Vietnam received nearly US$13.8 billion in remittances in 2017, making it the eighth highest recipient of remittances in the world. After two years of decline, remittances in 2017 grew by 16 percent compared to 2016, accounting for 6.7 percent of the country’s GDP. Ho Chi Minh City continues to remain the highest recipient in the country, with total inflows at US$5.2 billion, an annual increase of 4.5 percent.
The major sources of remittances to Vietnam are Vietnamese export workers and overseas Vietnamese living in other countries. The US accounts for 60 percent of all the remittances sent to Vietnam, while 20 percent are sent from Europe. Other major sources include China, South Korea, and Japan.
Four major channels that are used to send remittances to Vietnam are the commercial banks, economic institutions, customs, and post, with commercial banks alone accounting for 72 percent of all remittances.
Importance of remittance
Remittances sent to Vietnam are not only a key source of capital for the economy but is also important as it is in foreign currency, which contributes to the foreign exchanges and helps in offsetting trade deficit. To stabilize the foreign exchange market in Vietnam, the central bank had implemented a zero deposit rate on foreign currencies in 2016, which led to a decrease in deposits.
Remittances sent to Vietnam were usually used for family support, but in the last few years, it has been redirected towards business investments, real estate, and savings. In recent years, around 70 percent of the remittances go to production and business projects, while 20 percent are directed towards real estate, and only six to seven percent is spent on healthcare, family support, and education.
Effect of US Federal Reserve hikes
Since the last two years, Vietnam’s central bank has kept the deposit rates on US dollar savings at zero, to help stabilize the foreign exchange market. However, with the US Federal Reserve hiking interest rates in 2017 and more hikes expected in 2018, Vietnamese citizens with foreign currency would prefer moving their savings outside Vietnam, which can lead to a decrease in remittances.
Going forward, Vietnam’s central bank needs to offer at least 0.5 to 1 annual deposit rate to encourage foreign currency savings in banks, which are a major source of foreign exchange reserves.
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