According to Nguyen Hoang Minh, deputy director of the State Bank of Vietnam (SBV) HCM City, in the first eight months of 2019, 3.65 billion US dollars of remittances transferred via credit institutions (CIs) in HCM City. It is estimated that for the whole year 2019, the total remittances to HCM City will reach 5.6 billion US dollars, up by about 10 percent compared to the same period of last year.
In recent years, the remittances to Vietnam have been constantly increasing in both absolute and relative numbers to Gross Domestic Product (GDP), etc. It is an important resource for the country’s socio-economic development, contributing to hunger eradication and poverty elimination, improving the living standard of a part of the people.
Unlike foreign loans, remittances are stable source of foreign currency revenue, non-refundable, with no interest and condition, no burden on the economy’s foreign debts. This source of capital helps the country minimise many risks in the process of mobilising capital, and reduce dependence on foreign capital.
In addition, the remittance source is equivalent to the disbursement of Foreign Direct Investment (FDI), but it does not leave many consequences for the economy such as environmental pollution, competition with domestic production, etc. like FDI capital. Another positive point is that since remittances flow directly into residential area, it is highly motivating private investment, creating jobs, raising the income level for remittance recipients and those who benefit from the investments from remittances.
Experts shared that remittance flows should be directed into production and business and become an additional source of the national foreign exchange reserves. Because, in principle, the national foreign exchange reserves should be strong enough to support the SBV to intervene in the foreign exchange market, keeping the stability of the dong and commodity prices. Vietnam’s foreign exchange reserves are increasing, and that is one of the conditions to stabilise the foreign currency market. The SBV also said that the agency would actively monitor the developments to timely take flexible management measures, proactively support exchange rate stability, and ensure foreign currency liquidity of the economy.
With nearly 16 billion US dollars of remittances transferred to Vietnam in 2018 (according to information of the World Bank (WB)), the WB forecasted that remittances would continue to flow strongly into Vietnam this year. Talking to reporter, a financial expert said that the remittances to Vietnam will continue to be positive in 2019. He added that both the exchange rate management policy which helps maintain the dong stability and the US dollar interest rate cut of the US Federal Reserve (Fed) have positively influenced the remittances flowing to Vietnam.
Another economic expert acknowledged that even without the above effects, the remittances to Vietnam still likely to increase because remittances have the community spirit of Vietnamese who want to send money to Vietnam to their relatives before the Lunar New Year. In addition to the exchange rate stability, most overseas Vietnamese who send money to Vietnam, particularly for the purpose of doing business, will pay more attention to the macroeconomic situation in Vietnam to choose investment opportunities.
Particularly, because the US dollar deposit rates have been cut to zero percent per annum for several years, the remittances to Vietnam in recent years are not for the purpose of savings for interest but mainly for investment purposes such as securities, real estate, share purchase, or new business establishment, etc.
There are many reasons for the increasing absorption of remittance inflows in production and business areas. Most of them come from the efforts of the government to improve business environment, entailing many attractive business opportunities. In addition, the fact that Vietnam has signed a series of free trade agreements gives Vietnam many advantages in doing business with partners in the agreements. Remittances are flowing stronger as Vietnam has reduced many taxes for businesses, along with the increasingly firm role of private and foreign businesses, etc.
“In fact, many businesses as well as foreign CIs have had positive view on Vietnam’s policy to attract remittances when there is more and more openness which creates favourable conditions for overseas Vietnamese to transfer money to Vietnam, adding capital to production and business, increasing consumption and promoting investment, etc.,” said an expert.
The SBV’s measures to limit risks in real estate lending will continue to affect the real estate market in 2019. However, this has become an advantage for remittances. Because if the SBV tightens credit, investors will have to find alternative investment sources, including remittances. However, according to experts, along with that, the land policies will have to be changed so that more overseas Vietnamese can invest strongly in Vietnam’s real estate.
From a different perspective, Dr Lawyer Bui Quang Tin is more cautious when he thinks that the unstable real estate market may also have impacts on the investment in this sector of overseas Vietnamese. That is not to mention that the stock market will also be significantly influenced by the global stock market when the US-China trade war is likely to last. Investors will be more cautious in re-evaluating investment source, not to mention that there are many real estate projects face legal risks, while the risk appetite of foreign investors is very limited, especially those who are old overseas Vietnamese.
It is undeniable that the remittances have contributed to improving the balance of payments, helping increase the country’s foreign exchange reserves. Nevertheless, there are also opinions that the overly excessive supply of foreign currency can also create pressure on the economy, and if a large amount of remittances is absorbed, the domestic currency may appreciate, affecting the competitiveness of domestic goods.
