"The biggest challenge of Vietnamese economy this year is the reform in the reforms of financial sector and state-owned enterprises (SOE)," a senior World Bank (WB) official said here on Friday.

The Vietnamese financial sector has some risks in terms of the quality of the loan portfolio and capital allocation. The government should make more efforts to ensure the capital is allocated in the most efficient way to the different parts of the economy, in order to avoid financial crisis and lay the foundation for growth, said Victoria Kwakwa, WB Country Director for Vietnam, in an exclusive interview with Xinhua.

"Meanwhile, the majority of the SOE sector in Vietnam is not using the public resources in the most efficient way. To keep moving forward to reform these two key sectors will be critical for enhancing the competitiveness of Vietnamese economy," Kwakwa added.

According to WB, Vietnam's economy in 2011 obtained positive results due to government's moves on curbing inflation and stabilizing the macro-economy. Last February, the government put in place a package of commitments to tighten money and credit, known as Resolution 11.

"Our assessment is that the Resolution 11 is generally a good plan, including all the key elements of the economic solutions, particularly on the monetary policy side," she said.

"Last August the country's inflation was 23 percent, but by the end of the 2011, we saw inflation beginning to decline to between 18-19 percent, and in the first few months of this year, that trend has continued. The Vietnam's average inflation in March is forecast to reach around 14.15 percent," she said.

Improvements were also made in other areas: the fiscal deficit dropped from 5.2 percent in 2010 to 2.7 percent at the end of 2011; the current account deficit declined from 4.1 percent to under 1 percent of GDP; the State Bank reserve is close to two months of imports; credit growth decreased from over 30 percent in 2010 to around 14 percent in 2011.

Kwakwa said if the government continues to maintain the stabilization of economy, preserve tight monetary and fiscal policy, the Vietnam's inflation in 2012 might be between 9-10 percent, and growth would probably reach 5.5-6 percent.

However, the debt crisis in the euro zone has greatly influenced Vietnam's major export markets, pushing Vietnamese exports in a standstill condition. Since the beginning of this year, the export prices of many products declined, which impacted many businesses' production, especially those depend on imported materials.

"The U.S. and EU markets contribute around 40 percent of Vietnamese exports," Kwakwa said, "but on the one hand, the U.S. and EU economy is making slow progress, on the other hand, Vietnam should diversify market to find other emerging markets which have strong demand. And Vietnam should also expand domestic market, which could provide a source of strong demand for Vietnamese production."

Kwakwa said 2012 is the first year of WB's new five-year strategy for Vietnam (2012-2016). "We are going to continue to support Vietnam to be a successful middle-income country. This means consolidating the gains and also addressing new challenges. Meanwhile, we will work with the government to try to find new ways to reduce poverty," she said, adding that WB would provide 1- 1.5 billion U.S. dollars for Vietnam this year for the strategies.