The trade balance turns negative

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Source: Vietnamese customs, chart by Vietecon.com

Source: Vietnamese customs, chart by Vietecon.com

Big news today is that the trade balance for the first two weeks of April shifted into negative. There are reasons not to get too worked up about this: 1) it’s still relatively small ($1.28bn), 2) these are preliminary numbers that will likely change and 3) the first half of April 2019 also saw a trade deficit, so it could be seasonal.

The trade balance is definitely something to pay attention to, because it may be another use of Vietnam’s strong foreign reserves, which were about $81bn as of January. But that can fall quickly if these start to turn very negative.

Source: VN Express

Source: VN Express

  • Imports

  • Repatriation of foreign investment in stocks or bonds, or direct investment

  • Foreign currency debt payments at both the government and the private level.

But there are some sources of cash. The IMF, WB and the ADB all could be sources of cash, and the government is looking at all three organizations for $1 billion in financing. And there’s exports, which have always been the easy part of the equation and helped build that foreign currency reserve.

Now you have the three main uses of cash: trade pushing dollars out (buying more imports than your exports - for example, textile firms are hurting as orders dry up. ), FDI going out (see chart on foreign investment on the HCMC Stock Exchange), and you have debt payments (interest and principle payments).

I do wonder if there will be a push to limit imports, if the trade balance continues to be negative.

In some good news, there is still FDI in Vietnam. This American company is opening a new factory. And this Japanese firm bought a staffing company. And USAID will be spending $42m to improve Vietnam’s competitiveness (although I have a somewhat cynical view that a not insignificant portion of this will go back to the US in terms of salaries for consultants and profits of implementing partners).

Ultimately, Vietnam is managing well, what with a very successful program to limit COVID-19 spread plus still good exports and a large reserve balance. But it is also prudent for them to look for low-cost debt, because who knows how long this recession will last.