Farmers stack rice for export in the Mekong Delta province of Hau Giang's Vi Thuy District. Viet Nam's exports have recovered strongly, increasing 9.5 per cent in September after months of reduction. — VNA/VNS Photo Duy Khuong

HA NOI (Biz Hub) — Improved global and domestic conditions offered promising prospects for the Vietnamese economy in 2014-15, although significant challenges lay ahead, agreed speakers at a conference in Ha Noi yesterday.

While Asian economies were now structurally less dependent on foreign capital, Asia's industrial production and exports might jump in the fourth quarter on the US housing recovery, said Glenn Maguire, ANZ's chief economist in the Asia Pacific region.

New economic policies in Japan – Abenomics – were working and would help reactivate supply chains throughout South Asia in the coming months, he added. This meant ASEAN and Viet Nam could outperform expectations at a time when China faced slowdown and India and Indonesia were becoming weak points for regional economic development.

Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council, said the domestic economy had seen the first steps of recovery since September.

He pointed out that manufacturing was showing high growth, with the industrial production (IIP) index hitting 9.2 per cent in the fourth quarter. Exports were also recovering strongly, increasing 9.5 per cent in September after months of reduction.

Total registered foreign direct investment (FDI) expanded 36 per cent to reach US$15 billion in the first nine months.

Glenn said FDI was a bright spot despite weak domestic demand and manufacturing had so far attracted nearly 82 per cent of total FDI.

A Government report delivered by Prime Minister Nguyen Tan Dung on Monday said national gross domestic product (GDP) was forecast to grow by 5.4 per cent by the end of the year, close to the 5.5 per cent annual target.

Glenn said ANZ anticipated growth to come in below potential in 2013, at about 5.1 per cent. "To get back to potential growth (around 7 per cent), banks and State-owned enterprises need to be restructured and the global economy needs to return to ‘normal'," he said.

While foreign portfolio capital kept flowing out, the banking sector remained the weakest link for the domestic economy.

Official data revealed that the cumulative foreign indirect capital outflow reached $185 million in the past 17 weeks; total lending rose about 6.5 per cent during the first nine months, more than half the annual credit growth target of 12 per cent.

"The economy is depending largely on Government measures to restructure State-run firms, the financial system and public investments," said Nghia.

He said solving bad loans had to continue to be a key measure, as the lending situation would determine investment decisions by the private sector, which was facing great caution from lenders: "Pushing loans reasonably into the economy remains a medium-term difficulty."

The Viet Nam Asset Management Company (VAMC) could buy VND35-45 trillion ($1.67-2.14 billion) worth of non-performing loans by the end of the year and the Government's VND100 trillion ($4.76 billion) bad debt solving package could be used up by next June, he said, meaning additional policies would be soon needed.

Nghia said Viet Nam still lacked necessary legal framework for dealing with cross-ownership among banks and businesses, greatly hindering transparency and preventing bad debt resolution: "This can't be prolonged and the Government must definitely deal with it."

Next year, State budget deficits would be allowed to increase from 4.8 per cent to 5.3 per cent, he said, which would let the Government step up public investments to facilitate economic growth. — VNS