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Vietnam: In 2011, inflation will be the biggest challenge

VietFinanceNews.com Believing that uncontrolled inflation will badly affect the macro economy, Deputy Minister of Planning and Investment Cao Viet Sinh emphasizes that curbing the inflation will be the top priority in 2011. Obtaining high GDP growth rate of 7-7.5 percent, stabilizing the macro economy and curbing the inflation are the targets the Government has set up for 2011. What is the basis for choosing these targets? The target figures have been set up based on the 2010 socio-economic development. The GDP growth rate was high in 2010, at 6.7 percent, the exports increased by 24 percent, while the investment capital in the society increased sharply all this being the most outstanding achievements. However, 2010 was a special year. Next to the big achievements, there were big challenges. Especially, the inflation rate reached a two-digit level. Besides, the problems in public debts, budget overspending and trade deficit also badly affected the national economy. Therefore, the Government has submitted to the National Assembly the following macroeconomic targets for 2011. The GDP growth rate is expected to reach 7-7.5 percent, the export turnover is expected to increase by 10 percent, while the trade deficit would be less than 18 percent of export turnover and the consumer price index would be not higher than seven percent. What will be the biggest challenge for the Government in the economic management? In 2011, curbing inflation will be the top priority for the Government. The inflation rate was high in 2010 and its impact will still be seen in 2011. Therefore, curbing the inflation rate at seven percent will be a big challenge. In other countries in the region, the inflation rates are 4-5 percent only. Meanwhile, in Vietnam, the inflation rate is high due to the external factors, the increases of food prices and some education fees. In the goods price

structure in Vietnam, food and foodstuff make up 39 percent of the consumer price index increases. Besides, the high inflation in China, the big neighboring economy, also had big impact on Vietnam. the problem now is that when the inflation rate is high, banks have to raise the interest rates accordingly in order to attract depositors. The overly high lending interest rate will make businesses unable to access bank loans. Meanwhile, money will not flow to the production sector, but to other investment channels such as securities or real estate. I think that the most important thing is to keep balances in the national economy: the balance in import and export, state budget collection and spending, the international payment balance and the balance between saving and consumption. It is necessary to regulate the national economy based on inter-ministerial cooperation, while not concentrating too much on any specific sectors. The fiscal and financial policies will play a very important role in the implementation of these objectives. Maintaining the inflation rate at seven percent will help stimulate growth, and should be seen as the foundation for economic development. This means that the Government has anticipated difficulties and challenges. So what measures it will apply to overcome the difficulties? These challenges have been present in Vietnams economy for many years and it will take a long time to address all the problems. The Government has kicked off many important projects, including on restructuring the economy and improving businesses competitiveness. However, these are the long term plans which need to be carried out over 3-5 years. But there are also some more immediate problems, such as the budget overspending. The Government has been determined to reduce it to five percent of GDP in some years. For example, the budget overspending is hoped to be reduce to 5.3 percent in 2011, and then to less than 5 percent in 2012, and 4.5 percent by 2015. The public debt in 2010 was equal to 56 percent of GDP. Most of the debt was ODA (official development assistance) with the low interest rate of one percent and the long grace period of 30 years. The World Bank thinks that Vietnams public debts are at a safe level, but the Ministry of Planning and Investment will still focus on supervising the borrowing and debt payment.