(Adds background on declining reserves)
HANOI, Feb 9 (Reuters) - Vietnam’s foreign exchange reserves were “more than $10 billion” at the end of last year, a senior minister said, a remark that may increase concerns about the dwindling level of reserves.
Planning and Investment Minister Vo Hong Phuc’s comment was reported on Wednesday in the state-run Vietnam Economic Times. Phuc provided no details, and it was unclear how much above $10 billion the reserves may be. The exact current level is guarded as a state secret.
Vietnam’s reserves began to slide in 2009 as the country faced economic problems including a depreciating dong, high inflation and wide trade deficits. Reserves were nearly $24 billion at the end of 2008. In December 2009, the central bank estimated reserves at $16 billion.
Foreign banks have estimated as recently as late January the figure to be around, or even below $12 billion.
“The year 2010 left several difficulties as well as favourable points for Vietnam’s economy,” Phuc said.
The central bank has had to devalue the dong five times since mid-2008, including twice last year, and confidence in the currency remains weak.
Since late September it has traded on the unofficial market outside of its mandated band against the dollar. For the latest exchange rates, click .
In early November, in a bid to try to break the cycle of devaluation expectations, a senior official said the government would not devalue before the lunar new year festival in early February and would tap forex reserves to meet dollar demand.
Traders have said that policy dented reserves, and there were widespread expectations that the central bank would devalue the currency again now that Vietnam’s markets had reopened after the lunar new year festival, or Tet.
“Probably there will be one more mini-devaluation of the dong after Lunar New Year to bring unofficial rates closer to the trading bands,” Dragon Capital, a Vietnam-focused fund management firm, said in a report on Tuesday.
Vietnam projects an economic growth this year of 7-7.5 percent while the country struggles with inflation in January that neared a two-year high, large trade and fiscal deficits, the currency under pressure and low foreign exchange reserves.
“The large (trade) deficit combined with high inflation and general uncertainty about the economic environment and policy going forward likely means that pressure on the currency and FX reserves will remain,” JP Morgan said in a report in late January.
Bank of America was more bearish in a report on Jan 20, projecting that foreign exchange reserves would fall to less than one month of imports in the first quarter of 2011 and would run down to “essentially zero” by the second quarter.
“Anecdotal evidence suggests the (central bank) is already rationing FX reserves,” the report said.
Vietnam’s imports in January rose 15.5 percent from a year ago to an estimated $7 billion, on par with the country’s monthly average spendings in 2010, government data show.
The State Bank of Vietnam, the central bank, allows interbank transactions in dollar/dong to move in a band of +/- 3 percent around the mid-point set daily. (Reporting by Ho Binh Minh and John Ruwitch;Editing by Richard Borsuk)