Vietnam Healthy ..Despite deficit fears

Vietnam healthy despite deficit fears

Vietnam’s external position is “fairly healthy,” in spite of market concerns about the country’s trade deficit, Barclays Plc said.

Vietnam’s economy has “all the hallmarks” of an emerging markets crisis, with growth poised to overheat as inflation quickens and foreign-exchange reserves fall, Nomura Holdings Inc. said this month. A decline in the reserves to less than three months of import cover increases the risks of a balance of payments crisis, Moody’s Economy.com said this month. The recent widening in Vietnam’s monthly trade deficit is making investors “nervous,” London-based Barclays said in a note received Monday. The shortfall rose 23 percent in November from October to the highest monthly figure since the first half of 2008, according to figures from the General Statistics Office. “The trade deficit is going to worsen but fundamental flows such as foreign direct investment and remittances should more than cover the shortfall,” wrote Prakriti Sofat, a Singapore-based economist at Barclays Capital. “Official development assistance flows should also pick up.” The Consultative Group on Vietnam, which is comprised of countries led by Japan and agencies led by the World Bank, this month pledged more than US$8 billion in grants and low-interest loans for the Southeast Asian country, an increase of at least a third from the figure announced a year ago at an annual meeting in Hanoi. While imports of consumer goods such as autos have been picking up, a “booming” construction sector in Vietnam is driving other purchases of overseas goods, Sofat wrote. Machinery, steel “Imports such as machinery and steel are supported by strong foreign direct investment and construction,” Sofat wrote. The purchase of machinery by Vietnam has been helping drive “healthy” industrial production in the country, Ho Chi Minh City-based fund manager VinaCapital Investment Management Ltd. said Monday. While pledges of foreign investment this year are down more than 70 percent from a year ago, actual disbursements for overseas-backed projects are only down about 10 percent, an “impressive inflow” that helps support Vietnam’s balance of payments, fund manager Vietnam Holding Asset Management Ltd. said this month. The devaluation of Vietnam’s currency last month by the central bank was also aimed largely at narrowing the trade deficit, VinaCapital said, citing stronger exports and an increase in the cost of imports as a result of the weaker dong. “The external environment appears to be improving,” VinaCapital said, in a monthly note to investors. “Looking forward to 2010, exports will likely continue to recover, helped by Vietnam’s attractive cost base.” Concern over Vietnam’s balance of payments is “short-term noise,” Ho Chi Minh City-based fund manager Dragon Capital said last week, citing the country’s “minimal external debt.” Vietnam’s external debt is less than 30 percent of the country’s gross domestic product, wrote Sofat of Barclays. Source: Bloomberg