VietNamNet Bridge - The trade deficit may be narrowing year after year but remains a concern, a minister has said.

The deficit narrowed from US$18 billion in 2008 to $12.8 billion last year, and is likely to be $12 billion this year, or 17.02 per cent of exports, Minister of Industry and Trade Vu Huy Hoang said.

The Import-Export Department said this year, for the first time, exports were growing at a faster rate than imports – 24 per cent against 18.4 per cent – and were likely to top $70.8 billion.

However if the trade deficit persisted in the coming years, it could cause economic instability, a fall in the dong's value, and inflation, Hoang warned.

Around 90 per cent of the trade deficit was caused by the trade with China from whom Viet Nam buys equipment and machinery and for infrastructure development, and raw materials for manufacture, he said.

Machinery and equipment, which are not manufactured in the country, account for a high proportion of imports.

Many industries rely overwhelmingly on imported feedstock.

The textile and garment sector, which is set to exceed an export value of $11 billion this year, for instance, imports nearly 60 per cent of its inputs.

In all, import of machinery and equipment and raw materials and feedstock accounted for up to 93 of total import, Hoang said.

Inessential consumer goods like cars, cosmetics, and mobile phones represent less than 7 per cent.

Under a five-year (2010-15) plan the ministry has drawn up, the trade deficit will be cut to 14 per cent of exports by 2015.

To achieve this, the Ministry is promoting exports and trying to substitute imports of equipment, feedstock, and consumer goods through local manufacture.

It is trying to expand exports to Asian markets, especially China.

An agreement to develop trade between Viet Nam and China in the next five years would be signed soon, Hoang said. Under the pact, China will promote import of 18 products from Viet Nam.

The ministry also plans to restructure exports by speeding up export-processing projects to replace a number of traditional agricultural and mineral products with manufactured goods.

Source: VNS