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Vietnam’s forex reserves at nearly $17 billion: ADB
Vietnam’s forex reserves are estimated at some $17 billion, exceeding the pre-crisis rate of 2008, said the Asian Development Bank (ADB) in a recent meeting.
As of the end of the first quarter, the reserve had risen by around 25 per cent over late 2011 following the active move of the central bank to buy foreign currency, according to the ADB.
The reserve rose by $3.5 billion compared to the rate the ADB announced in mid-2011 said Dominic Mellor, an ADB expert at a press conference to announce the economic outlook 2012 report in Hanoi.
Specifically, by the end of 2011, foreign currency reserves were equivalent to the pre-economic crisis rate.
Mr. Mellor said he believed the reserves had climbed from $13.8 billion at the end of last year. The State Bank of Vietnam (SBV) does not publish forex reserves on a regular basis, according to AFP.
The Vietnamese dong has been stable so far this year, with the mid-point rate set daily by the central bank at VND20,828 per dollar, unchanged since late December, following a lower-than-expected trade deficit in 2011 of $9.5 billion, AFP reported.
However, Vietnam’s improved forex reserves are equivalent to only about two months of imports, a relatively "fragile" level that may cause difficulties when the country faces unfavorable international conditions.
Another risk for Vietnam is a slow GDP growth rate, with a projected rate of only 5.5-5.7 per cent in 2012, lower than the Government's expectations of about 6 per cent, the ADB also mentioned in the report.
Thus, within a year, the organization has twice lowered Vietnam's growth rate outlook for a total of 1 - 1.2 per cent. The forecast for 2013 given in this report was at 6.2 per cent.
Regarding the causes for the adjustment, the ADB said that Vietnam may suffer negative effects from unfavorable conditions in consumption, both domestically and internationally.
Local hurdles may be caused by economic constraints, and workers’ incomes have not kept up with inflation rates.
As for inflation, the ADB expert expressed that he was heartened by the achievements that Vietnam has made in recent years and added that this year's CPI rate could be in the single digits.
However, as this year comes amidst unstable food and fuel supplies globally, the agency said that the restriction of inflation in Vietnam may face many challenges.
The ADB is also particularly concerned with the difficulties faced by enterprises, especially private ones, in the current climate, as they are badly affected by the tightening of credit after a period of rapid growth.
The organization also found no significant return of foreign investors to the manufacturing sector.
The ADB also recommended that the State Bank of Vietnam raise the credit growth ceiling from 14 per cent to 18 per cent to offer more abundant resources for the economy.
However, the interest rate issue should be carefully processed.
Speaking at the press conference, ADB national director Tomoyuki Kimura said the main message of the bank in this report is the recommendation that Vietnam should not "drop the rate too fast" in order to avoid interest rate risk on short-term macroeconomic circumstances.
SBV should also take drastic moves to ensure the safety of the banking system as the top target and try to develop a system of diversified financial institutions.
Finally, the ADB added that Vietnam should continue to enhance transparency and expand positive information about the reform process in order to create trust among the people as well as investors.
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