kling these issues, it will have to stick to its guns when the pain of borrowing rates of more than 20 per cent and possible spending cuts bite later in the year.

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ont. The country has now taken welcome steps in improving economic stability and steering towards sustainable growth.” Chan predicted that monetary and fiscal tightening would have a minimal impact on growth, nudging down HSBC’s GDP forecast for 2011 to 7 per cent from 7.5 per cent and for 2012 to 7.4 per cent from 7.8 per cent. She forecast that annual inflation, currently at 12.3 per cent, would fall to single digits by the end of the year, averaging 9.9 per cent in 2011.



While investors and economists have welcomed the recent policy announcements, many are less enthusiastic about the government’s ability to follow through on its promises. “The government is making the right noises about stabilising the economy, but this seems more like crisis management than an attempt to seriously alter course,” said one foreign investor. Saigon Securities, a brokerage based in Ho Chi Minh City, is among those urging investors to remain on the sidelines “until we see signs of stabilization of inflation and effective results of recently announced government policies.” It argued in its latest strategy note that inflation would hit nearly 15 per cent this year and that higher interest rates and tighter monetary and fiscal policy would seriously dent Vietnam’s growth prospects.



The brokerage predicted that GDP growth would not exceed 5 per cent this year, way below the government’s target of 7 to 7.5 per cent, and approaching effective ‘recession’ territory. With around a million young people joining the work force each year, economists believe Vietnam needs to grow at a minimum of 4 to 5 per cent just to ensure there are enough jobs to go round. Vietnam is certainly facing a long list of challenges, as Chan acknowledges: “In a nutshell, Vietnam is experiencing double-digit inflation, a wide trade gap, lingering depreciation pressures, low foreign reserves, a large fiscal deficit, and an under-performing state-owned sector that is also consuming a disproportionately high share of resources. Many of these issues indeed reinforce each other.”



If the government is to succeed in tackling these issues, it will have to stick to its guns when the pain of borrowing rates of more than 20 per cent and possible spending cuts bite later in the year.

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