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Vietnam Country Risk Report Q2 2018

Vietnam Country Risk Report Q2 2018

Real GDP growth in Vietnam came in at 6.8% y-o-y in 2017, slightlyhigher than our forecast of 6.5%. Growth is likely to remain strongamid the continued expansion of both the manufacturing and servicessectors and the government’s efforts to improve the businessenvironment. We thus maintain our forecast for real GDP to expandby 6.7% in 2018.


FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: MAIN EXPORT AND IMPORT PARTNERS
TABLE: MAIN EXPORTS AND IMPORTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
SBV To Stay The Neutral Course As Policy Room Narrows
We expect the SBV to keep interest rates on hold over the course of 2018, with the respective benchmark annual refinancing and
discount rates staying at 6.25% and 4.25%, even though policymakers appear to have an easing bias. The policy room for further
easing is likely to narrow over the coming months as the US continues to hike interest rates while inflation trends higher.
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Budget 2018 Signals A Pause To Fiscal Consolidation
Vietnam's National Assembly has approved the government's budget for 2018 which targets a fiscal deficit of 3.7% of GDP (compared
with 3.5% in 2017), but this figure excludes principal debt repayment. This signals a pause in the government's fiscal consolidation
resolve. Accordingly, we now forecast the budget deficit as a share of GDP to widen to 5.5% in 2018, from an upwardly revised forecast
of 5.3% in 2017, versus our previous expectation for the budget deficit to narrow.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
VND: Strong Growth To Support Superior Total Returns
We expect the Vietnamese dong to remain stable against the US dollar over the near-term given the SBV’s preference for a stable
currency, while the economy continues to be in a sweet spot. Over the longer-term, the dong will likely weaken in spot terms, but we
expect it to continue outperforming in total return terms thanks to Vietnam’s higher real GDP growth.
TABLE: CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Vietnamese Economy To 2027
A New Focus On Quality Growth
Vietnam's growth prospects over the next decade remain positive in our view, as reflected by our bullish forecasts for real GDP growth
to average 6.6% over 2018-2027. We foresee a more stable economic environment, with inflation averaging a benign 4.6% and the
current account remaining in roughly in balance over the forecast period.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Continued Repression A Snag To EU Trade Negotiations
Although Vietnam scores highly in our short-term political risk index (82.5 out of 100) due to the communist party's monopoly on
power, we see the lack of democratic principles as unsustainable over the long-term. As a result, Vietnam scores poorly in our longterm
political risk index (59.7 out of 100). Hanoi's poor human rights track record is also a stumbling block towards Vietnam-EU trade
negotiations and potentially better relations with the west.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Key Political Challenges Over The Coming Decade
Vietnam's biggest political question over the coming decade is whether one-party rule under the CPV will face growing calls for
democratisation, as was the case in other major South East Asian countries. While our core scenario envisages the CPV transforming
itself into a technocratic administration, it faces major economic challenges which, if mismanaged, could lead to widespread unrest.
On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian nations with close
relations with the US.
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Conflict Risk
TABLE: MAIN ACTIVE TERRORIST GROUPS
TABLE: POLITICAL VIOLENCE RISK
TABLE: MAJOR CONFLICT FLASHPOINTS
TABLE: BUSINESS RESPONSE TO CONFLICT RISK
Transport Network
TABLE: ROAD RISKS
TABLE: RAIL RISKS
TABLE: AIR TRANSPORT RISKS
TABLE: PORTS AND INLAND WATERWAY RISKS
Chapter 5:BMI Global Macro Outlook
Growth, Inflation And Rates On The Rise
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: VIETNAM – MACROECONOMIC DATA AND FORECASTS

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