Addressing deficit needs a rethink

Vietnamese consumers’ hunger for foreign luxury goods is helping to drive the deficit

“Vietnam’s big trade deficit has resulted from huge local investment. A smart choice of priorities for investment and effective use of that investment will solve the root cause of the trade deficit in the short and long-terms,” said Nguyen Dinh Cung, deputy head of the Central Institute for Economic Management (CIEM).

Government data revealed that Vietnam will incur a $13.5 billion trade deficit this year, up 5 per cent from last year.

The deficit is also predicted to amount to around $14.6 billion next year, compared to $12.8 billion reported in 2009.

Speaking to a National Assembly enquiry last week, Minister of Industry and Trade Vu Huy Hoang said the trade deficit would remain a challenge for the economy. A long-lasting deficit would have negative impacts on Vietnam’s trade balance, balance of payments, macro-economy, the local currency’s value and the consumer price index, he said.

Hoang said the government had been taking drastic measures to rein in imports and hence the deficit.

He said accelerating exports to other new markets and maximising advantages created by bilateral and regional free trade agreements that Vietnam was a member to would also help increase exports, hence bringing down trade deficit.

According to the MoIT, Vietnam would possibly see a 23 per cent increase in export revenue to $70-71 billion this year.

Cung said the export promotion measures would do little to fight the trade deficit.

“It is not easy to increase exports as the producers and exporters need time to improve their competitiveness and technology and do market research and promotion.

“The urgent need is to curb imports through cutting local investment, public investment and state-owned enterprise investment, while increasing investment effectiveness towards becoming focused and comprehensive,” Cung said.

State investment for development is predicted to be around $41 billion this year, up 13 per cent from last year and equal to 41 per cent of the country’s gross domestic product in 2010.

Of that the investment from the state budget will account for 22.5 per cent, the government bonds 8.5 per cent and government credit 6.9 per cent.

MoIT figures also showed that local enterprises, including state-run and private firms, spent $38.2 billion on imported products in the first 10 months of this year, accounting for 56.8 per cent of the whole country’s import value and up 8.7 per cent from last year’s corresponding period.

“More focused and prioritised areas of investment will avoid excessive and wasted investment and imports,” Cung said.