Export challenges may widen trade deficit

The trade deficit will be a big challenge for the economy this year due to tax incentives the lower the price of imported goods on the Vietnamese market. - Photo cafef.vn

According to preliminary statistics of the General Department of Customs published recently, the nation’s export turnover reached US$20 billion in the first month of this year, down 1.3 per cent year-on-year, while imports reached nearly $20.8 billion, an increase of 3.1 per cent.

The trade deficit occurred because, at the same time as export turnover was down the from same period last year, demand for imported goods increased in both quantity and value ahead of the Lunar New Year.

These figures agree with the forecast released a few days ago by the Ministry of Industry and Trade (MoIT), which said the trade surplus will not be maintained this year due to many visible difficulties. Instead of continuing the record-breaking trade surplus seen in 2017 and 2018, the country’s exports may reverse.

Export turnover in 2019 is expected to reach about $265 billion, up by 8-10 per cent from 2018. The import is about $268 billion, up by 11.7 per cent. Trade deficit is estimated at $3 billion.

In January, the export value of many key products sharply reduced. Exports of phones and devices were down 27.5 per cent to $2.9 billion, and electronics and computers decreased by 5 per cent to $2.3 billion. Meanwhile, import value increased for machines, equipment, parts and tools, which were up 3.8 per cent to $3 billion.

According to the MoIT’s assessment, import demand this year will increase because exports are expected to continue growing in sectors where Viet Nam still depends on import materials, machines, equipment and spare parts.

This year, the implementation of FTAs ​​and major agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union − Vietnam Free Trade Agreement (EVFTA) will create a new wave of investment in Viet Nam by domestic and foreign businesses looking to take advantage of new opportunities. Therefore, imports of machinery and equipment for projects and purchases of materials for production will increase. This will lead to a reversal of the trade balance from a surplus to a deficit.

Minister of Agriculture and Rural Development Nguyen Xuan Cuong said that 2018 was a fruitful year for both the industry and agriculture sectors. The year saw a record $245 billion in export value in the context of declining exports worldwide.

Cuong said with the shifting production structure of the economy, the 2018 surplus of $7.2 billion was a very big number for Vietnam’s economy. However, the forecast for 2019 indicated it will be a very difficult year.

Managing Director of Vietnam National Garment and Textile Group (Vinatex) Cao Huu Hieu told Tien Phong (Vanguard) Newspaper that the growth of the textile and garment industry would be unpredictable in 2019.

“With the trade war, if there is a 15 per cent tax increase, the competition on the market will be very fierce,” Hieu said.

In the face of this situation, Vinatex has to adjust its targets to a growth rate of 8-9 per cent.

"The target for export revenue is about $40 billion,” Hieu said. “We also have to look directly at things that cannot grow forever. We must accept there are years without growth. India and Bangladesh having negative growth in 2018 are lessons for us. In 2019, Vinatex will not expand investment but is focused on intensive investment, replacing machines according to periodic plans.”

Speaking about export challenges at a recent conference on implementing the 2019 mission, Prime Minister Nguyen Xuan Phuc said that if the MoIT did not institute a breakthrough policy for industrialisation and attract more capital from multinational corporations in various fields, Viet Nam’s economy would face a lot of difficulties this year.