Monetary and fiscal policies go their separate ways

Vietnam has been mostly relying on the monetary policies in regulating the national economy, while the fiscal policy has been ignored. (VIETNAMNET)

According to the Governor of the State Bank Nguyen Van Binh, by the end of May 2013, the outstanding loans had increased very slightly by 2.98 percent in comparison with the end of 2012. Of this, the dong outstanding loans had increased by 5.48 percent and foreign currency loans decreased by 8.41 percent.

As such, the lending interest rates have reduced by 2-4 percent in comparison with the beginning of the year, while the new loans’ interest rates are now equal to the rates applied in 2005-2006 and even lower than that in 2007. However, despite the sharp falls, the credit growth rate remains very modest. While commercial banks have continuously launched low-cost credit packages, businesses still keep silent and don’t intend to borrow money for the investment.

Bankers have affirmed that they have slashed the lending interest rates to the lowest possible levels.

Meanwhile, Binh said that the margin between the deposit and the lending interest rates has decreased to 3.03 percent, and if deducing the provisions against risks, the gap would be 1,93 percent only, much lower than the 2.33 percent seen at the end of 2012.

Binh said this was one of the reasons which led to the sharp falls of the credit institutions’ profits in 2012 and the first months of 2013.

Experts have been pointed out that the monetary policy has been abused, while the fiscal policy has not been used to stimulate the national economy. In other words, the monetary and fiscal policies have been going their separate ways, while they should strive to one thing.

Dr. Le Xuan Nghia, Head of the BDI, a business development research institute, said he and his colleagues have carried out a business survey and found out that businesses nowadays only strive to short term business plans, while they do not think of long term business strategies.

In 2009, when the government launched the interest rate subsidy package, under which the lending interest rate was lowered to 6.5 percent per annum, a lot of businesses believed that the government would stabilize the interest rate for a long term. With the confidence, they injected their money in developing their business and expanding the production.

However, just after some disbursement fits, the interest rate suddenly soared to 20 percent per annum. A lot of businesses merely got bankrupt, while their new production lines were left unused, because they could not bear such the sky high interest rates.

Businesses, which have lost confidence on the interest rate policy, have decided that they should strive for short term profits only.

A good monetary policy should not only try to increase the money supply to pave the way for the interest rates to go down. More importantly, it should strive to a stable monetary policy,” Nghia commented.

Only when the inflation rate, exchange rate and interest rate are stabilized, will businesses be able to think of their long term business plans and feel secure to make investment.

“No one can do business well, if the inflation rate goes up to 15-20 percent and down to 5-6 percent so regularly,” Nghia maintained.

He has blamed this on the abuse of the monetary policy in dealing with the problems, while the fiscal policy has been the“outsider.”


World Bank revises 2013 growth figures

The World Bank has revised its growth prediction for Cambodia upwards to 7 per cent for 2013, from its January prediction of 6.7 per cent, a revision it attributes to the performance of the Kingdom’s agriculture, tourism and garment sectors.

Cambodia’s outlook is generally positive, according to the World Bank, which expects inflation to remain at 3 per cent in 2013.

Though it has eased slightly, credit growth “continues to raise concerns” for the bank, which called for “close monitoring” of the situation.

“Credit growth . . . has been driven largely by wholesale and retail financing . . . starting in 2011 agriculture financing has eased to 29.2 per cent (year on year) in January 2013, from 34.0 per cent in December 2012, and 34.6 per cent in January 2012,” said the World Bank.

While acknowledging the level of banking integration in Cambodia – demonstrated by the “large presence” of foreign banks – the IMF was also cautious about maintaining effective controls on credit growth.

“Going forward, it is important for Cambodia to manage financial deepening while ensuring financial stability. For that, moderating credit growth and continued supervisory and regulatory improvement would be necessary,” Faisal Ahmed, the IMF representative for Cambodia, told the Post two weeks ago.

Having ceased loans to Cambodia in 2011 after concerns about the forced evictions at Boeung Kak lake, the World Bank told the Post in December last year that it would wait until after this year’s general elections to discuss re-introducing loans.

By Daniel de Carteret │29 April 2013│The Phnom Penh Post

Lao maintains strong growth rate, quality of growth becoming more important, ADB says

(KPL) The economy of the Lao PDR is expected to expand by around 7.7 per cent in 2013, as resource-based industries, manufacturing and services continue to generate solid growth, say a key Asian Development Bank report.

“The Lao PDR will continue to see solid growth in the next few years, building on the achievement of the last five years or so,” says ADB Country Director Chong Chi Nai.” Going forward, the challenge will be to shift the focus from absolute growth levels to the quality of growth to ensure that the Lao PDR will follow an inclusive and sustainable growth path”.

Rising private consumption and stronger intraregional trade will spur a pickup in growth in developing Asia in 2013 and 2014, as economic activity in the US and Europe remains in the doldrums, the ADB says in its flagship annual economic publication, Asian Development Outlook 2013 ( ADO).

Economic growth of 7.9% in 2012 was supported by expanded mining outputs, with copper production up by about 8% and gold production up by 61 %, while hydropower output jumped by 29%. Reflecting increased construction activities, cement production increased by 42 % during the year, while tourist arrival increased by 22 % to 3.3 million. Agriculture growth was 2.5 % resulting from increased production of cassava, maize, poultry and livestock. Rice production declined slightly as a result of flooding. Average inflation was 4.3% in 2012.

Looking forward, substantial investment flowing in to hydropower and mining, coupled with the construction of hotels, offices and residential buildings will drive GDP growth. Hydropower plants completed last year will contribute an expected 12 % increase in power generation in 2013. Agriculture, which employs over 60 % of the workforce, is expected to grow at a fast pace this year, as rice production recovers and animal husbandry continues to expand. Tourist arrivals are projected to grow by 10-15%.

“The outlook for 2013 for the economy of the Lao PDR is strong, as we see the economy starting a gradual diversification from its overdependence on the natural resources sectors,” Mr. Chong says. “Increased agriculture productivity is important to remain on this path. However, the current focus on a small number of crops, such as rubber and eucalyptus, endangers biodiversity and food security in the country. Increasing production of more traditional food crops and ensuring their domestic and international marketing remains a top priority for the sector.”

The ADO 2013 project strong economic activity in the Asian region to spur renewed price pressures, with inflation seen moving up from 3.7% in 2012 to 4% in 2013 and 4.2% in 2014. For Lao PDR, a benign 5.5% inflation is forecast for 2013. Price pressures remain manageable for now, but will need to be monitored closely, especially as strong capital inflows raise the specter of potential asset market bubbles.

Vietnam’s economy to grow by 5.6 pct in 2014: ADB

In its Asia Development Outlook Report 2013 announced on April 9, Asian Development Bank (ADB) forecasted Vietnam’s gross domestic product (GDP) growth at 5.2 percent this year and it would be 5.6 percent in 2014 if achieving progress in strengthening the banking sector and the recovery of large industrial economies would create motivation in 2014.

The ADB also forecasts Vietnam’s inflation in 2013 will fall slightly to an average of 7.5 percent before rising to 8.2 percent in 2014.

Average annual inflation is expected to be about 7.5 percent in 2013, lower than its previous forecast due to lower than expected domestic demand. The forecast was given on an assumption that the weather conditions are favourable for food production, the forex rate is relatively stable and stimulation policies are controlled.

The country’s trade surplus is expected to reach a record of $12.5 billion in 2013 and the current account balance surplus would continue to increase this year before easing slightly in 2014 as imports accelerate in parallel with GDP growth.

Addressing at a press conference to announce the Asia Development Outlook Report 2013, Tomoyuki Kimura, ADB Country director in Vietnam, said that Vietnam’s ability to remain competitive and promote economic growth at 7-8 percent will depend on the successful implementation of structural reforms and more comprehensive improvement of business environment.

According to Tomoyuki, despite Vietnam’s economic growth in 2012 at the 13 – year low, which forced the authorities to apply the easing monetary policy, credit growth is still limited by the uncertainty about the financial situation of the banking system. The economic recovery depends on promoting the reform programmes for the banking system and state-owned enterprises (SOEs).

When the landmark for Asean integration in 2015 is approaching, Vietnam is facing the increasing competition in attracting FDI capital sources in Southeast Asia. However, he also said that Vietnam still remains an attractive destination for foreign investments due to the abundant size of the population in working age on the rise and the low labour costs. This is evidenced by the general increasing trend of FDI capital attraction in the past decade.

Cambodia’s economy to grow by 7.2 pct in 2013, stronger in 2014: ADB

Cambodia’s economic growth is forecast at 7.2 percent in 2013, picking up to 7.5 percent next year as recovery in Europe and the United States takes hold, according to the Asian Development Bank’s annual economic outlook released on Tuesday.

The United States and Europe are the largest purchasers of Cambodia-made garment and footwear products.

“European demand for Cambodian garments and footwear is expected to maintain good growth, supported by duty-free access to the Europe,” the report said. “Shipments to the U.S. will likely be subdued this year, but should pick up after that.”

Cambodia’s economy is mainly supported by four main sectors– garments, tourism, real estate and construction, and tourism.

“Domestic consumption, exports and investment, especially foreign investment, will all drive growth this year and next year,” Peter Brimble, ADB deputy country director and senior country economist, said during the report release.

The report noted that net foreign direct investment (FDI) inflows into Cambodia surged by an estimated 75 percent in 2012, to 1.5 billion U.S. dollars, funding new industries including automotive parts, electronics, and processing of agricultural products, as well as diversifying garment production into higher- value products and tourism into new areas.

It said that about 23 percent of the total FDI inflows into Cambodia last year came from China, and the rest came from other countries in ASEAN, Asia and Europe.

ADB senior economics officer Poullang Doung said Tuesday that the industry sector as a whole is expected to expand by 10.5 percent in 2013, while the service sector is expected to grow by about 7 percent, with strong growth in tourism and real estate activity.

Agriculture is likely to grow by 4 percent, assuming favorable weather, he said.

He added that the inflation rate is expected to average 3 percent this year, assuming stable domestic food prices, and rising to 3.5 percent in 2014 due to robust domestic demand.

Cambodian secretary of state of the Ministry of Economy and Finance Hang Chuon Naron said Tuesday that the government projected that the country’s GDP is expected at 7 percent this year, driven by garment exports, tourism, agriculture, real estate and construction.

“We expect that Cambodia will get out of the classification of a low-income to a lower-middle-income country at the end of this year,” he said.

Lower-middle-income countries are those with GDP per capita between 1,006 U.S. dollars and 3,975 U.S. dollars, as defined by the World Bank.

Last year, the country’s GDP growth was 7.3 percent and the GDP per capita was nearly 1,000 U.S. dollars, he said, forecasting that the GDP per capita will increase to 1,080 U.S. dollars this year.

While Cambodia’s growth prospects remain positive, chronic poor health and malnutrition is stunting the growth of 40 percent of Cambodian children, the ADB’s report warned.

“Left unaddressed, Cambodia’s continuing high incidence of child malnutrition will negatively affect future productivity and economic growth due to the associated irreversible long-term damage to physical and cognitive development,” it said.

By Wang Yuanyuan │ 09 April 2013 │ Xinhua News

Vietnam’s manufacturing rebounds in March: HSBC report

HANOI, April 1 (Xinhua) — The manufacturing sector of Vietnam edged back into expansion in March, with the Purchasing Managers’ Index (PMI) posting a 23-month high of 50.8, reported Vietnam news agency on Monday, citing the Hong Kong and Shanghai Banking Corporation (HSBC) analysis.

March data pointed to modest recoveries in the levels of both manufacturing production and new orders, following contractions in the previous month.

Companies benefited from an improving domestic market, increased promotional activity and a slight expansion in the level of incoming new export orders, the bank said.

New export orders increased for the first time in 11 months during March. Manufacturers linked the latest growth in new export sales to improved demand from clients in China, Japan and Thailand.

Growth of new orders and production filtered through to the labor market, with March seeing employment rise for the fifth time in the past six months.

Input cost inflation surged higher during March, amid reports of increased prices on international commodity markets.

Part of the increase in input prices was passed on to clients in the form of higher selling prices. Output rate of contraction charges rose for the second successive month and at the fastest pace since April 2012. However, the rate of increase in selling prices remained well below that of input costs.

Vietnam manufacturers maintained a preference for reduced inventory holdings in March, leading to further depletion of both raw material and finished goods stocks. In contrast, purchasing activity was raised for the second time in the past three months, reflecting increased production.

Trinh Nguyen, an economist at HSBC said March’s expansion of manufacturing output is consistent with the bank’s view of a gradual recovery in Vietnam.

The process is likely to be bumpy, however, she said, adding that what’s most positive moving forward is a rebound of external demand, which should help counterbalance weak internal demand in the coming months.

By  Xu Rui  |   2 April 2013  |   Xinhua

SBV has room to further cut deposit rates

HA NOI (VNS)— The State Bank of Viet Nam has the margin to further cut dong deposit rates to 7 per cent and lower lending rates to below 10 per cent, the National Financial Supervisory Commission (NFSC) recently revealed.

In a study on the country’s macro-economic performance in the first quarter of 2013, the Commission found that with domestic consumption and credit demands remaining weak, this year’s inflation was likely to remain under 7 per cent.

This is further evidenced by average statistics for the past decade showing that inflation in the first quarter often accounted for roughly 40 per cent of the whole year’s inflation.

The Commission observed that in the first quarter, bank liquidity generally remained stable and interest rates tended to fall in tandem with inflation movements; yet the rate of deflation did not match up to businesses’ expectations.

Slow credit growth in the manufacturing sector reflected weak capital absorption of the economy, the report noted. As of 21st March, total lending increased only 0.03 per cent, while deposits rose 3.86 per cent from the end of 2012.

Government bonds were still an attractive investment channel for banks with their attractive yields and apparently low risks.

However, with non-performing loans still posing major obstacles for enterprises to access bank capital, the credit growth target of 12 per cent this year is unlikely to be achieved.

According to the NFSC, the exchange rates remained stable due to the trade surplus and improved short-term investments.

The NFSC further recommended the government to give more support to enterprises in order to boost production and business by cutting interest rates, reducing corporate income tax to 20 per cent as well as considering cuts to value added tax (VAT).

The Commission further highlighted the need to accelerate the process of dealing with non-performing loans, explore the possibility of starting a debt asset management company in the near future, and actively launching a preferential credit package to support the construction sector and the real estate market. — VNS