A crippling drought in Vietnam will probably cause the government to miss its 6.7% growth target this year, adding to pressure on new Prime Minister Nguyen Xuan Phuc as he seeks to reassure investors of his economic reforms.
The economy will need to expand 7.6% in the second half of the year to achieve its full-year goal, Phuc said in a prepared speech he is due to deliver to lawmakers in Hanoi next week and obtained by Bloomberg News. The target “will be hard to reach,” he said.
Phuc took office in Communist Party-ruled Vietnam in April amid the worst drought in 30 years and falling oil revenue. That’s putting the brakes on an economy that’s otherwise benefited from a booming export industry as companies such as Samsung Electronics opened factories to build and ship smartphones.
Growth was little changed at 5.6% in the second quarter, official data shows. Rising food prices are pushing up inflation, which may exceed the government’s 5% target this year, Phuc said in the speech. Exports may decline in some European markets after expanding at a slower pace of 5.9% in the first half of the year, according to the speech. “There is still some chance” for the economy to reach its growth target this year if government ministries and provinces redouble efforts to boost output in industries from agriculture to manufacturing and construction, Phuc said in the speech.
The World Bank on Tuesday revised its growth forecast for this year down to 6% from 6.2% because of the contraction in agriculture. Despite that, the “situation is certainly not gloomy” given lower growth rates worldwide, Achim Fock, acting country director for the bank in Vietnam, told reporters.
The prime minister’s warning is a signal that Vietnam won’t repeat past mistakes of growth at all costs that led to inflation soaring to 23% in 2011, said Trinh Nguyen, a senior economist for emerging Asia at Natixis SA in Hong Kong.
“He accepts the impact of adverse weather events and subdued global demand for not achieving growth targets,” she said. “This means that at least Vietnam is not returning to its fast growth at all costs approach, which caused inflation to spike massively, the currency to weaken, sharp economic slowdown and inefficient allocation of resources.”
The government will intensify measures to help businesses, including steps to spur domestic demand, tourism and industries that provide inputs to manufacturers, according to the speech. Policymakers will also closely monitor the fallout from the UK’s vote to leave the EU, and make timely changes to monetary policy to limit the negative impact on Vietnam’s money market, it said.
Authorities should adopt a target range for economic growth, rather than focus on a single number, giving them more flexibility, said Thien Dinh Tran, a member of the government’s advisory panel for financial and monetary policy.
“Mentioning the possibility that GDP growth may not reach 6.7% in the Prime Minister’s speech suggested that the government will probably revise down the target later and it should,” Thien, who heads the Vietnam Academy of Social Sciences, said in an interview in Hanoi.
“We really should be more flexible in setting a growth target, better have a range, rather than just one number,” he said. “With just one growth target number, we tie up our hands and will end up increasing investment to boost growth and that will hurt macro 
stability.”