Vietnam achieves stable growth: Fitch Ratings
Vietnam achieves stable growth: Fitch Ratings
Diverging Asia Pacific frontier market sovereign ratings in recent years reflect Vietnam’s lengthening record of macroeconomic stability, Fitch Ratings said in a recent statement.
“Our positive outlook on Vietnam suggests this divergence could continue, notwithstanding the varying degrees of stabilization seen in the other three sovereigns’ credit profiles,” said the U.S.-based rating agency.
Fitch Ratings has kept Vietnam’s sovereign rating at ‘BB.’ “The revision of our outlook on Vietnam to positive in May reflected improving economic management, current account surpluses, falling government debt, high growth and stable inflation,” the agency explained.
The delayed payment on a Vietnamese government-guaranteed loan in September 2019 was paid in full within the month.
Fitch understood that “the administrative problems that gave rise to this delay are being addressed. Therefore, the delayed payment does not have an immediate impact on the rating.”
Last month, Moody’s Investors Service put the Ba3 local and foreign currency issuer and senior unsecured ratings of the Vietnamese Government under review as the American credit rating agency became aware of delayed payments on a government debt obligation, driven by “institutional deficiencies.”
Moody’s said these weaknesses seemed to reflect deficient coordination and planning among various arms of the Government, with a degree of opacity around the decisions and actions needed to meet some of the Government’s obligations, and complex bureaucratic processes that can obstruct the smooth and timely payment of government obligations.
The agency also pointed out that there were “no or minimal losses” to creditors, but the coordination gaps within the administration that the delayed payments may reflect point to creditworthiness that may no longer be consistent with a Ba3 rating.
Vietnam’s large foreign exchange reserves and modest government financing requirements denote ample capacity to meet debt obligations, it added.
However, the three-month review period will allow the agency to determine whether the revealed institutional weaknesses raise the risk of future delayed or missed payments that could denote a weaker willingness to pay than Moody’s has previously assessed.
In the latest rating on Vietnam, Fitch Ratings said that the country’s economic expansion has been driven by strong foreign direct investment, mostly into the manufacturing sector, and steady export growth.
The agency compared that exports as a share of Vietnamese gross domestic product (GDP) rose from 2011 to 2018, while the ratio fell in both Sri Lanka and Pakistan.
“Vietnam’s current account surpluses have helped build up external buffers and its external liquidity ratio is well above the ‘BB’ category median, although funding costs will rise over time as Vietnam moves from concessional to market funding,” added the agency.
Vietnam’s GDP growth remained strong between January and September this year, at 7% from a year earlier. Fitch said a similar annual growth rate in the last quarter would maintain Vietnam as one of the fastest-growing economies in the Asia Pacific region and in the ‘BB’ rating category globally.
Vietnam appears to be benefitting from near term trade diversion and production shifts resulting from U.S.-China trade tensions. However, Fitch Ratings voices its concern that large-scale relocation of manufacturing to Vietnam will take time, and the country’s high degree of trade openness means it may ultimately feel affects from the trade war.
