IMF Projects 6.1% Growth for 2024 for Vietnam Amid Challenges

October 1, 2024 Posted by Vietnam Briefing Written by Melissa Cyrill Reading Time: 3 minutes

In its September report, the IMF revised its 2024 GDP growth forecast for Vietnam up to 6.1%, with GDP reaching US$468.5 billion by end of the year.

The Executive Board of the International Monetary Fund (IMF) has concluded its 2024 Article IV Consultation with Vietnam, projecting the country’s economic recovery and growth to reach 6.1 percent in 2024. This positive outlook is underpinned by strong external demand, resilient foreign direct investment (FDI), and accommodative government policies.

According to the IMF report, domestic demand is expected to gradually improve as companies navigate high debt levels, although the real estate sector may take longer to recover fully. Inflation is projected to stay around the State Bank of Vietnam’s target range of 4-4.5 percent this year. The IMF noted that inflationary pressures have increased, primarily driven by rising food prices, while core inflation remains stable.

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The report highlights that Vietnam’s external current account posted a significant surplus of 5.8 percent of GDP in 2023, largely due to a contraction in imports. The IMF’s executive directors praised the Vietnamese authorities for their prompt actions to maintain macro-financial stability amid both domestic and external challenges that emerged as the economy recovered from the pandemic.

Despite these commendations, the IMF also pointed out that downside risks remain elevated. A potential weakening of exports, a key economic driver, could occur if global growth falters, geopolitical tensions persist, or trade disputes escalate. Additionally, the report warns that prolonged exchange rate pressures could lead to increased domestic inflation.

The IMF expressed concern that persistent weaknesses in the real estate sector and the corporate bond market could limit banks’ credit expansion, potentially hindering economic growth and financial stability. As a response, the report emphasizes the need for further efforts to bolster macro-financial stability and implement reforms aimed at addressing these vulnerabilities while ensuring robust, green, and inclusive growth over the medium term.

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The IMF advocates for fiscal policy to take the lead in supporting economic activity, given the ample fiscal space available and limited opportunities for monetary policy easing. The IMF welcomed the authorities’ plans to expedite public investment implementation, which will require addressing existing bottlenecks, and noted the importance of expanding social safety nets to protect the most vulnerable segments of the population.

In terms of debt, Vietnam’s total external debt is projected to stand at 32.6 percent of the GDP by the end of 2024, with public and publicly guaranteed debt forecasted at 33.8 percent. The IMF noted that the Vietnamese authorities have effectively contained inflation risks, though they cautioned that monetary policy must remain cautious given the complex economic environment.

The report also commended Vietnam’s progress toward greater exchange rate flexibility and encouraged continued efforts to modernize the monetary policy framework. The IMF stressed the importance of strengthening the resilience of the financial system by enhancing capital buffers, phasing out regulatory forbearance, and addressing rising non-performing loans.

Furthermore, the IMF highlighted the need for decisive actions to mitigate risks in the real estate and corporate bond markets, recommending the strengthening of the insolvency framework and increasing transparency within the corporate bond market. The Fund applauded the government’s anti-corruption initiatives and emphasized the importance of ongoing governance improvements.

In its latest update, the IMF revised its GDP growth forecast for Vietnam in 2024 up to 6.1 percent, an increase from the 5.8 percent projected in April. The country’s GDP is expected to reach US$468.5 billion this year and US$506.4 billion next year. Credit to the economy is projected to grow by 12.9 percent in 2024 before slowing to 9.5 percent in 2025, compared to 13.7 percent in 2023.

The IMF anticipates that Vietnam’s gross international reserves will decrease to US$84 billion in 2024 from US$92.3 billion in 2023. The report concludes by reiterating the importance of expediting public investment and strengthening fiscal frameworks to support Vietnam’s ambitious development agenda while fostering economic resilience and inclusivity.

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