Vietnam is being crippled by its worst drought in nearly a century

Vietnam’s breadbasket southwestern region has been hit by the worst drought in 90 years, badly damaging the nation’s economy.

The Southeast Asian country saw a huge slowdown in economic growth in the first quarter as agriculture output dropped sharply. GDP growth slipped to 5.6% year-over-year in the first quarter, down from 6.7% in 2015, according to statistics cited by a Capital Economics team led by Gareth Leader.

The drought, partially attributed to this year’s El Niño, could also lead to a serious reduction in exports of major goods produced in the region, including rice, seafood, and coffee, according to Capital Economics.

Water levels in Vietnam’s Mekong Delta, a region that a
ccounts for 50% of Vietnam’s rice and fruit production, 90% of its rice exports, and 60% of shrimp and fish exports, are at their lowest levels since 1926.

Moreover, a
report from the United Nations found that nearly 393,000 acres of rice in Vietnam have been lost, and an additional 1.24 million will likely be damaged by mid-2016. Those losses have already had huge effects on production:
The first quarter of 2016 saw rice output fall by 6.2% year-over-year, which reduced Vietnam’s total agricultural production by 2.7%, according to figures cited by Bloomberg.

And the immediate future for rice doesn’t look much brighter. The chief executive officer of Intimex Group, a Vietnamese exporter of agricultural products, told Bloomberg that rice exports from Vietnam could drop by 10% this year.

Not only does this affect the livelihoods of the Vietnamese farmers, but it also affects the biggest buyers of Vietnamese agricultural goods.

“People in Indonesia and the Philippines will go hungry if the Thais and Vietnamese don’t produce enough rice,” Richard Cronin, director of the Southeast Asia Program at the Stimson Center in Washington, told Bloomberg.

“This is a preview of the longer-term effect of development and climate change to the Mekong Delta.”

Notably, this drought comes at a time when some analysts are getting a bit concerned about Vietnam’s growth overall — not just in the agriculture sector. Although Vietnam saw the third fastest growth in Asia in 2015 — behind only India (7.3%) and China (6.8%) — and the government set an ambitious 6.7% growth target for 2016, analysts have a few concerns.

“The current pace of credit growth is unsustainable [and] worryingly the central bank is targeting faster credit growth this year,” noted the Capital Economics team. “
Meanwhile, although the dong has remained stable against the dollar since the start of the year, a low level of foreign exchange reserves means the currency is vulnerable to shifts in investor sentiment.”

In short, they noted, “there are questions over the sustainability of the current boom.”

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