VIETNAM NATIONAL UNIVERSITY, HANOI

INTERNATIONAL SCHOOL

FINAL ASSIGNMENT

INTERNATIONAL ECONOMICS
Topic: Analysis of Vietnam’s balance of payments, including exports and imports,
and comparative advantage and disadvantage, understand its surplus or deficit.

Lecturer : Bui My Trinh

Group member : 1. Nguyen Le Hong Nhung - 19071461

2. Nguyen Duy Phong - 19071468

3. Le Ha Thu Phuong - 19071473

4. Vu Thi Ngoc Nhung - 19071464

5. Dao Chi Cong - 17071035

Course code : INS2005.06

Hanoi, January 2022

 Executive summary

The purpose of this report is to provide assessment about balance of payment for Vietnam. A
researching was conducted to evaluate Vietnam’s balance of payment in general, current
account in particular and to ascertain some of reasons why Vietnam has surplus in current
account. The result indicated the conclusion of current account including (i) export and import,
(ii) comparative advantage and disadvantage, (iii) surplus or deficit of Vietnam’s current
account.
Contents

Introduction ................................................................................................................................ 2

I. Data for Vietnam’s balance of payments in 2020:............................................................. 3

II. Exporting and importing in current account: ..................................................................... 4

1. Trade in goods: ........................................................................................................ 4

2. Trade in services: ..................................................................................................... 4

III. Comparative advantage and disadvantage in current account: ....................................... 5

1. Competitive advantage: ........................................................................................... 5

2. Competitive disadvantage: ...................................................................................... 6

IV. Vietnam’s current account surplus: ................................................................................ 7

1. Net trade in goods: ................................................................................................... 7

2. Net trade in services: ............................................................................................... 8

3. Net primary income: ................................................................................................ 9

4. Net secondary income: .......................................................................................... 10

5. Current account balance: ....................................................................................... 10

V. Conclusion: ...................................................................................................................... 12

Acknowledgment ...................................................................................................................... 13

References ................................................................................................................................ 14

1
 Introduction

Nowadays, before the movement of the world economy is globalization and trade
liberalization, each country has the opportunity to make the most of its comparative advantage
for economic growth and development society. Vietnam is in the process of international
economic integration, which requires promoting comparative advantages and improving
competitiveness in the world market.

However, in the past three years, the occurring of the Covid-19 pandemic changed the whole
world for the economy as a whole. So whether the balance of payment in Vietnam has changed
under the Covid-19 or not. The problem that needs to be raised here is that Vietnam needs to
have clear orientations as well as specific measures to maintain surplus in current account.

To date, the Pandemic Covid-19 is still developing complicatedly in many countries around
the world. It has negatively affected significant economies such as the US, China, Japan, the
European Union, etc. However, Vietnam's economy has shown remarkable resilience during
this crisis period. In particular, in 2020, Vietnam was one of the few countries with a surplus
in Balance of account.

This report based on the data and information from internet and knowledge from subject of
International Economics to show the situation of Vietnam’s balance of payments and consider
the reason why Vietnam still has surplus in current account under the Covid-19.

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I. Data for Vietnam’s balance of payments in 2020:

Source: State Bank of Vietnam

3
 II. Exporting and importing in current account:

1. Trade in goods:

Merchandise export turnover in 2020 is estimated at 281.5 billion USD, up 6.5% compared to
2019 (Thai Ha, 2020). In 2020, there are 31 items with an export turnover of over 1 billion
USD, accounting for 91.9% of total export turnover (Thanh, 2020). Despite being affected by
the Covid-19 epidemic, the export turnover of Vietnam's key products such as machinery,
equipment, tools, and spare parts increased by 48.6% compared to 2019, reaching 27.19 billion
USD; contributed 48.4% to the general merchandise export growth of the country (Anon,
2021). Regarding the structure of export products in 2020, the group of heavy industrial goods
and minerals is estimated up 11.3% over the previous year. The growth of export turnover is
mostly fueled by export items. Phones and accessories are also on the top of this list of exported
products. Besides, the export products also include computers, electronic products, other
machinery, equipment, tools, and spare parts; textiles, and apparel...

For importing in goods, according to GSO, import turnover in 2020 reached 262.4 billion USD,
up 3.6% compared to 2019 (Thai Ha, 2020). In the import industry, Vietnam mainly imports
specialized products for production. Specifically, in the four quarters of 2020, Vietnam's
turnover reached 57.143 million USD in the first quarter and 55.058 million USD in the second
quarter, the third quarter reaching 66,152 million USD, and the fourth quarter reaching 73,661
million USD. In short, in the import of goods, goods mainly include a group of products for
production as machinery, which shows that the manufacturing economy is recovering. The data
also shows that the government has controlled imports well because the goods which do
production and export are imported more than the group of goods that need to be restricted
from import.

Although going through a difficult 2020 due to the pandemic, Vietnam still achieved
achievements in import and export of goods. The data shows that in 2020, Vietnam had a
surplus for trade in goods. This led to Vietnam's net exports in 2020 growing positively.
Specifically, in the current account of the balance of payments, exports are higher than imports.
That shows a trade balance in goods greater than zero and a specific trade surplus of $19.1
billion.

2. Trade in services:

In 2020, experiencing a tumultuous year due to the Covid-19 epidemic, the service industry
was significantly affected. Service export turnover in 2020 is estimated at 6.3 billion USD,
down 68.4% compared to 2019. Of which, tourism services will reach 2.5 billion USD
(accounting for 39.8% of total turnover), down. 78.8%; transportation services reached 727
million USD (accounting for 11.6%), down 83.4%. The service trade deficit in 2020 is 12
billion USD, nearly twice the service export turnover, up 10.5 billion USD compared to 2019.
(Thanh, 2020)

For import, according to GSO, Service import turnover in this year was estimated at 18.3 billion
USD, edged down by 14.5% over last year, of which transport services gained 8.3 billion USD
(accounting for 45.2% of total turnover), increased by 3.5%; tourism services reached 4 billion
USD (sharing 22%), declined by 37.5%. (Thanh, 2020).

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From the data, it can be seen that, in the service trade section of the current account, the trade
balance is less than zero because service imports are larger than exports. Thus, the service
industry has a trade deficit, specifically, 12 billion USD.

III. Comparative advantage and disadvantage in current account:

1. Competitive advantage:

Balance of good 30,578

Balance of service -10,287

Balance of good and service 20,291

Balance of income -14,817

Unilateral transfer 9,458

Balance of current account 14,932

Balance of financial account 8,484

Balance of capital account 0

Source: State bank of Vietnam/ Balance of International Payment 2020

According to the data of the State Bank of Vietnam on the balance of payment in 2020, Vietnam
has significant comparative advantages. Firstly, according to the data of the State Bank of
Vietnam on the balance of payment in 2020, Vietnam has significant comparative advantages.
The first is Vietnam's Balance of goods, specifically 30578. This index shows that Vietnam
exported more physical goods than it imported, which is a bright spot in Vietnam's economic
picture during the Covid-19 epidemic. Exports have overcome difficulties before the pandemic,
maintaining a positive growth rate; trade surplus reached a record high (19.1 billion USD), and
the trade balance maintained a trade surplus for five consecutive years (Ha, T.,2020). It is
impossible not to mention the growing production capacity and the success of the Free Trade
Agreement between Vietnam and the EU (EVFTA), which has brought a large export market
to Vietnam.

The second factor that Vietnam has a competitive advantage is the balance of current transfers
with the number 9,458, showing the abundant amount of money moving into Vietnam from
abroad, which is explained by the sharp increase in remittances to Vietnam. According to
information from the national institutes for finance Vietnam, Vietnamese abroad sent home
USD 17.2 billion worth of Remittances in 2020, making the country the third-largest remittance
recipient in the East Asia and Pacific region (mof.gov.vn,2021). Although it is the time of the
epidemic, remittances to Vietnam still increase, which is a highly favorable thing and will
improve the lives of people in the country. In addition, remittances are also a significant
financial resource for the country's economic development, offsetting the trade balance and
reducing pressure on the exchange rate.

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In addition, the balance of financial accounts shows us a comparative advantage of Vietnam.
The balance of the financial account reflects all investment and financing flows in and out of
that country. That index in 2020 is 8,484, which proves Vietnam's ability and potential to attract
foreign investment. According to UNCTAD, for the first time, Vietnam is in the top 20
countries attracting the most FDI in 2020, ranked 19th, up 5 places compared to 2019.
(UNCTAD,2021) Holding such a high ranking shows that Vietnam is growing innovation,
development, and rising in the international arena.

2. Competitive disadvantage:

Despite gaining many competitive advantages in 2020 and from the data of SBV and through
the calculation, the report shows that Vietnam also has struggled with some competitive
disadvantages. From the table above, there are two balances experiencing competitive
disadvantages, those are: balance of service and balance of income.

First, from the data, the balance of service is -10,287 million USD. This number indicated that
Vietnam imported more services than exports. The factors affecting the value of import and
export of services are similar to those affecting the value of import and export of goods, but
the most important factor affecting the balance of services of countries is the quality of services.
This explains why developing countries like Vietnam with low service quality are always
importing services from abroad, and thereby lead to a balance of services deficit. Moreover, to
cause a large deficit in the country's service balance in 2020, the emergence and adverse effects
of Covid-19 is something that needs to be mentioned. The fact that when the global trade
pandemic is stagnant due to countries having to close to fight the epidemic. Transportation and
tourism services have also been hit hard since then, which means there has been a deficit in the
balance of services.

This deficit is expected to continue in the near future as the outbreak of the disease has not
stopped. However, it is likely to decrease gradually as Vietnam is considered a good control
country for the epidemic as well as many specific measures have been adopted to restore
transport services and the tourism industry to be able to increase inflow for balance of service.

Second, the balance of income is -14,817 million USD. This is considered a large number and
shows that the income from people's overseas investment activities is less than the cost from
this activity. The explanation for this may come from two main reasons. First of all, it is the
outbreak of the disease that causes not only investment activities but many other activities to
decrease. The reason is the size of the investment activity, in this case the domestic enterprises
are limited in size, the capacity is not high, leading to low competitiveness when abroad.
Instead, investment activities will mainly focus on the domestic market and possibly export
goods and services overseas.

Hence, it can be seen that this indicator in the short term will be able to continue to remain
negative, but as the epidemic signal becomes more positive as well as trade between countries
tends to increase, this will be leverage to help reduce this deficit.

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 IV. Vietnam’s current account surplus:

1. Net trade in goods:

Net trade in goods (BoP, current US dollar) – Vietnam.

Source: data.worldbank.org

Although, 2020 is the year with many difficulties and challenges for the whole world, including
Vietnam. Although, Vietnam has an increase in export goods. Specially, over ten years (from
2010 to 2020), continuously increase in export goods. In 2020, Vietnam's export continued to
rise 20 billion, unique from 264,189 billion in 2019 to 282.629 billion in 2020. The import in
goods of Vietnam also increased for the past ten years steadily, and the data import goods of
Vietnam in 2020 was 252,014. Therefore, Vietnam's surplus in trade balance goods was 30,615
billion. (The World Bank, 2020)

Looking at this outstanding figure, it is clear that the government's resolution on the temporary
regulation "Safely adapting, flexibly, effectively controlling the Covid-19 epidemic" was
released timely. Another bright spot in the export picture is overcoming the negative impacts
of the Covid-19 pandemic. In the last month of 2021, Vietnam's goods export activity increased
again. Not only solid products but also the list of billion-dollar export items of Vietnam
continues to grow the position of the "Made in Vietnam" brand in the international market.

Achieving these achievements is thanks to the effectiveness of Vietnam's anti-pandemic work.

In addition, free trade agreements, especially new-generation FTAs, have created competitive
advantages for our goods.

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 2. Net trade in services:

Service imports (BoP, current US dollar) – Vietnam

Source: data.worldbank.org

The statistic shows the data of importing service for Vietnam from 1996 to 2020. Vietnam’s
import service in 2020 decline compared to 2019 (from 18.988 billion in 2019 to 17.887 billion
in 2020). (The World Bank, 2020)

Service exports (BoP, current US dollar) – Vietnam

Source: data.worldbank.org

Specially in 2020, after nearly 20 years, Vietnam continued have the surplus in trading services.
8
In 2020, Vietnam’s export decreased strongly down to 7.6 billion (from 16.637 billion in 2009
to 7.6 billion in 2020)

Hence, the statistic shows that Vietnam will decline in exporting and importing service in 2020.
However, the number of exporting plummets, making the current account of Vietnam in
service, was deficit about 10 billion.

One of the most important reasons to mention is the decline of the tourism industry. Vietnam
tourism in recent years has grown enormously. Specially, it attracts 72 million tourists (2016),
and by 2019 it will be 103 million visitors. Moreover, Vietnam joined the free trade agreement
between Vietnam and the European Union (EVFTA), the Partnership Agreement between
Vietnam and the EU, etc. has a significant impact on Vietnam tourism and has many positive
contributions to the economy's growth. However, in 2019, the Pandemic Covid-19 had a
significant negative effect on the whole world and Vietnam. The tourism industry has many
difficulties maintaining its development position as in the past. According to the General
Statistics Office of Vietnam (GSO), in 2020, international visitors to Vietnam only reached 3.8
million arrivals (a decline of 78.7% compared to 2019). The total revenue from tourists in 2020
is about 13 billion USD (damage caused by the Covid-19 pandemic is 23 billion USD and only
reaching 37.1% of the target of 35 billion USD.

3. Net primary income:

Net primary income (BoP, current US dollar) – Vietnam

Resource: data.worldbank.org

According to The World Bank, Vietnam’s net primary income was reported at -14.817 billion.
Net primary income refers to receipts and payments on direct investment, portfolio investment,
other investments, and receipts on reserve assets. Recent years observed the effort of the
Vietnamese Government in boosting international economic integration through the
participation in many free trade agreements such as the World Trade Organization (WTO), EU-
Vietnam FTA, etc. This led to increase the FDI in 2020 compared to the last year. However,
2020 is a year of great difficulties and challenges for the whole world, including Vietnam. Total
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foreign direct investment (FDI) in Vietnam in 2020 reached 28.5 billion USD (down 25%
compared to 2019). There are only 2.523 new licensed projects (down 35% compared to 2019)
with registered capital of 14.6 billion USD (down 12.5% compared to 2019). (KPMG, 2021)

4. Net secondary income:

Net secondary income (BoP, current US dollar) – Vietnam (9.456 billion)

Resource: data.worldbank.org

According to statistic of The World Bank, net secondary income (BoP, current US$) in
Vietnam was reported at 9.456 billion USD in 2020 (increase compare to 2019 – 9.241 billion).

5. Current account balance:

Current account balance (BoP, current US$) – Vietnam

Sources: data.worldbank.org
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Finally, although Vietnam has a deficit in balance in service and the number of imports and
exports is reduced compared to the years without the Covid-19 pandemic. However, in the
situation of economic difficulties caused by Pandemic Covid-19, Vietnam is still a country
with a current account surplus of about 14,967 billion VND. Especially in the context of the
Covid-19 pandemic, this number is more meaningful than ever. It is predicted to bring Vietnam
into the group of 20 leading economies in international trade.

Sources: https://www.theglobaleconomy.com/compare-countries/

In 2020, Vietnam was one of the most successful export surplus countries. Especially in 2020,
Vietnam has the highest Economic growth compared to Japan, the USA, the United Kingdom,
and China.

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 V. Conclusion:

Vietnam is a country with a developing economy in the ASEAN. In the context of complicated
developments of the Covid-19 pandemic in 2020, international trade is more restricted than
ever, causing many domestic and foreign service, transport, and tourism industries to suffer
heavy losses. This thing led to a large deficit for the balance of non-commodity trade. However,
Vietnam has overcome adversity with measures to control the epidemic's effects, promote its
competitive advantages, and create favorable conditions for maintaining domestic and foreign
supply chains for trade goods such as Covid-19 vaccine coverage, 5k measures, digital
transformation, and on-site labor. The government's flexible policies against the pandemic,
especially diplomatic efforts to participate in bilateral and multilateral free trade agreements
(FTAs), the Partnership Agreement between Vietnam and the EU, World Trade Organization
(WTO), etc. This led to the export of Vietnamese goods going up. Export surplus is also a big
bright spot in our country's economy in 2020, continuing to boost the macro-economy, other
international trade, and investment sectors in Vietnam. However, other countries in the world
are forecast to fall into recession. Vietnam is said to be one of the few countries that will
continue to grow in 2020. That is all of the conclusions for the current account that we have
shown above. However, Vietnam also needs to have more policies to overcome comparative
advantages and be ready to deal with the pandemic to maintain a surplus in the current account,
particularly in economic growth.

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Acknowledgment

First of all, we would like to thank Mrs. Bui My Trinh for imparting knowledge and guidance
to us in the course of International Economics in this semester. You helped us know more about
international economics such as export, import, comparative advantage and disadvantage for
each real country, etc. This helps us understand more about the economic context, apply the
theory we have learned into practice, and have a more realistic view of the economy after
studying the subject.

During the learning process, we had too many difficulties; however, with your careful and
detailed explanation, we can understand the lesson more thoroughly. Moreover, you guided us
on finding out what information to look for in which articles, how to research data, and how to
apply theory to the economic analysis and balance of payment for one country. However, the
challenge came to our team when we did the final assignment. But our team still tried to
research together to develop ideas for the report.

Although we have tried our best, we cannot avoid shortcomings due to our limited knowledge
and experience. We look forward to receiving your comments, evaluations, and suggestions to
improve this report.

Once again, we would like to thank Mrs. Bui My Trinh for your enthusiasm for students. We
hope you will have more health and constantly inspire and knowledge for students.

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[Accessed 12 2022].

Bank, T. W., n.d. Goods exports (BoP, current US$) - Vietnam, s.l.: The World Bank.

GSO, 2021. IMPORTS OF GOODS INCREASED SHARPLY, VIET NAM CONTINUED TO

HAVE A TRADE DEFICIT. [Online]
Available at: https://www.gso.gov.vn/en/data-and-statistics/2021/07/imports-of-goods-
increased-sharply-viet-nam-continued-to-have-a-trade-deficit/

Hasdi Aimon, Anggi Putri Kurniadi, and Sri Ulfa Sentosa, 2020. Determinants and Causality
of Current Account Balance and Foreign Direct Investment: Lower Middle Income Countries
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REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR VIETNAM, s.l.: IMF .

KPMG, 2021. home.kpmg. [Online]

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[Accessed 12 2021].

Michael J. Buckle, PhD, James Seaton, PhD, and Stephen Thomas, PhD, n.d. CHAPTER 6:
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Olivier Blanchard, Francesco Giavazz, Filipa Sa , 2005. THE U.S. CURRENT ACCOUNT
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Pablo Guidotti , Federico Sturzenegger , Agustin Villar, n.d. Aftermaths of Current Account
Crises: Export Growth or Import Contraction?. s.l.:s.n.

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Thương, B. C., 2021. BÁO CÁO XUẤT NHẬP KHẨU VIỆT NAM 2020. s.l.:Nhà xuất bản
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hinh-kinh-te-xa-hoi-quy-iv-va-nam-2020/

moit.gov.vn. 2022. No page title. [ONLINE] Available at: https://moit.gov.vn/tin-tuc/phat-

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 GROUP PARTICIPATION EVALUATION

Course name: International Economics No:

Course code: INS2005.06 Group name: Group 2

No. Full name Student Tasks Participation

ID level
- Executive summary
- Vietnam’s current
1 Nguyễn Lê Hồng Nhung 19071461 account surplus. 100%
(Leader) - Conclusion
- References
- Report

- Comparative advantage
in current account.
2 Nguyễn Duy Phong 19071468 - References 100%

- Exporting and Importing

in current account.
3 Lê Hà Thu Phương 19071473 - Conclusion 100%
- References

- Exporting and Importing

in current account.
4 Vũ Thị Ngọc Nhung 19071464 - Conclusion 100%
- References

- Data for Vietnam’s

balance of payments in
5 Đào Chí Công 17071035 2020.
- Comparative
disadvantage in current 100%
account.
- References

16