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Trade deficit cited by foreign organisations as Vietnam’s biggest problem
With high appreciation for Vietnam’s capability to curb inflation and promote high economic growth, the Hong Kong and Shanghai Banking Corporation (HSBC) and The Economist Intelligence Unit (EIU) both think that Vietnam’s trade deficit is the big problem for 2010.
According to HSBC, May was the only month that Vietnam’s excess of imports fell below one billion dollars. The June trade deficit again rose to $1.2 billion. The total trade deficit for the first half of 2010 is $6.7 billion ($1.1 billion/month).
HSBC believes that the trade imbalance cannot be improved overnight, as the economic structure is still unreasonable, while incomes have been rising, thus creating higher demand for imports.
Regarding the import product structure, according to EIU, out of the total $38.9 billion in import revenue for the first six months, imports of petroleum products increased by 11.6 percent, while imports of equipment and machines increased by 13 percent and steel imports by 29 percent.
Besides products that serve domestic production or luxury goods (Cars, cosmetics and mobile phones), Vietnam still imported many products that can be made domestically. For instance, Vietnam has many sugar refineries, but still resorted to importing a large volume of sugar as outdated technology made it impossible for Vietnamese enterprises to compete with imports.
Due to the trade deficit, Vietnam faced problems in its balance of payments, but solved it successfully, thanks to foreign currencies from foreign direct investment (FDI) ($4.5 billion worth of FDI were disbursed in the first five months of 2010) and kieu hoi – or overseas remittance ($3.6 in the first six months of 2010). Clearly, however, this is not a long-term solution.
According to economists, the trade deficit will be one of the main factors that affect the dong/dollar exchange rate from now to the end of the year.
Though appreciating the foreign exchange market’s stability, especially in May and June, HSBC thinks that the market will be under heavy pressure from now to the end of 2010.
Statistics demonstrate that dollar lending interest rates applied by commercial banks are now 5-6.5 percent per annum, just equal to half of the dong interest rates. This has prompted businesses to borrow dollars for import payments. As a result, the foreign currency credit growth rate in the first five months of 2010 increased by 20 percent, while the dong rate increased by only 3.5 percent.
According to HSBC, in the third and fourth quarters, when foreign currency loans mature and businesses must buy dollars to pay debts, demand for dollars will rise again and this put pressure on the dong.
EIU predicts that the dong/dollar exchange rate will stand at 19,044 dong per dollar for all of 2010, and it will rise to 19,443 dong in 2011.
Reports from international organizations also highly appreciated Vietnam’s economic growth potential and efforts to curb inflation. HSBC observed that the GDP growth rate of 6.4 percent in the second quarter, though lower than previously predictions of 7 percent, is still encouraging.
All sectors have made contributions to the high economic growth rate, from manufacturing and construction to service. The manufacturing sector grew 9.1 percent over the same period of last year, while the figures were 11.5 percent and 7.4 percent, respectively, in the construction and service sectors
According to HSBC, Vietnam’s inflation rate in 2010 could be curbed below the double digit level.
vietnamnet, VnExpress
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