IMF recommends Vietnam reins in spending

25 Apr 16

The International Monetary Fund has advised Vietnam to tighten its belt in the face of sharp increases in public debt.

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Hanoi, Vietnam's capital city

Hanoi, Vietnam's capital city

 

On Friday, following a visit to the country, John Nelmes said that Vietnam has achieved commendable economic results, but with the deficit averaging at 6.2% of gross domestic product and public debt expected to top 62% this year, now is the time to start cutting back spending.

Nelmes recommended a “growth-friendly fiscal consolidation” that should focus on broadening the revenue base and safeguarding spending on high quality public investment like education and infrastructure.

He added there must also be room to resolve non-performing loans and strengthen capital in state-owned banks.

The IMF said Vietnam should aim to reduce the fiscal deficit to around 3%, beginning this year, and put public debt on a sustainable downwards trajectory.

Other risks stem from slower global growth, financial market volatility and widespread and severe drought, leading to the salination of arable land, with big consequences for the country’s agriculture industry.

The IMF said the government should build on recent achievements, including in the banking sector and state-owned enterprise, with a second generation of economic reforms to strengthen resilience, mitigate risks and place Vietnam on a higher sustainable growth path.

It advised to keep monetary policy on hold for now, while pursuing reforms in order to enhance productivity and growth in the financial sector.

These included resolving non-performing loans, improving operational management and adopting international financial reporting standards.

“Productivity gains would be further supported by creating a level playing field in access to resources for the private sector, supporting research and development, improving the efficiency of public investment and expanding vocational training to address skills mismatches,” said Nelmes.

 

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