"Viet Nam's potential for much more rapid growth can only be realised if substantial progress is made in addressing distortions such as in the state enterprise and banking sectors that tax the economy's efficiency and productivity," Victoria Kwakwa, the bank's country director for Viet Nam, said. — VNA/VNS Photo Ngoc Ha

HA NOI (Biz Hub) — Early signs show that Viet Nam's economic recovery is on track, the World Bank has said in a report it released yesterday.

Taking Stock said Viet Nam's economic growth is expected to improve from 5.4 per cent in 2013 to 5.6 per cent this year largely due to the country's continuing macro-economic stability and strong performance of the foreign-invested manufacturing export sector.

Positive macro-economic conditions have contributed to improved sovereign risk ratings, enabling the issue of US$1 billion worth of government bonds on international capital markets on favorable terms.

"Viet Nam's potential for much more rapid growth can only be realised if substantial progress is made in addressing distortions such as in the state enterprise and banking sectors that tax the economy's efficiency and productivity," Victoria Kwakwa, the bank's country director for Viet Nam, said.

"Stepping up this reform agenda and strengthening the business environment are critical for moving forward."

Underlying the broad pattern of economic recovery, the performance of foreign-invested and domestic firms remain dichotomous. The foreign-invested sector continues to be a significant source of growth, while the domestic private sector remains subdued, as reflected in the rising number of domestically-owned businesses that have closed or suspended operations.

Over the medium term, Viet Nam's macro-economic outlook is good, with continued modest GDP growth and a further consolidation of stability.

The outlook is subject to two key risks: the relatively slow progress on SOE and banking sector reforms could adversely impact macro-financial conditions; and the adverse turn of events in the global economy could undermine Viet Nam's growth prospects, given the relatively large size of the export sector.

The report has a section on financial sector assessment, which summarises the major findings of the recent Financial Sector Assessment Programme. The report highlights a complex array of institutional and regulatory factors that are responsible for the weak performance of the financial sector.

The government has announced a comprehensive reform programme designed to address these problems.

The section provides a broad set of policy recommendations to operationalise the government's programme. — VNS