Vietnam says monthly trade deficit is $200 million in July

Vietnam recorded a trade deficit of $200 million or less for the second straight month, after the government devalued the nation’s currency in February by the most since at least 1993 to help reduce the gap.

The trade deficit was $200 million in July, up from a revised shortfall of $160 million in June, based on preliminary figures released by the General Statistics Office in Hanoi today. For the seven months through July, the deficit reached $6.64 billion.

Vietnam devalued the dong for the fourth time in 15 months on Feb. 11, by about 7 percent, to try and curb the shortfall. The State Bank of Vietnam has added $4 billion to its foreign reserves, the government said yesterday, as officials strive to ensure sufficient funds to cover the trade gap and pay creditors.

“What you look at from a balance of payments point of view is the extent to which foreign-exchange reserves cover imports, and at the moment in Vietnam’s case it’s around or less than two months of imports, which is too low,” said Thomas Harr, the Singapore-based head of Asian foreign exchange strategy at Standard Chartered Plc.

The benchmark VN Index of stocks fell 0.9 percent today, while the dong weakened 0.1 percent as of 3:04 p.m. Hanoi time, according to data compiled by Bloomberg.

Vietnam’s “large” trade deficit has weakened its foreign reserves, Goldman Sachs Group, Inc. said in June. Still, the risk of a balance-of-payments crisis is “fairly low” because the deficit is funded by steady inflows such as foreign direct investment and remittances, Goldman Sachs said.

Industrial imports

The Southeast Asian nation mostly exports agricultural and low-cost manufactured products, such as garments and footwear, and imports higher value-added industrial and manufacturing items, partly explaining the size of the trade deficit, Singapore’s DBS Group Holdings Ltd. (DBS) said last month.

The State Bank of Vietnam has added $4 billion to its foreign reserves, according to a document released by Deputy Prime Minister Nguyen Sinh Hung on July 21 in Hanoi. It did not specify the period for the increase.

The reserves climbed by $900 million in May to $13.5 billion, according to the International Monetary Fund.

Exports fell to $8.4 billion in July from a revised $8.46 billion in June, today’s report showed. For the seven months through July, they climbed 33.5 percent to $51.46 billion.

Imports fell to $8.6 billion in July from a revised $8.62 billion in June. For the seven months through July, they advanced 26.2 percent to $58.1 billion.

Vietnam is struggling to contain the highest inflation in Asia and prevent a further credit-rating downgrade. The VN Index has declined about 18 percent in the past year, the world’s third-worst slide, on concern price gains will hurt economic growth.