What factors help the VND/USD exchange rate in September continue to increase?

According to WB experts, the continued strengthening of the local currency is due to the improved trade balance and FDI disbursement. After 2 consecutive months of gains, the real effective exchange rate (REER) moved sideways in September.

Improved trade balance

According to data from the General Department of Customs, in September 2021, Vietnam had a trade surplus of about 360 million USD. Accordingly, this is the first month to record a trade surplus since April 2021.

Specifically, Vietnam's import growth in September 2021 tended to slow down, increasing only at 9.5% over the same period last year. With exports heavily dependent on imported inputs and weak domestic demand, the increase in imports in September can be attributed mainly to soaring world commodity prices and supply chains, WB experts said. The global response was disrupted, causing import prices to rise.

Besides, exports were almost flat, mainly due to a decreasing trend in exports of leather shoes, textiles and wood. Specifically, exports of this industry group in September decreased by 28.3% compared to the same period last year 2020.

 

Source: WB

In addition, regulations on social distancing also affect the production capacity of this industry group due to the labor-intensive nature of the production process.

Meanwhile, the export turnover of high-tech products in September continued to increase. Accordingly, compared to the same period in 2020, mobile phones increased by 15.2%; machinery and equipment increased by 10.9%; computers and electronic products increased by 3.0%. Export turnover of metals and metal products also increased strongly at 75.5% due to high metal prices on the world market.

Particularly, service exports continued to be affected by border closures, down 10.8% over the same period last year. Meanwhile, service imports increased by 6.9% year-on-year due to soaring transport and insurance costs.

Foreign direct investment (FDI) continues to increase for the third consecutive month

Regarding the situation of FDI, the report said that FDI registered in September 2021 increased by 26.1% compared to the previous month. This is thanks to the capital inflow into the processing and manufacturing industry, which increased by 90.7% compared to the previous month.

Including a $1.4 billion investment in the electronics industry by a Korean company. In general, in the first 9 months of 2021, the amount of registered FDI capital reached 22.1 billion USD, up 4.4% over the same period in 2020.

Source: WB

"This is a strong recovery in the context of the crisis, showing that foreign investors continue to have confidence in the Vietnamese economy in the long term," the report emphasized.

Besides, thanks to the loosened distancing regulations, realized FDI also tended to recover, increasing by 57.4% compared to August 2021. Generally, in the first nine months of 2021, realized FDI decreased by 3.5% over the same period in 2020.

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