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Viet Nam Economic Growth to Remain Strong in 2004 And 2005

HANOI, VIET NAM (28 April 2004) - Viet Nam recorded a vigorous macroeconomic performance in 2003, being one of the world's fastest growing economies. Buoyed by the improvements in the business environment and the recovery of external demand, Viet Nam is expected to maintain growth above 7% in 2004 and 2005, according to a major Asian Development Bank (ADB) report released today.

The Asian Development Outlook 2004 (ADO), an annual ADB publication that forecasts economic trends in the region, predicts gross domestic product (GDP) growth at 7.5% and 7.6% in 2004 and 2005, respectively, compared with 7.1% growth in 2003.

The frequency of public health problems has increased in recent years, including SARS and more recently the avian influenza outbreak, which had huge impacts on the poor. These incidents call for more serious government attention to public health (including animal health), which may require additional public spending over the medium term.

"Viet Nam has made impressive progress in achieving both rapid economic expansion and poverty reduction in recent years, yet comparisons with other East Asian and Southeast Asian countries during their high-growth periods suggest that Viet Nam's GDP growth rates could be higher," said Bradford Philips, Country Director, ADB Viet Nam Resident Mission.

"The country is relatively well endowed in terms of natural resources, enterprising people, and a favorable geographic location. The chances of further growth stem from using these opportunities more efficiently and improving the efficiency of the existing capital stock", Mr. Philips added.

Viet Nam's GDP growth will remain strong in 2004 and 2005. The growth will be underpinned by strong domestic demand, forecast to rise by 10.1% in 2004 and by 8.1% in 2005, and by annual export growth of 12.0%. The government policy of maintaining an expansionary but manageable fiscal stance will help keep domestic demand strong. Fiscal deficits are estimated to be 4.6% of GDP in 2004 and 4.2% in 2005.

Business sentiment has improved. The private sector - domestic and foreign - is likely to respond positively, resulting in additional investment inflows.

Export growth will provide a further boost to manufacturing and buttress consumption. But strong domestic demand and further export growth will push up imports, particularly imports of production materials and machinery. Furthermore, the implementation of AFTA commitments and preparations for WTO accession are likely to reduce the cost of imports as tariffs are reduced. As a result, trade deficit is estimated to reach $4.2 billion and $4.5 billion in 2004 and 2005 respectively. Current account deficits are expected to be around 5.7% of the GDP in both 2004 and 2005.

Viet Nam has strong potential to expand its exports because it has only small shares of major export markets. The People's Republic of China (PRC) is potentially a large market for Viet Nam's exports of natural resources such as crude oil, rice, and tropical agricultural products.

The industry and services sectors will be the main engines of growth, expecting to contribute respectively about 3.8 and 3.0 percentage points of GDP growth in 2004. Agriculture, which accounted for 21.1 percent share of GDP in 2003, will maintain growth of its value added around 3.3% in the next two years with a strong contribution from fisheries and higher export prices of coffee and rubber.

Inflation is expected to be moderate at around 4.5% in both 2004 and 2005. A further lowering of telecommunications charges and other administration costs will help keep nonfood prices down. However, the continued rise in prices of building materials, including steel, as well as pharmaceuticals will have a partially offsetting impact.

The 2004-2005 outlook is not free from risks, namely the trade deficit, uncertainty over market access, the fiscal deficit, rapid credit expansion, and possible public health scares. Continued and effective implementation of the Government's governance and public administrative reform program, further reform of financial and banking sector, and successful WTO accession in 2005 would help sustain rapid economic growth and poverty reduction in Viet Nam.

ADB 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 63 members - 45 from the region. In 2003, it approved loans and technical assistance worth US$6.1 billion and US$177 million, respectively, of which $179 million in loans and $8.6 million in technical assistance were for Viet Nam.

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