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MPI forecasts 7-7.5% growth and a balance of payments surplus in 2011   2010-09-10 - Thoi bao Kinh te Vietnam

MPI, the Ministry of Planning and Investment, is optimistic about Vietnam’s economy in 2011, notwithstanding turbulence in world markets, foreign exchange fluctuations and some latent macroeconomic instability at home.


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MPI has submitted to the Government its best guess on the outlook for Vietnam’s economy in 2011, the scenario on which near term decision making will be based.  According to an article in Thoi Bao Kinh Te Vietnam, MPI believes:


·         The GDP growth rate will increase to 7 to 7.5 percent, with all key sectors advancing strongly.  (Last month, MPI forecast that Vietnam will finish 2010 with GDP growth of 6.5 percent.)


·         Budget receipts will reach 612.1 trillion dong, 16.7 percent more than in 2010, and equal to 26.7 percent of GDP.


·         Total spending from the state budget will reach 735 trillion dong, 17.5 percent more than in 2010.  Counting as well 22 trillion dong carried forward from 2010, the budget deficit will be 123.4 trillion dong, or 5.5 percent of GDP, a half-percent less than in 2010 but still a half-percent above the Government’s target.


·         The budget gap will be offset by development assistance (ODA) flows and bond issuance.   This may not be good news, in that the interest rate on ODA loans and bonds is trending higher.


Investment may far exceed national savings


·         Total new investment capital in 2011 will reach 930 trillion dong, 16.3 percent more than 2010 and equal to 41-41.5 percent of GDP, just as in 2010.


·         Domestic savings will represent 27.6 to 27.9 percent of GDP, a decrease from the 30.4 percent savings rate expected in 2010.


·         Foreign direct investment, however, will rise.  It is expected to increase by 15.5 percent in 2011 (198.6 trillion dong) and account for 21.4 percent of the total new investment capital.


Trade deficit of $14.5 billion


·         MPI is cautious in its forecast of international trade, given slow recovery from the recent global recession in many advanced countries.  The ministry expects Vietnam’s export and import growth rates in 2011 will only be about ten percent above 2010 levels.


·         Total export revenues in 2011 are forecast at $74.25 billion (plus ten percent), and import expense at $88.8 billion (plus nine percent). The trade deficit in 2011 would therefore reach $14.5 billion, or 19.6 percent of total export revenue.


·         The continued large trade deficit will put pressure on the dong/dollar exchange rate at certain moments, the inflation rate, and bank lending interest rates.


Payments surplus may reach $500 million


·         There will be a surplus of $500 million in Vietnam’s balance of payments in 2010.  The current account balance will come up short by $10.9 billion in 2011, but, MPI forecasts, that deficit will be more than offset by financial inflows that create an $11.8 billion surplus in the capital account.


Weak points in the data


Some analysts have commented that it is unreasonable for MPI to include  portfolio investment flows (i.e., investments in Vietnam’s stock markets) into the payment balance because of their high instability.


Others point to continued high growth in demand for electricity on the order of 15 percent in 2011 if the economy expands at 7.5 percent.  The supply-demand gap can partly be closed by imports of electricity from China, averaging 700MW, and from Laos, averaging 250 MW.

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