IMF: Vietnam’s economy projected to grow by nearly 6 per cent in 2024

The International Monetary Fund (IMF) on June 26 forecasted that the Vietnamese economy will grow by nearly 6 per cent in 2024. The latest prediction was released after the conclusion of a visit of an IMF’s Article IV consultation delegation to Vietnam, led by Mr. Paulo Medas from June 12 - 26. 

During the visit, the IMF team exchanged views with Prime Minister Pham Minh Chinh, senior officials of the State Bank of Vietnam (SBV), the Ministry of Finance, the Ministry of Planning and Investment, the Central Economic Commission, the National Assembly, other government agencies as well as met with private corporations.

In his statement after the visit, Mr. Medas asserted that in a challenging year like 2023 the Vietnamese economy grew 5 per cent thanks to determined action by the government. Though, the economy still suffered from turbulence in the real estate sector, financial distress, and a significant drop in exports.

“A recovery began in late 2023, fueled by a rebound in exports, tourism, and appropriately expansionary fiscal and monetary policy support,” Mr. Medas remarked. “Inflation picked up in the first quarter of 2024, driven partly by rising food prices, though core inflation remained relatively low and stable. The external current account posted a large surplus in 2023, 5.8 per cent of GDP, mainly reflecting a significant contraction in imports,” he added.

He went on to forecast that Vietnam’s economic growth will recover to close to 6 per cent in 2024, supported by continued strong external demand, resilient foreign direct investment, and accommodative policies.

Despite the positive prediction, Mr. Medas pointed out that Vietnam will still have to confront challenges such as low domestic demand as corporates navigate through high debt levels while the real estate sector will only fully recover over the medium term.

Inflation is expected to hover around the State Bank of Vietnam (SBV)’s target of 4-4.5 per cent this year.

“Downside risks are high. Exports, a key driver for Vietnam’s economy, could weaken if global growth disappoints, global geopolitical tensions persist, or trade disputes intensify,” he further clarified. 

Domestically, persistent weakness in the real estate sector and corporate bond market could weigh more than expected on banks’ ability to expand credit and hurt economic growth and undermine financial stability. Given easy monetary conditions, if exchange rate pressures were to persist for longer it could lead to a larger pass-through to domestic inflation.

To combat these challenges, the expert from the IMF advises Vietnam to carry out a new wave of reforms by increasing productivity, further investing in human and physical capital, and incentivizing private investment in renewable energy is key. Improving the functioning of the capital markets would also help boost productivity. 

“In this regard, developing a market-based sovereign bond market is vital to facilitate broader capital market development and to make monetary policy transmission more effective,” he explained.

In the banking sector, Mr Medas stated that the new Law on Credit Institutions is an important step forward and should be followed by further measures to strengthen supervision and governance of financial institutions.

"Additional efforts to restore the health of the banking system including measures to improve asset quality, phasing out forbearance measures, and raising bank capital would strengthen financial stability”, he emphasized