Forex reserves drop expected as Vietnam paints economic scenarios of oil collapse

Forex reserves drop expected as Vietnam paints economic scenarios of oil collapse

Vietnam would lose nearly US$1.5 billion in its forex reserves if oil fell to $30 a barrel, a think tank said Friday, citing the worst case scenario it outlined for the country’s economy based on the fluctuation of oil prices.

The researchers, from the National Center for Socio-Economic Information and Forecast (NCEIF), told a seminar in Hanoi they had painted three scenarios for the national macro-economy in the case of oil dropping to $50, $40 and $30 a barrel, respectively.

But NCEIF head Luong Van Khoi said Vietnam’s economic growth would still benefit “no matter which of the scenarios actually happens.”

In the worst-case scenario, the $30 a barrel oil price would still add 0.75 percentage points to Vietnam’s GDP growth, and 1.03 percentage points to slowing down inflation. In the meantime, the government’s tax collection would drop by VND8.66 trillion (US$403.57 million) and the forex reserves would lose $1.45 billion.

In the first scenario, the $40 a barrel price would help GDP growth increase by 0.61 percentage points, and inflation drop by 1.11 percentage points. The respective drops in tax collection and forex reserves, meanwhile, would be VND7.64 trillion ($356.04 million) and $1.12 billion.

If oil fell to $50 a barrel, the amount Vietnam would lose in its tax collection and forex reserves would be VND6.65 trillion ($309.91 million) and $1.04 billion, whereas GDP growth would gain 0.48 percentage points and inflation would cool down by 1.14 percentage points.

Vietnam’s GDP in 2014 was estimated at $184 billion, according to The Saigon Times Online.

Khoi thus urged the State Bank of Vietnam to loosen its monetary policy and slash lending interest rates further to boost economic growth.

Meanwhile, economic expert Luu Bich Ho said as crude oil only accounts for 12 percent of the state budget collection, the falling prices do not affect the coffers much.

Although the oil collapse is not expected to have a strong effect on Vietnam’s economy, the country’s oil and gas giant PetroVietnam (PVN) would be greatly affected, Le Viet Trung, from the Vietnam Petroleum Institute, said at the same seminar.

“PVN’s revenue will lose VND2.5 trillion [$116.51 million] whenever oil falls by one U.S. dollar,” he was quoted by The Saigon Times Online as saying.

Trung added, however, that the falling oil price does have a positive impact on the economy.

“The first benefit is fuel prices will drop, which will boost domestic production,” he said.

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