Vietnam’s GDP growth rate will possibly reach as high as 8.7 per cent this year - but global factors could pressure the country’s economic development.

The Ministry of Planning and Investment’s Central Institute of Economic Management (CIEM) last week released its annual Vietnam Economic Report 2006, which said since joining the WTO, the country’s economic development was increasingly affected by external factors.

“Vietnam’s economic growth is now much more sensitive to global factors such as oil prices and the inflow of foreign direct investment,” said Vo Tri Thanh, head of CIEM’s Committee for Economic Policy and International Integration Studies.

Thanh said that the country’s GDP growth could reach 8.7 per cent, if inflation increased by 7.9 per cent this year and FDI disbursement increased by 35 per cent year-on-year. Vietnam could only achieve 8.1 per cent GDP growth in 2007 [and inflation at 7.2 per cent] if global oil prices fell by 20 per cent while FDI disbursement increased by 20 per cent against 2006.

“Clearly, Vietnam’s economic growth is more dependent on global factors [such as oil prices and FDI inflows]. Vietnam can avoid any economic shocks and attain higher economic growth if we successfully forecast global factors and implement plans to deal with problems,” Thanh said.

In 2006, FDI capital into Vietnam surged to a record $10.2 billion, above the 2005 level of $6.2 billion and an earlier peak of $9 billion in 1996.

Thanh predicted the country’s GDP growth could hit 8.5 per cent, with inflation at 7.7 per cent, if global oil prices stayed at around $56 a barrel. Thanh added that internal factors such as unstable macroeconomic and monetary policies could also have greater impacts on the country’s economy. “Vietnam is facing the appreciation of the dong which can stir inflation and may affect exports this year,” he said. The Asian Development Bank and the UN Economic and Social Commission for Asia and the Pacific (UNESCAP) recently predicted that Vietnam’s economy would record a high growth rate of 8.3 per cent in 2007 thanks to a heavy increase in FDI inflows and further public administrative and economic reforms.

However, the ADB outlined weaknesses that Vietnam should address in the near future. These included inefficiency of state-owned enterprises, lower labour productivity, shortage of skilled workers and an inadequate infrastructure.

The International Monetary Fund projected Vietnam’s GDP growth at only 8 per cent this year, compared to the country’s target of 8.2-8.5 per cent. In 2006, Vietnam attained GDP growth of 8.17 per cent increase, lower than 8.4 per cent in 2005.

Source: VIR