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VN must repair balance of payments to spur economic growth
Vietnam’s balance of payments must improve for economic growth rates to return to 7 percent or more, Australia & New Zealand Banking Group Ltd. said.
“The binding constraint on the Vietnamese economy is external financing,” Paul Gruenwald, ANZ’s Singapore-based chief economist for Asia, said in a note dated Tuesday. “Vietnam won’t be able to return to its potential growth rate until the balance of payment financing situation normalizes.”
The country probably has foreign exchange reserves for less than three months of imports, hurting its ability to import machinery and oil and drive growth, Moody’s Economy.com economist Matt Robinson said. Gruenwald said a decline in remittances, foreign direct investment and portfolio flows this year has constrained the US$90 billion economy.
Vietnam doesn’t reveal its reserves position with regularity. Moves by the central bank to try to stabilize the dong between May and July caused a reduction in Vietnam’s foreign reserves to about $16.5 billion as of August from $23 billion at the end of 2008, the World Bank said in November.
Concerns about Vietnam’s ability to finance its trade deficit have increased as the gap deteriorated since mid-year, Gruenwald said. Vietnam’s trade shortfall in November reached $1.97 billion, the highest since the first half of 2008.
Vietnam’s economy expanded by at least 7 percent every year between 2002 and 2007, averaging 7.9 percent over the period and peaking at 8.5 percent in 2007. Growth slowed to 6.2 percent in 2008 and Minister of Planning and Investment Vo Hong Phuc on Tuesday forecast a 5.2 percent figure for 2009 and 6.5 percent for 2010.
Growth target
Vietnam is targeting annual growth of between 7 percent and 8 percent from 2011 to 2015, according to a statement last week on the website of the country’s Government Office. The economy has the potential to maintain an expansion of 7 percent to 7.5 percent, Gruenwald said.
Still, gross domestic product, credit and import growth all must moderate “to ensure external sustainability,” Gruenwald said in the note.
Loans extended by Vietnamese banks rose 36 percent in the first 11 months of the year, central bank Deputy Governor Nguyen Dong Tien said Tuesday, exceeding a full-year government target of 30 percent.
Imports in November totaled $6.67 billion, up from $6.625 billion in October and compared with exports of $4.7 billion, the General Statistics Office said this week. The country spent $1.1 billion in importing machinery and equipment, $580 million for steel and $460 million for refined petroleum products.
“Vietnam relies heavily on imported capital equipment and refined petroleum products to spur economic development,” Robinson, a Sydney-based senior economist for Moody’s Economy.com, said in a note dated yesterday. “With foreign exchange reserves now less than three months of imports cover, the potential for a balance of payments crisis is more acute.”
thanhnien, Bloomberg
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