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Viet Nam's Economic Growth to Hold with Pro-Private Sector Reforms, ADB says

HANOI, VIET NAM (6 April 2006) - Fueled by surging private investment and strong domestic demand, Viet Nam's economic performance continues to be robust, with growth accelerating above 8% in 2005, according to a major report of the Asian Development Bank (ADB) released today. Viet Nam is expected to maintain high economic growth of around 7.8% for 2006 and 8% for 2007.

The Asian Development Outlook 2006 (ADO), an annual ADB publication that forecasts economic trends in Asia, said the overall growth rate in Asia was 7.4% in 2005, slightly lower than in 2004. The overall growth of Asia was led by the People's Republic of China, India, Pakistan, and Viet Nam. Southeast Asia grew 5.5% in 2005, above the average of the previous five years, but easing slightly from rapid 6.3% growth in 2004. The growth in Southeast Asia is expected to be stable at 5.5% in 2006 before accelerating modestly to 5.7% in 2007.

In Viet Nam, economic growth helped reduce the country's poverty rate from 58% in 1993 to 19.5% in 2004 (measured in terms of the national poverty standard). However, ethnic minorities generally have a high incidence of poverty. Various social indicators, such as education levels and infant mortality, have also improved, reflected in an increase in the country's ranking in the United Nations Development Programme's human development index.

Viet Nam's GDP growth is projected by ADO to consolidate at around 8% in the next 2 years. The momentum for domestic demand is likely to be maintained through sustained growth in FDI inflows, private remittances, and tourism receipts. Inflation will moderate to about 5-6% over 2006 and 2007, the report adds.

Viet Nam made further improvements in its business environment. Official recognition of the private sector's contribution to economic activity is increasingly explicit, improving the prospects for further reforms toward a market-based economy. In 2005, the National Assembly passed a Unified Enterprise Law and a Common Investment Law, designed to boost private investment by reducing administrative barriers to business development. Efforts to improve the business climate have helped generate strong growth in both domestic private investment and FDI.

On the external trade front, the Government is pushing ahead in its bid for entry into WTO. It is assumed that Viet Nam will join WTO within the next couple of years, possibly in 2006. AFTA and WTO commitments are likely to support the introduction of new technology, increased productivity, and the development of a more competitive economy.

The progress in reforming state-owned enterprises (SOEs) and state-owned commercial banks (SOCBs) has recently been accelerated. SOE reform thus far has been mainly among smaller companies, with only modest advances made in divesting larger enterprises. This year's planned equitization of Vietcombank and the telecoms service company MobiFone - both large companies - would represent a major step. Reforms in the financial sector have improved the performance of many banks, and have enhanced public confidence in the banking system. A financial sector reform roadmap which is expected to be approved by the Prime Minister this year includes a specific timetable for the equitization of all five SOCB.

The positive outlook for Viet Nam in the next few years will be realized as the Government continues with its efforts in implementing reforms and controlling corruption, as they are essential prerequisite to accelerate private sector investment. The authorities are also more explicit in recognizing the benefits of further market-oriented reforms, as indicated in policies outlined in the socioeconomic development plan for 2006-2010. Considering the AFTA and WTO commitments, acceleration in recent years of the restructuring of state enterprises, financial sector development, improving the business environment, and current action to control corruption, Viet Nam is likely to achieve the projected growth.

ADB, based in Manila, is dedicated to reducing poverty in the Asia and Pacific region through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by 64 members - 46 from the region. In 2005, it approved loans and technical assistance totaling $5.8 billion and $198.8 million, respectively.

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