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VEPR: Huge trade surplus with US may be problematic

Released at: 15:53, 14/10/2019

VEPR: Huge trade surplus with US may be problematic

Photo: Ngoc Lan

Latest report from Vietnam Institute for Economic and Policy Research says country at risk of being listed as a currency manipulator by the US.

by Ngoc Lan

Vietnam is at risk of being listed as a currency manipulator by the US in the near future, according to a quarterly report released by the Vietnam Institute for Economic and Policy Research (VEPR) on October 10.

The report noted that the trade balance in the third quarter was estimated at a surplus for Vietnam of $4.3 billion, of which the domestic economic sector posted a deficit of $4.9 billion and the FDI sector (including crude oil) a surplus of $9.16 billion. In the first eight months of this year, Vietnam’s exports to the US increased by 27 per cent in value over the same period last year, exceeding $39 billion.

According to VEPR, becoming one of the seven largest export partners of the US in the third quarter, along with increasing foreign exchange reserves of more than $71 billion, puts Vietnam at risk of being accused of currency manipulation.

It therefore recommends that the State Bank of Vietnam (SBV) be careful in operating monetary policy, both flexibly and objectively. Vietnam should focus on fiscal, monetary, and exchange rate policies to tackle the instability found in the world economy, adjusting exchange rates flexibly and keeping interest rates stable.

The report also noted that economic growth in Vietnam reached 7.31 per cent in the third quarter and 6.98 per cent in the first nine months of 2019. Trade turnover in the third quarter was $71.76 billion, up 10.86 per cent compared to the same period of 2018. In the first nine months, trade turnover was estimated at $188.42 billion, up 8.9 per cent. China is still the largest import market for Vietnam, reaching $55.5 billion, up 17.3 per cent.

Commenting on the positive points of the macroeconomy in the first nine months, Economist Can Van Luc said exports and improved competitiveness have been bright spots for Vietnam. “In particular, there has been a positive shift in investment capital flows, reducing dependence on bank credit,” he added.

Dr. Pham The Anh, VEPR’s Chief Economist, said the reason for growth in the first nine months is the same as for the same period last year - higher growth in industry is, offsetting the decline of the agricultural sector, while the mining sector soared.

He added, however, that the growth figure may be equal but the quality of growth and the prospects for growth are poorer due to growth depending on resource exploitation and Vietnam recently suffering from environmental pollution, such as air pollution. “The worsening growth prospects is also due to an increase in the average inventory index from 2018 to 17.2 per cent, posing a risk of temporary production stagnation and enterprises scaling back production,” he added.

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