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IMF Comments On Conclusion Of Article IV Mission To Vietnam

by Mary Swire,, Hong Kong

29 December 2008

An International Monetary Fund mission has concluded its visit to Vietnam for the purposes of conducting an Article IV consultation with the country, it was revealed recently.

Ben Bingham, Senior Resident Representative of the International Monetary Fund (IMF) explained that:

"An IMF staff team led by Mr. Shogo Ishii, Assistant Director in the Asia and Pacific Department, visited Hanoi during December 3-18 to conduct the 2008 Article IV Consultation discussions. The team took stock of recent economic developments, and exchanged views on the economic outlook, and the implications of the global economic slowdown for Vietnam. Based on these discussions, the team will prepare a staff report, which is expected to be presented to the IMF's Executive Board in early March. The staff will seek the authorities' approval to publish the report shortly thereafter."

The IMF team observed that following several years of strong performance, Vietnam's economy is facing a number of challenges.

Mr Bingham revealed:

"After accelerating in 2007, growth momentum eased over the course of 2008, as the government sought to stabilize an overheating economy. While the government made commendable progress in stabilizing the economy, Vietnam has, more recently, begun to experience adverse effects from the global economic slowdown. Exports of goods and services are slowing, reflecting a downturn in key trading partners' economies."

"Private remittances and foreign direct investment, two major factors supporting economic activity in 2007, are also slowing from high levels, as a result of the deterioration in global economic conditions. These external challenges are compounded by domestic challenges stemming from a large current account deficit, as well as weaknesses in the banking and corporate sectors."

He further stated that:

"Policy discussions focused on how best to navigate the economy safely through this severe global economic downturn. There was a broad agreement that the balance of risks had shifted from inflation to growth, and that this had prompted the government to respond by easing monetary and fiscal policies. However, the team emphasized that Vietnam's external position is not as robust as other countries in the region, and that this would constrain the government's ability to pursue expansionary policies. While some stimulus may be warranted, if economic prospects continue to deteriorate, such stimulus will need to be carefully calibrated, and give priority to protecting the vulnerable. In this context, the team cautioned that government plans for a large stimulus package, reportedly up to USD6bn, may result in an undesirable weakening of the external position in the absence of additional external financing."

The Vietnamese authorities have undertaken a number of reforms, tax and otherwise, in recent times, in order to attract increased investment and shore up the economy.

In what has been described as the "country's biggest-ever tax concession" by officials at Vietnam's General Department of Taxation, the government began by introducing a 30% reduction to the income tax rate paid by small- and medium-sized enterprises; a measure that applies from the fourth quarter of 2008 and for the entirety of 2009.

Further to this, the government announced that it would be reimbursing companies which export goods with the value-added tax they have paid throughout 2008 on the materials used in the production of those goods.

Corporate tax rates will also be lowered by 3% from January 1, 2009, from 28% to 25%.

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