Trade deficit widens on rising imports

At a recent teleconference, Vu Ba Phu, director general of the MoIT Planning Department, said the trade surplus for the nation calculated for both the foreign and domestic sectors combined was US$1.36 billion.

The foreign sector posted a US$9.10 billion surplus for the five-month period January-May while the domestic sector registered a US$7.74 billion deficit.

However, Mr Phu was quick to point out that the combined surplus has already started to turn out of the black and drop back down into the red.

He said in May the foreign and domestic sectors posted an estimated US$400 million shortage on the back of a rising import bill, which is expected to continue to soar through the remainder of the fiscal year.

Mr Phu said the nation’s planned massive infrastructure projects and related capital purchases for items such as machinery and equipment are fuelling the trade imbalance, yet the overall arrearage is within acceptable limits.

Nguyen Bich Lam, general director of the General Statistics Office (GSO), a participant in the conference, agreed with the proposition that there is no cause for alarm over the magnitude of the projected deficiency for the current year.

Given the large number of foreign direct investment projects in the queue, said Mr Lam, the import bill was bound to rise as they require the importation of capital goods that the country does not have the wherewithal to produce.

Most of the projects are expected to be constructed over the next several years, so we need to look at the trade figures over a much longer window – such as the next five years – to get a clearer picture of the health of the economy.

The investment in capital goods is, he said, expected to pay huge dividends in the future, especially by lowering the cost of doing business in Vietnam for the manufacturing segment of the economy, whose competitiveness has been hampered, in particular, by lack of transport and manufacturing infrastructure.

However, it is clear, given the magnitude of the domestic deficiency and its relative size in comparison to the foreign sector’s surplus, that the government needs a clear strategic long-term programme on import reduction augmented by an increase in the competitiveness of domestic companies.

The current imbalance between the foreign and domestic sectors obviously can’t continue on ad infinitum without a serious long term deterioration of the nation’s economy, he said.

Minister Tran Tuan Anh of the MoIT underscored the government’s strategy of developing the manufacturing support segment of the economy to sharpen the competitiveness capacity of the domestic sector.

Mr Anh stressed the importance for domestic businesses to import only essential goods and purchase Made-in-Vietnam products wherever and whenever feasible.

“Developing the support industry is a sure-fire way to curb the trade deficit,” said Mr Anh, adding that “the government targets to have a sustainable import-export balance by 2020.”