Vietnam’s economy has recorded positive changes in the first half of 2015 in the context of an uncertain international and regional economy. However, international uncertainties, particularly in the major economies such as China and the US make the economic picture in the last months becoming unstable and gloomier. In the remaining months of 2015, Vietnam still has to face up with a certain number of difficulties, including the risk of State budget deficit in 2015 due to crude oil prices falling down; exchange rate will be under pressure from the international economic tumble and high demand on domestic import in the last 3 months. This requires an improvement in business environment in the process of international economic integration.
West Texas Intermediate (WTI) oil price (Jan - Sep, 2015)
Source: Vietnam Industry and Trade Review databaseExchange rate - permanent concerns of businesses
In the recent time, reacted to the complicated fluctuation of renminbin (RMB), the State Bank of Vietnam has timely responses appropriate exchange rate adjustments, including adjusting the average inter-bank exchange rate of VND and USD increased by 1%, and increasing the exchange rate range from +/-2% to +/-3%. This reaction has quickly stabilized market sentiment, minimize the outside negative impacts to Vietnam’s economy.
Reacted to the above adjustment, some businesses has collected to buy USD because they are worried about the continuously increase and scare in supply of USD in the last months of the years.
VND/USD exchange rate (Jan - Sep, 2015)
Source: Vietnam Industry and Trade Review databaseMore enterprises borrowed USD due to the concern of interest rate increase
The reaction of buying USD from businesses means that they have to borrow more VND to buy foreign currencies, thus, push the interbank interest rate increased rapidly. This creates a worry that interest rate will continue to rise in the coming time. However, the State Bank of Vietnam has pledged not to raise interest rates until the end of 2015. The National Financial Monitoring Committee has forecasted the basic inflation will be around 3% in 2015. Low inflation rate and high liquidity of VND in the banking system will be a good condition to keep the interest rate stable until the end of 2015, which will positively support to the economy.
Vietnam Consumer Price Index (CPI) monthly 2015 agaisnt the same period in 2014
Source: GSOThe risk of State budget deficit because of crude oil falling price
Crude oil price “bottom out” since the last six months of the year will create a risk of state budget deficit in 2015 and the coming years in the context of many no-tax imported merchandise.
The falling down of crude oil price also creates a big concern in state overspend. In the first seven months of 2015, according to the Ministry of Finance, the state budget overspend is 100 thousand billion VND, approximately 44.5% of the annual estimates. If we continue to spend 70% of the regular state spending, overspend will be much higher and create more pressure.
Changes in business plans of Vietnamese enterprises
Under the international and local macro-economic tumble, many Vietnamese enterprises have lowered their objectives and business plans.
An Phat Plastic and Green Environment Joint Stock Company intended to decrease their investment on the plastic plan in Laos (Thakhek Plastic Jsc.) from 10 million USD to 2 million USD; their expected output is also lowered from 7,200 tons/year to 2,000 tons/year.
On 1st July 2015, Ca Mau Fertilizer management board has met and agreed to adjust their production target from 782 thousand tons to 748 thousand tons (4% lower than their initial plan). At the same time, they also decrease the business indicator from 782 thousand tons to 745 thousand tons, accounted for nearly 5%. Overall revenue is expected to be lower 2% and the profit after tax is expected to reach 637 billion only, nearly 4% lower than the initial plan (662 billion).
In June 2015, Hanoi Beverage Company has adjusted their profit after tax down to 5.8% in comparison with 2014 due to the fierce competition.
Other enterprises who does not adjust business plan, is trying to cut costs, exploit new market and niche market to ensure the targets.
Economic picture is still bright
Macro-economic environment will not be negative as concerned
At the Government’s regular meeting in August 2015, report from Ministry of Planning and Investment showing that Government is doing well to control macro-economy, all growth targets are maintained, inflation rate is maintained below 1%, state budget revenues increase over 16%. The Ministry of Planning and Investment forecasts from the socio-economic result in the first eight months and the coming prospects, total GNP will reach 6.4%, which is 0.2% increase from planning, the growth rate of exports is about 10%, inflation rate is the same or lower than estimates. According to the statistics, of all 581 listed companies in the Vietnam stock exchange, there are 506 companies reported profits (or 87%); only 75 companies reported losses (approximately 13%). Total profit after tax of all listed companies reached 23,443 billion VND, 63% increase in comparison with the same period of last year.
The supply for foreign exchange will be guaranteed
Although USD has increase against most of foreign currencies, which created a speculation of USD but the State Bank of Vietnam has asserted not to increase the exchange rate until the end of 2015, meanwhile, the State Bank of Vietnam also urged all banks to stop keeping USD in their saves and provide USD for the demand of enterprises to calm the heat. From the State Bank of Vietnam’s announcement, after all the adjustments, VND exchange rate surplus is flexible enough to cope with unfavorable actions both in the international and local market, from now to the end of 2015 and the first months of 2016. This will create a solid stability for exchange rate market and guarantee the competitiveness of Vietnamese products.
Inflation and interest rate will be relatively stable
Theoretically, low and stable inflation rate will encourage consumption and investment, at the same time; it helps the Government getting greater range to loosen monetary policy and economic growth. However, the nature of low inflation rate is because the demand is not improved, not because the capability or quality in production activities is improves to lower the production cost and price. Besides, in reality, interest in Vietnam does not only attach to inflation but also with exchange rate policy, especially with USD, due to the fact that VND is in a correlation with USD interest rate.
In the last coming months, the Government will give directions to all agencies, bodies and localities to continue on improving business environment, completing legal framework to facilitate the production and business; recover the business production and attract more FDI, perform all solutions to reach the target to increase export to 10% and to reduce import to 5%, to ensure all major economic balances.
