A new report on Viet Nam’s future economic development, released by Hong Kong and Shanghai Banking Corporation (HSBC), focuses on the impact that the country’s reform process will have on corporations, capital markets and macro-economic policy. In the report entitled, Viet Nam: Going for the next level, the bank assessed that Viet Nam’s growth over the past decade had been impressive, averaging 7.2 per cent annually, while the share of the population below the poverty level (US$1 per day) had fallen from 51 per cent in 1990 to 8 per cent.
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A new report on
In the report entitled,
But the report discusses the Government’s ambitions to follow in the footsteps of previous "Asian tigers".
"The Government has set a demanding target for growth of 7.5 to 8 per cent over the next five years, but we believe the odds of achieving this are high," the report said.
The bank backed this by saying
It pointed also to the rising fixed-asset investment in the past decade, saying this would "boost labour productivity, which accounts for two-thirds of economic growth". Fixed-asset investment had already grown rapidly to contribute 33 per cent of overall GDP growth in 2004.
"Much of the increase in productivity will continue to come from the shift of employment out of agriculture into industry and services," the report said.
It explained that agricultural output had grown steadily at about 4 per cent annually, while industry had achieved annual growth of 8 per cent, "chiefly on the back of strength in manufacturing, which has seen double-digit growth".
And in the past five years, service sector output had grown about 7 per cent.
"It seems quite possible that the industrial sector can achieve a growth rate of 10 per cent pa, while services could grow about 8 per cent per year in the near future," the report predicted.
HSBC also forecast that capital demands would be even greater in the future, estimating a total of US$140 billion over the next five years, with the government expecting that the ratio of investment to GDP would rise to over 40 per cent by 2010.
But the report also went on to discuss issues that still remained.
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The recapitalisation of State-owned commercial banks and the restructuring of non-performing loans would remain major tasks, as the banks may need to reserve as much as 15 per cent of GDP in order to assure solvency.
HSBC expected that WTO accession would have fairly limited macro-economic effects in the short term, but opening the country up to more foreign competitors would yield dynamic benefits over the longer term, due to an expanded market size and greater competition.
As for financial and monetary policies, the Vietnamese dong was already convertible on the current account but many restrictions still applied to capital transactions, according to the report.
However, these were gradually being liberalised, and the new foreign exchange law had marked a further step in this direction. The currency regime remained a managed float, and gradual depreciation against the US dollar was expected to continue.
HSBC has assigned an initial foreign currency credit rating of BB/stable for the
Conversely, the three main international credit rating agencies (Fitch, Moody’s and Standard & Poors) have the
Over the next six- to nine-month period, HSBC expected the divergence in rating opinions would be resolved in the favour of a Viet Nam upgrade to BB/stable, with Standard & Poors and Fitch likely to be first to take such a positive credit action.
(Source: VNS)
