VIETNAM

Overall, indicators show that the short-term financing risk is sensitive. Indicators that need monitoring in the short run are in particular (i) public finances (fiscal deficit significantly wider than before the crisis, although likely to shrink); (ii) credit growth (accelerating in a context of low inflation) and (iii) some external vulnerabilities related to rising external debt and moderate import cover.

The main economic challenge for Vietnam is to strengthen its financial and banking sector. The official non-performing loans to total gross loans ratio is likely to be underreported, even though it shows a slight increase in 2020 from 2019. Tackling bad debt in the banking sector is likely to be reinstated as a policy priority in 2022, following the pandemic. The legislation will help to improve commercial banks' finances and aid consolidation in the banking sector as healthier balance sheets give larger lenders the capacity to acquire smaller banks. Separately, debt sustainability is not at risk for now considering economic growth prospects, debt structure (long maturities and financed by public creditors over the past couple of years), the pace of reforms (broadening the tax base) and the direction of fiscal policy (towards consolidation). Yet, authorities will need to improve their public finance to increase fiscal space.