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Vietnam Business » Vietnam Trade News » Vietnam must "live with" trade deficit

Vietnam must "live with" trade deficit

Phi Dang Minh, Deputy Director of the Foreign Exchange Management Department under the State Bank of Vietnam (SBV), stated frankly that though the trade deficit in the first nine months was just equal to 16.7 percent of the export revenue, the trade deficit was still very high in absolute value, up 19.8 percent over the same period of 2009.

Concerns about the high trade deficit have not eased, though the ratio of trade deficit on total export revenue in the first nine months of 2010 was only 16.7.

"The value of the trade deficit has stayed above $10 billion in the last few years, which has put pressure on the balance of payments, exchange rate and inflation as well," Minh explained.

Economists have also pointed out that the current situation is really worrying. After two years of bearing the global economic crisis, Vietnams foreign currency reserves have decreased. The deficit of the general balance of payments was $8.8 billion last year, when it was expected to be only four billion dollars. The general balance of payments will reach a surplus of $500 million by 2011, according to the Ministry of Planning and Investment.

Sharing the same view, at a recent meeting with enterprises, Deputy Minister of Planning and Investment Dang Huy Dong admitted that $8.6 billion worth of trade deficit was a relatively high figure.

If not counting gold exports, the trade deficit of Vietnam in the first nine months would be about $11.4 billion, an increase of 15.7 percent over the same period of 2009, and equal to 23.3 percent of the total export revenue.

Commenting on these figures, the General Statistics Office (GSO) noted that in the first nine months, the rapid growth of exports over imports and the policy on tightening imports and encouraging the consumption of domestically-made goods have helped to reduce the trade deficit.

However, GSO warned that the factors that help curb trade deficit are not solid. Additionally, import turnover tends to rise at the end of the year and the weaker dollar may lead to increases in the trade deficit.

While the trade deficit tended to drop over the last few months, analysts have remarked that the downward trend "cannot say anything." They believe that the trade deficit in 2010 would stay high, though it may not exceed the safety line of 20 percent of export revenue.

GSO has forecast that the trade deficit in 2010 would be $12.5-13 billion, or 18-19 percent of total export revenue. Meanwhile, reporting before the National Assemblys Standing Committee several days ago, the Government admitted the trade deficit would be $13.5 billion, or 19.8 percent of total export revenue.

The draft plan on socio-economic development for 2011 by the Ministry of Planning and Investment predicts that the trade deficit will still be high at $14.6 billion, or 19.5 percent of total export revenue.

In the five-year development plan for 2011-2015, the average trade deficit is estimated at $13 billion per annum. However, thanks to the expected sharp export increases, the ratio of trade deficit on export revenue would be only 15 percent. As planned, Vietnam would import $130 billion worth of goods by 2015 and export $120 billion worth of goods, which means the trade deficit of $10 billion, or 8.3 percent of export revenue by that year.

As such, at least for the next five years, Vietnam will still have to "live with" the trade deficit.

Analysts say that it is understandable why trade deficit is always a part of developing economies like Vietnam, however, it is necessary to reconsider the structure of imports.

GSO observed that import revenue from input materials and equipment for production in the first nine months of 2010 accounted for the biggest proportion, at 91 percent. This shows that, to curb its trade deficit, Vietnam needs to develop supporting industries that can make the components and accessories that enterprises now must import.

Vietnam Business And Financial News Network. Source [english.vietnamnet.vn]

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