2008 trade gap expected to set new record high

(08/01/2008) The Ministry of Industry and Trade (MOIT) has estimated a trade deficit of $16.97bil in 2008, or 28.75% of the year’s total export turnover.

If they are correct, Vietnam will witness a new record trade gap in 2008 (the figure was $12.3bil in 2007, equal to 25.6% of total export turnover), and will evidence that Vietnam is still unable to find any effective measure to reduce the trade gap, since the national economy still heavily relies on material imports.

Imports skyrocket

According to Minister of Industry and Trade Vu Huy Hoang, the trade deficit in 2007 was much higher than previous years.

The fact that two thirds of imports were materials that served local production revealed that local support industries remain underdeveloped and thereby makes Vietnam reliant on material imports.

Mr. Hoang said that in order to achieve a high economic growth rate of 8.5-9% in 2008, Vietnam’s export turnover needs to reach $59.03bil, an increase of 22% over that of 2007. Moreover, it will also have to increase material imports by 25% to $76bil. As such, the trade deficit will reach $16.97bil this year, up by 36.9% over 2007 and equal to 28.75% of total export turnover.

It is estimated that equipment, machinery and accessories will account for 26.3% of total imports in 2008, while materials for local production - 66.2% and consumer goods - 7.5%.

Trade deficit solutions?

Experts all agree that increasing exports is the most effective long-term measure to reduce the trade deficit. However, it is not so easy to carry out.

Experts say that in 2008, Vietnam will have to reduce the exports of staple items, including rice, coal and oil, to ensure domestic food and energy security.

Meanwhile, MOIT fears that Vietnam’s agriculture and seafood will not see high growth rates this year due to bad weather, while the exports of other key items like garments, footwear and computer accessories will face difficulties due to narrowed export markets.

It is expected that seafood exports will bring $4.25bil in turnover (up by 12%), rice $1.5bil (up by 3%), while tea, cashew nuts, rubber and coffee may see slight decreases.

Experts also pointed out the difficulties of reducing imports, especially when the Government has to cut tariffs under AFTA and WTO commitments.

Sources say relevant ministries are considering building up the technical barriers in order to limit imports, protect local production and ensure import quality.