Driving forces for the Vietnamese economy amidst global challenges.

The interview took place on the sidelines of the Fitch On Vietnam 2024 conference on August 20th in Ho Chi Minh City to discuss Vietnam's development drivers amidst the challenging global economic landscape.

It is possible to enhance the value of the supply chain.

In this context, Sagarika Chandra, Director of Country Credit Ratings at 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 the Vietnamese economy is 6-7%. The main drivers of growth for Vietnam are indirect investment and the service sectors, which are quite strong. This trend is likely to continue.”

Regarding foreign direct investment (FDI), she noted that FDI into Vietnam continues to focus on manufacturing for export. “Our forecast is that exports will continue to remain strong and be a driving force for growth. Despite some global and regional obstacles, Vietnamese exports remain stable,” Sagarika Chandra assessed.

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

Exports remain a key driver of the Vietnamese economy.

In addition, she also stated that Vietnam has benefited from the shift in global and regional supply chains due to its relatively high level of integration into global supply chains. “Vietnam is attracting more investment in many positive ways. If it strengthens its skilled workforce, Vietnam can enhance its export value chain,” Sagarika Chandra commented, adding that Vietnam's main advantages are cost competitiveness and integration into global supply chains.

Credit growth has been quite rapid.

In addition, Willie Tonato, Senior Director of Financial Institutions at Fitch Ratings, also offered his observations on Vietnam's financial sector. According to him, although Vietnam has a high level of deposits from its citizens in banks, its credit growth is not low at all.

“In the first half of the year, credit growth of Vietnamese banks was at 6%, still far from the 15% target for the whole year. But in reality, over the years, Vietnam's credit growth could still reach close to 15%. In our view, compared to GDP growth of around 6%, a 15% credit growth rate is a bit fast,” Mr. Willie Tonato assessed, pointing 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 also the time when banks want to achieve positive results in their financial reports.”

Ms. Sagarika Chandra gives an interview to Thanh Nien newspaper.

Commenting further on Vietnam's banking sector, Mr. Tonato stated: “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 positive trends regarding asset quality, with more honest reporting and accounting of asset quality.”

But he also warned: “What’s missing here is that while bank capital standards have improved, they are still quite low compared to regional standards and the level of risk in the economy. Secondly, the growth trajectory of banks in Vietnam is high-risk because they seem to be trying to grow as quickly as possible. The faster a bank grows, the more capital it has, or vice versa. This is good when the economy is doing well. But if there’s a shock, or if the economy slows down or recovers more slowly than expected, then that could be a problem for the banking sector.”

Commenting further, 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 belief that revenues remain relatively healthy. We expect things to continue to improve, and as demand for higher-yield loans continues to return, we will also see improved profit margins for banks. 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, Sagarika Chandra assessed both the negative and positive signs of the Vietnamese economy.

On the negative side, the current situation of conditional debt repayments and a prolonged fiscal deficit leads to instability in government debt in the medium term. In addition, the continuous decline in foreign exchange reserves puts pressure on the exchange rate.

On the positive side, macroeconomic policies and performance have resulted in sustained high growth, and Vietnam has improved its economic policy framework to include enhanced transparency. Furthermore, Vietnam has significantly reduced the risks associated with conditional liabilities, including through better accounting for such risks and clearer government commitments to address them should they occur.

Should Vietnam increase fiscal stimulus?

At the Fitch on Vietnam 2024 event, Fitch Ratings conducted a quick survey of nearly 100 attendees. Of those surveyed, 52% believed Vietnam needed to strengthen both monetary and fiscal stimulus policies. Meanwhile, 34% thought Vietnam only needed additional fiscal stimulus because credit growth was already high. The remaining 4% believed only monetary stimulus was needed, and 10% felt no further fiscal or monetary stimulus was necessary.

Thanhnien.vn

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