· Increase the quality and efficiency of economic
growth by improving the institutions of a market
economy with socialist orientation;
· Further enhance the investment and business
climate, attract the investment of entities under
all forms of economic ownership, enhance
investment management and the efficiency of
State investment;
· Further adjust macroeconomic policy, reinforce
financial management, renovate the price
administration mechanism in accordance with
market mechanisms; and
· Pro-actively implement international
commitments, analyze and evaluate the
difficulties and challenges in the implementation
of interna-tional commitments, accelerate
renovation, simplify administrative procedures;
ensure transparency; prevent and fight against
bureaucracy and corruption, and renovate
human resources training to meet the demands
of economic renovation and integration to the
global economy. r
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69Number 2 Spring 2007 VIETNAM ECONOMIC MANAGEMENT REVIEW
1. Vietnam's economic growth in
2006
In 2006 the Vietnamese economy had many
advantages and disadvantages in the national and
global context, which influenced economic
performance. In the international environment, the
prices of a number of important input goods,
especially raw materials and fuel, continued to rise
significantly. There were also threats of a
reoccurrence of the avian flu and an outbreak of
human influenza.
2006 was the first year of the
Socio-economic Development Plan 2006-2010.
Vietnam's economy saw the widespread
appearance of natural disasters and unusual
changes in climate and weather that caused
damage to agricultural production, the rural
economy and the livelihoods of the poor. Natural
disasters, unusual changes in climate and weather
and the avian influenza are having an adverse
impact on economic activities and life, and
especially on agricultural production. Vietnam's
export products faced major difficulties brought
about by fiercer competition and market barriers.
Thanks to the efforts of the Government, these
difficulties have been gradually overcome, limiting
their negative impact on economic growth. As a
result, Vietnam's economic performance remained
strong despite these adverse shocks, continuing to
record a rapid rate of growth.
1.1. Supply side
Vietnam's GDP growth rate reached 8.17% in
ABSTRACT
This paper focuses primarily on analyzing Vietnam's economic growth in 2006 from the supply
side and, to a lesser extent, the demand side. Using the structural macroeconometric model for
Vietnam's economy, the paper then provides forecasts on the country's basic economic indica-
tors in 2007, taking into account the prospects for the world economy and the underlying move-
ments in Vietnam's economy.
Key words: economic growth, GDP.
Vietnam's Economic Growth in 2006
and Outlook for 2007
Dinh Hien Minh
ECONOMIC UPDATES
Ms. Dinh Hien Minh is a Deputy Director of the Research Department for Trade and Economic Integration Policies,
CIEM.
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2006, lower than the 8.43% recorded in 2005.
However, the 2006 GDP growth rate was still
much higher than the average for the 2001-2005
period and ranks among the highest in East Asia.
The growth rate in value added agriculture,
forestry, and fisheries was estimated at 3.40% in
2006. Accounting for just a small share of GDP
(18.7%), the sector only contributed 8.15% to the
overall GDP growth rate. With the lion's share of
GDP (40.98%) and the highest growth in value
added (10.37%) in 2006, the industry and
construction sector continued to make the largest
contribution (of 50.99%) to the overall GDP
growth rate. The growth rate of value added in the
services sector was estimated to have increased by
8.29%. This is the second year the service sector
has experienced a growth rate of over 8%, which
was higher than the overall GDP growth
rate, since the Asian financial crisis in 1997. As a
result, the service sector contributed 40.86% to the
GDP growth rate, its largest share since 1997.
Agriculture-forestry-fisheries sector
In 2006 the agriculture-forestry-fisheries
sector encountered a great many difficulties, such as
severe and prolonged drought in the early months in
a number of cities and provinces in the Red River
Delta, outbreaks of foot and mouth disease in
livestock throughout the country, harmful
diseases causing large-scale devastation of crops in
the final months of the year in Mekong Delta
provinces, and the Chanchu and Xangsane storms,
among other things. Value added in agriculture,
forestry, and fisheries in 2006 increased 3.4%, far
lower than the 4% and 4.36% recorded in 2005 and
2004, respectively (Table 1).
ECONOMIC Updates Vietnam's Economic Growth in 2006 and Outlook ...
70 Number 2 Spring 2007VIETNAM ECONOMIC MANAGEMENT REVIEW
VEMR
2004200320022001 2005 2006
Growth rate
GDP
Agriculture-forestry-
fisheries
Industry-construction
Services
7.79
4.36
10.22
7.26
7.34
3.62
10.48
6.45
7.08
4.17
9.48
6.54
6.89
2.98
10.39
6.10
8.43
4.00
10.68
8.49
8.17
3.40
10.37
8.29
Contribution to GDP growth by percentage point
GDP
Agriculture-forestry-
fisheries
Industry-construction
Services
7.79
0.92
3.93
2.94
7.34
0.79
3.92
2.63
7.08
0.93
3.47
2.68
6.89
0.69
3.68
2.52
8.43
0.82
4.20
3.42
8.17
0.67
4.16
3.34
Contribution to GDP growth by percentage
GDP
Agriculture-forestry-
fisheries
Industry-construction
Services
100.00
11.80
50.48
37.72
100.00
10.77
53.37
35.86
100.00
13.20
48.95
37.85
100.00
10.07
53.39
36.54
100.00
9.67
49.82
40.51
100.00
8.15
50.99
40.86
Table 1: GDP growth rate and contribution to GDP growth by sector, 2001-2006
(%)
Source: GSO and figures compiled by the author.
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The growth in agriculture was estimated at
2.84%, relatively lower than the figures in 2005
and 2004 (3.10% and 3.39%, respectively). With a
share of almost 83% of total value added in the
agriculture-forestry-fisheries sector, agricultural
production had a major influence on the overall
performance of the sector.
In 2006, total paddy/rice output reached
35.83 million tons, a decline of 0.1% over 2005.
The northern region accounted for 13.12 million
tons of rice (compared to 2.45 million tons in
2005), and the southern region made up the
remaining 22.71 million tons (compared to 23.34
million tons in 2005). The fall in the country's total
rice output resulted from a decrease of 4,800
hectares in the rice cultivation area compared to
2005 (in 2006 the area was 7.324 million hectares)
and the productivity recorded in 2005 (4.891 tons
per hectare). If 3.82 million tons of corn were to be
included, food output in terms of grain was
estimated at around 39.65 million tons in 2006, an
increased of a mere 0.1% against 2005. Food
security is still emphasized and guaranteed thanks
to the Government's timely adjustments to rice
export volumes. Rice exports were estimated to
have reached 4.749 million tons (equivalent to 1.3
billion USD), lower than the 5.25 million tons
recorded in 2005.
The performance and output of other
agricultural crops varied. Sweet potatoes increased
by 0.8%; cassava increased 14.9%; soybeans
decreased 11.8%; peanuts decreased 5%;
miscellaneous vegetables increased 6.4%; and
sugarcane increased by 4.9%. Surges in the prices
of some export-oriented agricultural products such
as rubber, coffee, tea, and pepper also encouraged
farmers to expand such production. Rubber output
increased 13.4%, coffee 13.5%, and pepper and tea
2.9% and 7.4%, respectively. One exception was
cashew nuts, where cultivation areas rose 4.1% to
14,400 hectares yet the total output volume fell by
2%. The land area dedicated to fruit orchards also
increased by 7,000 hectares against 2005.
The livestock sub-sector suffered
drama-tically from various factors such as the
avian influenza1 and foot and mouth disease in
different regions of Vietnam. However, the number
of pigs and poultry did not decrease significantly
against 2005, by only 2% and 2.4%, respectively.
Cattle numbers, meanwhile, increased by 17.5%.
As a result, the total output of live, mature animals
reached 3.1 million tons, up 9.3% against 2005, in
which buffaloes increased 7.5%, cattle 12.2%, pigs
9.5%, and poultry 7%. Notably, the output of live
pigs increased while the number of pigs fell,
because they are more widely raised on a
large-scale basis, with more effective use of
modern technologies and techniques to increase
output. Dairy milk output reached 215,900 tons, up
9.2%, and the output of poultry eggs reached 4
million, up 0.5%.
In 2006 the forestry sector, which
accounts for a small share of the overall
agriculture-forestry-fisheries sector, increased
output by 1.15% over 2005. This is the first year in
quite some time that the forestry sector has
achieved a growth rate of over 1% (2005: 0.94%;
2004: 0.82%; 2003: 0.82%; 2002: 0.46%; 2001:
0.48%; and 2000: 0.32%). The area of planted
forests was estimated at 184,000 hectares,
increasing 3.7% compared to 2005. Wood output
was estimated to have reached 3 million cubic
meters, up 0.5%. The burned or deforested area fell
dramatically in 2006 as the weather was more
temperate and there was better forest protection.
The total forest area destroyed was estimated at
4,600 hectares (the area burned was 2,100 hectares
and the area deforested was 2,500 hectares),
equivalent to 45.8% of the figure in 2005.
Storms and floods caused losses and a
decrease in productivity in fisheries in various
coastal regions during 2006. However, the total
national output of aquaculture farming reached
1,694,200 tons, up 14.6% against that in 2005. The
increase was due to a 3.3% rise in production area
and the diversification of farming methods towards
higher efficiency and sustainable development.
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Aquaculture output was estimated at 2
million tons, an increase of 0.7% (marine
exploitation was up 0.9%) compared to that in
2005. Growth was limited due to a number of
storms in 2006, which damaged and destroyed
thousands of offshore fishing vessels, reducing
both the fleet and the number of fishing days. A
surge in petrol prices also led to fewer off-shore
fishing vessels. In addition, the sea tuna harvest
was lower than in 2005.
Overall, total production output and value in
the fisheries sector during 2006 reached 3,695,900
tons and VND41,711.2 billion, increases of 6.6%
and 7.7%, respectively. The growth in value added
in the sector was 7.53%, less than the 10.23%
recorded in 2005.
Industry-construction sector
In 2006 the industry and construction sector
continued to grow rapidly, by 10.37% - higher than
the average annual growth of 10.25% in the 2001-
2005 period but slightly lower than the 10.68%
posted in 2005. By sub-sector, growth rates in
value added in industry and construction in 2006
were 10.18% and 11.05%, respectively, compared
to 10.60% and 10.81% in 2005.
Among industrial sub-sectors, the mining and
quarrying industry grew slowly, by 0.80%
compared to 1.01% in 2005 (and 8.86% in 2004).
This stemmed mainly from the State's 2005
guideline to conserve natural resources together
with the limited technical capacity of existing
mines (while newly-discovered mines have low
reserves). The growth of the mining and quarrying
industry was due to an increase in coal, metal and
precious stone. With a share of about 16% in the
industry and construction sector, the mining
and quarrying industry contributed just 0.12
percentage points or 1.11% to the growth rate of
the overall industry and construction sector in
2006; rather low compared to previous years.
Crude oil output was 17 million tons, 8.2% less
than in 2005, which in turn was 7.7% less than the
figure in 2004.
The manufacturing industry continued to
grow steadily, at 12.38%, but less than in 2005
(13.14%). Consequently, its contribution to the
overall growth of the industry and construction
sector accounted for 67.70%.
High growth was exhibited in a range of key
products in the manufacturing sector: foodstuffs
and beverages, including processed aquatic
products for export (over 17%); leather and
imitation leather goods (18.5%); wooden products
(over 23%); rubber and plastic products (27%);
metal products (24%); electrical devices (over
28%); radio and communications devices (over
18%); and other transportation vehicles, mainly
ship building and repair (23%). The growth of
these products was a key factor contributing to the
overall growth in the industry sector in 2006.
However, some important processed industrial
goods, such as ready-made clothes, cement,
cardboard of all kinds, rolled steel, finished silk,
and pesticides experienced slower growth rates of
around 10%. The output of some mechanical
products (such as electrical engines, transformers,
electrical batteries, electrical fans, bicycles,
assembled televisions, and assembled automobiles)
also grew more slowly than in 2005.
The electricity, gas, and water production and
supply sector was estimated to have grown by
11.56%, making a 0.82% larger contribution and
equal to 7.94% of the growth rate for the industry
and construction sector in 2006.
Despite facing various difficulties, especially
in capital disbursement, the construction sector
still recorded 11.05% growth in value during 2006.
This was the highest growth rate (and largest
contribution to the overall growth) by the
construction sector since 2002.
It should be noted that many industrial
goods, on which import tariffs were cut under the
frameworks of ASEAN and ASEAN - China Free
Trade Areas (AFTA and ACFTA), experienced
slower growth in 2006. Furthermore, in the last
few years, the gap between growth rates of
72 Number 2 Spring 2007VIETNAM ECONOMIC MANAGEMENT REVIEW
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73Number 2 Spring 2007 VIETNAM ECONOMIC MANAGEMENT REVIEW
ECONOMIC Updates Vietnam's Economic Growth in 2006 and Outlook ...VEMR
production output and value added of the industry
sector alone has been widening, from 4.24
percentage points in 2001 to 5.37, 6.37, 6.37, 6.58
and 7.56 percentage points in 2002, 2003, 2004,
2005 and 2006, respectively.
The above tendency was partly caused by the
underlying structure and competitiveness of
Vietnam's industry. Production in many industries
depends heavily on imported materials, whose
prices have been increasing. Assembled and
processed goods with low value-added content are
still key export items of Vietnam's processing and
manufacturing industry. Technology transfer and
scientific and advanced technical applications in
the industry sector progressed very slowly. Urgent
improvements are therefore required in the
industry sector's competitiveness to meet the
requirements of international integration,
particularly following Vietnam's accession to the
WTO.
Services sector
In 2006 the services sector saw relatively
high growth in value, by 8.29% (2005: 8.49%).
This is the second consecutive year that growth has
exceeded 8% and was higher than the GDP growth
rate. By sub-sector, the income of market-based
business services grew 8.38% (compared to 8.67%
in 2005), social and professional services 8.09%
(2005: 8.08%), and public administration services
7.57% (2005: 7.21%)
2
.
In 2006, market-related business services
contributed up to 79.32% or 6.57 percentage points
to the value-added growth rate of the services
sector. The sub-sectors of these business services
recorded faster growth than those of wholesale and
retail trade; hotels and restaurants; transportation;
posts and telecommunications and tourism.
Wholesale and retail trade - accounting for
one-third of the total value-added element of the
services sector - grew by 8.55% in 2006.
Despite high oil prices and associated
pressures to increase fees, road and air transport of
passengers, including the network of municipal
and inter-provincial bus routes in major cities and
other provinces, went up dramatically due to the
restructuring of the sector in a more effective and
rational manner.
As a monopoly industry with the main
task of serving communities, the posts and
telecommunications sector has developed a
competitive service market with high growth
rates3. As at December 2006 there were 25.4
million telephone subscribers (both fixed and
mobile), increasing by 60% and with a telephone
density of 30 telephones per 100 people. In 2006
there were about 1.19 million new Internet sub-
scribers, bringing the total number to 4 million
with a concentration of 4.7 subscribers per 100
people. Total turnover of the posts and telecommu-
nications sector went up by more than 13% in
2006.
Vietnam welcomed 3.58 million foreign
visitors during 2006, up by 3% - a relatively low
growth rate compared to 18.8% in 2005. This
mainly resulted from the fall in the number of
visitors from China (falling 28% compared to
20055). Domestic tourists amounted to 17 million4,
up 5.6%. However, as the origin of foreign visitors
is shifting towards countries with high incomes,
such as Japan, the US, South Korea, and
Singapore, turnover from tourism rose
drama-tically, by 20% over 2005's figure.
In 2006, the value added of social and
professional services increased by 8.09% compared
to that in 2005. A policy of commercializing such
branches as education and training, public health
services, culture and sports has now come into
effect. Non-state education and training, as well as
health, developed rapidly and contributed
significantly to accelerating value-added growth in
these branches to 8.42% and 7.84%, respectively.
The cultural sector, with lower levels of
commercialization than that education and training
and health, recorded growth to its value added of
7.67%, lower than that in 2005 but still much higher
than the annual average level in the 2001-2005
period.
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Public administration services, despite
recording a lower growth rate than the other two
sub-sectors, performed much better than in
previous years. Its value added increased by 7.51%
in 2006, primarily because of the Government's
new wages policy (adjusting salary payrolls and
increasing the minimum salary from VND290,000
in October 2004 to VND350,000 in October 2005,
and to VND450,000 in October 2006). Notably,
the contribution of public administration services
to the value-added growth rate of the whole
services sector was small, at only 0.5 percentage
point or 6.05%, due to its small share (of roughly
7%) in the value added of the services sector.
The services sector is still developing more
slowly than its full potential, which hinders the
process of enhancing competitiveness in the entire
economy. The role of social and professional
services in the services sector is still yet to be fully
recognized.
1.2. Demand side5
The remarkable growth rate of GDP in 2006
is again attributed to domestic demand. However,
the GDP growth rate in 2006 was driven not only
by domestic demand but also by exports. The
contribution of exports to GDP growth was the
highest in the aggregate demand, reaching more
than 203.18%. Moreover, the contribution of the
overall trade balance (net exports minus net
imports) in overall GDP growth was -3.87% (Table 2).
Consumption made a smaller contribution to
the overall GDP growth rate, of 54.89% or 4.48
percentage points in 2006. The growth of
consumption continued to decelerate from 7.51%
in 2005 to 6.28% in 2006, of which growth rates of
final consumption by the State and private
households were 7.01% and 6.20%, respectively.
In 2006, GDP per capita at current prices was
VND11.575 million, while consumption per capita
was VND7.941 million. As overall GDP growth
outpaced consumption growth, savings per capita
increased significantly, accounting for more than
31.4% of GDP in 2006 compared to 30.3% in 2005.
It should be noted that the contribution of
investment to the GDP growth rate since 2003 has
begun to decrease. This mainly comes from the
decelerated growth of investment, which was
much slower than those of consumption and
export. Investment accounted for 42.58% of the
GDP growth rate in 2006. Its share in the GDP was
estimated at 36.79%, slightly higher than the
36.32% in 2005.
In short, Vietnam's economic achievements in
2006 give cause for optimism, with growth of
8.17% being close to the planned target for
the year. This sets a good precondition for the
fulfillment of the Socio-Economic Development
Plan 2006-2010. Nevertheless, the quality of
growth, particularly the competitiveness of the
national economy, failed to improve significantly.
The structural shift among the three sectors
(agriculture - forestry - fisheries, industry-
construction, and services), and especially within
each sector, has been rather slow.
2. Vietnam's economic outlook for
2007
2007 marks the full integration of Vietnam
into the international economy. This is the first
year Vietnam will begin to implement its WTO
commitments as an official member, and it has also
been granted PNTR status by the US. 2007 is
also the second year of implementing the
Socio-Economic Development Plan 2006-2010,
bringing about both opportunities and difficulties
for the country.
Based on the achievements in 2006 as well as
the weaknesses that need to be addressed, the
National Assembly (Term XI, Session 10)
promulgated Resolution 75/2006/QH11 on the
tasks in 2007, with main socio-economic targets as
follows:
· GDP growth rate to be between 8.2
and 8.5%; of which value added in the
agriculture-forestry-fisheries sector is to
increase by 3.5-3.8%; the industry and
construction sector 10.5-10.7%; and the
services sector 8.0-8.5%;
74 Number 2 Spring 2007VIETNAM ECONOMIC MANAGEMENT REVIEW
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75Number 2 Spring 2007 VIETNAM ECONOMIC MANAGEMENT REVIEW
ECONOMIC Updates Vietnam's Economic Growth in 2006 and Outlook ...VEMR
· Inflation rate (CPI) to be lower than the
economic growth rate;
· Total export value to increase by 17.4%;
· Total import value to increase by 15.5%;
· The ratio of total investment to GDP to be 40%;
· Total State budget revenue to reach
VND281.9 trillion, and total State budget
expenditure to be VND357.4 trillion. The
state budget deficit is to be VND56.5
trillion (5% GDP);
· About 1.6 million new jobs will be created, of
which 80,000 will be exported workers; and
· Poverty is to fall to 16%; the malnutrition
among children under 5 years to fall to 22.3%.
After twenty years of economic renovation
(doi moi), Vietnam has recorded a number of major
achievements and gained invaluable experiences.
Economic development has been rapid and
impressive. The country's deep integration into the
regional and global economies has also brought
about new opportunities in its reform and
deve-lopment process. With the achievements of
2006, these factors will be a strong driving force
for Vietnam's economic growth in 2007. However,
there are still underlying weaknesses in Vietnam's
economy. GDP growth, albeit high, was less than
its potential. Competitiveness, quality of growth,
and efficiency of investment, particularly State
investment, are limited. Meanwhile, unpredictable
movements in the global economy (oil prices, the
avian influenza, and natural disasters) may
negatively affect Vietnam's economy. These are the
major challenges in realizing the National
Assembly's socio-economic targets for 2007.
2004200320022001 2005 2006
GDP (contribution by
percentage)
100.00100.00100.00100.00 100.00 100.00
GDP (contribution by
percentage point)
Consumption
Investment
Net exports
Of which:
Exports
Imports
Errors
7.79
5.18
3.66
0.39
16.80
-16.41
-1.44
7.34
5.72
3.95
-3.21
11.66
-14.87
0.89
7.08
5.33
4.02
-3.66
5.89
-9.55
1.39
6.89
3.42
3.29
-0.22
8.91
-8.13
0.41
8.43
5.41
3.81
2.15
15.63
-13.48
-2.94
8.17
4.48
3.48
-0.32
16.59
-16.91
0.52
Consumption
Investment
Net exports
Of which:
Export
Import
Errors
66.52
46.93
5.06
215.71
-210.65
-18.51
77.87
53.78
-43.72
158.78
-202.51
12.08
75.24
56.82
-51.65
83.25
-134.90
19.59
49.62
47.65
-3.23
1129.21
-132.44
5.97
64.12
45.18
25.55
185.40
-159.85
-34.85
54.89
42.58
-3.87
203.18
-207.05
6.40
Table 2: Contribution to GDP growth by component of the aggregate demand, 2001-06
(%)
Source: GSO and figures compiled by the author.
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To elaborate on the above, three forecasting
scenarios for Vietnam's economy were simulated
using the structural macro-econometric model,
taking into account the prospects for the world
economy, the underlying movements of Vietnam's
economy and some necessary adjustments of
macroeconomic policy. It should be noted that: (i)
the impact of the strong surge in the oil price on the
national economy over recent years has not been as
strong as during the oil crises of 1973-1975 and
1979-1980; and (ii) the surge in the oil price has a
two-way effect on Vietnam's economy, as the
country both exports crude oil and imports refined
oil products.
The following briefly describes the various
scenarios and associated assumptions used for
macroeconomic forecasting for Vietnam's
economy in 2007.
The baseline scenario is to forecast Vietnam's
economy in the "normal condition", in accordance
with common expectations of the world and of
Vietnam's economic development. The global
economic growth rate in 2007 is projected to be
slower than in 2006. However, Asian countries,
especially China and ASEAN members -
Vietnam's main trading partners - are expected to
record higher growth rates. In addition, Vietnam's
trading partners6 are expected to record economic
growth of around 5% per annum. The world oil
price will fall but remain high, at USD56 a barrel,
3% less than in 2006. Import prices of materials
will increase 2% (at current USD prices) compared
76 Number 2 Spring 2007VIETNAM ECONOMIC MANAGEMENT REVIEW
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Baseline
scenario
Optimistic
scenarioa
Pessimistic
scenarioa
Assumptions
Real GDP growth of trading partners
World crude oil price
World material prices
World agricultural product prices (USD)
Nominal exchange rate (VND/USD)b
Oil export volume (million tons)
FDI disbursement (USD)
Budget investment (VND)
Money supply (M2)
Results
Real GDP (1994)
CPI (inflation) (average)
Export growth rate
Trade deficit (% of GDP)
Budget deficit (% of GDP)
+5.0
-3.0
+2.0
-4.0
+2.0
+5.0
+25.0
+16.0
+25.0
8.50
7.70
23.10
-4.29
-4.54
+35.0
8.70
7.90
26.30
-3.54
-4.79
-20.0
+20.0
8.10
7.20
16.50
-3.54
-4.93
Table 3: Assumptions and forecasts for selected macroeconomic indicators in Vietnam's economy
in 2007 (%)
Note: Trade in the model is calculated in accordance with System of National Account.
a Other assumptions are kept unchanged as in the baseline scenario.
b The positive increase (+): devaluation.
Source: Results from CIEM model forecasts.
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ECONOMIC Updates Vietnam's Economic Growth in 2006 and Outlook ...VEMR
to that in 2006, while export prices of agricultural
products will go down by 4% compared to 2006.
Because of the assumptions of high oil prices and
high efficiency of tax collections, State budget
revenue will remain high in 2007. Accordingly,
State investment (at current prices) is assumed to
increase by 16%. Crude oil output in 2007 is
assumed to go up by 5% compared to 2006,
which may be relevant given the State's view to
conserving natural resources. The investment
climate will be further improved, due to the fact
that Vietnam will reinforce its institutions and
fulfill its WTO commitments. The disbursement of
FDI at current USD prices in 2007 is assumed to
increase by 25%. At the same time, Vietnam is
expected to pursue relatively cautious macro
economic policies (via tightening monetary and
exchange rate policies). In 2007, the Vietnam dong
(VND) is expected to depreciate 2% against the
USD in nominal terms, while money supply (M2)
will increase by 25%.
In Scenario 1 ("optimistic scenario"), the
world economic outlook will be brighter and
Vietnam's investment environment will become
more attractive to foreign investors. The only
different assumption under this scenario is a 35%
increase in disbursed FDI capital in 2007 (Table 3).
Scenario 2, with more "instability", has
different assumptions about the volatility of
international oil prices and the disbursement of
FDI. The oil price under this scenario is assumed
to go down by 20%. Meanwhile, disbursed FDI
will increase only by 20% per annum.
Under the baseline scenario, GDP will
increase by 8.5% in 2007, with an inflation rate of
7.7%, export growth of 23.1% and a trade deficit
of 4.3% of GDP. The results of this scenario
also show that the economic growth rates of
three main sectors - agriculture-forestry-fisheries,
industry-construction, and services are 3.5%,
10.6%, and 8.7%, respectively. The ratio of total
investment to GDP is 38% at current prices. It
should be noted that, in 2007, growth of services
will be rapid and faster than that of overall GDP
(even higher than the target of 8.0-8.5%).
Scenario 2 predicts the economic growth rate
to decline by 0.4 percentage points in comparison
with the forecast under the baseline scenario.
Meanwhile, the economic growth rate will be
relatively high under Scenario 1, at around 8.7%.
As a whole, the forecast results based on the
macro-econometric model by CIEM have shown
that Vietnam's economy will continue to grow
rapidly (by 8%). Therefore, the target of economic
growth (and its main sectors of Vietnam's
economy) can be fulfilled. Despite higher
growth and a higher inflation rate than in 2006,
macroeconomic stability should be maintained.
The forecast results also show that Vietnam's
economy seems to be sensitive to external factors,
such as the volatility in world oil prices and FDI
inflows into the country.
It is worth noting that the forecasts for
Vietnam's economic growth in 2007 made by a
number of international financial institutions and
the Institute of Developing Economies (IDE) are
quite optimistic. According to these forecasts,
economic growth in 2007 is slightly lower, ranging
from 7.5-8.3%. At the same time, the forecasts
show a more cautious view of macroeconomic
stability in Vietnam. Their forecasts on the
inflation rate are lower than CIEM's (Table 4).
Variable
GDP growth rate
Inflation (CPI)
IMF
7.6
7.1
WB
7.5
6.5
ADB
8.3
6.8
IDE
8.4
6.5
Table 4: Forecasts by international organizations of Vietnam's GDP growth rate and inflation rate
in 2007 (%)
Note: Average inflation rate.
Source: IMF (2006), World Bank (2006), ADB (2007), and IDE (2006).
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Therefore, the issue for Vietnam is not only to
realize its annual socio-economic development
targets but also to speed up innovation, which will
create a firm foundation to sustain high growth
rates and ensure sustainable development over the
following years. The ideas and solutions
recommended in Resolution 03/2007/NQ-CP
(dated 19 January 2007) basically reflect these
ideas, which are to:
· Increase the quality and efficiency of economic
growth by improving the institutions of a market
economy with socialist orientation;
· Further enhance the investment and business
climate, attract the investment of entities under
all forms of economic ownership, enhance
investment management and the efficiency of
State investment;
· Further adjust macroeconomic policy, reinforce
financial management, renovate the price
administration mechanism in accordance with
market mechanisms; and
· Pro-actively implement international
commitments, analyze and evaluate the
difficulties and challenges in the implementation
of interna-tional commitments, accelerate
renovation, simplify administrative procedures;
ensure transparency; prevent and fight against
bureaucracy and corruption, and renovate
human resources training to meet the demands
of economic renovation and integration to the
global economy. r
Notes:
1 For most of 2006, there were no new occurrences of
the disease, but its recurrence remained a threat. In
mid December, a case of avian influenza was
discovered in Ca Mau and Bac Lieu provinces in the
Mekong Delta.
2 The services sector is divided into three
sub-sectors: (a) market-related business services:
trade, hotels and restaurants; transportation; posts
and tourism; finance and banking; insurance; real
estate; consultancy; community and individual
services; and household-hired labor services; (b)
social and professional services (scientific activities;
cultural and sporting activities; health services;
education; and associations); and (c) public
administration management services (governance;
national security and defense).
3 EVN Telecom, a telecommunications company,
opened its mobile phone network in March 2006,
while the Hanoi Telecommunications Company (HT
Mobile) was granted a license to test its CDMA
mobile phone network service in October 2006.
4 Pursuant to Chinese regulations, Chinese tourists
must use cards and passports at border gates and
Chinese citizens are not allowed to use exit and
entry licenses to enter countries sharing borders with
China.
5 It should be noted that consumption, investment,
import, and export in this Section are calculated at
constant prices (unless otherwise specified) and in
accordance with the System of National Accounts.
6 The GDP growth rates of Vietnam's trading partners
were weighted using their trade volumes with
Vietnam.
References:
n Central Institute for Economic Management
(CIEM (2005). Vietnam's Economy 2004,
Science and Techniques Publishing House, Hanoi.
n CIEM (2006). Vietnam's Economy 2005,
Political Publishing House, Hanoi.
n Government of Vietnam (2006). Report on
Socio-Economic Situation in 2006 and Plan for
Socio-Economic Development for 2007.
Presented at 10th Meeting, National Assembly
term XI.
n GSO (2006). Statistical Yearbook 2005,
Statistical Publishing House, Hanoi.
n GSO (2006). Socio-Economic Situation in 2006.
n IMF (2006). World Economic Outlook
September 2006, September.
n Institute of Developing Economies (IDE)
(2006). '2007 Economic Outlook for East Asia'
mimeograph.
n International Financial Statistics Database.
Available at: [2 January 2007].
n Japan External Trade Organization (JETRO)
(2007). 'Japan's Outward FDI by Country
/Region'. [Online]. Available at:
[5 January 2007].
n World Bank (2006). East Asia Update 2006,
November.
n World Bank (2007). Global Economic
Prospects 2007: Managing the Next Wave of
Globalization, Washington D.C., U.S.
78 Number 2 Spring 2007VIETNAM ECONOMIC MANAGEMENT REVIEW
ECONOMIC Updates Vietnam's Economic Growth in 2006 and Outlook ...VEMR
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