VIET NAM QUARTERLY

MACROECONOMIC REPORT

Quarter 4 - 2015

i
 Supported by

Department of Foreign Affairs and Trade

Australian Government
SUMMARY
The global economic prospects are generally favorable for Vietnams growth
and macro stability in 2016. Low energy prices and the recovery of main
export markets are strongly supporting domestic production. Signs seem to
show that the inward movement of light industries is accelerating.

Vietnams economic growth was high in 2015, thanks to momentums from

industry and construction sectors. However, manufacturing PMI indicates a
slowdown in Q4.

Next-generation FTAs (TPP, EVFTA, and AEC) are expected to improve the
business environment and generate a new investment wave.

Inflation was slightly positive in 2015, in line with recent years. However,
the pressure would be much higher in 2016 as the supportive supply factors
fading away, a loosening monetary policy, and the price-lifting schedule of
public goods and services.

Government budget continues to run a large deficit due to unplanned

spending, and it is less likely to meet the targeted deficit of 5% GDP.

Credit growth is estimated around 18% in 2015, much higher than the
nominal GDP growth rate and causing concerns about macro stability.

Increasing pressure is putting on the interest level; short-term deposit rates

are approaching the ceiling of 5.5% per year. Interest rates are expected to
increase in 2016 due to higher inflation.

A more market-friendly exchange rate management regime is introduced,

the central rate is announced daily based on the real effective exchange rate,
and supply-demand balance of the market. SBV was successful in eliminating
the fixed exchange rate regime without large market shocks.

The real estate market maintained rapid growth in Q4. However, growing
worries is over early signs of a boom of real estate credit.

2015 VIET NAM MACROECONOMIC REPORT Q4 1

THE WORLD ECONOMY Commodity Prices

Energy prices tumble, food prices

edge up
Energy prices went down again in Q4. The
WTI price dipped to below 30$/barrel, the
lowest level in 12 years. A large increase in
the crude oil supply together with a gloomy
prospect of emerging economies brought
the crude oil price down. Prices of other
energy commodities followed similar
downward trends. World Banks energy
Source: The Pink Sheet (WB)
price index dropped from 59.7 to 47.9
points in Q4. causes oil price forecasts to stay low in
The non-energy commodity price index 2016. OPEC officially renounced the
slightly decreased from 79.22 to 76.35 production ceiling of 30 million barrels/day
points in Q4. However, prices of some foods after December meeting in Vienna.
showed signs of recovery in Q4. Due to the Additionally, that the sanction involving
negative effect of El Nino, the price of Thai Iran was lifted at the beginning of 2016
rice prices increased by 1.6-2.6% in Q4 make the oversupply heavier. IEA projects
while Vietnamese 5% broken rice prices that the energy market cannot attain
rose by 13.7%. supply-demand balance until the end of
2017.
The oil supply is not expected to decline
while the demand is not improved that

World Liquid Fuels Production and Consumption Balance (MMbbl/day)

Source: Short-Term Energy Outlook (STEO, January 2016)

2 2015 VIET NAM MACROECONOMIC REPORT Q4

The future contracts of WTI for 2016 is
transacted below 35 USD/barrels. This
could negatively affect Vietnams fiscal
US kicked off the normalization
process
Despite that, the US recovery decelerated
slightly, some positive signs could be
observed in Q4. The unemployment rate
downed to 4.8%, the lowest level since
2008. Inflation rose positively in Q4.
Headline inflation increased to 0.44% and
core inflation reached 2% in November.
These conditions supported for Feds
decision raising the Fed fund rate (FFR)
from 0-0.25% to 0.25-0.5% in the
December meeting.
Growth rate of Q3 was revised to 2.2%,
higher than expectation of 1.5%. Non-
manufacturing remained high at 56.8 points
in Q4. The composite PMI issued by Markit
were 55 55.9 54 points for three months
in Q4.
US Inflation and Unemployment (%, yoy)
Source: CEIC
2015 VIET NAM MACROECONOMIC REPORT Q4 3
balance but might improve balance of
payments and domestic production.
US has formally started the normalization
process as FED decided to hike the FFR.
However, the pace of the normalization
process depends on the figures of inflation
FED and its balance sheet
After seven years of implementing the zero-
interest rate policy and QE programs, Feds
balance sheet size was expanded to 4.5 trill
USD. Feds decision to hike FFR in December
marked the start of the normalization
process. However, there are could be still a
more essential question that when and how
fast Fed normalize its balance sheet scale.
Feds balance sheet size (bill USD)
Source: FED
It is recently expected that FED would
remain 2.5 trill USD of treasury notes until
3/2016 and 2 trill USD of mortgage
securities until 1/2017. Moreover, FED may
need 6 years to fully adjust its balance sheet
to the pre-crisis level. The balance sheet
adjustment process could directly affect the
liquidity in emerging markets.
 Inflation in Major Economies (%, yoy)
Source: CEIC, OECD
and stability of the labor market. As major
economies are still facing serious troubles,
we believe that FED would adjust FFR by
small increments during a long enough
period so as to not create a shock to the
global economy and to avoid the risk of
EU and Japan slightly recover
EU showed positive signs of recovery in Q4.
The labor market changed positively while
the inflation remained low. Inflation rate
reduced to 9.1%, the lowest reading since
2012. EUs averaged inflation rate (both
EA19 and EA28) was 0-0.1% in Q4. The
core inflation remained stable around 0.9-
1.1%. These numbers are still far from the
target of 2%. This implies the possibility
that the EU could maintain and expand the
QE program in the next period.
EU grew by the highest rate in recent
quarters. Most notably, Spain grew 3.4%
(yoy) in Q3. Other major economies also
4 2015 VIET NAM MACROECONOMIC REPORT Q4
US Non Manufacturing Index
Source: CEIC
forming an asset bubble. Under a likely
scenario, FFR would be raised by 1-1.5% in
2016. According to our estimate, this FFR
increase could push Vietnams interest level
by 0.23-0.34%.
achieved positive growth rates, e.g. German
(1.7%), France (1.1%), and Italy (0.8%).
Japan demonstrated brighter signals. The
GDP growth rate was 1.6% (yoy) in Q3,
driven mostly by domestic demand. This
sector expanded 1.4% (yoy) in Q3, much
higher than the rate of 0.2% in Q2. The
growth rate is expected to be 0.7% for the
whole 2015. The headline inflation rate
edged up to 0.3% while the core inflation
was 0.9% in November. The Abenomics
program does not appear to generate
significant and fundamental economic
innovation.
 Economic Growth in Advanced Countries (%, yoy)

Source: CEIC, OECD

A slowing China
According to National Bureau of Statistics of
China, this economy has grown slowest in
25 years. The growth rates in Q4 and the
whole 2015 were 6.8% and 6.9% (yoy),
respectively. Demonstrating a same trend,
the China economic activity indicator
published by Capital Economics was 4.4%
in Q3, lower than the rate of 4.7% in Q2. In
our opinion, these readings are reasonable
China PMI
and demonstrate a fairy positive
prospective.
The manufacturing PMI index averaged
48.4 points in Q4 but the non-
manufacturing index soared at 53.7
revealing the expansion of the service
sector.
China Trade Balance and Utilized FDI
(ytd, bil. USD)

Source: HSBC, NBSC Source: CEIC

2015 VIET NAM MACROECONOMIC REPORT Q4 5

Trade and investment appeared to be
positive. Trade surplus reached to 175.4
billion USD in Q4, larger than the figure of
163.5 billion USD in the previous quarter.
Chinas trade balance observed fourth
consecutive quarters of surplus. Trade
surplus increased four times from 154.9
billion USD in 2011 to 600 billion USD in
2015. In the meantime, implemented FDI
was stable around 1,200 billion USD per
year.
After the devaluation of CNY in 8/2015, the
forex market went against the expectation
of PBoC as speculative pressure was
mounting and hot money outflows
appeared ceaseless. Speculative pressure
burst at the end of 2015, the CNY-CNH gap
soared to 1.5% comparable the level prior
the devaluation of August. Chinas foreign
reserves fell 200 billion USD in the last two
months of 2015. For the whole 2015, China
lost 512.7 billion USD, around 13%, of its
foreign reserves despite large trade surplus
and FDI capital inflows.
CNH-CNY/USD Gap (%)
Source: Calculation from CEIC Database
6 2015 VIET NAM MACROECONOMIC REPORT Q4
Will a crisis be in China?
A debt crisis?
The credit growth is 1.5 time higher than
the rate of nominal GDP growth in China
over the 2008-15 period. According to the
WIND database, credit growth was mostly
by lending to private companies rather than
focusing on the state sector. In a
comparison, Vietnams credit growth was
triple its nominal growth rate over the
2000-07 period and then proceeded to a
crisis. We believe that there is no obvious
signal of a debt crisis going to happen in
China.
Asset bubble crisis?
Based on the WIND database, nearly 80% of
Chinese listed real estate companies have
financial leverage ratios higher than 3. This
causes concerns about the risk of a real
estate bubble. However, the real estate
price increased rather slowly over the
2010-15 period. This implies that the
bubble, if exists, is on the supply-side
instead of the demand side as usual. Thanks
to a tightly controlling banking system and
large public financial resources, Chinese
government has significant capability to
tackle an oversupply crisis by bailing-out
measures. For this reason, Chinas economy
may not be radically and prolongedly
affected as in the case of an over-demand
crisis.
China Real Estate Price Index (June
2010=100)
Source: SouFun
To respond to these unfavorable
Economic Growth in BRICS (%, yoy)
developments, PBoC devalued CNY by 1.4%
in the first two weeks of 2016 (compared to
the 5% devaluation rate of the whole 2015).
We believe that although PBoC has strong
motivation to keep CNY stable, it may not
be willing to intervene the forex market by
the extent of 2015 due to the sharp fall of
foreign reserves. The likely scenario could
be that PBoB would remain the support for
a strong CNY but let it be devalued
modestly around 5% in 2016.
Source: OECD

Tottering emerging economies

Emerging economies are severely suffering
from the effect of large-scale arbitrage
outflows, especially in countries relying
heavily on commodity and natural resource
exports such as Russia and Indonesia. The
falling oil price caused Russian GDP to
collapse four consecutive quarter, the Q3
growth rate was -3.7% (qoq). Meanwhile,
political instability drives Brazil-once the
most dynamic of Latin American
economies- to recession. Brazils GDP
contracted -4.4% in Q3, and there is little
chance that it would soon recover as
investment is forecasted to not improve
until 2017.
After the 2008-09 great crisis, developed
countries largely applied loosing monetary
policies to support against economic
downturn. Cheap money flooded over
emerging markets to seek for higher yields
and raised asset prices. That FED started
the interest-hiking process posed huge risk
on asset markets in emerging economies.
Nonetheless, other developed economies
including EU and Japan, continue loosing
monetary programs as the recovery signs
are not sufficiently strong. This could partly
offset the effect of Feds rate-hiking.
Moreover, as FED has not reduced its asset
holding, the scale of outflows may not be
large. Notably, most of troubled emerging
economies have serious structural
weaknesses.

2015 VIET NAM MACROECONOMIC REPORT Q4 7

World Economic Outlook

WEO (1/2016) GEP (1/2016)

2014 2015e 2016p 2017p 2016p 2017p
World 3.4 3.1 3.4 (-0.2) 3.6 (-0.2) 2.9 (-0.4) 3.1 (-0.1)
Advanced Economies 1.8 1.9 2.1 (-0.1) 2.1 (-0.1) 2.1 (-0.2) 2.1 (-0.1)
United States 2.4 2.5 2.6 (-0.2) 2.6 (-0.2) 2.7 (-0.1) 2.4 (0.0)
Japan -0.1 0.6 1.0 (0.0) 0.3 (-0.1) 1.3 (-0.4) 0.9 (-0.3)
United Kingdom 3.0 2.2 2.2 (0.0) 2.2 (0.0) 2.4 (-0.2) 2.2 (0.0)
Euro Area 0.9 1.5 1.7 (+0.1) 1.7 (0.0) 1.7 (-0.1) 1.7 (+0.1)
Emerging Market and 4.7 (-0.2)
4.6 4.0 4.3 (-0.2) 4.8 (-0.6) 5.3 (-0.2)
Developing Economies
Brazil 0.1 -3.8 -3.5 (-2.5) 0.0 (-2.3) -2.5 (-3.6) -1.4 (-0.6)
Russia 0.6 -3.7 -1.0 (-0.4) 1.0 (0.0) -0.7 (-1.4) 1.3 (-1.2)
India 7.3 7.3 7.5 (0.0) 7.5 (0.0) 7.8 (-0.1) 7.9 (-0.1)
China 7.3 6.9 6.3 (0.0) 6.0 (0.0) 6.7 (-0.3) 6.5 (-0.4)
ASEAN-5 4.6 4.7 4.8 (-0.1) 5.1 (-0.2)
Indonesia 5.0 5.0 4.7 (-0.4) 5.1 5.3 (-0.2) 5.5 (0.0)
Malaysia 6.0 6.0 4.7 (+0.2) 4.5 4.5 (-0.5) 4.5 (-0.6)
Philippines 6.1 6.1 6.0 (-0.3) 6.3 6.4 (-0.1) 6.2 (-0.1)
Thailand 0.9 0.9 2.5 (-0.7) 3.2 2.0 (-2.0) 2.4 (-1.6)
Viet Nam 6.0 6.0 6.5 (+0.1) 6.4 6.6 (+0.4) 6.3 (-0.2)
Note: The differences from the lastest forecast are shown in parentheses

Source: World Economic Outlook (IMF), Global Economic Prospects (WB)

8 2015 VIET NAM MACROECONOMIC REPORT Q4

VIET NAMS ECONOMY
Growth-Inflation
Recovery momentum keeps intact

Viet Nam Economic Growth (%, yoy)

Source: Calculation from GSO data

The brightest point of Vietnams economy is 50 points for most of months in 2015,
the growth recovery, which reached to the especially in the first two quarters of the
rate of 7.01% in Q4 and 6.68% for the year. Despite a slight drop of the PMI index
whole 2015, the highest reading since 2011. in November, manufacturing, in general,
The manufacturing and construction sector involved positively in the context that China
is the main contributor for the growth and other regional economies appeared
accelerating. This sector expanded 9.64% in sluggish.
2015, far higher than the two previous
years numbers of 5.08% and 6.42%. Labor Growth in Industry Sector, ytd
(%, yoy)
Another remarkable signal is the significant
improvement of employment in the
industry sector, especially in private firms.
The number of industry employment
increased 6.4% in 2015, higher than 2013
(4.3%) and 2014 (5.8%). The growth rate in
private firms was 4.6% in 2015, compared
to the rate of 2.5% in 2014.

Indicators other than output statistics also

demonstrate the expansion of the industry
Source: GSO
sector. The PMI index remained higher than

2015 VIET NAM MACROECONOMIC REPORT Q4 9

 Viet Nams PMI
Source: HSBC, Nikkei
Power consumption and credit growth
generates consistent signals on the
recovery of the economy. Production of
commercial electricity is estimated about
143.34 billion kWh in 2015, 11.44% higher
than 2014. Credit growth is around 18% for
the year. This reveals the ongoing
expansion of the aggregate demand.
Viet Nam Economic Performance Index
(VEPI) estimated by using data on power
Commercial Electricity Growth, ytd (%,
yoy)
Source: Ministry of Industry and Trade
10 2015 VIET NAM MACROECONOMIC REPORT Q4
Industrial Indices 2011-2015 (%, yoy)
Source: GSO
consumption, imports and exports, railway
transportation, credit growth and the
manufacturing PMI indicator. Despite the
positive improvement in the first three
quarter, VEPI index downed to 5.5% in Q4
due to the contraction of international
trade, low PMI indices, and slower credit
growth.
Viet Nam Economic Performance Index
Source: VEPR
Low inflation but the threatening is
Inflation and M2 growth (%, yoy)
coming back

In line with previous years, the inflation

rate was low in 2015 and even the lowest
for more than a decade. Headline inflation
was just 0.63% in 2015. By excluding foods,
energies and commodities of which prices
are controlled by the government, the core
inflation was 2.05%. We believe that this
number of core inflation is appropriate
given the current situation of the economy,
and it should be retained to hold inflation
Source: GSO, IFS, SBV
expectation down, supporting for a stable
interest level and economic recovery will be reduced in the 2016-20 period, it
process. still counts for a major share of Viet Nams
CPI basket. Thirdly, the government plans to
Nevertheless, inflation may suffer larger
sharply lift the prices of public services
fluctuation next year. Firstly, energies and
(healthcare, education) and goods
other commodities have been at record low
(electricity) in 2016. Fourthly, the
prices, and hence possibly moving sideways
expansion of aggregate money outpaces the
or going up slightly. Second, El Nino is
nominal GDP growth and this could lead to
affecting negatively the global rice supply.
substantial risk on the price level. For those
This could cause the rice price to rise in
reason, we expect the price level to increase
2016. Notably, although the weight of foods
4-5% in 2016.

Macroeconomic balances Trade balance (billion USD)

Trade account stays balanced

Exports and imports slightly increased in

Q4, respectively 5.5% and 2.6% (yoy). The
trade balance was just 0.5 billion USD in Q4,
and 3.2 billion USD in the whole 2015
equivalent to 1.65% GDP. Notably, the
balance of trade is affected by the
disbursement of FDI projects for importing
fixed assets (machines, equipment) and

Source: GSO

2015 VIET NAM MACROECONOMIC REPORT Q4 11

hence fluctuating considerably among China remained the largest import market,
quarters. accounting for 28.8% total imports.

According to GSOs estimated number, the
trade volume reached to 162.4 billion USD
in 2015, 8.1% higher than 2014. FDI firms
contributes dominantly to such
achievement. In contrast, exports from
domestic firms fell 3.5% while trade
volume increased 12% to 165.6 billion USD.
Besides, a trend that shifting imports to
Korean market was observed in 2015.
Imports from Korea increased 27.4% to 27.7
billion USD. This reflects the movement of
Korean manufacturing firms production to
Vietnam.

Worsening budget balance

Budget revenue was 927.5 trill VND in
2015, 1.8% higher than the planned
number. Some conventional revenue
sources shrank considerably in 2015, e.g.
crude oil (62.4 trill VND; 67.1% planned
revenue); FDI firms (128 trill VND; 89.8%
planned revenue); SOEs (204.2 trill VND;
92.5% planned revenue); tariffs (160 trill
VND; 91.4% planned revenue). Temporary
sources was exploited to cover the shortfall
of the conventional sources: land use right
(54.2 billion VND, 139.1% planned
revenue).
extent since 2000. Markedly, it is the fourth
consecutive year running a fiscal deficit
higher than the target of 5% GDP, reflecting
that the fiscal policy is undisciplined.
Revenue from crude oil is not likely to meet
the planned number of 2016 as crude oil is
currently traded much lower than the
planned price of 60 USD/barrel. We believe
that without effective proposals to reduce
public spending, especially projects funded
by ODA capital, the fiscal balance could be
worse in 2016.

Notably, by joining to new-generation Government Budget (%GDP)

effective FTAs such as TPP, AEC and EVFTA,
Vietnam tends to fall short of revenues from
tariffs and accompanied indirect taxes in
next periods.

Nevertheless, government seems lack of

determination to reduce public spending,
especially current expenditures. According
to our estimate, the fiscal deficit could be up
to 70 trill VND in 2015. This accompanied a
slowdown of the nominal growth rate could
Source: MOF, GSO (2014, 2015: estimated by
led to a huge deficit up to 7%, the highest
VEPR)

12 2015 VIET NAM MACROECONOMIC REPORT Q4

Consumption and investment rebound
Retail Growth, ytd (%, yoy)
Private consumption significantly improved
in 2015. The retail index increased by 8.4 %
(yoy) after adjusting for the price factor in
2015, higher than the reading of 6.3% and
5.5% in the previous two years. But the
nominal index was lower than 2014 due to
the falling price level. The number of tourist
cars sold in 2015 increased by 44% over
the previous year.

Investment reversed and strongly increased

in Q4. With an exception to the state sector, Source: GSO
FDI and domestic private sectors observed
reached to 14.5 billion USD, 17.4% higher
an investment boom in Q4. The total social
than the previous year. Reimbursement of
investment increased by 18.3% (yoy)
FDI grew 40% (yoy), up to 4.85 billion USD,
where the FDI sector has the highest
making Q4 the quarter with largest FDI
investment growth rate of 42.6% in Q4.
reimbursement in the 2012-2015 period.
This sectors investment expanded 19.9%
The domestic private investment also
in the whole 2015, much higher than the
achieved the growth rate of 20.9% in Q4
figure of 10.5% in 2014.
after four consecutive quarters of decline.
The register FDI increased to 15.6 billion
Nevertheless, private investment increased
USD in 2015, thanks to the positive effect of
only by 13.04%, lower than the reading of
TPP. For the meantime, implemented FDI
14.13% in 2014.

Viet Nams Investment by Sector (Compared to Corresponding Period of the Previous Year)

Source: Calculation from GSOs data

2015 VIET NAM MACROECONOMIC REPORT Q4 13

Financial markets
A more market-oriented exchange rate
regime
The forex market was fairly stable in Q4,
both official and parallel exchange rates
went down after the big devaluation of CNY
in August. However, surging demand for
USD at the end of year puts pressure on the
exchange rate. The listed VND/USD
exchange rate approached the ceiling in
December.
The SBV issued Decision No. 2730 / QD-
NHNN to announce a new exchange rate
regime on 31/12. The fixed interbank
exchange rate mechanism is eliminated,
and instead, the reference rate of VND to
USD is adjusted and quoted daily.
The reference rate is determined based on
the supply-demand balance and the real
effective exchange rate against 8 foreign
currencies. Thus, policy makers has
changed to a managed float regime and
taken a large step toward marketization.
Source: FED
14 2015 VIET NAM MACROECONOMIC REPORT Q4
Source: VEPR
Market signals can be reflected in the
movement reference rate.
In fact, SBV was successful in eliminating
the fixed exchange rate regime without
causing substantial fluctuations. Market
expectation and banks foreign currency
positions were well controlled by selling 3-
month USD forwards prior the
announcement of the new regime.
We believe that the new exchange rate
regime is generally appropriate to Viet
Nams economy as the development level of
the domestic market does not allow
applying a regime in which market fully
determine the exchange rate movement.
The forex market bears substantial risk
caused by external factors in 2016, the most
noticeable is the ability of crises occurring
in emerging markets. Nevertheless,
fundamental factors supporting for the
stability of the exchange market are
trending positively. China receives
encouraging signals in the consumption and
service sectors and thus have motivation to
keep the CNY devaluation process steady,
around 5% in 2016.
FED started hiking interest rates and this
could appreciate the USD and put pressure
on the VND/USD exchange rate. The USD
index reached to 99.39 points in December,
the highest level in 11 years and tended to
further increase. Nevertheless, as FED
Escalating credit demand
Credit growth in 2015 was higher than
2014, but did not dramatically boom in the
final month of year as usual. Total credit
grew 17.02% (ytd) by 18/12/2015. Credit
growth remained higher than deposit
growth in Q4. The gap between credit and
deposit growth rate was stable 3.5-3.7% in
each quarter in 2015. This exerts significant
pressure on the deposit rate level.
According to SBVs statistics, there were 11
commercial banks adjusting deposit rates
by 0.1-0.5%/year in December.
Deposit-Credit Growth (Compared to the Previous Year)
2015 VIET NAM MACROECONOMIC REPORT Q4 15
decided not to reduce the size of its asset
holding, the liquidity in emerging markets
might not be radically affected.
Moreover, capital inflows exhibit promising
signs as a result of TPP and the production
shifting wave from China. We expect the
VND/USD exchange rate to depreciate 3-4%
in 2016.
While credit expanded rapidly, norminal
GDP increased modesly at 6.48%, much
lower than two-digit rates of previous
years. That credit growth far outpaces
nominal output growth poses risk to
macroeconomic stability. We believe that
the current condition shares similarities
with the economy of 2009 when inflation
was low and the economy showed signs of
recovery after the recession thanks to fiscal
and monetary easing measures. The past
experience shows that low inflation could
quickly reverse if the money supply is not
strictly controlled.
Source: NHNN, TCTK
Asset markets
A blossoming property market

The real estate market continued to grow

fast in Q4, especially in HCMC. Total
primary supply in HCMC increased to
37,200 units, almost dobbled the Q4 of the
previous year. Meanwhile, the primary
supply i n Hanoi reached 16,000 units in
Q4, up 41% to the same period in 2014.

The absorption rate in the Hanoi market is

higher than HCMC. Respectively, about
Source:
6,400 and 7,700 apartments w ere sold in
HCMC. If the high absorption rates of the
two markets, corresponding to absorption
second half of 2015 was maintained, the
rates of 40% and 20%.
real estate market may be fairly balanced in
Property prices were stable. The Savills terms of supply-demand relations in 2016.
price index fluctuated slightly in Q3. The
However, the sustainability of the real
index continued to rise by 0.3 points in
estate market might be affected if the
HCMC while decreased by 0.5 points in
monetary-credit policy is appropriately
Hanoi.
managed.
Statistic on ongoing projects showed that
Real estate lending rose 14.59% in the first
an average of 7000 apartments/quarter
three quarters of 2015, significantly higher
will be added to the primary supply in
than the overall credit growth rate. This
Hanoi, and the 5000 apartments/quarter in
caused concerns about a potential asset

Source: Source:

16 2015 VIET NAM MACROECONOMIC REPORT Q4

bubble forming in the future. Due to the
advantage of collaterals and the scale of
loans, commerical banks tend to prioritize
real estate lending rather than suppling
capital to the real production sector.
Therefore, we recommend that policy
makers should take serious measures to
oversee the quality of real estate loans, and
direct capital to th e sectors generating
better productivity improvement.

2015 VIET NAM MACROECONOMIC REPORT Q4 17

POLICY NOTES
Vietnams economy has firmly rebounded,
especialy in the industry sector. We expect
this positive trend to continue in 2016 and
over the medium period 2016-20. Although
the determination to reform the economy
has not resulted in obvious achievements,
international integration generates new
momentums for economic growth. Most
notably, new-generation FTAs (TPP, EVFTA,
and AEC) could improve the doing business
enviroment for the domestic private and
FDI sectors. Moreover, the wave of shifting
production out of China brings favorable
opputurnity for Viet Nam to develop light
industries and create jobs.
We recommend a priority for
macroeconomic stability in designing policy
for next periods as the economy has shown
to firmly recover.
First, enforcing fiscal discipline to reduce
budget deficit. It is especially important to
have radical solutions to cut governments
current expenditure. As the fiscal deficit
ratio is currently calculated under the
Budget Law 2002 and is substantially
different from the internation standard, the
deficit level targeted should be adjusted to
unsure the feasibility and fiscal discipline.
Second, comprehensively and effectively
marketizing and easing control on the
prices of public services such as health
andeducation, and other essential items
such as electricity, waterAdministrative
measures to control prices of essential
goods and services should be immediately
18 2015 VIET NAM MACROECONOMIC REPORT Q4
abandoned as they could lead to market
distortion, larger budget deficit as well as
hamsper the effectiveness of conventional
macroeconomic tools (monetary and fiscal
policies). This could cause short-term
difficulties in controlling inflation but build
up important foundation for stability policy
in long term.
Third, closely supervising the pace and
quality of credit expansion, and avoiding a
prolonged loosening monetary policy, from
which an asset bubble could be formed. We
believe that the target of 18% credit growth
rate in 2016 is too high, especially in the
context of potential high inflation. With this
regard, we recommend to set up the
targeted of credit growth rate in 2016
around 12-15%, and apply market-oriented
measures to channel capital to real sectors
of the economy. For details, it is proposed
to consider increase the risk ratio and the
general provision ratio of lending to non-
priority sectors.
Fourth, the deposit interest level is likely to
under pressure in the case of higher
inflation in 2016. We believe that the ceiling
on deposit interests should be eliminated or
just applied for very short maturity interest
(less than 1 month) so capital supply-
demand balance can be flexibly adjusted by
market forces.
Abbreviations

BoJ Bank of Japan

BoE Bank of England
BSC BIDV Securities Company
CNY Chinese Yuan
ECB European Central Bank
FDI Foreign Direct Investment
FED Federal Reserve
FIE Foreign invested enterprises
FMCG Fast Moving Consumption Goods
GDP Gross Domestic Product
GSO General Statistics Office
HSCB Hong Kong Shanghai Commercial Bank
LHS left hand side
IMF International Monetary Fund
MOLISA Ministry of Labor, Invalid and Social Affairs
MOIT Ministry of Industry and Trade
MPI Ministry of Planning and Investment
OECD Organization for Economic Co-operation and
Development
PMI Purchasing Manager Index
qoq quarter-on-quarter
RHS right hand side
SBV State Bank of Vietnam
UN United Nations
USD the United State dollar
VAMC Vietnam Asset Management Company
VCB Vietnam Bank of Foreign Trade
VND Vietnamese currency
WB World Bank
yoy year-on-year
ytd year-to-date
Disclosure appendix
Authors Certification

The following author who are primarily responsible for this report, certify that the opinion on the
subject or issues and/or any other views or forecasts expressed herein accurately reflect their personal
views and that no part of their compensation was, is or will be directly or indirectly related to the
specific recommendations or views contained in this research report: Nguyen Duc Thanh, Pham Van
Dai, Nguyen Thanh Tung.

This document has been prepared and is being distributed by Viet Nam Institute for Economic and
Policy Research (VEPR) and is intended solely for the customers of VEPR and is not for publication to
other persons, whether through the press or other means. Advice in this document is general and
should not be construed as personal advice.

Additional disclosures

This report is dated as 29/1/2015. All data included in this report are dated 31/12/2015, unless
otherwise indicated in the report.

VEPR has procedures in place to identify and manage any potential conflicts of interest that arise in
connection with the authors. Any confidential and/or sensitive information is handled in an appropriate
manner. All contributions and exchange please send to: Institute for Economic Research and Policy,
Room 707, E4 Building, 144 Xuan Thuy Street, Cau Giay district, Ha Noi. Email:
pham.vandai@vepr.org.vn
 MORE WORKING PAPERS

VMM15Q3 Vietnam Quarterly Macroeconomic Monitor, Quarter 3 2015

VMM15Q2 Vietnam Quarterly Macroeconomic Monitor, Quarter 2 2015

VMM15Q1 Vietnam Quarterly Macroeconomic Monitor, Quarter 1 - 2015

VMM14Q4 Vietnam Quarterly Macroeconomic Monitor, Quarter 4 - 2014

PD-02 Forecasts of the Vietnamese socio-macroeconomy in the period of 2016-2020

PD-01 Impacts of the incident of oil rig 981 on the Vietnamese economy in 2014 and
beyond

WP-16: Learning, Upgrading, and Innovation in the Telecommunications Industry in

Vietnam: A Rent Management Analysis

WP-15: Technology, Gender Inequality, and Fertility

WP-14: Technology Adoption in Rent Seeking Economies

WP-13: Can geographical factors lock a society in stagnation?