Vietnam Economy Runs On Loans: Economist

Mr Tran Du Lich

In order to avoid the risks, the country will have to gain high and stable economic growth rates over the next several decades.

He said that economic growth will depend on inner strength. What the government needs to do is to create a safe and transparent legal framework for enterprises to operate. The state pursues national development goals and does not strive to do business for profit.

Regarding the interest rate policy, Lich commented that the economy is running on the basis of borrowing: the state borrows money from the public through bond issuance, while enterprises borrow money from banks.

In order to force the lending interest rates down and expand lending, it is necessary to increase the rediscount, intensify lending activities and control inflation.

“To some extent, the interest rate decreased in 2017. I hope the interest rate will continue decreasing a little this year. However, it would still be good if the interest rate stays at the 2017 level,” he said.

“Businesses can feel secure about the dong/dollar exchange rate. There will be no heavy fluctuations this year. The important thing is that the government needs to set stable policies,” he said.

Vu Viet Ngoan, a member of the Prime Ministerial economic advisory board, said global and domestic conditions in 2018 are favorable for Vietnam.

However, as for the inflation boom in 2007-2008, he asked policymakers to learn a lesson from this. Interest and exchange rates will be the most problematic variables in 2018.

"Controlling the extreme excitement of the market is a big challenge for the State Bank of Vietnam (SBV) and the Ministry of Finance (MOF), especially when the stock market now has scale and the foreign investors’ percentage of holdings much larger than 10 years ago,” he said.

SBV and MOF will have to face two big challenges. They have to apply a flexible monetary policy to support businesses and stimulate economic growth, while they also have to drive capital flow into the stock and real estate markets in a reasonable way.

Ngoan also warned that foreign capital flow into Vietnam is expected to increase significantly in 2018, which may put pressure on the Vietnam dong and lead to the local currency appreciation. 

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