The Government must continue to preserve macroeconomic stability even though it has to make a short-term sacrifice, said Sanjay Kalra, resident representative of the International Monetary Fund (IMF) in Việt Nam.
Speaking at the Consultative Group Meeting for Việt Nam held in Hanoi on Monday, Kalra said the Government should not lose its determination to maintain macroeconomic stability.
The nations that used to be in the same situation as Việt Nam right now witnessed emerging demands for macroeconomic policy easing, he said, but stressed that “policymakers should be tough with those demands.”
Adopting this approach, Việt Nam will have to make a short-term sacrifice, he noted.
The price to pay is slower growth and a longer period of difficulties for the banking sector and State-owned enterprises (SOEs), and the State budget has to spend a sum on restructuring of these sectors, he said.
IMF stated that there will still be many great challenges ahead, including high core inflation, slower growth and difficulties in production and business.
In addition, credit growth is very weak, the inventory index remains high and the bad debt ratio could be much higher than reported.
In regards to the monetary policy and the exchange rate, Kalra deemed it essential that macroeconomic policies continue to be tightened so that inflation would be reined in and confidence in Việt Nam đồng would be improved.
He suggested the monetary policy should continue to focus on inflation restraint, while the fiscal policy could be loosened a little in case there was any shock.
IMF estimated the State budget deficit might stand at 5.5% of GDP this year.
However, the Government has not made provision for refinancing cost of SOEs reform and restructuring.
Kalra urged the Government to accelerate restructuring of the three most risky sectors, namely banking, real estate and SOEs.
In particular, he said the banking system was suffering poor-quality assets, insufficient provisions and low capital adequacy ratio.
Bad debts mainly come from SOEs, especially those involved in the property sector.
He forecast the bad debt ratio would rise further with a gloomy outlook for credit growth until 2015.
Commitments on banking restructuring like establishment of a debt trading company and stricter risk management of banks are not enough, Kalra said.
He suggested there should be a practical restructuring scheme to identify the extent of damages and the demand for refinancing among banks.
“Further delays in banking reform may increase the Government’s liabilities and pose risks to sustainability of public debts,” he warned.
He ascribed the consequences that the banking sector is bearing to real estate bubble burst.
Although property prices in some urban areas have fallen by 30-50%, supply is still abundant and it will take years for the market to regain balance.
Source: The Saigon Times 11/12/2012