Vietnam Economy is more and more Dependent on FDI

Vietnam Economy is more and more Dependent on FDI

"Despite the recovery in the second quarter, indicators show that Vietnam's economy is becoming increasingly dependent on the foreign-invested sector."

That is a statement posed by Dr. Nguyen Duc Thanh - Director of Institute of Economics and Policy (VEPR) at the publication of the macroeconomic report in the second quarter took place on October 7 afternoon.

Dr. Thanh said that in the second quarter, Vietnam's economy showed signs of a positive recovery with a growth rate of 6.17%, higher than the same period last year (5.78%).

According to Thanh, the export volume of foreign invested sector increased tremendously showing that Vietnam is increasingly dependent on the volume of foreign invested sectors, especially some large companies like Samsung.

As evidence of this, Thanh said that in 2009, FDI sector exports accounted for only 32.9% of the total, but this number increased to 70.2% in 2016 and 72.4% in the first half of 2017.

Although declining in the second half of 2017, capital inflows from the FDI sector have recovered significantly in the first half of 2017, Thanh said.

In addition, according to Thanh, surveys show that the amount of labor employed by foreign-invested enterprises in the industrial sector continues to maintain high growth rates, especially in the processing and manufacturing sectors.

In contrast, the number of employed workers in the non-state sector has dropped dramatically in the first half of 2017.

"These things show that the domestic economic sector is becoming weaker compared to the foreign invested sector, especially in the context of international integration," Thanh said.

GDP in 2017 could reach 6.4%

According to Dr. Nguyen Duc Thanh, in 2017, has the distinction that since the beginning of the year, the Government has been very determined to reach the growth target set by the National Assembly of 6.7%, regardless of forecasts that this objective is not feasible.

However, Thanh said that this is a time when Vietnam needs to rethink the growth method because of the changing integration conext. Temprorary thoughts about dealing with growth downturn such as efforts to raise capital, accelerate disbursement of public works, or increase capacity of crude oil production, may not be feasible.

Besides, the growth of production and commercial sectors is still largely dependent on the activities of a few large FDI enterprises. The number of firms temporarily suspended increases dramatically together with the decline in the size of their workforce, suggesting that the domestic economy is becoming much more difficult, especially in a competition with the foreign invested area.

According to Thanh, frequent spending not only decrease but also increase at a higher rate than previous years, leading to the continuous increase of budget for debt repayment of both principal and interest.

"It is time to question the quality of real growth, whether reflects the power of the economy or not," posed Thanh.

In the present context, Dr. Nguyen Duc Thanh shared that VEPR growth forecast of the next two quarter will be 6.7% and 7.0%, lifting the whole year growth to 6.4%, up 0.3 percentage points against the prior forecast by VEPR.

At the same time, with prudent monetary policy as well as the impact of the food price shock, Thanh said that inflation in 2017 will remain low under 2.5%. Specifically, inflation at the end of third quater may drop to 1.8% before rising to 2.2% by the end of the year.

Making policy recommendations, the VEPR Director said that the Government should take drastic measures to tighten regular spending such as staff downsizing, divestment from businesses as well as effectiveness of state management.

At the same time, in order to reduce the pressure on the budget and dependence on foreign capital, the implementation of measures to reform administrative procedures, improve the business environment, to create favorable conditions for private investment, improving the competitiveness of this sector is decisive factor.

Moreover, it is fully awake over many changes in policy of creating new licenses, or new conditions that make more difficult for businesses, Thanh added.


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