In a report updating Vietnam’s macro-economic situation, the World Bank (WB) said that after a strong increase in the first half of the year, credit growth has slowed slightly as commercial banks approach the credit ceiling issued by the State Bank of Vietnam (SBV).

Overall credit growth remained high, however. In August, credit to the economy rose 16.2 per cent year-on-year and was equal to the rate in July.
Interbank interest rates increased sharply for two reasons, the report noted.

Firstly, domestic deposits fell as interest rates remained low. Meanwhile, domestic credit demand increased. This imbalance has caused banks to compete for capital in the interbank market.

Secondly, domestic liquidity has tightened as the SBV has sold some of its foreign exchange reserves since February to stabilize the USD/VND exchange rate.

The report also notes that a sharp increase in revenue and slow implementation resulted in the budget surplus being maintained. Total budget revenue increased 25.4 per cent year-on-year while total expenditure rose 5.9 per cent. The budget surplus in August was therefore maintained at $400 million.

The WB suggested that authorities be cautious with inflationary risks relating to food prices and basic commodities. Although fuel prices have cooled recently, global fuel prices remain volatile.

The government also needs to encourage the production and use of alternative energy as a way to reduce the economy’s dependence on imported fuels and promote green growth. The social assistance system also needs to be strengthened, including registration, target selection, and disbursement.