October 20, 2010 / 4:12 AM / 7 years ago

UPDATE 2-Vietnam 2010 trade gap seen at $13.5 bln -govt

* Trade deficit expected to grow 9.8 pct from 2009

* Foreign debt seen rising to 42.2 pct of GDP (Adds debt projections, context and bullet points)

By John Ruwitch and Ho Binh Minh

HANOI, Oct 20 (Reuters) - Vietnam on Wednesday projected a stubbornly wide $13.5 billion trade deficit this year despite a rise in exports of 19.1 percent, three times the initial target, adding to pressure on the authorities to devalue the dong again.

Prime Minister Nguyen Tan Dung, reading a report to the opening session of the National Assembly, also forecast economic growth of 7.2 percent in the fourth quarter from a year before, after 7.16 percent in the third quarter.

The government report seen by Reuters forecast gross domestic product would rise next year by between 7 percent and 7.5 percent, following a projected 6.7 percent this year.

This year’s projected trade deficit would be up 9.8 percent from the $12.3 billion gap in 2009. A Reuters poll of 12 economists this month had forecast $12.2 billion for this year.

Vietnam's large trade and budget deficits, plus low foreign exchange reserves, make it vulnerable to another devaluation in the dong VND=, which is pegged to the U.S. dollar.

The central bank devalued the currency on Aug. 17 for the third time since November, cutting the reference rate by 2 percent in what it said was a bid to control the trade deficit.

Speculation of another devaluation has been putting pressure on the currency, making businesses reluctant to sell dollars.

State Bank of Vietnam Governor Nguyen Van Giau was quoted on Tuesday as saying the central bank had no plans to adjust the rate even though the dong has been dropping on the unofficial market, according to a state-run newspaper.

Inflation would be at around 7 percent in 2011, the government report said. The government is aiming for 8 percent this year.

With imports in 2010 seen climbing 16.5 percent, the trade deficit would stay below 20 percent of the country’s export revenue, it said.

The government targets for 2011 need approval by parliament, which had approved a target for exports to grow 6 percent this year.

Dung said he expected foreign debt this year to rise to 42.2 percent of gross domestic product from 30 percent last year. Government debt would be 44.5 percent of GDP while public debt would hit 56.7 percent of GDP, he said in the report.

Vietnam’s credit growth is expected to be 25 percent this year and money supply (M2) would grow 20 percent from 2009, fuelling economic growth of 6.7 percent for the whole year, Dung said.

He estimated the bad debt ratio for the whole of 2010 would be kept below 3 percent of loans, against 2.03 percent at the end of 2009.

The annual trade deficit for 2011 would be kept at less than 20 percent of exports, while the budget deficit would be 5.5 percent of GDP, Dung said in televised remarks.

Vietnam’s investment for development is projected to be equivalent to 40 percent of GDP in 2011, slightly lower than this year when investment would jump 12.9 percent from last year and make up 41 percent of GDP. (Editing by Alan Raybould)

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