Driving force for Vietnam's economy amid global challenges

The interview took place on the sidelines of the Fitch On Vietnam 2024 Conference held on August 20 in Ho Chi Minh City to discuss Vietnam's development momentum amid challenges facing the global economy.

Can enhance supply chain value

Ms. Sagarika Chandra, Director of Sovereign Credit Ratings of Fitch Ratings in the Asia-Pacific region, commented: “Vietnam’s economy is expected to grow slightly above 6% in 2024. Our medium-term growth outlook for Vietnam’s economy is 6-7%. The main growth drivers for Vietnam are portfolio investment and the service sector, which are quite strong. This trend is likely to continue.”

And in terms of foreign direct investment (FDI), she said FDI into Vietnam continues to focus on manufacturing for export. “Our forecast is that exports will continue to be strong and be the growth driver. Despite some global and regional headwinds, Vietnam’s exports remain stable,” said Sagarika Chandra.

Regarding expectations for FDI, although some of it flows into real estate, she believes that the main advantage of FDI in Vietnam is still in production for export, with a very large proportion still belonging to the electronics sector.

Exports remain an important driving force of Vietnam's economy.

In addition, she also said that Vietnam has benefited from the shift in global and regional supply chains thanks to its integration into the global supply chain. “Vietnam attracts more investment, which has many positive aspects. If it increases its skilled workforce, Vietnam can move up the export value chain,” Ms. Sagarika Chandra commented, adding that Vietnam’s main advantages are cost competitiveness and integration into the global supply chain.

Credit growth has been quite rapid.

In addition, Mr. Willie Tonato, Senior Director of Financial Institutions at Fitch Ratings, also commented on Vietnam's financial sector. According to him, although Vietnam has a high level of people's deposits in banks, credit growth is not low.

“In the first half of the year, credit growth of Vietnamese banks was at 6%, far from the target of 15% for the whole year. But in reality, over the years, Vietnam's credit growth can still reach close to 15%. In our opinion, compared to GDP growth of about 6%, credit growth of 15% is a bit fast,” Mr. Willie Tonato assessed and pointed out that: “Loan growth in Vietnam tends to be seasonal. There can often be a significant boost in the last quarter of each year because that is the peak time of the export cycle, and it is also the time when banks want to achieve positive results in their financial reports.”

Ms. Sagarika Chandra interviewed Thanh Nien

Commenting further on Vietnam’s banking sector, Mr. Tonato said: “There have been significant improvements in the legal framework. Vietnamese banks have also made significant improvements in transparency and financial disclosure. In addition, there are “good ideas” on asset quality when reporting and accounting for asset quality more honestly.”

But he also warned: “What is missing here is that although capital standards of banks have improved, they are still quite low compared to regional standards, compared to the level of risk in the economy. Secondly, the way banks grow in Vietnam is high-risk because they seem to try to grow as fast as possible. The faster banks grow, the more capital they have, or vice versa. This is good when the economy is doing well. But if there is a shock or if the economy slows down or recovers more slowly than expected, it can be a problem for the banking sector.”

Commenting further, Mr. Tamma Febrian, Director of Financial Institutions at Fitch Ratings, said: “Now, when we talk about the outlook for the Vietnamese banking system, we see an improving outlook and that depends on the confidence that revenues remain relatively healthy. We expect things to continue to improve and as demand for higher-yielding loans continues to return, we will also see banks’ profit margins improve. Risk assets are likely to remain under control thanks to the recovering economy.”

Negative and positive

In her speech at the Fitch on Vietnam 2024 event, Ms. Sagarika Chandra commented on both negative and positive signs of the Vietnamese economy.

On the negative side, the current situation of conditional debt repayments and persistent fiscal deficits has led to instability in the government debt in the medium term. In addition, there is the fact that foreign exchange reserves have continuously decreased, related to pressure on the exchange rate.

On the positive side, macroeconomic policy and performance have been consistently strong, and Vietnam has improved its economic policy framework to include increased transparency. In addition, Vietnam has significantly reduced the risks associated with contingent liabilities, including through better accounting for such risks and greater clarity on the Government’s commitments to address them should they arise.

Should Vietnam increase fiscal stimulus?

At the Fitch on Vietnam 2024 event, Fitch Ratings also conducted a quick survey of nearly 100 event attendees. Of which, 52% of respondents said that Vietnam needs to strengthen both monetary and fiscal stimulus policies. Meanwhile, 34% of respondents said that Vietnam only needs more fiscal stimulus policies because credit growth is already high. The remaining 4% of respondents said that only monetary stimulus is needed and 10% said that no further fiscal or monetary stimulus is needed.

Thanhnien.vn

Source: https://thanhnien.vn/dong-luc-cho-kinh-te-viet-nam-giua-thach-thuc-toan-cau-185240821212101231.htm