Vietnam’s trade deficit narrowed in October from September, which may ease pressure on a currency that declined last week to the weakest level since at least 1993.
The deficit was $800 million this month, compared with a revised $1.5 billion shortfall in September, based on preliminary figures released by the General Statistics Office in Hanoi today. The trade gap for the 10 months through October was $8.39 billion.
Vietnam has struggled to regain investor confidence hurt by inflation of more than 20 percent, a trade deficit and risks in the banking industry. The government wants to minimize its trade gap as part of a package of measures aimed at stabilizing the economy, along with fighting consumer-price growth and supporting the currency with tighter monetary and fiscal policies.
“In the past, the trade deficit has been very relevant to market expectations on the dong,” Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore, said before the report. “This year, with the trade deficit being relatively modest compared with previous years, inflation has been the main driver in currency expectations in Vietnam.”
The dong was little changed today at 20,953 per dollar as of 10:23 a.m. Vietnam time. The currency was devalued in February by about 7 percent, the most since at least 1993, partly to try and narrow the trade deficit.
At official exchange rates, the currency has weakened 0.6 percent this month. On the free market, the currency traded at 21,775 per dollar on Oct. 24, according to Viet Capital Securities, compared with an official rate of 20,944. The central bank sold about $150 million this month into the local currency market to stabilize the dong, Thoi Bao Ngan Hang newspaper reported Oct. 14.
Exports rose to $8.3 billion in October from a revised $7.94 billion in September, the General Statistics Office estimated. For the 10 months through October, shipments of Vietnamese goods climbed 34.6 percent to $78.03 billion.
Imports fell to $9.1 billion in October from a revised $9.45 billion in September. For the 10 months through October, purchases of goods from abroad jumped 27.2 percent to $86.42 billion.
“Exports have been strong, but going forward demand is likely to be softer because of the situation in Vietnam’s major markets,” said Edwin Gutierrez, a London-based portfolio manager at Aberdeen Asset Management, which oversees about $7 billion in emerging-market debt, including Vietnamese dollar bonds. “Imports are still high.”
Vietnam’s foreign exchange reserves were $15.2 billion at the end of June, the Asian Development Bank estimated, covering 2.1 months of imports.
“The foreign exchange reserves of Vietnam have been partially replenished recently, but still need to be rebuilt,” Tomoyuki Kimura, country director for Vietnam at the Asian Development Bank, said Oct. 19. The currency may “come under downward pressure” as foreign-exchange borrowings mature toward the end of the year, he said.
The trade deficit next year may rise to as much as $12.8 billion from $10 billion this year, the Vietnamese government said in a report released Oct. 20.
Trade deficits require foreign investment to be sustainable and without a pickup in investment there may be concern over whether Vietnam can meet its foreign obligations, said Louis Taylor, the country’s chief executive for Standard Chartered. Vietnamese foreign-exchange reserves may only cover eight to 10 weeks of imports, Taylor estimated on Oct. 19.
“Vietnam is at a critical point,” Taylor said last week. “Investors are currently more likely to sit on the sidelines as they wait to see if prices and the currency can be stabilized and as they sit on the sidelines, the required foreign direct investment numbers start to look more challenging.”
Pledged foreign direct investment to Vietnam fell 22 percent in the 10 months through October from a year earlier to $11.27 billion, while disbursed investment rose 1 percent to $9.1 billion, according to the Ministry of Planning and Investment.