Download Managing inflationary and balance of  payments pressure ‐ case of Vietnam

Managing inflationary and balance of payments pressure ‐ case of Vietnam
Nguyen Do Quoc Tho
Director General
Monetary Forecasting and Statistics Department State Bank of Vietnam
Outline
1. BOP and Inflation background
2. Policy responses
Key BOP developments
• Highly volatile trade balance. Long lasting trade deficit
• Imports are mainly capital goods and materials for domestic production (consumption goods are less than 10%)
• Important role of private transfer in financing the CAB (‐)
• Huge surplus of capital and financial account
• Overall balance volatility.
3
Key BOP developments
% 2005 2006 2007 2008 2009 2010 2011 2012
10
10,000
5
5,000
0
0
‐5,000
‐5
Current
‐10 Account/
GDP
‐15
‐10,000
Current
Accoun
t
‐15,000
Capital inflows
• Since 2007, huge capital flows led to high ratio of investment to GDP (over 40%);
• Huge capital flows, BOP in large surplus at times but more 5
volatile since 2008
FDI and FII
Unit: $ millions
Pre-QE period
QE period
2007
2011
2012
Foreign Direct Investment (FDI)
6,797
6,569
7,168
Foreign indirect Investment (FII)
6,243
1,460
1,990
TOTAL
13,040
8,029
9,158
Roots of high inflation in Vietnam High openness of the economy
Trade/GDP (%) in 2012
180
160
140
120
100
80
60
40
20
0
Vietnam Thailand S. Korea
China
India
US
High weight of food in CPI basket
Source: Vietnam General Statistic Office
QE impacts on inflation through food prices
• Food and essential commodity prices are in upward trend in international markets due to QEs ‐> high pressure on Vietnam’s inflation.
High budget deficit
Source: Vietnam MOF
Extended monetary policy expansion
Source: Monetary Statistics and Forecast Department ‐ SBV
Economic structure and investment effectiveness
Investments on GDP (%)
Vietnam ICOR
45
40
8
7
6
5
4
3
2
1
0
35
30
25
20
15
10
5
0
Vietnam Vietnam Region's
2006-2012 2001-2005
avg
2008 2009 2010 2011 2012
Vietnam’s inflation results from an amalgamation of demand and supply elements
=> To curb inflation in Vietnam:
‐ Demand side:
 Resolution No 11/2011/NQ‐CP
‐ Supply side:
 Resolution No 01/2012/NQ‐CP
 Resolution No 13/2012/NQ‐CP
Demand side measures (Resolution 11)
Monetary policy
12/07
12/08
12/09
6.5
9.5
4.5
2010
2011
2012
2013
1st
2nd
1st
2nd
8
9
9
14 (4)
15 (1)
9(6)
7 (2)
7.5
6
7
7
13 (2 )
13
7 (6)
5 (2)
10
10
6
7
3
7
3
4
3
7 (2)
3
8 (1)
3
8
3
8
4
4
1
3
1
3
3
4

1
2
1
2
1
5(2)
1
6 (1)
1
6
1
6
1
1
1
1
1
1
I. Policy interest rates (%/year)
1. Refinancing rate
2. Rediscount rate
II. Reserve requirements (%)
1. < 12 months
+ VND
+ Foreign currencies
2. >= 12 months
+ VND
+ Foreign currencies
Not applicable
3. Abroad deposit of domestic banks
III. Exchange rate band (%)
Adjust inter-bank exchange rate
0.75
3
+5  +3
3
3
1
+3.43%
(11/09)
+3.36%
(2/10)
+2.1%
(8/10)
+9,3%
(11/2)
Demand side Measures (Resolution 11)
Monetary policy
• Credit growth ≤ 20%; M2 growth ≤ 15‐16%; controlled credit to risky sectors (including FX loans); deposits rate ceiling; agreements of Banking Association on deposit and lending interest rates; credit growth caps; credits/deposits caps; policy communication, etc.
Fiscal policy
• Tighten public investment and state budget deficit
Supply side measures (Resolution 01 and 13)





Extending VAT deadline for labor‐intensive firms in agricultural, forestry and fishing sectors
Granting license tax exemption in 2012 for fishing households and salt producers
Mobilizing 2,000 billion VND to fund for development projects on agriculture and rural infrastructure
Controlling essential commodity prices
Reducing interest rate on agricultural loans
Result – inflation eases
Source: Vietnam General Statistic Office