“Given the government’s focus appears to be towards supporting headline growth, the State Bank of Vietnam (SBV) may continue to pursue a neutral to accommodative policy stance,” said Anushka Shah, Moody’s sovereign analyst in Singapore, to Bloomberg’s questions.
Moody's is cautious against Vietnam's accommodative monetary policy
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SBV will hold interest rates throughout 2018 after an unexpected cut last year, according to a Bloomberg survey, in contrast to others in Southeast Asia, such as Malaysia where policymakers tightened policy last week. Officials seek to sustain Vietnam’s economic growth—among the world’s fastest—while being mindful of risks including bad loans.
Lending rose by 18.2% in 2017 and the central bank forecasts growth of 17% this year. In December the World Bank also warned against rapid credit expansion in Vietnam, saying it may induce excessive risk taking and could worsen asset quality.
The central bank will “manage credit growth in a flexible and cautious manner in order to help companies and boost economic growth, while still being able to limit risks in some business areas,” Deputy Governor Nguyen Thi Hong said this month.
Vietnam’s economic growth this year may match 2017’s pace of 6.8%, slightly higher than the 6.7% target set by the government, Deputy Prime Minister Vuong Dinh Hue said in an interview this month.
While progress is being made, corruption remains an endemic constraint for Vietnam, Shah said, and this is factored in Moody’s assessment of the overall institutional strength of the country. Moody’s, which rates the nation four steps below investment grade, has a positive outlook on Vietnam.
“Improved governance and control of corruption would contribute to preserving Vietnam’s competitiveness as a market-based economy, and help sustain foreign investor interest even in a scenario of shocks to global demand,” she said.
Ongoing reforms to attract foreign direct investment and improve competitiveness are credit positive, Shah said. The privatization of State-owned companies will be gradual given the large size of these entities, she said.
That said, the government is looking to leverage factors like the expanding middle class and its youthful population to attract investors. It expects to sell stakes in 245 SOEs in 2018, including four scheduled for the first quarter—Binh Son Refining and Petrochemical, which operates the country’s sole oil refinery, as well as PetroVietnam Oil (PVOil), PetroVietnam Power (PVPower), and Hanoi Beer Alcohol & Beverage (Habeco).
Among the assets disposed last year was a majority stake in the nation’s top brewer, Saigon Beer Alcohol & Beverage (Sabeco) to Thai Beverage and its partners in December. The transaction value was $4.8 billion.
Public debt and publicly-guaranteed debt will increase to 64.2% of gross domestic product by 2019 from an estimated 62.6% last year, the World Bank estimated. The government plans to cap the budget deficit at 3.7% of the GDP in 2018, from the 3.5% in 2017.
