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IMF Report: Vietnam’s Strong Growth Will Continue

IMF Report: Vietnam’s Strong Growth Will ContinueIMF Report: Vietnam’s Strong Growth Will Continue

Vietnam’s strong economic momentum is expected to continue in 2018, aided by the reform drive, higher potential output, the global recovery, and commitment to macroeconomic and financial stability, the International Monetary Fund said Tuesday.

Concluding the Article IV Consultation with Vietnam, the executive board of IMF said despite a mild tightening in credit growth targets and a neutral fiscal stance, the economy is set to expand 6.6% in 2018, RTTNews reported.

Inflation is forecast to rise to just under the 4% target, led by higher oil prices and gradual increases in administered prices.

However, the board cautioned that financial buffers are still thin, macroeconomic policy frameworks remain inflexible, complicating the management of shocks. The strong economy provides an opportunity for more ambitious reforms, the IMF observed.

Further, the board called for monetary policy tightening in order to sustain macroeconomic stability.

On current trends and if reforms continue at their current pace, 6.5% annual growth remains feasible beyond 2018. The current account surplus is expected to decline over the medium term as structural reforms boost investment and real effective appreciation of the dong (currency) resumes its trend, leaving reserves at 2.5–3 months of imports. Despite recent economic strength, economic distortions and capacity constraints remain, and external and domestic risks and longer-term challenges loom on the horizon.

Financial buffers are still thin, macroeconomic policy frameworks remain inflexible to manage possible shocks, and the external position is substantially stronger than warranted by fundamentals.

The strong economy provides an opportunity for more ambitious reforms to level the playing field by tackling remaining distortions and capacity constraints, increasing investment and reducing the external surplus.

Vietnam’s dynamic, highly open economy continues to perform well, IMF said. The solid performance is aided by macroeconomic and financial stability, stepped up economic reforms, and inflows of foreign direct investment which are enabling structural transformation and are raising potential growth.

Meanwhile, the ongoing US-China trade war will greatly impact the structure of the world economy in the future, causing damage but also generating indirect opportunities for countries where the economy relies heavily on agricultural production like Vietnam.

According to head of the Vietnam Cashew Association’s Trade Promotion Division Tran Van Hiep, although it is still quite early to assess the impact of the US-China trade war, it’s possible that Vietnamese cashews may benefit from this war.

 “This will be an opportunity for the Vietnamese cashew industry to promote export of cashew nuts to the Chinese market,” said Hiep.

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