Ktetaichinh’s Blog

December 22, 2009

Vietnam healthy despite deficit fears

Filed under: Uncategorized — ktetaichinh @ 7:36 pm
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Vietnam’s external position is “fairly healthy,” in spite of market concerns about the country’s trade deficit, Barclays Plc said.

Vietnams economy has all the hallmarks of an emerging markets crisis, with growth poised to overheat as inflation quickens and foreign-exchange reserves fall, Nomura Holdings Inc. said this month. A decline in the reserves to less than three months of import cover increases the risks of a balance of payments crisis, Moodys Economy.com said this month.The recent widening in Vietnams monthly trade deficit is making investors nervous, London-based Barclays said in a note received Monday. The shortfall rose 23 percent in November from October to the highest monthly figure since the first half of 2008, according to figures from the General Statistics Office.

The trade deficit is going to worsen but fundamental flows such as foreign direct investment and remittances should more than cover the shortfall, wrote Prakriti Sofat, a Singapore-based economist at Barclays Capital. Official development assistance flows should also pick up.

The Consultative Group on Vietnam, which is comprised of countries led by Japan and agencies led by the World Bank, this month pledged more than US$8 billion in grants and low-interest loans for the Southeast Asian country, an increase of at least a third from the figure announced a year ago at an annual meeting in Hanoi.

While imports of consumer goods such as autos have been picking up, a booming construction sector in Vietnam is driving other purchases of overseas goods, Sofat wrote.

Machinery, steel

Imports such as machinery and steel are supported by strong foreign direct investment and construction, Sofat wrote. The purchase of machinery by Vietnam has been helping drive healthy industrial production in the country, Ho Chi Minh City-based fund manager VinaCapital Investment Management Ltd. said Monday.

While pledges of foreign investment this year are down more than 70 percent from a year ago, actual disbursements for overseas-backed projects are only down about 10 percent, an impressive inflow that helps support Vietnams balance of payments, fund manager Vietnam Holding Asset Management Ltd. said this month.

The devaluation of Vietnams currency last month by the central bank was also aimed largely at narrowing the trade deficit, VinaCapital said, citing stronger exports and an increase in the cost of imports as a result of the weaker dong.

The external environment appears to be improving, VinaCapital said, in a monthly note to investors. Looking forward to 2010, exports will likely continue to recover, helped by Vietnams attractive cost base.

Concern over Vietnams balance of payments is short-term noise, Ho Chi Minh City-based fund manager Dragon Capital said last week, citing the countrys minimal external debt. Vietnams external debt is less than 30 percent of the countrys gross domestic product, wrote Sofat of Barclays.

Source: Bloomberg

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