From 2005 to 2023, Vietnam recorded services trade deficits of tens of billions of USD each year, weakening the resilience of its balance of payments.

Economist Assoc. Prof. Dr. Nguyen Thuong Lang, School of Trade and International Economics, National Economics University (NEU) shares his assessment of trade in services in Vietnam and efforts to generate a surplus in this sector.

What services trade sectors currently operate in Vietnam?

Excluding public services, services trade sectors under the General Statistics Office’s classification include transportation, tourism, insurance, finance, and postal and telecommunications services. These services are open to business under international commitments consistent with free trade principles.

Economist Nguyen Thuong Lang

Why should attention be paid to generating a services trade surplus?

It should be emphasized that a surplus reflects an increase in value created. When the value of services exports exceeds imports, the balance is in surplus. Accordingly, services with strong advantages generate the greatest net value gains, while resources such as capital and labor are used efficiently. Developing trade in services also promotes structural transformation toward a larger share of services.

When the balance is in deficit, even services that can be provided domestically are imported. A services trade deficit weakens the resilience of the balance of payments.

The general trend is for countries to strive to maintain a balanced position to avoid inefficient resource allocation. This requires improving domestic providers’ service delivery capacity as trade in services is liberalized.

What has Vietnam’s services trade landscape looked like in recent years?

For 19 consecutive years from 2005 to 2023, the services trade balance consistently recorded deficits. The largest deficit was USD 15.425 billion in 2021, and the smallest was USD 22 million in 2006.

Could you provide details on services trade deficits in specific sectors?

In transportation services, the trade balance remained in deficit throughout 2005–2023. The largest deficit was USD 8.141 billion in 2022, and the smallest was USD 1.023 billion in 2005. The figures show that Vietnam’s capacity to provide international transportation services remains low, requiring many services to be contracted to foreign providers or imported. Investment is needed to enhance Vietnamese providers’ capacity to deliver transportation services.

Vietnam needs to focus on improving its capacity to provide freight transportation services

In insurance services, annual exports averaged USD 63.9 million and imports averaged USD 667.8 million during 2005–2022. The insurance services balance recorded substantial deficits throughout the period, with an upward trend. The largest deficit was USD 962 million in 2014, and the smallest was USD 204 million in 2005. Vietnamese providers’ capacity to deliver international insurance services is quite limited. Greater attention therefore needs to be paid to developing modes of service delivery to balance international insurance services trade.

In financial services, the balance was balanced in two years and in surplus in four years during 2005–2022. The largest surplus was USD 32 million in 2007. The remaining years recorded deficits, with the largest reaching USD 305 million in 2014. This balance indicates that Vietnam primarily imports financial services. Investment is needed to develop efficient financial services providers to reduce this deficit.

What are the bright spots in Vietnam’s services trade surpluses?

In tourism services, the balance was in surplus except during the three years affected by the COVID-19 pandemic—2020, 2021, and 2022—when it recorded deficits. The largest deficit was USD 3.681 billion in 2021. Among the years with tourism services surpluses, 2019 recorded the largest, at USD 5.37 billion. That year also saw a record 18 million international visitor arrivals in Vietnam. In 2023, the tourism services balance recorded a surplus of USD 1.4 billion. Decisive administrative procedure reforms and efforts to promote tourism services create opportunities for larger surpluses in the coming years.

In postal and telecommunications services, the balance generally remained in surplus throughout 2005–2022. Only two years, 2018 and 2020, recorded deficits, at USD 8 million and USD 58 million, respectively. The strong competitiveness of postal and telecommunications enterprises and continuous improvements in service quality contributed to these surpluses. The largest surplus was USD 90 million in 2006. Over the entire period, the annual surplus averaged USD 42.2 million.

Based on these figures, what do you think needs to be done to generate a services trade surplus?

– These figures show that Vietnam’s capacity to provide international services does not match its potential, weakening its balance of payments. Growth in trade in services is already evident alongside economic restructuring and the gradual decline in the shares of industry and agriculture. Furthermore, to fully capitalize on the comprehensive and progressive commitments in free trade agreements with partners within and outside the region, developing trade in services must receive attention commensurate with trade in goods.

A strategy for developing trade in services is therefore needed to mobilize and use development resources efficiently. A target should be set to balance services trade within the next two to three years.

Services that generate surpluses and demonstrate strong comparative advantages should continue to be promoted. Services that record deficits should be reassessed to identify measures to adjust modes of delivery, such as investing more in expanding providers’ capacity, seeking foreign buyers of these services, improving quality, and adjusting service prices to move toward balance and gradually achieve surpluses.

Surpluses and deficits can also be offset against one another to achieve an overall services trade surplus, while developing diverse, high-quality service sectors that generate substantial benefits and strengthening the overall balance of payments.

Thank you!

Link: https://kinhte.congthuong.vn/can-can-thuong-mai-dich-vu-tham-hut-suot-2-thap-ky-di-tim-giai-phap-can-co-308006.html

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