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Exchange rate, budget deficit are high risks for Vietnam economy

The dong/dollar exchange rate and the loss of state budget revenue from tax collections are the two most serious challenges for the national economy, according to a report issued in July by the National Finance Supervision Council.
VietNamNet Bridge - The dong/dollar exchange rate and the loss of state budget revenue from tax collections are the two most serious challenges for the national economy, according to a report issued in July by the National Finance Supervision Council.


The report pointed out that the State Bank’s foreign exchange management policy will have certain influences on domestic factors. The demand for machinery, equipment and input material imports has been increasing in the context of the strong recovery of domestic production.

Meanwhile, the possibility of the US FED raising the prime interest rate by the end of the year would cause the Vietnam dong to be less attractive and affect foreign portfolio investment flow to newly emerging markets, though the impact on Vietnam will be not that significant.

The Vietnamese foreign exchange market in the first seven months of 2015 was stable, with the dong/dollar exchange rate standing between VND21,805 and VND21,815 per dollar.

Three factors can keep the foreign exchange market stable. 

First, the State Bank of Vietnam repeatedly shows its strong determination to stabilize the exchange rate. The bank maintains the dollar sale price at VND21,820 per dollar, which would help ensure the stability of the market.

Second, signs show an improvement in the trade balance in the second half of June. The trade deficit in June was $140 million, lower than the initially predicted $700 million.

Third, the dollar supply is believed to be high this year with kieu hoi (overseas remittance) expected to increase to $13-14 billion by 2015. 

The disbursed foreign direct investment (FDI) capital in the first six months of the year reached $6.3 billion.

The report also showed that the financial system is stable with the credit institutions’ LDR (loan-deposit ratio) increasing slightly from 83.3 percent in 2014 to 84.7 percent by May 2015.

Credit institutions all have reported satisfactory business performance for the first six months of the year. 

With the high credit growth rate of 7.32 percent by July 20, banks’ income from lending has increased by 14.91 percent.

The good news is that the bad debt ratio is on the decrease. A central bank’s report shows that the ratio fell from 3.81 percent in March 2015 to 3.15 percent in May 2015, while the figure is expected to drop below 3 percent before October 1.

The concerns about the state budget deficit is getting bigger as the Ministry of Finance reported that it has implemented only 34 percent of the yearly government bond issuance. 

Meanwhile, the state budget’s unsatisfactory revenue from tax collections was foreseeable. The revenue from crude oil by mid-July fell by 32.5 percent compared with the same period last year. 



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