Vietnam's dong is in "extreme trouble" and is at risk of depreciation, Morgan Stanley said, two days after the International Monetary Fund warned the nation's reserves were at a "low" level.
A deteriorating balance of payments, a weak economy and trade deficit are "exerting significant downward force" on the dong, Stewart Newnham, Asian currency strategist at Morgan Stanley, told a conference in Ho Chi Minh City.
The dong has slid 17 percent since Newnham said in May 2008 the nation was headed for a "currency crisis" similar to that of Thailand's baht in 1997. Vietnam's foreign reserves at the end of September covered 1.8 months of imports, the IMF said on Tuesday, without specifying a level.
The nation's foreign-exchange market has shown "positive" changes in December after "tense signs" in the previous month, the central bank said in a statement on its website Thursday.
The dong, which has dropped 5.2 percent this year, traded little changed at 19,498 per dollar Thursday, according to data compiled by Bloomberg. A depreciation to VND23,000 per dollar in 2011 was "extremely plausible", Newnham said.
"Since 2008 the dong has been caught in that danger zone where the economy is growing below par and still running a trade deficit," Newnham said.
The State Bank of Vietnam weakened the dong's reference rate by 2 percent to 18,932 per dollar on Aug. 18, the third devaluation since November last year. That move came amid concern an increase in imports would raise the risk that the Southeast Asian nation will fall short of capital needed to fund its trade deficit.
The shortfall widened 16 percent to $1.25 billion in November from a revised $1.08 billion in October, according to preliminary figures released on Nov. 25 by the General Statistics Office. The gap was $10.66 billion in the 11 months through November.
"If the financial flows can't pay off the import bill, who is left to pay off the shortfall?" Newnham said. "The answer is, the central bank."