What are the effects of overseas remittances on the Vietnamese economy?

VietNamNet Bridge – If Vietnam uses overseas remittances to its benefit, they could be a powerful driver in the development of the national economy. Conversely, the economy could be put under pressure if they are not deployed effectively.

Vietnam, kieu hoi, FDI, ODA

A recently released report by the Central Institute of Economic Management (CIEM) shows that Vietnam has received $90 billion worth of overseas remittances, or kieu hoi, as they are called in Vietnam, over the last 14 years.

Kieu hoi, or money remitted by overseas Vietnamese to their relatives in Vietnam, is the second largest investment capital in the country, just below foreign direct investment (FDI).

Nguyen Duc Kien, deputy head of the National Assembly’s Economics Committee, believes that the capital source is more important than ODA (official development assistance) and as important as FDI.

Speaking about the role of kieu hoi in Vietnam’s economy, Bui Kien Thanh, a renowned economist, said: “Kieu hoi helps maintain the economy’s vitality.”

The current ICOR (incremental capital output ratio) in Vietnam is 5, which means that in order to create one dollar, Vietnam needs to invest $5.

Thus, Vietnam would need to invest $600 billion to create $12 billion worth of profit, which is equal to one year of overseas remittances.

The latest report by the State Bank of Vietnam showed that Vietnam’s current foreign exchange reserve is $35-36 billion.

This means that if Vietnam did not have $90 billion worth of kieu hoi, its foreign exchange reserve would be minus $65 billion.

In general, if Vietnam did not have kieu hoi, Vietnam would not have enough capital to develop the economy and Vietnamese businesses could not be established or develop.

However, Kien warned that kieu hoi, which could serve as a driver of economic development, may turn out to be putting hard pressure on the economy, if Vietnam cannot use the capital in an effective way.

If kieu hoi is poured into the real estate sector, for example, it would increase property prices. In this case, low-income earners are the losers.

In fact, capital flow to the real estate market can bring both good and bad results. On one hand, it helps develop the market, but on the other hand, speculation drives up prices to unreasonable levels.

Kien noted that Vietnam needs to attract kieu hoi into production and business, and not for spending on consumer goods.

Dat Viet

Vietnam, kieu hoi, FDI, ODA