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News Analysis: Vietnam struggling to hit growth target as World Bank lowers economic forecast

HANOI, July 21 (Xinhua) -- The World Bank has recently lowered its forecast for Vietnam's gross domestic product (GDP) to six percent in 2016 while the country is facing difficulties in realizing its set target of 6.7 percent GDP expansion this year.

In April, the World Bank forecast that Vietnam will have the strongest growth prospects among the large developing Southeast Asian economies with expected growth of 6.2 percent in 2016.

However, in a publication named "Taking Stock: An Update on Vietnam's Recent Economic Developments July 2016" released in the capital city of Hanoi this week, the bank said Vietnam's GDP is projected to grow by six percent in 2016 with inflationary pressures contained and the current account in balance.

In the first half of 2016, Vietnamese economic growth slowed to 5.5 percent compared to 6.3 percent growth in the first half of 2015.

The bank attributed the deceleration of GDP expansion in Vietnam during the January-June period to a severe drought and saltwater intrusion on agricultural production and slower industrial growth.

Since the end of 2015, El Nino has led to the most severe drought in Vietnam in 90 years. The situation has been worsened by saline intrusion in the country's south central coastal and Mekong Delta regions.

Drought and salinity intrusion have affected about 360,000 hectares of agricultural land and 26,000 hectares had to be abandoned.

The drought, which will continue to affect parts of the country until September 2016, will likely leave over 600,000 hectares of rice at risk.

As a result, rice production fell by 6.4 percent in the winter-spring harvest of 2016 leading to an overall year-on-year contraction of 0.7 percent in agricultural output during the first half of 2016.

Agreeing with the bank, Bui Kien Thanh, a Vietnamese economic and financial expert, told Xinhua that the fall in agriculture output of Vietnam's Mekong Delta has raised public alarm bells, as the delta accounts for some 47 percent of the whole country's rice production output.

The saline intrusion in the Mekong Delta will have long-term impact on Vietnam, not just in the next one to two years, said Thanh.

Concerning Vietnam's medium-term economic outlook, the bank said it remains positive, but that the economy is still subject to risks. The fiscal deficit is projected to remain high this year, however, slow progress in implementing structural reforms to boost productivity in both the state-owned enterprises (SOEs) and private sector pose risks to medium-term growth prospects, the bank said.

At the same time, delays in addressing lingering debt problems in the banking sector and fiscal consolidation could pose a risk to future macro-economic stability and growth.

According to Thanh, among major elements in the Vietnamese economy, only the foreign-invested sector is enjoying strong development in annual production and exports while the private sector and SOEs are not enjoying such bright prospects.

"Vietnam's administrative system causes difficulties for businesses at all levels and in all periods from granting licenses to operations," Thanh told Xinhua.

Due to "dangerous congestion" in the banking system, private companies in Vietnam find it hard to acquire capital and have to experience interest rates of some 10 percent, higher than those in other countries, the economist pointed out, proposing that the central bank should implement action to ensure necessary capital flow for development.

Otherwise, feasible projects will have no capital to be founded on, said the expert.

At the same time, SOEs with ineffective operations should not be held by the state. The equitization process which Vietnam has been carried out over the past decade has not yielded much success, Thanh added.

"Equitization is also out of date now. Except those relating to security, defense and public services like electricity, mining, railways, all other SOEs should be privatized to ensure productivity," Thanh proposed.

The expert emphasized that "there needs to be assertiveness and change in mindsets to solve these problems."

Stressing the importance of structural reforms, Achim Fock, WB Vietnam Acting Country Director said "Achieving sustained high growth will depend on Vietnam's ability to continue and deepen structural reforms to boost productivity."

"The government has made commitments to ensure public debt sustainability and rebuild fiscal buffers," said Sebastian Eckardt, the WB Vietnam lead economist. "It is important that this commitment is now followed through with concrete actions to balance the budget over the medium term."

Earlier in late 2015, Vietnam's National Assembly set the country's economic growth target at 6.7 percent in 2016.

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