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Risks and Vulnerabilities Vietnam
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RISKS AND VULNERABILITIES: VIETNAM
Euromonitor International
April 2015
R I S K S A N D V U L N E R A B I L I T I E S : V I E T N A M P a s s p o r t I
E u r o m o n i t o r I n t e r n a t i o n a l
LIST OF CONTENTS AND TABLES
Chart 1 SWOT Analysis: Vietnam ............................................................................. 1 Chart 2 An Overview of Economy, Finance and Trade in Vietnam: 2014 ................. 1
Major Components of the Economy ............................................................................................. 2
Economy Faces Downside Risks From Slow Banking Reforms and Weakening Exports ........ 2
Chart 3 Annual Real GDP growth in Vietnam vs Asia Pacific: 2009-2016 ................ 2 Chart 4 Gross Value Added by Sector in Vietnam: 2014 .......................................... 3
Socio-political Risk ....................................................................................................................... 4
Business Environment Is Plagued by Corruption, Protests and International Conflicts ............ 4
Chart 5 Total Unemployment Rate vs. Youth Unemployment Rate in Vietnam: 2009-2014 .................................................................................................... 5
External Sector ............................................................................................................................. 5
Vietnam Firmly Maintains Its Current Account Surplus ............................................................. 5
Chart 6 Vietnams Top 10 Export Destinations: 2014 ............................................... 6 Chart 7 Vietnams Imports by Commodity: 2014 ....................................................... 6 Chart 8 Vietnams External Balance: 2009-2014 ...................................................... 7
Government Finance .................................................................................................................... 8
Oil Price Weaknesses and Tax Cuts Hurt Government Revenue Generation .......................... 8
Chart 9 Public Debt vs. General Government Budget Deficit in Vietnam: 2009-2014 ............................................................................................................. 8
Financial Stability ......................................................................................................................... 9
Banks Still Remain Fragile ........................................................................................................ 9
Chart 10 Chart 10 Vietnams Bank Nonperforming Loans to Total Gross Loans: 2009-2014 .................................................................................................... 9
Chart 11 Inflation and Annual Lending Rates in Vietnam: 2009-2014....................... 10
Real Estate ................................................................................................................................. 11
Property Market Makes A Cautious Recovery ........................................................................ 11
Chart 12 Gross Fixed Capital Formation in Vietnam: 2009-2014 .............................. 11 Chart 13 Construction Sector in Vietnam: 2009-2014 ............................................... 12
Energy and Environment ............................................................................................................ 13
Country Faces Widespread Energy and Water Shortages ..................................................... 13
Chart 14 Vietnams Primary Energy Consumption: 2014 .......................................... 13 Chart 15 Total and Per Capita CO2 Emissions in Vietnam: 20092014 ................... 14
Definitions ................................................................................................................................... 15
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RISKS AND VULNERABILITIES: VIETNAM
Although Vietnams economy continues to benefit from strong growth in goods exports, its
business environment remains plagued by corruption; weak regulations; and uncertainties
brought about by international conflicts. Meanwhile, its banking sector and the property market
are staging a cautious recovery from the 2011-2012 housing bust. Additionally, the government
is spending heavily on infrastructure development and adopting policies favourable for foreign
investors.
Chart 1 SWOT Analysis: Vietnam
Source: Euromonitor International
Chart 2 An Overview of Economy, Finance and Trade in Vietnam: 2014
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Source: Euromonitor International from national statistics/IMF/UN Note: Data for 2015 to 2030 are forecasts.
MAJOR COMPONENTS OF THE ECONOMY
Economy Faces Downside Risks From Slow Banking Reforms and Weakening Exports
Vietnams total GDP of VND3,938 trillion (US$186 billion) in 2014 made it the 14th largest
economy in Asia Pacific. Between 2009 and 2014, it posted an average annual real growth rate
of 5.9%, underperforming the Asia Pacific average of 6.4% in constant terms during the same
period, owing to the downward pressures arising from the 2011-2012 housing bust and the
increase in bad debts in banks. The deterioration in the asset quality of Vietnamese banks has
significantly reduced credit growth and consumer spending in the country:
Annual real GDP growth in Vietnam increased from 5.4% in 2013 to 6.0% in 2014, mostly led
by continued strong growth in exports;
Annual real economic growth is expected to slow down to 5.6% in 2015 and 5.7% in 2016;
Chart 3 Annual Real GDP growth in Vietnam vs Asia Pacific: 2009-2016
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Source: Euromonitor International from national statistics/OECD/UN/International Monetary Fund (IMF)/World Economic Outlook (WEO)
Note: Data for 2015 and 2016 are forecasts.
Agriculture, Hunting, Forestry and Fishing was the largest sector in Vietnam, accounting for
19.7% of total gross value added (GVA) in 2014, owing to large supplies of raw materials for
its processing industries. Manufacturing was the second largest sector, accounting for 18.5%
of total GVA in 2014, reflecting its cost competitiveness in the sector;
Education, Health, Social Work and Other Community, Social, Personal Service Activities
was the fastest growing sector in Vietnam, posting an average annual real growth of 10.0%
between 2009 and 2014, led by increased government spending on public services.
Meanwhile, Mining and Quarrying was the sector with the second biggest average annual
real growth of 9.9% between 2009 and 2014, owing to sustained government investment in
the sector.
In 2015, the economy is expected to face downward pressures from the slowdown in Chinese
economic growth its major trade partner and the slow progress with banking sector reforms,
which in turn will diminish Vietnams attractiveness to foreign investors. On the more positive
side, the government is expected to continue its focus on carrying out several structural reforms,
such as infrastructure development; improving market institutions; and human resource
development, as a part of its broader Socio-Economic Development Strategy (SEDS) running
between 2011 and 2020.
Chart 4 Gross Value Added by Sector in Vietnam: 2014
% of total GVA
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Source: Euromonitor International from national statistics Notes: (1) Wholesale & Retail Trade includes Repair of Motor Vehicles, Motorcycles and Personal and
Household Goods. (2) Financial Intermediation includes Real Estate, Renting and Business Activities. (3) Public Administration includes Defence and Compulsory Social Security. (4) Education, Health & Social Work includes Other Community, Social & Personal Service Activities.
SOCIO-POLITICAL RISK
Business Environment Is Plagued by Corruption, Protests and International Conflicts
Vietnams geographical proximity to global supply chains; its growing consumer market; and
the governments intention on carrying out key structural reforms have strengthened its business
environment:
The country ranked 178th out of 203 countries in the World Banks Voice and Accountability
Index in 2013 (latest data available), as the government continues to exercise great control
over all print and broadcast media and has also enforced stronger Internet and social media
censorship. Meanwhile, its 87th ranking out of 203 countries in the World Banks Political
Stability and Absence of Violence Index 2013 (latest data available) is a reflection of the
stability brought about by its single-party regime. However, international conflicts, such as
those with China, can lead to political instability in the country. For instance, several naval
skirmishes took place between Vietnam and China, after a Chinese oil rig tried to relocate in
the disputed waters of South China Sea in May 2014;
Vietnam ranked 119th globally out of 175 countries in Transparency Internationals Corruption
Perceptions Index 2014, as the large presence of state-owned enterprises reduces
transparency at government level. Furthermore, enforcement of its anti-corruption laws
remains weak;
Social protests are fairly common in Vietnam, although the government steps in to clamp
down upon protestors. Anti-Chinese sentiments following the May 2014 incident triggered
widespread labour riots in the country. In addition to this, protestors have also being
organised against government seizures of lands and harsh working conditions.
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Vietnams labour market is relatively rigid, owing to high redundancy costs and difficulties
involved in hiring foreign labour:
The unemployment rate in Vietnam is low, although it increased slightly from 1.9% in 2013 to
2.1% in 2014. There is little optimism in the job market, as growth in wages has been
relatively flat. Meanwhile, Vietnams youth unemployment rate increased from 5.8% in 2013 to
6.4% in 2014, as job opportunities for the youth primarily exist in low-income and low-
productivity sectors.
Chart 5 Total Unemployment Rate vs. Youth Unemployment Rate in Vietnam: 2009-2014
Source: Euromonitor International from International Labour Organisation (ILO)/national statistics Note: Youth unemployment rate refers to the unemployed population aged 15-24 as a percentage of
economically active population aged 15-24.
Vietnam has a young population, which will support its competitiveness and also boost
consumer demand over the long term:
The proportion of those aged 65+ accounted for 6.2% of the total population in 2014 and their
share is expected to increase to only 12.8% by 2030. The old-age dependency ratio will
accordingly rise from 8.7% in 2014 to 18.3% by 2030;
Brain drain is a problem in Vietnam, as a sizeable proportion of its workforce graduating from
overseas does not return to Vietnam for work each year. Net migration in Vietnam, therefore,
stood at a negative figure of 35,300 in 2014 and is expected to increase further to negative
40,100 in 2020, as improved economic conditions in advanced countries will attract more
migrants from Vietnam to these countries.
EXTERNAL SECTOR
Vietnam Firmly Maintains Its Current Account Surplus
Vietnam is a very open economy, with total exports of goods accounting for 80.6% total GDP
in 2014. In US$ terms, its total goods exports posted a 12.6% year-on-year growth in 2014,
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following a 16.5% year-on-year growth in 2013. The growth reflects strong investments and
increased demand from foreign companies, such as Samsung Electronics and LG Electronics:
Machinery and Transport Equipment was Vietnams largest export sector, representing
28.2% of total goods exports in 2014, reflecting large investments and cost competitiveness in
equipment manufacturing. For similar reasons, Miscellaneous Manufactured Goods
accounted for 27.9% of total goods exports in the same year, standing as its second biggest
export sector. The country is, therefore, highly vulnerable to demand variations in its export
markets;
Vietnams export destinations are fairly well diversified. It relied on Asia Pacific for 45.2% of its
total goods exports in 2014, while Europe came second, with 22.6% of the total goods exports
in the same year. However, in terms of individual trade partners, the USA stood as its biggest
export destination, consuming 18.7% of its total goods exports, mainly facilitated by the US-
Vietnam Bilateral Trade Agreement, which was signed in December 2001.
Chart 6 Vietnams Top 10 Export Destinations: 2014
Source: Euromonitor International from International Monetary Fund (IMF)/Direction of Trade Statistics
The share of total goods imports to total GDP increased from 65.0% in 2009 to 80.2% in
2014, mainly as demand for manufacturing imports grew in order to meet its export demand. In
US$ terms, its total goods imports increased by 117% between 2009 and 2014:
Machinery and Transport Equipment stood as Vietnams largest imports, accounting for
34.6% of total goods imports in 2014, followed by Basic Manufactures, which accounted for
22.8%;
Asia Pacific was Vietnams biggest import region, accounting for 78.9% of total goods imports
in 2014, with China being its biggest import partner by country, accounting for 33.9% of the
total goods imports. South Korea came second, accounting for 12.8% of its total goods
imports respectively in 2014.
Chart 7 Vietnams Imports by Commodity: 2014
% of total goods imports
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Source: Euromonitor International from International Monetary Fund (IMF)/Direction of Trade Statistics
The continued growth in Vietnams exports, tourism revenue and private remittances ensured
that the countrys current account remained firmly in surplus, at US$6.6 billion in 2014:
As a percentage of total GDP, its current account surplus, however, narrowed from 5.5% in
2013 to 3.6% in 2014, mainly as growth in remittance inflows in US$ terms slowed down from
10.0% year-on-year in 2013 to 6.9% year-on-year in 2014;
Thanks to continued current account surpluses, Vietnams foreign exchange reserves
increased from US$25.5 billion in 2013 to US$38.0 billion in 2014. Since this is enough to
more than cover 3.0 months of total goods imports in 2014, the country is reasonably
cushioned from sudden shocks to its trade or any meaningful exchange rate changes.
Chart 8 Vietnams External Balance: 2009-2014
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Source: Euromonitor International from national statistics/OECD/International Monetary Fund (IMF)/International Financial Statistics (IFS)/World Economic Outlook (WEO)
Vietnams foreign direct investment (FDI) inflows stood at VND186 trillion (US$8.9 billion) in
2013 (latest data available), up only by a marginal 0.1% year-on-year in real terms:
As a proportion of its total GDP, however, Vietnams FDI intensity decreased from 5.4% in
2012 to 5.2% in 2013 (latest data available), as the standoff with China and the country-wide
anti-Chinese protests in May 2014 dampened investors enthusiasm towards the country;
The Vietnamese governments intention to carry out structural reforms; easing access to
major regional markets; abundant labour resources; improving political and economic stability;
and favourable policies for foreign investors are the key attraction for foreign investors.
However, rampant corruption; a weak legal setup; and restrictions on foreign investments in
sectors (such as telecommunications, finance and banking, public health, entertainment
services, real estate, exploration and exploitation of natural resources, and education and
training) stand as big discouragements for businesses.
The Vietnamese dong is a managed floating currency, with the exchange rate being typically
monitored by the central bank from time to time:
The political and economic instability caused by the May 2014 Chinese oil rig standoff led to
the depreciation of the dong from VND20,932 in 2013 to VND21,148 in 2014.
GOVERNMENT FINANCE
Oil Price Weaknesses and Tax Cuts Hurt Government Revenue Generation
Vietnams general government net budget deficit worsened from 5.6% of total GDP in 2013 to
6.7% in 2014, mainly as a result of the drop in oil prices, which weakened the governments oil
revenue streams, and the cut in corporate income tax from 25.0% in 2013 to 22.0% in 2014:
Total government revenue decreased from VND821 trillion (US$39.2 billion) in 2013 to
VND819 trillion (US$38.7 billion) in 2014, marking a 4.3% year-on-year real contraction. The
proportion of government revenue to total GDP accordingly decreased from 22.9% in 2013 to
20.8% in 2014;
Vietnams total government expenditure grew by 1.8% year-on-year in real terms to reach
VND1,083 trillion (US$51.2 billion) in 2014. However, as a proportion of total GDP, total
government expenditure decreased from 28.5% in 2013 to 27.5% in 2014, as the government
restrained spending in an attempt to narrow its budget deficit;
Vietnams continued budget deficit increased its public debt from 51.6% of total GDP in 2013
to 56.0% in 2014;
Standard & Poor has maintained its BB- credit rating for Vietnam and in July 2014 reaffirmed
its stable outlook for the country due to benign inflation; improved foreign exchange reserves;
and greater confidence in the local currency. Meanwhile, Moodys upgraded Vietnams rating
one notch to B1 from B2 in July 2014 and confirmed its stable outlook for the country, citing a
stronger external payments position; stable economic growth; and a reduction in risks arising
from its banking sector. On similar grounds, Fitch Ratings upgraded Vietnam from B+ to BB-
in November 2014, but changed its outlook from positive to stable.
Chart 9 Public Debt vs. General Government Budget Deficit in Vietnam: 2009-2014
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Source: Euromonitor International from National Statistics Offices/International Monetary Fund/OECD
FINANCIAL STABILITY
Banks Still Remain Fragile
The banking sector in Vietnam is financially weak, amid piling troubled loans. Strong credit
growth over the last decade; the bursting of the property bubble in 2010; and poor management
of state-owned banks have made its banking sector particularly fragile. However, the Vietnam
Asset Management Company (VAMC), established by the government in July 2013, is working
on cleaning up the balance sheets of banks by absorbing bad loans by 2015:
Bank claims on the private sector increased from VND3,470 trillion (US$166 billion) in 2013 to
VND3,956 trillion (US$187 billion) in 2014. In terms of year-on-year real growth terms, bank
claims on the private sector increased from 5.6% year-on-year in 2013 to 9.5% year-on-year
in 2014, as the bank boosted lending to bolster economic growth in the country;
The proportion of nonperforming loans to total gross loans in Vietnam rose slightly from 3.1%
in 2013 to 3.5% in 2014, mainly owing to the introduction of stricter lending terms for small
business, which resulted in many loans being reclassified as bad debt.
Chart 10 Chart 10 Vietnams Bank Nonperforming Loans to Total Gross Loans: 2009-2014
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Source: Euromonitor International from World Bank
The State Bank of Vietnam (SBV), the countrys central bank, is responsible for aligning its
monetary policy in line with the governments growth and inflation targets:
Annual inflation in Vietnam fell from 6.7% in 2013 to 4.1% in 2014, as the drop in global
commodity prices led to a sharp fall in transportation costs in the country;
In 2015, Vietnams annual inflation is expected to bounce back to 5.3%. However, with the
view to contain inflationary pressures in the economy, the SBV, in January 2015, devalued
the dong by 1.0% against the dollar on interbank transactions;
Annual lending rates in Vietnam fell from 10.4% in 2013 to 8.8% in 2014. In March 2014, the
SBV cut the refinancing rate from 7.0% to 6.5% with the view to support lending to
businesses;
Money supply reached VND1,268 billion (US$59.9 billion) in 2014, marking a 17.4% year-on-
year real growth during the year.
Chart 11 Inflation and Annual Lending Rates in Vietnam: 2009-2014
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Source: Euromonitor International from national statistics/OECD/UN/IMF
REAL ESTATE
Property Market Makes A Cautious Recovery
Vietnams construction sector continues to recover from the 2011-2012 housing market crash,
mainly on the back of large government-financed infrastructure development projects. The real
growth in the sector, therefore, increased from 0.5% year-on-year in 2013 to 6.0% year-on-year
in 2014:
As a proportion of total GVA, the share of the construction sector remained unchanged at
5.8% in both 2013 and 2014;
Gross fixed capital formation grew by 2.7% year-on-year in real terms in 2014, following 0.7%
year-on-year real growth in 2013, as the government remained committed to capital spending
in view of its development goals.
Chart 12 Gross Fixed Capital Formation in Vietnam: 2009-2014
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Source: Euromonitor International from national statistics/OECD/UN/International Monetary Fund (IMF)/International Financial Statistics (IFS)
Note: Gross fixed capital formation is measured in constant 2014 prices, fixed exchange rates.
The property market in Vietnam continues to recover cautiously, as demand for residential
construction is improving. However, foreign investors optimism in the sector is muted, following
the May 2014 anti-Chinese riots in the country:
According to estimates from Savills Vietnam, the residential property index in Vietnam posted
an 11.5% year-on-year nominal growth in the first quarter of 2015, helped by increased
financing by banks. Meanwhile, the VND30.0 trillion housing stimulus package unveiled by the
government and the SBV also helped increase demand for social housing during 2014. The
scheme continues to attract buyers in 2015, particularly from low-income groups.
Chart 13 Construction Sector in Vietnam: 2009-2014
Source: Euromonitor International from national statistics/OECD/UN/International Monetary Fund (IMF)/International Financial Statistics (IFS)
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Note: Construction is measured in constant 2014 prices, fixed exchange rates.
ENERGY AND ENVIRONMENT
Country Faces Widespread Energy and Water Shortages
Owing to increased oil and natural gas production over the past few decades, Vietnam has
managed to step up its mineral fuel exports. However, in 2014, the country stood as a net
energy importer, as energy demand outstrips supply:
The mineral fuels import bill stood at US$14.9 billion, which accounted for 10.0% of Vietnams
total goods imports in 2014, down from 10.7% in 2009. Meanwhile, its exports of mineral fuels
reached US$13.7 billion in 2014, accounting for 9.1% of the total goods exports during the
year;
Vietnams total primary energy consumption increased from 42.6 million tonnes of oil
equivalent in 2009 to 57.8 million tonnes of oil equivalent in 2014, fuelled by increased
industrialisation; rapid economic growth; and expansion in exports;
The country obtained 31.3% of its total primary energy consumption from crude oil in 2014,
followed by coal, at 28.7% in the same year. However, as a part of the National Energy
Development Strategy of Vietnam, running between 2007 and 2020, the government is
looking to increase the share of renewable energy for commercial purposes from 3.0% in
2010 (according to government estimates) to 5.0% in 2020 and is targeting to increase this to
11.0% in 2050. Meanwhile, it also targets to raise the share of energy generation from
renewable resources from 3.5% in 2010 (according to government estimates) to 4.5% by
2020 and 6.0% by 2030;
Energy shortage is a major issue in Vietnam, mainly as a result of its fast-growing energy
demand. In the medium to long term, the government is looking to narrow the supply shortfall
by building 57 new coal-fired power plants by 2020. Plans are also underway for the
construction of two nuclear plants by 2025.
Chart 14 Vietnams Primary Energy Consumption: 2014
% of Total Primary Energy Consumption
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Source: Euromonitor International from BP Statistical Review of World Energy
Vietnams CO2 emissions per unit of output stood at 759 grams per US$ in 2014, down from
1,036 grams per US$ in 2009:
The countrys energy efficiency improved from US$2,489 per tonne of energy consumed in
2009 to US$3,222 in 2014;
As a part of its National Strategy on Green Growth (2011-2020), Vietnam is targeting a 10.0-
15.0% reduction in greenhouse gasses by 2020, compared with Business-as-Usual levels.
Chart 15 Total and Per Capita CO2 Emissions in Vietnam: 20092014
Source: Energy Information Administration of the US Government, International Energy Annual
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Note: CO2 emissions encompass the consumption and flaring of fossil fuels.
Vietnam is vulnerable to natural disasters, such as tropical cyclones, landslides, floods and
droughts:
According to EM-DAT estimates, floods affected 2.2 million between 2013 and 2014 alone
and brought economic damages of US$78.5 million. Meanwhile, storms affected 2.0 million
people and caused economic damages of US$1.5 billion during 2013 and 2014;
Despite having a dense network of rivers, Vietnam experiences water shortages in some
parts of the country. Although the problem is aggravated during the dry season, Vietnams
inadequate physical infrastructure and financial constraints have led to inefficient utilisation of
its water resources.
DEFINITIONS Corruption Perceptions Index relates to perceptions of the degree of corruption as seen by
business people and country analysts.
Energy Efficiency indicates the value of gross domestic product produced per tonne of oil
equivalent of energy consumed.
Foreign Direct Investment (FDI) is investment made to acquire a lasting interest in or effective
control over an enterprise operating outside of the economy of the investor.
FDI Inflows are the net value of inward direct investment made by non-resident investors in
the reporting economy, including reinvested earnings and intra-company loans, net of
repatriation of capital and repayment of loans.
FDI intensity measures FDI inflows as percentage of total gross domestic product (GDP).
Gross Fixed Capital Formation (GFCF) equals acquisition less disposals of fixed assets,
improvement of land, change in inventories and acquisitions less disposals of valuables.
Gross Value Added (GVA) is the value of output less the value of intermediate consumption. It
is calculated without making deductions for depreciation of fabricated assets or for depletion and
degradation of natural resources.
House-Price-Income Ratio is the ratio of the cost of a typical upscale housing unit of 100
square metres compared to the countrys GDP per capita.
Net Migration is the difference between the number of immigrants into and emigrants from the
area during the year.
Old-Age Dependency Ratio is the percentage of the population aged 65+ (retired) per
population aged 15-64 (of working age).
Openness of the Economy is reflected by exports as a percentage of total GDP. More than
50.0% is very open; 25.0%-49.0% is open; 6.0%-24.0% is relatively open; and 0.0%-5.0% is
relatively closed, high barriers to trade.
Political Stability and Absence of Violence Index reflects a better score in a higher position
and measures the perceptions of the likelihood that the government will be destabilised or
overthrown by unconstitutional or violent means (including domestic violence and terrorism).
Public Debt is total gross debt owed by any level of government (central government, local
government, social security funds). Debt is reported at values outstanding at the end of the year
and is consolidated between and within the sectors of general government - a loan from one
level of government to another represents both an asset and an equal liability for the
government as a whole and so it cancels out (is "consolidated) for the general government
sector.
Unemployment Rate represents unemployed population as a percentage of the economically
active population, also known as the labour force (the total number of people employed plus
unemployed).
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Voice and Accountability Index captures perceptions of the extent to which a country's
citizens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and a free media. A high ranking reflects a high score in the index.
Youth Unemployment Rate refers to the unemployed population aged 15-24 as a percentage
of economically active population aged 15-24.
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