Country Report Vietnam May 2009

Outlook for 2009-10

• The ruling Communist Party of Vietnam will maintain its tight grip on power in 2009-10, rejecting calls (especially from groups of overseas Vietnamese) for political pluralism.
• The government's fiscal stimulus package includes spending on infrastructure, as well as tax breaks and a delay in the implementation of the new personal income tax regime.
• Given that the inflation rate is continuing to ease, the State Bank of Vietnam (the central bank) is likely to keep policy interest rates low in 2009-10.
• The Economist Intelligence Unit forecasts that the economy will expand by 1.6% in 2009, before growth picks up to 4% in 2010. But concerns exist that official data will not reflect fully the extent to which the economy is suffering.
• As domestic demand growth weakens, we expect price rises to continue to abate, and inflation is forecast to slow to an average of 5.4% in 2009.
• We forecast that the value of the dong against the US dollar will fall by around 8% in nominal terms in 2009.
• The current-account deficit will narrow sharply in 2009-10 as a result of a major reduction in the merchandise trade deficit.

Monthly review

• A recent court case suggests that the government is increasingly intent on curbing unfair business practices that contravene the 2006 Competition Law.
• From June 1st foreign investors will be allowed to acquire up to 49% of total equity in unlisted companies, up from 30% at present. The move brings the foreign-ownership cap into line with that for listed companies.
• The governments policy approach to boost economic growth will focus on supporting key sectors; stimulating investment; poverty reduction and social stability; and adopting a flexible approach to monetary and fiscal policy.
• A study of two industrial zones by an international charity, Oxfam, showed that the global economic downturn has had a negative impact on business. Most firms conceded that production orders have fallen.
• The trade balance swung into deficit in April. After posting three consecutive months of surpluses, the trade deficit soared to US$700m for the month.
• Foreign direct investment inflows are down significantly. The government approved US$6.4bn in new projects the first four months of the year, down by over 72% year on year.