of the dong in 2017 by the SBV to preserve export competitiveness. Vietnam's economic takeoff has led to a rise in internet penetration and a burgeoning civil society, which are beginning to drive a shift in the political landscape. While we expect the CPV to gradually open up due to domestic social pressures and the need to foster closer relations with the US to counter China's increasing weight in the South China Sea, the political liberalisation process will not be a straightforward one. The CPV is likely to defend its political mandate by shifting towards a more technocratic form of government to sustain Vietnam's strong economic growth momentum and ensure inclusive growth. We believe that the government's decision to stop acting as a guarantor for SOEs' loans will be an overall positive for Vietnam despite potential short-term disruptions to infrastructure projects and increases in insolvency of state firms. T

he move will help to improve fiscal sustainability and resource allocation which should bode well for Vietnam's economic growth. Major Forecast Changes We expect Vietnam's strong economic growth momentum in Q316 to be sustained over the coming quarters, informing our decision to upgrade our real GDP growth forecast to 6.1% in 2016, and maintain our 2017 forecast at 6.4%. This will likely be driven by robust expansions in the industrial and services sectors which are supported by steady FDI inflows, a diversified and resilient export sector, and a fast-rising tourism industry. We expect the SBV to maintain its dovish monetary policy stance in order to spur economic and credit growth. However, we believe that the central bank will likely refrain from cutting its refinancing rate over the coming quarters as the government's large fiscal deficit and rising inflation expectations will continue to constrain the SBV due to concerns over macroeconomic stability. Moreover, it appears that the refinancing rate is losing its clout as an interest rate determinant in the banking system.

Table Of Contents

Vietnam Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth Momentum Likely To Be Sustained Over Coming Quarters8
We expect Vietnam's strong economic growth momentum in Q316 to be sustained over the coming quarters, informing our decision
to upgrade our real GDP growth forecast to 6 1% in 2016, and maintain our 2017 forecast at 6 4% This will likely be driven by robust
expansions in the industrial and services sectors which are supported by steady FDI inflows, a diversified and resilient export sector,
and a fast-rising tourism industry
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook11
Removal Of Guarantee For SOEs' Loans A Positive Move 11
We believe that the government's decision to stop acting as a guarantor for SOEs' loans will be an overall positive for Vietnam despite
potential short-term disruptions to infrastructure projects and increases in insolvency of state firms The move will help to improve fiscal
sustainability and resource allocation which should bode well for Vietnam's economic growth
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 12
Currency Forecast 13
VND: Neutral Short-Term, But Longer-Term Devaluation Risks13
We expect the Vietnamese dong to remain fairly stable against the US dollar over the short-term as the SBV continues to neutralise
upside pressures on the currency resulting from strong investment inflows by shoring up its foreign reserves buffer Over the longer
term, however, we forecast the dong will weaken gradually against the greenback as inflation is likely to average higher than the
US Additionally, further CNY weakness could prompt a slight devaluation of the dong in 2017 by the SBV to preserve export
competitiveness
TABLE: CURRENCY FORECAST 14
Outlook On External Position 15
TABLE: MAIN EXPORT AND IMPORT PARTNERS (2015) 15
TABLE: MAIN EXPORTS AND IMPORTS (2015) 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS16
Monetary Policy 16
SBV Likely To Hold Rates Despite Dovish Stance 16
We expect the SBV to maintain its dovish monetary policy stance in order to spur economic and credit growth However, we believe that
the central bank will likely refrain from cutting its refinancing rate over the coming quarters as the government's large fiscal deficit and
rising inflation expectations will continue to constrain the SBV due to concerns over macroeconomic stability Moreover, it appears that
the refinancing rate is losing its clout as an interest rate determinant in the banking system
TABLE: INTERBANK RATES BELOW SBV'S REFINANCING RATE 17
Monetary Policy Framework 18
TABLE: MONETARY POLICY FORECASTS 18
Contents
Chapter 2: 10-Year Forecast 19
The Vietnamese Economy To 2025 19
A New Focus On Quality Growth19
Vietnam's growth prospects over the next decade remain positive in our view, as reflected by our bullish forecasts for real GDP growth
to average 6 1% over 2016-2025 We foresee a more stable economic environment, with inflation averaging a benign 4 5% and the
current account remaining in roughly in balance over the forecast period
TABLE: LONG-TERM MACROECONOMIC FORECASTS 19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index23
Domestic Politics24
Growing Middle Class, Internet Changing The Political Landscape 24
Vietnam's economic takeoff has led to a rise in internet penetration and a burgeoning civil society, which are beginning to drive a shift in
the country's political landscape While we expect the CPV to gradually open up due to domestic social pressures and the need to foster
closer relations with the US to counter China's increasing weight in the South China Sea, the political liberalisation process will not be
a straightforward one The CPV is likely to defend its political mandate by shifting towards a more technocratic form of government to
sustain Vietnam's strong economic growth momentum and ensure inclusive growth
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 25
Key Political Challenges Over The Coming Decade 25
Vietnam's biggest political question over the coming decade is whether one-party rule under the Communist Party of Vietnam (CPV) will
face growing calls for democratisation, as was the case in other major South East Asian countries While our core scenario envisages
the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to
widespread unrest On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian
nations with close relations with the US
Chapter 4: Operational Risk 29
Operational Risk 29
TABLE: OPERATIONAL RISK 29
Business Crime 30
TABLE: BUSINESS RESPONSE TO RISK IN VIETNAM 32
Government Intervention 35
TABLE: BUSINESS TAXES 36
TABLE: PERSONAL INCOME TAX 36
Chapter 5: BMI Global Macro Outlook39
Global Macro Outlook 39
Austerity Has Peaked, But Populism Is Not Yet Policy 39
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 41
TABLE: MACROECONOMIC DATA and FORECASTS 43

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