A view of Ho Chi Minh City (Photo: VNA) These factors have contributed toupward pressure on the sovereign’s rating, reflected in its decision to revise Vietnam’sOutlook to Positive, from Stable, when the agency affirmed the rating at ‘BB’on April 1.
According to Fitch Ratings, Vietnam’s publicfinance metrics have improved markedly relative to peers since the start of thepandemic. In December 2019, prior to its April 2020 decision to revise therating Outlook to Stable from Positive amid uncertainties associated with thepandemic, Fitch Ratings had expected that Vietnam’s general government (GG)debt/GDP would stand at 40.3 percent of GDP in 2021, against a median of 41.7percent for ‘BB’ sovereigns and 43.8 percent for ‘BBB’ sovereigns.
Fitch Ratings now expects Vietnam’sGG debt/GDP to average around 39 percent in 2021-2022, but the equivalent peermedian forecasts have risen to around 60 percent and 58 percent for ‘BB’ and‘BBB’ sovereigns, respectively.
The improved fiscal position reflectsVietnam’s broader economic strength. Tourism earnings have been severely hit bythe pandemic, but other parts of the economy have proved robust. Vietnam wasone of only a few countries globally to post positive economic growth in 2020,of 2.9 percent. Growth was buoyed by external demand, with goods exports risingby 6.9 percent. Domestic activity was also supported by the limited spread of COVID-19in the country.
Fitch Ratings expects growth to remain strong, ataround 7 percent annually, in 2021-2022, buoyed by continued export expansionand higher investment. A pandemic fiscal package covering 2020-2021, worthabout 292 trillion VND (about 3.6 percent of 2020 GDP), will reinforce growthprospects.
Goods exports rose by 23.8 percent year-on-year inthe first quarter of 2021, supporting real GDP growth in the quarter of 4.5percent year-on-year. Vietnam is benefiting from trade diversion, new tradeagreements such as the EU-Vietnam Free Trade Agreement (EVFTA) and the RegionalComprehensive Economic Partnership (RCEP), and Vietnam’s cost competitiveness.Rapid increases in public infrastructure investment and FDI should bolster thesustainability of strong medium-term growth.
Fitch Ratings points out that sustained highgrowth that reduces Vietnam’s GDP per capita gap against its peers whilemaintaining macroeconomic stability could put upward pressure on the sovereignrating. Upward pressure could also stem from sustainable fiscal consolidation,a reduction in contingent sovereign liabilities, or improvements inbanking-sector capitalisation, transparency and regulation./.
VNA
