Inflation- A concern for Vietnam!

Vietnam is one of the fastest growing economies in the Asia-Pacific region, with real GDP growing by 7.5% on average and a 8.5% growth in 2007. After the (CVP) Communist Party of Vietnam’s continuous economic and social reform programs that helped Vietnam to alleviate the poverty level in the country, the official poverty rate fell from 58% to less than 20% within a very short span. After Vietnams’ accession into the WTO and full restoration of diplomatic relation with the US back in 1995, Vietnam has become one of the trading partners of USA. The Vietnamese exports to the US are booming recently and this is a strong indication to the direction Vietnam is moving toward. Rapid rise of Inflation in 2007 hovering around 9% is a troublesome for this new economy which is valued around US$69 bn. Sustained inflation and rising oil prices are a big challenge to Vietnam’s economy, though now more effectively handled by the Vietnamese policy makers. The rising inflation in the emerging nations have been somewhat attributed to three factors besides other, globally-

· Rising food prices
· Crude oil price rise to USD100/brl
· Rise of Steel price globally

It is on this context that Vietnam risks economic sustenance, but analysts are positive about the continuous reforms that the Vietnamese CPV has undertaken. Recent fall in C/A deficit is an welcome sign as well as the growing forex reserves of around US$23 bn (IMF Estimates). The Vietnam Dong is trading around US$/16100 till now. Though the indicators look much positive, yet some factors like the bureaucracy and widespread rampant corruption has beleaguered Vietnam’s political parties image. The corruption perception index scored 2.6 for Vietnam, much less than the Asian average of 4.6, as measured by Transparency International.

Key Risks to the Vietnam Economy:

· US Economic slowdown
· High Inflation rate
· Rampant Bureaucracy and Corruption
· Strong Inflationary Pressure due to High Crude oil price
· Strong Competition from China
· Avian Flu

Key Positive Indicators

· Good Social and Economic Reforms undertaken by CPV
· Strong export growth
· Building of a logistics hub already underway
· No political risks
· Booming Exports
· Fall in C/A deficit
· Lowering down poverty rate
· Access to FTA


From Right Horizons' Desk

For More Read..............