Vietnam has plenty of fiscal stimulus room to further beef up its economic growth, which is expected at 6.3% this year, up from 5.05% in 2023, VNDirect Securities says in a recent report.
The report identifies four main growth drivers: stronger recovery of manufacturing and export, improved domestic consumer demand, a revival of private investment, and a warming up of the real estate market.
Domestic retail sales is forecast to expand 9.5-10% year-on-year in 2024, higher than the 8.6% recorded in 2023.
The firm’s analysts reckon that Vietnam has plenty of room to expand fiscal policy thanks to relatively low public debt, a sharp fall in government bond coupon rates since 2023, and lower borrowing costs from foreign creditors as interest rates on USD-denominated loans are poised to decrease this year and Vietnam’s sovereign rating has been upgraded.
An expansive fiscal policy would see accelerated public investment, tax and fee breaks, and a salary reform costing $3.1 billion in 2024 and a combined $20.5 billion in the 2024-2026 period.
On monetary policy, the analysts comment that the State Bank of Vietnam has narrower space for further cuts in deposit interest rates because of higher credit demand and a considerable reduction of the gap between the average 12-month deposit rate and the consumer price index (CPI).
The CPI is forecast to increase 3.3% in 2024, driven by hikes in prices of public services like electricity, education fees, and healthcare.
The country's CPI increased 3.25% year-on-year in 2023, below the mandated 4.5% limit, according to the General Statistics Office..
The VNDirect analysts expect the USD/VND exchange rate to fluctuate less than in 2023 and the dong is likely to weaken 1-2% this year.