Illustrative image (Source: VNA) In an interview granted to the press, Coppolaexplained that the country’s export hasbeen very strong in the past and shown to be resilient, including duringthe COVID-19 crisis when manufacturing exports were the main driver of GDPgrowth.
“Even though we expect the growth of exports to slowdown as global demand is weakening, exports will continue to contribute togrowth going forward,” he said.
Headded that domestic consumption and retail sales were powerful engines ofgrowth for the country in the past year. This is reflected by the strongrecovery of retail sales, which grew by 17% year-on-year in October 2022compared to 0.4% year-on-year in January.
Domesticdemand is expected to be affected by rising domestic inflation going forward butcontinue to contribute positively to growth in 2023.
Meanwhile,private investments played an important role, he said, noting that during thefirst 11 months of 2022, FDI disbursements grew by more than 15% than duringthe same period in 2021.
“Finally,we need to consider that COVID had a strong impact in Vietnam in 2021,particularly during the third quarter of the year. As a result, the strongeconomic performance in 2022 is also the result of a low-base effect,” hestressed.
Accordingto the economist, the Vietnamese economy will face strong headwinds in 2023 onboth external and internal fronts.
Externalrisks include persistent global inflation pressures, additional monetarytightening, and a sharper-than-expected economic slowdown of Vietnam’s maintrade partners, as well as continued disruptions in the global value chains.
Internally,higher inflation, and uncertainty associated with heightened risks in thefinancial sector could affect growth prospects.
In the current global context characterised byuncertainty and risks, Vietnam’s policymakers have a difficult task ofbalancing the need to provide continued policy support to solidify the recoverywith the need to contain emerging inflation and financial risks, he pointedout.
High uncertainty will require the policy mix to beadapted to changing circumstances, the economist said, adding that if US Fed continuesraising interest rates and exchange rate pressures persist, Vietnamese monetaryauthorities could consider allowing further flexibility in the exchange rate.
Given the persistence of exchange rate pressures,direct foreign exchange sales could be used very cautiously to preserveinternational reserves, he suggested.
In case faster depreciation leads to a significantincrease of inflation and inflation expectations rise, the State Bank of Vietnam (SBV) could considerusing again the reference interest rates. However, policy room is limited asinterest rates are already high. Close coordination between monetary and fiscalpolicy would help to minimise further increases of the interest rates.
Authorities could consider reining in publicexpenditure while prioritising expenditures on human capital development andaccelerating the implementation of selected public investments with the highestexpected impact on economic growth. Effective public investment management iscritical to promote economic growth in an inflationary context.
As for financial sectorpolicies, to address liquidity challenges in the banking sector, in case somebanks become more vulnerable and require support, the SBV could help to restoreconfidence by providing emergency liquidity assistance provided that banks havea plan in place to restore a satisfactory liquidity position, withoutcontinuous reliance on SBV lending.
Pointing out, some weaknessesin the implementation of the investment budget in the past few years inVietnam, the economist suggested that if projects are assessed as not beingfeasible after a detailed analysis, authorities could consider simplifyingadministrative procedures to allow timely adjustments of project proposals.
Regarding institutional reform, Coppola cited arecent World Bank Group systematic country diagnostic report titled “How willVietnam blossom” as saying that improving Vietnam’s performance will requirefive institutional reforms.
First, creating a solid institutional anchor thatwill transform development priorities into concrete actions; second, streamliningadministrative processes to increase the effectiveness of government at alllevels; third, using market-based instruments to motivate public and privatestakeholders; fourth, enforcing rules and regulations to enhance motivation,trust, and fairness; and fifth, engage in participatory processes to securegreater transparency and accountability.
By adopting these institutional reforms more systematically,Vietnam will underpin its vision for economic development, strengthen itscapacity to implement national strategies, and boost its capacity to produceresults in several key areas that will help the country achieve its developmentgoals, such as green growth, digital transformation, financial inclusion,social protection, and infrastructure upgrading, he said./.
VNA
