Vietnam - Taking aim at single digit CPI growth

Experts have applauded the National Assembly’s target of single digit consumer price index growth in 2012.

Raymond Mallon, an Australian freelance economist with more than two decades’ experience working on Vietnam’s economy, told VIR that he was confident about the National Assembly’s consumer price index (CPI) forecast for next year.

“With strong political leadership, the National Assembly’s CPI target for next year is both achievable and desirable, given the government’s existing tough policies,” Mallon said. The National Assembly recently adopted a resolution on socio-economic development for 2012 and targeted a CPI rise of less than 10 per cent.

This target aims to take full advantage of the effectiveness of the government’s sturdy policies on inflation, which is expected to hit at least 18 per cent this year, far higher than the initially targeted 7 per cent.

“The majority of National Assembly deputies have given this 2012 CPI target the nod. Curbing inflation will be the prime target for 2012,” said Nguyen Thi Kim Ngan, National Assembly vice chairwoman.

“With stricter management of state spending and investment, we will maintain suitable credit growth and take more initiative in controlling prices. The National Assembly’s Standing Committee believes that it will be feasible to hold the CPI to below 10 per cent next year,” she said.

Nguyen Dinh Cung, vice head of the Central Institute for Economic Management, predicted the CPI would increased less than 10 per cent in 2012 and the rate would even fall to 6-7 per cent during 2013–2015.

According to Le Xuan Nghia, vice president of the National Financial Supervisory Commission, the CPI was likely to hit 19 per cent this year, but only 9 per cent next year. Nguyen Duc Tiep, a senior economic expert from Lien Viet Bank’s Commission for Business and Technology Strategy, told VIR the target was “quite appropriate and feasible.”

He said the 2011 inflation situation was unlikely to reoccur in 2012 because this year the government had failed to make timely inroads against soaring inflation. “The government’s current policies including tightened fiscal and monetary regimes will need time to prove their effectiveness next year. This time last year, we saw none of the kind of government policies we are seeing now,” Tiep said.

But, experts warned CPI targets would only be achievable if the government stuck to its guns.

“The key is for government leaders to continue to limit both growth in domestic credit and the size of the budget deficit. This may slow the speed of economic recovery, but macro stability is important for medium- to long-term equitable growth,” Mallon said.

Vietnam’s budget deficit is estimated to occupy 4.9 per cent of the country’s gross domestic product (GDP), while credit growth is projected at around 12 per cent. Cung also underscored the need to reduce state budget overspending to 3-3.5 per cent of GDP in 2013 or 2014.

Mallon said the government would need to resist pressures to subsidise, or provide other special privileges, to particular businesses, industries, or areas. “Such support contributed to inflationary pressures, and distorts markets. It is rarely efficient or effective, and usually only benefits a relatively privileged few,” Mallon said.

“Restoring macroeconomic stability is the immediate priority, but addressing root causes of high inflation requires greater efforts at structural reform,” said Asian Development Bank’s country director for Vietnam Tomoyuki Kimura

Vietnam’s inflation has been trending downwards for some months. A 1.09 per cent rise in June against May became a 1.17 per cent rise in July against June. This was followed by a 0.93 per cent increase in August against July and an 0.82 per cent in September against August. Meanwhile, last month saw a 0.36 per cent rise on September’s inflation figure.

Nguyen Dat | vir.com.vn

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