Gross domestic product (GDP) expanded by roughly 6.8 percent compared with 5.3 percent the previous year, the slowest rate in a decade, the General Statistical Office (GSO) said in a end of the year report.

The economy grew 6.3 percent in 2008 and 8.5 percent in 2007.

GSO figures showed that growth accelerated throughout this year, expanding in the fourth quarter by an annualised 7.3 percent.

"These results confirm the effectiveness of measures and solutions taken firmly and vigorously by the government to prevent economic slowdown and to stabilise the macroeconomy," the GSO report said.

The figures beat the government's target of 6.5 percent growth this year. It is aiming for seven percent expansion in 2011.

Recovery in industry, construction and agriculture, coincided with stronger external demand to boost the country's growth rate, the World Bank said in a report this month.

But communist Vietnam's impressive growth has been accompanied by increased economic risks such as falling foreign exchange reserves, high inflation, a struggling currency, and a relatively high current account deficit, the broadest measure of external trade, the World Bank said.

"So Vietnam, despite being one of (the) most dynamic countries in the region, finds itself an exception to the broader emerging market trend of stronger currencies, robust capital inflows and rising foreign exchange reserves," it said.

Inflation hit 11.8 percent in December on a year-on-year basis, according to a GSO estimate.

The dong has been devalued three times since late last year.

Next year the country will follow a more flexible exchange-rate regime while using monetary policy to curb inflation, the central bank said Wednesday.

Signalling a possible interest-rate hike and another currency devaluation, State Bank of Vietnam Governor Nguyen Van Giau said the exchange rate will be based on market conditions and interest rates, and should be used to help boost exports and reduce imports.

The GSO on Tuesday reported that Vietnam's trade deficit stayed relatively steady at 12.4 billion dollars this year, as exports surged more than imports.

Vietnam's donors warned this month that the country's economic growth will be threatened unless the government can control rising inflation and currency weakness.

Ratings agencies Moody's and Standard & Poor's recently downgraded their evaluations for Vietnam over worries about the economy, the banking sector and the problems of nearly-bankrupt shipbuilder Vinashin, a state-owned firm.

Foreign investors cite Vietnam's overloaded infrastructure, an under-qualified workforce, excessive bureaucracy and corruption as factors that keep the country from meeting its economic potential.

Observers have also questioned a growth strategy that has relied on low-cost labour and resource industries, and have called for reforms in the state sector whose inefficiencies were captured by the Vinashin scandal.

Pledges of foreign direct investment fell about 18 percent this year from 2009, with Singapore leading the commitments for new spending, the GSO said.

Dispersed foreign capital was up 10 percent from last year to about 11 billion dollars.

Agence France Presse - December 31, 2010