Vietnam Economic MonitorSpring 2002The World Bank in Vietnam.Vietnam Economic Monitor –

Vietnam Economic Monitor Spring 2002 The World Bank in Vietnam Vietnam Economic Monitor – Spring 2002 TABLE OF CONTENTS INTRODUCTION .............................................................................................................3 Part I. Recent Economic Developments ..........................................................................4 External difficulties Industrial Sector Leads Growth as Agriculture Slows Domestic Drivers of Growth Private Investment Demand Macroeconomic Policies 4 6 7 9 11 Part II. Structural Reforms...........................................................................................13 Integrating into the World Economy Improving the Climate for Private Enterprise Reforming State-Owned Enterprises Strengthening the Banking System Public Expenditure Management Formulating a Legal Reform Strategy 13 14 15 17 18 18 Annex 1 : Reform actions 1998 – March 2002..............................................................20 Annex 2....
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Vietnam Economic MonitorSpring 2002The World Bank in Vietnam.Vietnam Economic Monitor – Vietnam Economic Monitor Spring 2002 The World Bank in Vietnam Vietnam Economic Monitor – Spring 2002 TABLE OF CONTENTS INTRODUCTION .............................................................................................................3 Part I. Recent Economic Developments ..........................................................................4 External difficulties 4 Industrial Sector Leads Growth as Agriculture Slows 6 Domestic Drivers of Growth 7 Private Investment Demand 9 Macroeconomic Policies 11 Part II. Structural Reforms ...........................................................................................13 Integrating into the World Economy 13 Improving the Climate for Private Enterprise 14 Reforming State-Owned Enterprises 15 Strengthening the Banking System 17 Public Expenditure Management 18 Formulating a Legal Reform Strategy 18 Annex 1 : Reform actions 1998 – March 2002 ..............................................................20 Annex 2. Economic Work Funded by the World Bank and by Other Donors ..........27 2 Vietnam Economic Monitor – Spring 2002 INTRODUCTION1 Overall, the economic outlook for Vietnam continues to improve. The adoption and implementation of a phased program of specific reform measures in early 2001 – in trade policy, private sector development, banking, state-enterprises (SOEs) and public expenditure management – and the Government’s announcement of a master-plan on public administration reform and legal system development has improved business sentiment significantly and put Vietnam on a healthier medium-term growth trajectory. The recent Party Plenum provided the strongest political endorsement yet for the development of the private sector (see box 2). Domestic private investors have already demonstrated greater confidence in the economy by increasing their investments. A renewal of foreign investor interest is also evident. The rise in ratings of Vietnam by various foreign rating agencies confirm that foreign perceptions about Vietnam have improved too. However, the worst global recession in nearly 40 years has depressed Vietnam’s export growth and real GDP growth in 2001 as well as in the first quarter of 2002. This has reduced the pace of poverty-reduction too. A modest recovery is expected in the remaining three-quarters of this year, led mainly by buoyant domestic private consumption and investment promoted by reforms. But not until 2003 and beyond, will Vietnam’s growth rate reach the high levels that are expected from Vietnam’s reforms, when world recovery is projected to be in full swing. Nevertheless, Vietnam’s determination to continue removing impediments to faster growth and poverty-reduction is appropriate and timely. While waiting for world recovery to take hold, the Government can continue to improve the domestic policy environment for exporters and investors, so that the country is able to benefit fully from the recovery. This Monitor assesses economic performance in 2001 and the first quarter of 2002 and takes stock of the implementation of structural reforms in the last six months. Annex 1 shows the cumulative policy reform measures implemented each year since 1998, including 2002. Annex 2 shows technical assistance and analytical and advisory work that is being done in support of reforms in various areas with the assistance of several bilateral donors. 1 The Vietnam Economic Monitor, issued twice a year (spring and autumn) by the World Bank in Vietnam, reports on recent economic performance (part I), and progress on the Government’s reform agenda (part II). It has been prepared by Theo Larsen and Viet Dinh Tuan with inputs from Duc Pham Minh and Minh Nguyen under the overall supervision of Kazi M. Matin. 3 PART I. RECENT ECONOMIC DEVELOPMENTS In 2001 Vietnam’s economy grew by only 4.8 percent in real terms 2-- slower than in 2000 largely because the external environment had worsened sharply in 2001, especially after September 11th. The economy is expected to recover with a growth rate of 5.2 percent in 2002. The fall-off in exports in the fourth quarter of 2001 and substantial negative growth in the first three months of 2002 limits the extent of recovery in GDP growth and thus to the number of people that can be lifted out of poverty this year. Only relatively buoyant domestic demand and increasing confidence among domestic and foreign investors, prompted by continued reforms, will ensure this modest recovery. External difficulties The deceleration in world GDP growth in 2001 was the sharpest in the last 40 years except for the first oil crisis in 1974. This slowdown coincided with ...