ADB lowers Vietnam's economic growth forecast to 6.3 percent

Vietnam has been working hard to realize its ambitious economic growth target at 6.7 percent - Photo by Reuters

According to the ADB, although the economy expanded at 5.7 percent in the first half of 2017, marginally higher than the rate of 5.6 percent recorded in the same period last year, it had trimmed the projection due to weak mining output.

The Manila-based lender also adjusted down the growth forecast for next year from 6.7 percent to 6.5 percent.

Prospects growth is likely to hold up fairly well in the second half, though continued contraction in mining will drag on the economy, it said in its Asian Development Outlook Update 2017.

Foreign direct investment, exports, credit growth, agriculture and government efforts to speed up the implementation of public infrastructure projects are the main factors that will drive economic growth in the last six months.

Strong growth in government revenue and a modest increase in government expenditure have helped to narrow the budget deficit. Government revenue grew by 18.2 percent in the first half of the year to reach the equivalent of 27.4 percent of the country’s gross domestic product (GDP), the bank said.

As revenue growth exceeds expectations, the government’s target of trimming the budget deficit to the equivalent of 3.5 percent of GDP in 2017 and 4 percent in 2018 looks broadly attainable, the report added.

The ADB's latest growth forecast matches the projections made by the World Bank and the International Monetary Fund. In July, HSBC lowered Vietnam’s economic expansion forecast this year to only 6 percent from its previous estimate of 6.4 percent.

All of them are below the government’s target of 6.7 percent, a goal that some experts have said is unrealistic.

However, the country has been working hard to realize this target.

Earlier this month, the government instructed the Ministry of Finance to put on hold a series of proposed tax hikes to make life easier for local businesses and the growth target more achievable. The ministry had been planning to increase a number of different taxes and fees, including VAT from 10 percent to 12 percent.

The central bank in July reduced its lending interest rate by 0.25 percent to 6.25 percent for the first time in three years to boost economic growth, as many Vietnamese companies still rely heavily on bank loans.

In early June, the government put forward fresh plans to tap more oil and gas, despite warnings from lawmakers of becoming over-reliant on the mining industry to fuel growth.

The Ministry of Industry and Trade will increase the amount of crude oil exploited this year by 8 percent to 13.28 million tons, and gas by 10.4 percent to 10.6 billion cubic meters. This will help add around 0.25 percent to economic growth.