Challenges remain in second half, says NA committee
By Tu Hoang - The Saigon Times Daily
HANOI – Vietnam’s economy will continue to face difficulties in the second half of 2012 although it is gradually regaining stability, forecast the National Financial Supervisory Commission.
In a report, the commission predicted the average inflation in the last six months would not exceed 0.5% a month and the accumulated rate at year-end would be less than 6% given the shrinking demand and poor credit growth in the year’s first half.
Meanwhile, the whole year’s credit is forecast to grow 8%. The commission stated that although credit has inched up slightly in recent months, the capital absorption capacity of enterprises remain weak, while bad debts and outstanding loans still stay at high, making it difficult for credit to increase strongly from now to the year’s end.
The gross domestic product (GDP) growth is predicted to reach 5.3-5.6%. With credit growth forecast at only 8%, middle- and long-term credit supply for the economy in 2012 is estimated to drop by some VND80 trillion, causing a contraction of 0.6 percentage point in the GDP growth.
The commission recommended flexible fiscal and monetary policies should be adopted in the remaining six months in order to boost aggregate demand of the economy, ensuring that the total investment will account for 33.5% of GDP as planned.
Regarding the fiscal policy, the commission called for flexibility in public spending to make up for credit shortage, guaranteeing the total investment and maintaining resources for growth in the short term. Particularly, it is necessary to accelerate disbursement of the projects in the plan for 2012 and use the 2013 State budget to advance funds for capital construction projects.
As for the monetary policy, with policy rates cut by one percentage point in June 11, the interest rate gap between Vietnam dong and the U.S. dollar has significantly narrowed down. However, further rate reductions will affect the stability of foreign exchange rate.
Given the forecast that inflation will stand at some 6% at year-end, the room available for the central bank to manipulate interest rate is only some 100 basis points. Therefore, the commission proposed the central bank should take prudence in adjusting interest rates in accordance with the changes of consumer price index (CPI) and forex rate.
The commission suggested the fiscal and monetary policies should be combined to calculate aggregate demand of the economy and be carried out in sync with each other, aiming towards this goal.
Concerning the demand stimulus measures, the commission stressed the need of proper prescriptions meeting the absorption capacity of the economy in the last six months, ensuring that such measures would not cause inflation in 2013.
The past data show that every time an amount of more than VND90 trillion per month was poured into the economy, inflation in the second half would rise to 2% a month.
Therefore, with a priority to stabilize the macro-economy in the middle- and long-term, the National Financial Supervisory Commission deemed it vital to ensure that the monthly amount of capital injected into the economy in the last six months would be around VND80-85 trillion.