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Vietnam’s trade deficit abnormal
Vietnam’s trade deficit has increased dramatically in the last two years with the figure in the first nine months of the year alone reaching $15.8bil. Experts say that the high trade deficit proves to be abnormal.
Beyond economic laws
Vietnam’s trade deficit had been hovering around $5bil since 1995 when it soared dramatically to $12bil in 2007, which was four times higher than in 2006. The trade deficit reached $15.8bil at the end of September this year, a figure described by economists as ‘abnormally high’.
Compared to GDP, the trade deficit was ‘relatively high’ (equal to over 10% of GDP) in 1995-1996 and 2003-2004, and ‘very high’ (over 20% of GDP) since 2007. However, if comparing the trade deficit with total export turnover, the trade deficit in 2007 (nearly 30% of export turnover) proved to be less worrying than that in 1995-1996 (50% of export turnover).
This shows that Vietnam has made considerable progress in export, but this does not fit alongside economic development. Dr Vu Dinh Anh, an economist from the Institute for Price and Market Researches, said: “Vietnam’s trade deficit has been beyond economic laws; it is something not seen in other developing countries.”
Anh said that developing countries, in general, always have exports higher than imports, and the trade surplus is estimated at $525bil on average, or 12.3% of total export turnover. Even underdeveloped countries in Africa and South America do not import more than they export.
Among developed countries, Russia proves to be the country which has the highest trade surplus ($126bil, or 15.5% of exports), followed by China ($164bil, of 15.5% of exports), ASEAN ($88bil, or 11.4% of exports).
Explaining this, Anh said that as Vietnamese consumers value imports above domestic products the demand for imported consumer products is always high, which has led to the high trade deficit.
“The high domestic demand has stimulated the market of import products, thus expanding the scale of the trade deficit,” he said.
Anh has also pointed out that there exists a close relationship between the trade deficit and inflation, and the higher the trade deficit, the higher the inflation rate.
Experts have warned that the trade deficit is really the big problem for Vietnam. Currently, Vietnam has other sources of foreign currencies to offset the foreign currency shortage caused by the import-export imbalance. However, this will bring bad impacts in the long term.
Anh also pointed out that Vietnam needs to import a lot of materials for local production, which is really a worrying problem, because the massive volume of imports stems from the basic weakness of the national economy: Vietnam assembles with accessories imported from other countries.
Which products to import?
According to Associate Prof, Dr Ngo Tri Long from the Institute for Price and Market Researches, 85% of imports are materials and equipment for local production, mostly coming from Asian and ASEAN countries, while Vietnam’s main export items are raw minerals and processed products.
According to Long, the paradox is that in its trade relations with modern countries in the world, including the US and Europe, Vietnam exports more than imports, while Vietnam really needs to import modern technologies and equipment from those countries. Meanwhile, in its trade relations with Asian and ASEAN countries, Vietnam always imports more than exports, i.e. Vietnam imports a lot of equipment and technologies from the region which has outdated technology.
“This is really a problem because we cannot obtain modern technologies while we help consume inventory products in the region,” Long said.
The Ministry of Industry and Trade estimated that the trade deficit will be $19-20bil in 2008, or 30% of total export turnover, which means the trade deficit will be approximately $1bil a month in the last months of the year.
VNN
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