Vietnam's economy has been stable for the first half of the year with a GDP growth rate of 5.18 percent and inflation at 1.38 percent. As there remain difficulties in the year ahead, it is important to continue to confidence-building measures in Vietnam's economy. Dr Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management talks about the issue.

*Can you highlight the country's economic picture in the first six months of the year?

As for macro-economics, the country's inflation was relatively low; balance of international payments were stable and became surplus; and the fluctuation of the domestic currency was insignificant. Besides, Vietnam's foreign reserves increased sharply from a relatively low level to 35 billion USD.

With regard to production, two signals showed a clear recovery. Purchasing Manager Index (PMI) has remained high at more than 50 points since September 2013, while the State budget collections were higher than last year and also higher than the estimate.

*Inflation in the first half of this year increased only 1.38 percent against December last year - the lowest rise in the past 13 years. The rise was also equal to only one-fifth of the inflation target for the whole year. Is this a good sign for the economy?

The relatively low inflation is one of the important indicators to evaluate the stability of the macro economy, alongside a series of other indicators. In a sense, it is also considered a success to pull the annual inflation down from 18.58 percent in 2011 to the current rate (around 5 percent).

In this regard, we need to pay attention to two issues while making a closer analysis of this index. First, in normal conditions, maintaining inflation at 5 to 6 percent in the long run is very good. However, in terms of handling the inflation's instability and pulling it up to a stable threshold, it requires authorities to make the economy gradually stable while still having to ensure that the cost of production and economic growth does not decline too fast. The second thing I want to mention is that inflation is still expected at roughly 5 to 6 percent yearly, but not deflation.

*What measures should the Government take in the current context?

Currently, we have to handle a lot of problems to simultaneously achieve targets of macro-economic stability and economic growth recovery. This requires that Vietnam spend a significant resource for further integration and restructuring the economy.

Monetary and fiscal space is not enough to build a strong recovery. For a monetary policy, we set a goal that this year's credit growth is at 12-14 percent, associated with continued recovery and stability. However, after the first six months of the year, credit growth is very low.

For a fiscal policy, the Government has proposed to the National Assembly, an increase in the budget deficit plan from 4.8 percent to 5.3 percent for 2014 and 2015. Besides, it has also suggested an additional issuance of 170 trillion VND (8 billion USD) of Government bonds for infrastructure investment this year and in the next two years. This is a Government's great effort.

In addition, the Government had to spend a significant amount of money to support fishermen for the past few months.

In this difficult context, along with the public debt problem, fiscal space is not much. I had hoped that Vietnam's economy will continue to be stable and try to recover at a certain level, but cannot be too hasty. It is important for the Government to take reforms synchronically, more strongly and more drastically. This will help Vietnam's economy get back its confidence. If we can restore credibility, it will help boost consumption and investment to create more added value, economic growth and employment.

*What is your forecast on the economic outlook in the remaining months of the year?

The Government has decided to keep the annual basic economic indicators approved early this year unchanged with the economic growth of 5.8 percent and inflation of below 7 percent.

Until now, it can be clearly seen that we will achieve the inflation target, with inflation expected to be 5 to 6 percent.

For economic growth, the latest forecast from the World Bank showed that Vietnam's economic growth will be around 5.5 percent this year.

Meanwhile, according to the latest forecast from the National Financial Supervisory Committee, growth will be around 5.6 percent taking into account possible impacts from the Vietnam-China economic relations.

However, I think, the economic growth is not as important as the need to continuously rebuild the trust in Vietnam's economy through continuously stabilising the macro-economy and drastically accelerating the economic restructuring.

We expect a lot from major agreements such as the Trans-Pacific Partnership, Vietnam-EU Free Trade Agreement and ASEAN + 6 that are expected to be signed this year and the next year. I believe this will give a ‘push' in creating confidence in Vietnam's economy, and that is the most important and deciding factor for the country's economic development this year and in the years to come.-VNA