Understanding Vietnam: Macroeconomic Conjuncture and Growth Prospects

Sanjay Kalra
IMF Resident Representative for Vietnam/Lao PDR

Deutsche Bank Access Asia Conference Singapore May 30 M 30, 2012

Road map

Macroeconomic Conjuncture
Wh Where from? f ? Where to?

The Long View Forward

Growth potential Policies and prospects

Macroeconomic conjuncture
External factors and shocks
WTO accession (Jan 2007) and capital inflows ( ) p Commodity prices (2008Q1/Q2) Global financial crisis (2008Q3) ( Q )

Policies
Stop-and-go? Growth biased

External factors and shocks

Capital flows p
28

Banking system NFA (billion US$)

24

20

16

12

2005

2006

2007

2008

2009

2010

2011

2012

External factors and shocks

Global commodity prices yp
800 700 120 600 100 500 80 400 60 300 2007 2008 2009 2010 2011

Global commodity prices

Rice $ Oil $ (right)

140

Growth and inflation

Is there a trade-off? Determinants of inflation Core inflation and momentum

Growth and inflation

12

GDP Growth (y/y percent change, average 2007-2011)

30

IInflation (y/y percentt change) fl ti ( / h )

20

8
10

0
Vietnam NIEs ASEAN-4 China

-10 Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

0 CHN VNM IDN SGP PHL MYS TWN HKSAR KOR THA

Inflation
Determinants Determinants of inflation
Food and fuel prices Second round Second-round and income effects Macroeconomic policies and the exchange rate Expectations Transition: rapid changes in the economy and financial system Partial dollarization and asset substitutiondong, dollar, and gold substitution dong,

Monetary policy transmission complicated by

Inflation
Core inflation and momentum
50 Vietnam: Headline CPI and Inflation Momentum (in pecent) 40 40 50

30

30

20

20

10

10

0
Headline CPI Inflation (y/y) Seasonally adjusted, 3mma, annualized Core inflation, 3mma, annualized

-10 10 Jan-08

-10 10 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Sources: GSO, and IMF staff estimates

Macroeconomic policies
Monetary and exchange rate p y y g policy

Credit growth Policy rates Exchange rate E h t Administrative controls

Credit growth ceilings Deposit and lending interest rate caps Asset markets: FX market; Gold market Macroprudential measures M d ti l
Sectoral credit allocation and lending rates for priority sectors Limits on real estate lending

SBV loan restructuring guidelines

Monetary and exchange rate policy

Credit growth g
60
175

Credit growth (end period, in percent)

Asian Economies: Credit to GDP Ratio (In percent)

40

125

20

75

Thailand Phillipines Indonesia Vietnam Malaysia Ml i

0 2003 2004 2005 2006 2007 2008 2009 2010 2011

25 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Monetary and exchange rate policy

Policy rates y
20
20

Policy interest rates (in percent)

10

Real policy interest rate (In percent per annum )

16

0 Jan-08

Jul-08 Jan-09

Jul-09 Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

12
-10

8
-20

Refinancing rate Discount rate OMO (7 day) 4 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-30

Seasonally adjusted, 3mma, annualized Core inflation, 3mma, annualized

Monetary and exchange rate policy

Exchange rates g
Exchange Rates (dong per U.S. dollar)
14,000

16,000

18,000

20,000 SBV central rate Parallel market rate 22,000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Fiscal policy
Budget deficits g

-2

-4 4

-6

-8

Fiscal Balance (In percent of GDP)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-10

External sector
Balance of payments and international reserves p y
4

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-4

-8 Current account balance (in percent of GDP) -12

Macro-financial linkages
Real GDP and credit growth g
60 50 40 30 20 10 0 -10 -20 Real domestic credit Real GDP I II III 2009 IV I II III 2010 IV I II III 2011 IV I 2012 Monetary aggregates and GDP M t t d (quarterly percent change, seasonally adjusted, annualized)

Macro-financial linkages

Credit risk, NPLs and credit supply Leverage and credit demand Asset prices and balance sheets

Macro-financial linkages

The Long View Forward

Sources of growth Demographics Structural reforms

Banking sector Public investment SOEs

Sources of growth
Percent

Vietnam 19902010 GDP Growth Capital Input ICT Non-ICT Labor Input Quality Hours TFP 7.16 4.47 0.66 3.81 1.37 0.09 1.28 1.31 19902000 7.30 3.54 0.37 3.16 1.31 0.08 1.23 2.46 20002010 7.01 5.40 0.94 4.46 1.44 0.11 1.33 0.16 19902010 8.97 5.76 0.99 4.77 0.55 0.15 0.40 2.67

China 19902000 7.10 5.22 0.81 4.41 0.69 0.15 0.54 1.18 20002010 10.85 6.30 1.16 5.14 0.40 0.15 0.25 4.16 19902010 4.61 3.19 0.41 2.79 1.05 0.17 0.89 0.36

Indonesia 19902000 4.13 3.52 0.21 3.31 1.01 0.17 0.85 -0.4 20002010 5.08 2.87 0.61 2.26 1.10 0.17 0.93 1.12

Source: Vu (2000)

Sources of growth
Shares

Vietnam 1990- 1990- 20002010 2000 2010 GDP Growth Capital Input ICT Non-ICT Labor Input Quality Hours TFP 100 63 9 53 19 1 18 18 100 48 5 43 18 1 17 34 100 77 13 64 21 2 19 2

19902010 100 64 11 53 6 2 4 30

China 19902000 100 74 12 62 10 2 8 17

20002010 100 58 11 47 4 1 2 38

Indonesia 1990- 1990- 20002010 2000 2010 100 69 9 61 23 4 19 8 100 85 5 80 25 4 21 -10 100 56 12 45 22 3 18 22

Source: Vu (2000)

Demographics
Vietnam: Structure of Population, 2010
80+ 75-79 70-74 65-69 60 64 60-64 55-59 50-54 45-49
Ag ge

Male

Female

40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 (6,000) (4,000) (2,000) 2,000 Thousands of persons 4,000 6,000

Source: UNFPA.

Source: Credit Suisse

Structural reforms
Banking sector g

Liquidity and solvency NPLs Fiscal cost of bank restructuring

Banking sector
Liquidity and solvency q y y
Liquidity stress
25 (Reserves + Treasuries + SBV securities)/Deposits SBV refinancing/Total credit (RHS) 8 20 10

Capital adequacy

6 15 4

10 2

5 2004 2005 2006 2007 2008 2009 2010 2011

Banking sector
NPLs

Banking sector
Fiscal cost of bank restructuring g

Structural reforms
Public investment

Inefficiency Overextension Leakages

Structural reforms
State-owned enterprises p
60

Vietnam: GDP contribution (in percent)

2001-05 2001 05 2006-10

60

Vietnam: GDP growth contribution (in percent)

2001-05 2006-10

40

40

20

20

0 SOE NSE FDI

0 SOE NSE FDI

Structural reforms
State-owned enterprises p
60 12

Vietnam: Investment capital (in percent)

2001-05 2006-10

Vietnam: ICOR
2001-05 2006-10

40

20

0 SOE NSE FDI

0 Total SOE NSE