The consumer price index jumped by 2.22 per cent in June and 4.6 per cent from a year earlier, a seven-year high, the General Statistics Office (GSO) reported. — Photo thoibaonganhang.vn
The rest of this year is likely to be a difficult period for the economy meaning challenges for the Government in achieving the targets set for the year.
The problems include a weakening of the dong against the dollar and rising inflation, interest rates and public debt, and the Government will be walking a tightrope in terms of monetary policy.
The consumer price index jumped by 2.22 per cent in June and 4.6 per cent from a year earlier, a seven-year high, the General Statistics Office (GSO) reported.
Inflation in the first six months of the year was up to 3.29 per cent.
GSO experts attributed the sharp increase in inflation in recent months to the rise in prices of several major products and services.
Of 11 major categories of goods and services, nine saw prices increasing. Transportation services, housing, construction materials and food saw the sharpest rises. Pork prices rose by 20 per cent.
Meanwhile, the global economic uncertainties have pushed oil prices from US$50 per barrel to $80, and more pain is predicted this year with prices possibly reaching $100 by year-end.
Since fuel prices in Viet Nam depend on global oil prices, petroleum price adjustments are inevitable.
On May 23 the price of a litre of E5 RON 92 bio-fuel was hiked by VND500 to VND19,940 (US$0.87).
The price of RON 95 rose by VND600 to VND21,511, while the prices of diesel and kerosene went up by VND587 and VND523.
According to the Ministry of Industry and Trade (MoIT), with global oil and petrol prices likely to keep rising due to the political and trade instability, prices of key goods and thus the CPI are set to continue the rising trend.
In mid-July, the daily reference foreign exchange rate was up VND5 to VND22,653 to the dollar.
With the current trading band of +/- 3 per cent, the ceiling rate applicable by banks was VND23,332 and the floor rate, VND21,974.
The Vietnamese currency has fallen sharply against the greenback due to concerns that the US-China trade war may be escalating and because China’s yuan too has depreciated, according to a report on the Vietnamese economy for the second quarter released by the Vietnam Institute for Economic and Policy Research.
According to Bloomberg, the yuan-dollar rate has been falling over the past month. On July 16 the CNY had fallen to $0.1497 ($1 = 6,678 CNY).
This puts Viet Nam under tremendous competitive pressure because the US and China are its two most important trade partners. While the US is Viet Nam’s largest export market, accounting for a fifth of its total exports, China is Viet Nam’s largest source market, accounting for about a quarter of its total imports.
Changes in exchange rates have a bearing on many aspects of the economy like trade, investment, securities, and inflation.
Analysts said amid the global political and economic volatility the central banks of major economies are tightening monetary policy and Viet Nam should not buck this trend.
Since 2015 Viet Nam has been adopting a loose monetary policy to spur growth, as evidenced by the fact credit growth has remained very high at 18-20 per cent.
To achieve such high credit growth rates, the banking sector has relentlessly reduced interest rates.
Analysts said it is necessary for the Government and central bank to think about tightening monetary policy to minimise risks for the economy, particularly the banking sector.
They said tight monetary policy would help stabilise the economy, mitigating the impacts of the depreciating currency and combating inflation.
But opinions were divided, with others fearing such a policy could hurt the economy.
They wanted the central bank to continue with its flexible monetary and fiscal policy of recent years to ensure economic growth is sustained while still controlling inflation, stabilising exchange rates and avoiding panic in the market.
According to the IMF, to ensure macroeconomic stability, Viet Nam’s monetary policy should be tightened to bring it in line with ongoing financial reforms.
Greater exchange rate flexibility should be allowed to keep out speculative inflows, absorb shocks and help bring down the external surplus, it said.
The accumulation of foreign currency reserves should continue but more gradually, it said.
Modernisation of the monetary framework should start, gradually easing away from credit targets to begin a phased shift to inflation targeting and greater exchange rate flexibility, it said.
Heavy burden
Last month authorities in the northern province of Vinh Phuc once again refused to license a US$350 million textile dyeing project by Hong Kong-based TAL Apparel Group though it had been approved in principle by the Ministry of Environment and Natural Resources and the Government.
For the fourth time Vinh Phuc authorities petitioned the Government for permission to reject the project.
Earlier Da Nang city too had rejected a $200 million textile dyeing project by a Hong Kong investor.
The main reason for their refusal is concern over environmental pollution.
For the same reason, the Hai Phong city Party Committee recently decided to withdraw its announcement related to the backing for Chinese-owned Nine Dragons Paper (Holdings) Limited’s plans to set up a $800 million paper and pulp mill complex in the South Dinh Vu Industrial Zone.
At a meeting with leaders of the People’s Committee on July 5 Nine Dragons executives had outlined plans to build a complex comprising a paper plant and a pulp mill at a cost of $800 million.
They promised to equip the complex with the most modern manufacturing line, machinery and wastewater treatment system.
However, experts said it is not clear if the project would be environmentally friendly.
These decisions emphatically underscore the fact that many localities in Viet Nam are now ready to reject FDI projects, even those with huge investments, if they are likely to impact the environment, use a lot of land inefficiently or are labour-intensive.
This is a clean break from the past although many provinces and cities still do not have many advantages to attract foreign investment.
Many experts approve the decision to reject FDI projects like textile dyeing and paper that are not environmentally friendly.
They said such projects place a heavy burden on local administrations if their owners do not comply with environmental regulations because of the lack of resources to take care of these problems.
But the critics also pointed to another possible reason: projects in these sectors often bring an influx of migrant workers, creating pressure on housing, schooling and healthcare.
Other experts, however, said if provinces and cities reject all foreign textile and garment projects they would suffer socio-economic losses.
They said the Government has signed free trade agreements with many countries, which is causing many textile and garment projects to move from other countries to Viet Nam.
According to Viet Nam Textile and Apparel Association (VITAS), in 2014 there were 137 textile projects worth nearly $1.75 billion coming to the country. This rose to 197 and $2.6 billion in 2015 but has been falling since then, very sharply last year.
VITAS executives said localities should not be so cautious about FDI projects in the textile industry.
Not all textile dyeing projects use outdated technologies for wastewater treatment, they pointed out.
Such projects should be licensed, experts agreed.
They warned that if provinces and cities do not license textile and garment projects, the local textile industry cannot build supply chains on its own to take advantage of the tariff preferences offered by trade deals like the Viet Nam-EU Free Trade Agreement and Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Minister of Industry and Trade Tran Tuan Anh has urged provincial and city administrations to have consistent and friendly policies for investment in the textile dyeing industry.
He said he believed that the environment would be properly protected if authorities around the country insist on proper wastewater treatment.
But they should not discriminate against the textile dyeing industry, he said.
In reality, some provinces have received garment and textile dyeing projects because they put those projects in a list of conditional business lines that require project owners to meet many strict regulations on waste treatment.
Binh Duong Province has for example recently licensed a $25 million garment project by Bermuda’s Apparel Far Eastern Co Ltd and the Taiwanese Polytex Far Eastern Group.
The northern province of Nam Dinh has licensed Singapore’s $80 million Ramatex textile and garment factory project.
It is expected to produce 25,000 tonnes of fabrics and 15 million pieces of garments annually, and offer 3,000 jobs. — VNS