Fitch Ratings boosts Vietnam’s report card

14:10 | 15/06/2018 Finance - Banking

(VEN) - Fitch Ratings has upgraded Vietnam’s credit rating based on its increased foreign exchange reserves, economic growth, stable macroeconomic policies and growing foreign direct investment (FDI) inflows.

fitch ratings boosts vietnams report card

Vietnam’s foreign-exchange reserves continued to improve, rising to USD37 billion by end-2016 and US$49 billion by end-2017

The rating agency said Vietnam’s long-term foreign-currency issuer default rating has been upgraded to BB with a stable outlook, from BB-, and that it expected Vietnam to remain among the fastest-growing economies in the Asia-Pacific region. “Vietnam’s track record of policy-making focused on strong macroeconomic performance has been improving,” the agency said on May 14, adding that growth of 6.7 percent is expected this year amid strong foreign investment levels, continued manufacturing expansion and a boost in private spending.

The upgrade puts Vietnam on the second-highest speculative grade and on par with Costa Rica.

The ratings on Vietnam’s senior unsecured foreign and local currency bonds were also affirmed at ‘BB-’. The Country Ceiling was affirmed at ‘BB’ and the Short-Term Foreign and Local Currency IDRs at ‘B’.

The revision of the Outlook to Positive reflects the following key rating drivers: Vietnam is building a record of policy-making focused on macroeconomic stability. This approach, which includes greater exchange-rate flexibility and an increasing focus on inflation stability, has supported consistently strong levels of FDI and helped maintain robust economic growth.

Vietnam’s real gross domestic product (GDP) grew 6.8 percent in 2017, taking the five-year average real GDP expansion to 6.2 percent against the ‘BB’ median of 3.4 percent. FDI increased 40 percent over 2016 to reach US$21.3 billion in 2017. Economic growth remains supported by the country’s export-oriented manufacturing sector and steady expansion in services.

Vietnam’s foreign-exchange reserves continued to improve, rising to USD37 billion by end-2016 and US$49 billion by end-2017. This improvement was supported by the adoption of a new exchange-rate mechanism in early 2016, which aims at greater exchange-rate flexibility, alongside a strong current account surplus and continued robust FDI inflows. Fitch Ratings has forecast Vietnam’s foreign exchange reserves will continue to rise and may reach US$66 billion by the end of this year.

Fitch expects real GDP growth to improve gradually over the forecast period, to 6.7 percent in 2018, supported by continued FDI inflows into the manufacturing sector and strong private consumption expenditure.

However, the ratings also reflect a high public debt ratio, low foreign-exchange reserve buffers, macro-prudential and banking sector risks and some structural indicators being weaker than those of peers, including per capita income and human development standards. Rapid credit growth is also a risk with financial stability in the medium term. In addition, newly arising debts of large state-owned enterprises remain a weakness. Vietnam’s rating will improve if weaknesses related to the banking sector structure are eased, macroeconomic stability policies are maintained and public finance is strengthened, the agency assessed.

Duy Minh