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Domestic Demand and Exports to Power Viet Nam's Economic Growth at About 7.5% Over Next 3 Years

HANOI, VIET NAM (6 April 2005) - Supported by increases in domestic demand and exports, Viet Nam is expected to maintain high economic growth of around 7.5% over the next three years, according to a major report of the Asian Development Bank (ADB) released today.

The Asian Development Outlook 2005 (ADO), the annual ADB publication that forecasts economic trends in the region, said gross domestic product (GDP) growth reached 7.5% in 2004, fueled by buoyant consumption and investment as well as strong global markets for oil and commodities. This is expected to continue in 2005 and 2006.

Economic growth helped to reduce the number of households in poverty by 300,000 last year, reducing the country's poverty rate from 11.0% in 2003 to 8.3% in 2004 (measured in terms of the national poverty standard). However, ethnic minorities generally have a high incidence of poverty.

Underlying growth in 2005-2007, domestic demand each year is projected to rise in the range 8.0-8.7%, while annual export growth is projected in the 8.6-11.4% range. Inflation will moderate to about 5.7% in 2005 from 7.7 % in 2004, the report adds.

The Government continued to pursue an expansionary fiscal policy in 2004 and this stance is expected to continue to cover the cost of reforms and infrastructure. Given the increasing role and potential of the private sector, Viet Nam made further improvements in its business environment. According to a Viet Nam business survey conducted in 2004, more than two thirds of surveyed foreign enterprises plan to expand their businesses over the next three years.

On the external trade front, the Government is pushing ahead in its bid for entry into the World Trade Organization (WTO) and said it will amend or abolish trade and investment- related laws that are inconsistent with WTO rules.

Viet Nam's chances of joining the WTO by late 2005 seem to have improved following the successful conclusion of the ninth round of multilateral negotiations in December 2004, as well as bilateral agreements with the EU and Singapore, the ADO says.

It warns that opening the economy further over the next two years in compliance with ASEAN Free Trade Area commitments by 2006 and WTO accession will likely bring more external competition for domestic enterprises.

The economically less efficient and state-protected enterprises will have difficulty adjusting to the more competitive environment.

"In the longer term, as Viet Nam emerges as a fully open economy, its prospects for rapid growth and poverty reduction would be put at risk if progress remains slow in the areas of reforming state-owned enterprises and state-owned commercial banks, improving capital productivity, and making the economy more competitive," the ADO says.

The major public health risk is avian flu, which reappeared late in 2004 in southern Viet Nam and spread to many provinces. No human-to-human transmission has been confirmed, but concern is growing that this may occur, which would be catastrophic, both on a human scale and economically.

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