May’s export growth dropped to 18.8% year-on-year from a 39.5% gain in April, while imports grew 28.1%, also down from 37.5% in April. This is the first time in 13 months that imports outpaced exports. As a result, the trade deficit widened to a 17-month high of US$1.7 billion, which made up 22.7% of total export, according to the General Statistics Office. In the last five months, month-on-month trade gap has also been an upward trend.

In terms of import mechanism, besides the rising import value of capital goods including electronic machinery, tools, equipment, textile and clothing materials, the import value of completed automobiles has been also on an upward trend, at a staggering US$1.3 billion in January-May, up 23% from the same period last year.

Automobiles under nine seats, wines, cosmetics and mobile phones are considered unnecessary goods which should be restricted imports. In last week’s online meeting, Minister of Industry and Trade Vu Huy Hoang underlined the importance of tightening the import of non-essential commodities.

However, this year the country has imported 18,000 automobiles under nine seats. According to Hoang, an estimated 30,000 automobiles under this category being imported each year will consume approximately US$1 billion but they serve only a small part of the population.

Therefore, the ministry recently issued a circular limiting automobile imports.

Circular 20, expected to come into force on June 26, tightens imports by requiring a letter of attorney from producers, contracts legalized by Vietnamese diplomatic offices overseas as well as maintenance facility certificates granted by the Ministry of Transport.

The circular has been met with a strong response from automobiles importers. However, Hoang in the meeting stated that he wouldn’t make any concession.

In a report on Vietnam’s economy issued at the end of last month, Standard Chartered Bank said in addition to inflation, the trade deficit is also a real concern.

Vietnam’s monthly trade deficit was US$1.4 billion in March and April, pushing the average monthly rate to US$1.2 billion for the first four months of the year. “This is in line with our full-year trade deficit forecast of US$12-15 billion (about 13% of GDP) for 2011,” Standard Chartered Bank said and added it deserved close monitoring in case it gains further momentum in the months ahead.

“While local investors have been primarily concerned about inflation in the past six months, it was the combination of high inflation and a widening trade deficit that led to massive depreciation pressure on the Vietnam dong back in 2008,” said the report.

Meanwhile, economist Pham Do Chi said in a local newspaper on Wednesday that he expected the trade deficit would be US$16 billion this year and that will put pressure on the forex rate at the end of the year.

He earlier expected the country’s Balance of Payments this year could not be in surplus like the expectation of US$1 billion among members of the National Advisory Council for Monetary Policies and the expectation of US$2 billion by the Governor Nguyen Van Giau earlier this year.

Le Tham Duong, head of Business Management Faculty of the HCMC Banking University, said that he believed it will be US$1 billion in surplus. However, it strongly depends on how the authorities implement Resolution 11 aiming to curb inflation and stabilize the market.

The resolution mentions to limit the import of unnecessary goods, however, there are only a few technical barriers to prevent these imports. Meanwhile, the resolution also mentions to support exports but it is easy to see that exporters are missing out on contracts due to a lack of capital. “There has been no policy supporting exporters specifically,” Duong added.

He also said that if the Government does not have enough a determination to implement Resolution 11, trade deficit can rise to new highs in the coming months and the Balance of Payments will fall into deficit as a result.

Source: SaigonTimes.