Vietnam's Trade Deficit Widens to Record $17 Billion

Vietnam's trade deficit widened to a record $17 billion in 2008, boosted by higher imports of equipment for projects such as the country's first oil refinery.

The gap expanded 21 percent from $14.1 billion a year earlier, according to preliminary figures from the General Statistics Office in Hanoi. Exports rose 29.5 percent to $62.91 billion and imports climbed 27.5 percent to $79.92 billion.

Vietnam's growing trade deficit created concern in the first half of a currency crisis. While the gap's slower growth since then has eased fears, analysts from companies including Credit Suisse Group AG and CLSA Asia-Pacific Markets forecast further trade deficits in years to come.

The government is pursuing ``an investment drive which continues to suck in imports,'' Anthony Nafte, a Hong Kong-based senior economist at CLSA Asia-Pacific Markets, wrote in a note sent last week. ``The current-account deficit will increase in 2009 as export revenues plummet and the investment drive prevents a steeper fall in imports.''

Morgan Stanley said on May 28 that Vietnam was heading for a ``currency crisis'' similar to that of Thailand's baht in 1997 because the current-account deficit was projected to widen to an ``unsustainably large'' level. The banking system and inflation rate are ``additional complicating factors,'' it had said.

Bank Lending

Vietnam's government tightened bank lending this year as part of an attempt to restrict imports and narrow the pace at which the trade shortfall was widening.

``The authorities have controlled the situation well,'' DWS Vietnam Fund Ltd. said in a note this month, referring to concern about the Vietnamese economy earlier in the year. There has been ``continued improvement in the balance of payments,'' DWS Vietnam said.

Imports in 2008 were led by foreign machinery and equipment purchases, which rose 22 percent to $13.61 billion. Vietnam's first oil refinery has been under construction all year at Dung Quat Bay in the central province of Quang Ngai, and is due to open in February 2009.

The refinery may reduce petroleum product imports, which rose 40 percent by value this year to $10.81 billion, while slipping 2 percent by volume. The average global price of crude oil has been 40 percent higher so far this year than in 2007.

Steel imports rose 24 percent by value to $6.34 billion while decreasing 5 percent by volume, based on the General Statistics Office figures.

Roads, Power Plants

``Even though economic growth is slowing, Vietnam still needs to develop infrastructure like its roads and power plants,'' said Alan Young, chief operating officer of Vietnam Industrial Investments Ltd., which operates steel plants in Vietnam. ``People will still need steel.''

Exports were paced in 2008 by crude oil, which climbed 23 percent by value to $10.45 billion while slipping 8 percent by volume. Garment shipments advanced 18 percent to $9.1 billion, the same pace of growth posted by Vietnamese footwear exports, which totaled $4.7 billion.

The impact of a tougher global economic environment may take as many as six months to show up in export figures, according to Shirley Justice, the Ho Chi Minh City-based chief Vietnam representative for Nike Inc., the world's largest athletic-shoe maker.

`We are already beginning to see the signs, through increased order cancellations,'' Justice said, in e-mailed comments.