Vietnam’s forex reserves at 1.6 months of import: ADB says

Vietnam’s foreign reserves cover only 1.6 months of import, which’s the lowest among emerging East Asian countries, said Asian Development Bank in its semi-annual publication “Asian Economic Monitor” released in July.

According to trade figures in Jan-July, Vietnam’s foreign reserves are now estimated at $13 billion compared to $12.4 billion estimated by ADB earlier in April, ADB said, adding that continued high current account deficits and low foreign reserves forced Vietnam to devalue the dong by 9.3 percent in February, which makes it the only currency depreciating significantly against the US dollar.

Besides concerns about accelerating inflation in Vietnam which recorded the highest inflation rate in emerging East Asia (20.8 percent in June), Vietnam’s banking system is also threatened by liquidity risk as the ratio of loans to deposits hit 105.9 percent as at the end of March, ranking the second only after South Korea.

ADB suggested Vietnam as well as emerging East Asian countries as follows:

A more flexible monetary approach may be needed in response to potentially persistent and volatile commodity-driven inflation;

A greater exchange rate flexibility can help mitigate the effects of global commodity price surges on domestic prices.

Policymakers could use structural and fiscal policies to boost supply and increase economic flexibility when responding to commodity price changes.

Policymakers could use structural and fiscal policies to boost supply and increase economic flexibility when responding to commodity price changes.

Greater cooperation to ensure (i) adequate trade in food and energy, (ii) effective commodity market regulation, and (iii) appropriate macroeconomic policy can help manage commodity price volatility and inflation.

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial