Fitch to raise credit rating on Vietnamese sovereign debt

Fitch to raise credit rating on Vietnamese sovereign debt

Fitch Ratings Ltd. raises Vietnam's economic outlook from stability to positive with "BB"

On May 9, Fitch, one of the world's leading credit rating agencies, upgraded Vietnam's country credit rating to "BB" and raised its outlook from stable to positive.

According to Fitch, the reason why Vietnam's economy was rated positive from stability is clear because of its current account surplus, lower government debt levels, high economic growth and stable inflation.

Due to the Vietnamese government's continued efforts to curb debt levels, general government debt is projected to decline from 53% in 2016 to 50.5% of GDP in 2018 and to 46% in 2020. It has been. Vietnam's public debt has also fallen to about 58% of GDP by the end of 2018, after approaching 65% at the end of 2016.

The reason for the decrease in government debt is the stable income and increase in the nominal GDP growth rate due to the privatization of state-owned enterprises. 69 state-owned enterprises in 2017 and 28 state-owned enterprises in 2018 have been privatized.

Maintaining a policy focused on macroeconomic stability, GDP growth in 2018 improved from 6.8% in 2017 to 7.1% in 2018. On the other hand, the inflation rate was stable at 3.5% below the target of 4%. This was supported by strong foreign direct investment (FDI) in manufacturing, services and expansion in the agricultural sector.

Fitch Vietnam is a fast-growing and stable nation

Fitch states that the Vietnam Sovereign Debt Rating has been changed to BB Positive:
"We expect growth to slow to 6.7% in 2019, but still within the target range of 6.6% to 6.8%. Vietnam's open trade growth is global growth. Will be affected by the slowdown, trade changes in the ASEAN region, and trade tensions between the United States and China. Nevertheless, Vietnam will remain the fastest growing and stable economy in the ASEAN region and the world. "

Importantly, Fitch said that Vietnam's government bond liquidity ratio (foreign currency reserves for external debt repayment obligations) is well above the median in the "BB" government bond rating category.

Vulnerability in the field of banking is negative in government bond ratings. Non-performing loans in the financial system are still underreported and the actual asset value is determined to be lower than the book value. However, Fitch predicts that underestimation will improve in the long run.

Fitch Vietnam's low labor costs and the benefits of the US-China trade war

According to Fitch, large direct investments in export-based manufacturing will remain a major growth factor. The registered capital of the manufacturing industry increased from $ 15.9 billion in 2017 to $ 16.6 billion at the end of 2018.
“Vietnam has low labor costs and is an attractive location for foreign investors. In addition, US-China trade tensions are accelerating the relocation of manufacturing bases, supply chain changes and supplier changes. And Vietnam is likely to benefit. "

* Sovereign debt
Bonds issued and guaranteed by the central government, such as government bonds and government agency bonds.

 

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