The potential of Vietnamese business in the long term is huge, but short- and medium-term shortcomings should be addressed for sustainable development, the World Bank’s country director said.
Speaking at a workshop hosted by the Indian Business Chamber in Vietnam in Ho Chi Minh City last Friday, Victoria Kwakwa said: “It is high time for state agencies to develop skills to manage macroeconomic instability to regain people’s confidence.”
Though the country did well during the global economic turbulence, its inflation rate was likely to be 8–8.5 percent in 2010 and go down to around 7 percent in 2011. So, flexible monetary and fiscal policies would be needed next year since the inflation outlook would be affected by global changes in commodity and food prices.
The exchange rate remained under pressure though Vietnam devalued the currency twice in 2010, and a disparity persisted between official and market exchange rates.
The increasing trade deficit was likely to widen the current account deficit from 8 percent of GDP in 2009 to about 9 percent this year and 8 percent next year. Though the overall balance of foreign reserves was positive, they were not rising because of major problems like hoarding and capital flight.
The general fiscal deficit was expected to reach 5.9 percent of GDP this year and fall to 4.5 percent in 2011.
Though it is not yet in the middle-income trap -- middle-income countries are said to fall into it when they cannot progress to the next stage -- Vietnam could enter the danger zone within a decade and so it was useful to start thinking now about how to avoid becoming trapped.
The country should adjust growth strategies by giving more support and room for the private sector and innovations, removing logistics and infrastructure bottlenecks, and preventing real estate bubbles in cities.
It should also redirect priorities to avoid crises, support productivity gains in human capital, urbanization, and infrastructure, improve governance, and modernize institutions.
Kwakwa told the media after the workshop that support for the private sector should be in the form of simplifying bureaucracy and granting it access to specialized skills that are only available to state-run conglomerates to help them sharpen their competitiveness.
She also said called for improving corporate governance to avoid moral hazard and state capture and constraining state ownership to areas/sectors that require technological upgrading and skills development.
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