Trade deficit tends to narrow if it is calculated on the absolute value but export hardship is sending the trade gap to the safe threshold, thus posing difficult task for management agencies.
The trade deficit in the first two months of 2010 was estimated at US$1.74 billion, equal to 19.6 % of total import spending. According to the Ministry of Planning and Investment, the trade gap may balloon to US$2.6 billion in the first quarter of 2010, which is equal to 18.3 % of export turnover.
Import on the rapid rise
As reported by the Ministry of Planning and Investment, soaring prices of many key goods is one of reasons for the growing import spending and the widening trade gap. The price inflation alone added US$600 million to import spending. Key imports with high price rises included petroleum products (49.9 %), LPG (44.8 %), material plastic (43.2 %), steel (18.9 %) and metal (53 %).
Import turnover in February is estimated at 4.7 billion USD, down 21.1 % compared to the previous month. Total import turnover in two months is estimated at 10.658 billion USD, up 39.6 % compared to same period in 2009.
Import spending in February 2010 was predicted at US$4.7 billion, down 21.1 % compared with the previous month, bringing the import expenditure to US$10.658 billion in the first two months, up 39.6 % over the same period in 2009.
Before that, import expenditure surged to US$7.4 billion in last December. The January - February value slid to US$6 billion. Trade deficit had signs of cooling down, falling from over US$2 billion to less than US$1 billion. One of clear reasons was the second-time adjustment to VND/USD exchange rate to 19,100 from February 11. With higher exchange rate, importers will have to calculate carefully because higher prices will cause sales to slow down. Tightened lending conditions and growing prices of imported materials force importers to consider import reduction.
The domestic economic recovery will accelerate in the coming time, especially in industry and service sectors. However, the Ministry of Planning and Investment still said that the economy still face numerous difficulties. The March export revenues are estimated at US$5.5 billion, up 48.65 % from February while imports are projected to value at US$6.4 billion, up 45.45 %. The trade deficit will thus stand at US$900 million in the coming month.
As a result, export turnover is forecast to reach US$14.2 billion while import expenditure is expected at US$16.8 billion in the first quarter of 2010, causing a trade deficit of US$2.6 billion, accounting for 18.3 % of total export turnover.
Promoting export
To curb trade deficit, Vietnam needs more drastic solutions. Accelerating exports is the best way to narrow the trade gap. The rise in foreign exchange rate, with the US dollar being more valuable, will encourage exports. Moreover, easier loans in foreign currency also help boost exporting activities. Nonetheless, according to statistics, in the first two months of this year, exports increased only 0.1 % over the same period of last year. The ministry said the February export earnings were US$3.9 billion, down 22.2 % from the previous month.
A calculation shows that other than calm, if exclusion of elements sharply increase export volume of gold in 2009 (about 1.4 billion dollars), the export turnover of two months of 2010 increased approximately 17, 1 % over the same period last year.
If extraordinary export of gold in the first months of 2009, estimated at US$1.4 billion, was excluded, the January - February export revenue would rise 17.1 % year on year.
Foreign-led sector made up an estimated US$4.2 billion, excluding crude oil, up 39 % year against the same period of 2009.
However, the comparisons are made with the “bottom-of-crisis” year. Exportation will not immediately recover the strength as pre-crisis years. Key export markets for Vietnamese goods and services have not regained the form as before the crisis happened. Hence, export activities will still encounter difficulties and challenges.
The highly valued import of machines, equipment and materials should be carried out with acceleration of exports. State authorities admitted that the trade deficit is difficult to curb because Vietnam has to import large volumes of raw materials for production, let alone consumer goods and luxury goods. When the market revives, the demand for imported goods is very high. The trade deficit will hence continue to rise, especially when global prices of raw materials increase. The recent forex rate hike also caused the price to rise. The higher price sent up import turnover by US$600 million.
However, exporters will benefit price factors. Experts hope the adjustment to foreign exchange rate will help boost exports. But, the fundamental solution to reduce the import turnover and increase export is to restructure imports, with limitations on non-essential items. Furthermore, local producers should be encouraged to use locally sourced materials.
Kim Nhung
Vietnamese
