Vietnam's trade deficit "not as bad as it looks,' Barclays says

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Vietnam's trade deficit in the first quarter is "not as bad as it looks," Barclays Plc said, citing foreign direct investment and remittances from overseas that cover the shortfall.

Vietnam's monthly trade gap in March was $1.35 billion, the General Statistics Office in Hanoi said on March 26. The figure marked a 2 percent increase from February and pushes the country's year-to-date trade deficit to $3.5 billion.

The trade deficit has contributed to fragile confidence in Vietnam's currency, Citigroup Inc. said March 26. The dong's black-market exchange rate is now close to the official rate, suggesting that foreign exchange demand and supply are in better balance now than in previous months, wrote Prakriti Sofat, an economist at Barclays Capital in Singapore.

"At first glance, the trade gap looks sizeable," Sofat wrote. Still, "it should be seen in the context of $2.5 billion of foreign direct investment disbursements and $1.5 billion of remittances during the quarter," she said in the note.

Major Vietnamese exports except for crude oil are ahead of last year's pace through the first quarter, Sofat wrote, citing garments, footwear and fishery products as examples. Electronics, furniture and rubber shipments are also performing strongly, according to Barclays, which is the UK's second-biggest bank.

Exports rose 38 percent in March from February. For the year to date, Vietnamese exports fell 2 percent through March to $14 billion, with Sofat citing a "distortion" in the numbers due to a comparison with strong re-exports of gold during the early part of last year. Shipments in the category including precious metals plunged 98 percent in the first quarter.

Improved demand

"We expect exports to start rising in line with improved external demand," Sofat wrote.

Imports, which jumped 38 percent for the year to date through March to $17.5 billion, are being driven by purchases of petroleum products as well as of cotton and electronics, both of which are "intermediate goods that are used in exports," while steel and fertilizer imports eased, she said in the note.

"Demand for autos and motorbikes slowed substantially, a positive development," Sofat wrote.

A "quiet" tightening of monetary policy through the elimination of a cap on medium- and long-term loans should cause imports to stabilize, she said in the note.

Vietnam's central bank said last month it would permit banks to set their own rates on medium- and long-term loans, removing a previous restriction that limited such lending to 150 percent of a central bank benchmark figure, currently set at 8 percent.

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