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Vietnam: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
OUTLOOK FOR 2010-11
The ruling Communist Party of Vietnam is due to hold its next national congress in 2011. As a result, there will be considerable jockeying for position within the current leadership from late 2010.
The budget deficit (excluding on-lending) will remain large in 2010-11. The government's revenue position will improve in the next two years, but expenditure will remain relatively high.
The State Bank of Vietnam (SBV, the central bank) is likely to tighten monetary policy in 2010-11 as inflationary pressures build.
The Economist Intelligence Unit forecasts that the pace of economic growth will increase in 2010-11, but we do not expect it to return to the heady rates recorded in the years preceding the 2009 slowdown.
Assuming that global food and fuel prices do not rise markedly and that the SBV takes steps to rein in credit growth in 2010, inflation will not return to double digits, but it will accelerate to an average rate of 8.7% in 2010-11.
We forecast that the dong will depreciate against the US dollar on an annual average basis by 5.3% in 2010 and 1.3% in 2011, although there are significant downside risks to this forecast.
We expect the current-account deficit to widen to 10.9% of GDP in 2010, from 10.5% in 2009, before narrowing to 10.2% in 2011.
DOMESTIC POLITICS: The ruling party is facing a number of major challenges as it strives to maintain its grip on the polity. The party is due to hold its next national congress in 2011. This means that there will be considerable jockeying for position within the current leadership from late 2010, although it will be largely invisible from outside the party. Although there will be important changes in personnel in the higher echelons of the party, its central tenets will remain unchanged and its overriding objective will be to maintain its position of dominance. However, factional splits in the party are becoming increasingly apparent. Such divisions tend to be between reformists and conservatives, but recent jostling suggests that the divide is no longer so clear-cut and that internal wrangling is now related more to attempts to grab power than to policy differences. Nevertheless, it appears that the prime...