Greater integration with the global economy enabled Vietnam to grow rapidly, but also brought massive capital inflows, which fueled a credit boom that has led to overheating of the economy.
Vietnam’s economic development has been impressive, but domestic demand has begun to outpace real GDP growth by a wide margin.
… which stemmed from unprecedented capital inflows—notably portfolio investments.
Inflation rose sharply due to the combination of rising commodity prices and domestic demand pressures.
Sources: Vietnamese authorities; and IMF staff estimates.
1Includes off-budget operations.
Domestic demand was fueled by a rapid increase in credit to the economy …
The growing fiscal deficit also added to domestic demand pressures.
The current account deficit has widened significantly because of rapid import growth.
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