HANOI, Dec. 3-- Early signs show that Vietnam's economic recovery is on track, says the World Bank's Taking Stock report, which was released in Vietnam's capital Hanoi on Wednesday.

According to the report, Vietnam's economic growth is expected to improve from 5.4 percent in 2013 to 5.6 percent in 2014.

This positive outlook is largely due to the country's ongoing macro-economic stability and continued strong performance of the foreign-invested manufacturing export sector.

"Vietnam's potential for much more rapid growth can only be realized if substantial progress is made in addressing distortions such as in the state enterprise and banking sectors, that tax the economy's efficiency and productivity," said Victoria Kwakwa, World Bank Country Director for Vietnam.

"Stepping up this reform agenda and strengthening the business environment are critical for moving forward," she added.

The report finds that the foreign-invested sector continues to be a significant source of growth, while the domestic private sector remains subdued, as reflected in the rising number of domestically-owned businesses that have closed or suspended operations.

A total of 61,000 firms closed or suspended business in 2013 compared to 47,000 in 2010. A further 54,000 were added to the category in the first ten months of 2014, about nine percent increase over the same period in 2013.

At the same time, the number of newly-established businesses decreased by 6.5 percent.

Meanwhile, the WB report says in recent years, Vietnam has shown signs of corporate and financial distress.

Several segments of the corporate sector exhibit poor performance and financial distress, which has affected the health of the banking system. Large state-owned enterprises (SOEs) have defaulted on their obligations and several others appear to be overleveraged.

Despite a pick up in momentum, SOE reforms are lagging behind planned targets. The government has articulated a clear policy vision on SOE reforms, but more consistent implementation is needed.

The banking system has accumulated a significant amount of non- performing loans (NPLs), and many banks have experienced more serious liquidity and solvency problems, leading to the interventions by the State Bank of Vietnam (SBV), the central bank. The actual size of NPLs itself is currently still unclear.

The World Bank's recommendations for the country's financial sector include recapitalization plans, handling NPLs, and regulatory reforms among others.

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