Vietnam's government expects economic growth to pick up from next year after slumping to a 10 year low this year.

"The main task for 2010's socio-economic development plan is to try to achieve a GDP growth of 6.5-7 percent," the government said in a statement.

To keep the economy from crashing this year Vietnam has deployed an array of stimulus measures anchored by a loan subsidy scheme under which the central bank is funding 4 percentage points worth of interest on qualified business loans.

 The World Bank in a new report has recommended that the scheme be phased out to stave off inflation.

Late last month, the government proposed to parliament that the gross domestic product target for this year be lowered to about 5 percent, although many economists say even that will be a difficult mark to hit as the global economic recession pushed first quarter GDP growth to its lowest level in years.

GDP growth in the Southeast Asian country averaged 7.5 percent from 1996-2005, according to the Ministry of Planning and Investment.

Last year, GDP growth was 6.2 percent, down from 8.5 percent in 2007. In 1999 it sunk to 4.5 percent due to tough regional economic conditions and natural disasters.

Hanoi has also set an economic growth target of between 7 and 8 percent a year in the 2011-2015 period.

In a mid-year report to a donors meeting on Monday on the state of the economy, the World Bank noted with concern that credit growth was again growing rapidly. "Combined with the bottoming out of commodity prices, this may require paying attention to inflation pressures once more," the report said.

"The interest rate subsidy scheme, which played an important role in the initial phase of the stimulus policy, has lost its justification now that credit is flowing again, and could bring back the inefficiencies associated with policy lending."

About 13.5 trillion dong (S$1.1 billion) of a planned 18 trillion dong in interest rate subsidies for businesses has been delivered, prompting 15 percent loan growth so far this year, largely concentrated in the second quarter.

It was unclear if the World Bank was recommending that the scheme should be cancelled before all the planned funds are disbursed.

The government asked the central bank to order commercial banks to shorten the time to assess projects and lend under the subsidy scheme, a report said on Tuesday. It also asked  authorities to speed up fund disbursement to infrastructure projects.

(Source: Reuters)