Econ
Vietnam attempts to minimize Brexit's impacts on its economy
There is a fact that the UK leaving the EU has greatly impacted the world economy. The EU is currently Vietnam’s second biggest export market with an annual turnover of US$30 billion and one of Vietnam’s biggest investors and partners. Economists say Brexit could not have immediate impacts on Vietnam, but long-term impacts must be taken into account.
Minister of Planning and Investment Nguyen Chi Dung has said that the British vote to leave the European Union (EU) would not have immediate impacts on Vietnam, but long-term impacts must be taken into account. According to Dung, the UK and the EU are currently not very big partners in terms of trade and investment with Vietnam. However, the Brexit will affect currency developments in many countries, including trade partners of Vietnam, and thus affect the country in indirect ways.
Experts recommended that Vietnam make prompt policy adjustments to stabilize the economy.
The Pound Sterling and the Euro lost value against the US dollar following Brexit. The Pound fell from US$1.5 to US$1.33. This will affect Vietnam’s exports because most of its contracts are paid in US dollars, which will make Vietnamese products in the EU more expensive. Brexit will also affect the implementation of the FTA Vietnam and the EU signed in 2015.
Economist Can Van Luc said there are two possibilities: one is that the UK will withdraw from the Vietnam-EU FTA and it will take time for some commitments to be adjusted. The second possibility is that the UK will continue in the FTA even though it is no longer an EU member. Luc said that given either possibility, implementation of the FTA will be later than 2018. “All procedures are supposed to be reviewed and completed for the signing of the agreement this year. But as the EU and the UK are busy with Brexit, this process will be delayed. I hope that negotiation conditions and agreement clauses will not change. Otherwise it will take more time for the parties involved to complete all necessary procedures”, Luc emphasised.
Trade and investment cooperation between Vietnam and the UK has grown steadily since they established a strategic partnership in September, 2010. In the long run Brexit could be an opportunity for Vietnam to diversify its export market and boost relations with other Asian countries. In addition to maintaining its exports to the EU, Vietnam will have to promote its export products and improve their quality towards securing a firm foothold in the UK market.
“The market is interested in the European Union – Vietnam Free Trade Agreement (EVFTA), whose progress is likely to slow,” said Can Van Luc, a member of the National Financial and Monetary Advisory Council. The top priority of the EU and the UK now is to deal with Brexit consequences, so Vietnam will have more time for legal reviews with the EVFTA. Vietnam may also negotiate an FTA with the UK, according to Luc.
When asked how Brexit will affect Vietnam’s finance and its foreign investment influx, Vo Tri Thanh, the former deputy director of the Central Institute for Economic Management (CIEM), said Vietnam might face disadvantages in the trade balance because of possible depreciations in the currencies of a number of its trade partners.
But appreciations in some other currencies, such as the Japanese yen, would help improve the competitiveness of Vietnamese exports. “UK direct investments in Vietnam are not too great, but capital flows pouring into Vietnam via the UK are significant. These inflows may slow in the short term due to the UK and EU’s struggling situation,” he said.
“Capital flows will also seek ‘safe havens’. If Vietnam can prove a more stable economy and a better business environment, investors may be more interested in its market. This will depend on macro-policy responses and reforms of the country,” he added. Thanh said that because foreign investors play an important role in the local stock market, the loss is “understandable”. After “overshooting” investors’ reactions, the market is likely to reach a new balancing point that is based on global economic developments and reforms.
Regarding what Vietnamese policymakers should do, Thanh said “Macro policies must be more flexible, although it is not always easy to choose between policy flexibility and economic stability. The co-ordination of monetary and fiscal policies needs special attention, and assuring discipline in State budget operations is necessary for effective monetary policies.” Experts agreed with this point of view as they discussed the issue during an online talk held by investment forum BizLive the same day.
The Pound Sterling and the Euro lost value against the US dollar following Brexit. The Pound fell from US$1.5 to US$1.33. This will affect Vietnam’s exports because most of its contracts are paid in US dollars, which will make Vietnamese products in the EU more expensive. Brexit will also affect the implementation of the FTA Vietnam and the EU signed in 2015.
Economist Can Van Luc said there are two possibilities: one is that the UK will withdraw from the Vietnam-EU FTA and it will take time for some commitments to be adjusted. The second possibility is that the UK will continue in the FTA even though it is no longer an EU member. Luc said that given either possibility, implementation of the FTA will be later than 2018. “All procedures are supposed to be reviewed and completed for the signing of the agreement this year. But as the EU and the UK are busy with Brexit, this process will be delayed. I hope that negotiation conditions and agreement clauses will not change. Otherwise it will take more time for the parties involved to complete all necessary procedures”, Luc emphasised.
Trade and investment cooperation between Vietnam and the UK has grown steadily since they established a strategic partnership in September, 2010. In the long run Brexit could be an opportunity for Vietnam to diversify its export market and boost relations with other Asian countries. In addition to maintaining its exports to the EU, Vietnam will have to promote its export products and improve their quality towards securing a firm foothold in the UK market.
“The market is interested in the European Union – Vietnam Free Trade Agreement (EVFTA), whose progress is likely to slow,” said Can Van Luc, a member of the National Financial and Monetary Advisory Council. The top priority of the EU and the UK now is to deal with Brexit consequences, so Vietnam will have more time for legal reviews with the EVFTA. Vietnam may also negotiate an FTA with the UK, according to Luc.
When asked how Brexit will affect Vietnam’s finance and its foreign investment influx, Vo Tri Thanh, the former deputy director of the Central Institute for Economic Management (CIEM), said Vietnam might face disadvantages in the trade balance because of possible depreciations in the currencies of a number of its trade partners.
But appreciations in some other currencies, such as the Japanese yen, would help improve the competitiveness of Vietnamese exports. “UK direct investments in Vietnam are not too great, but capital flows pouring into Vietnam via the UK are significant. These inflows may slow in the short term due to the UK and EU’s struggling situation,” he said.
“Capital flows will also seek ‘safe havens’. If Vietnam can prove a more stable economy and a better business environment, investors may be more interested in its market. This will depend on macro-policy responses and reforms of the country,” he added. Thanh said that because foreign investors play an important role in the local stock market, the loss is “understandable”. After “overshooting” investors’ reactions, the market is likely to reach a new balancing point that is based on global economic developments and reforms.
Regarding what Vietnamese policymakers should do, Thanh said “Macro policies must be more flexible, although it is not always easy to choose between policy flexibility and economic stability. The co-ordination of monetary and fiscal policies needs special attention, and assuring discipline in State budget operations is necessary for effective monetary policies.” Experts agreed with this point of view as they discussed the issue during an online talk held by investment forum BizLive the same day.
