The headquarters of the Vietnamese Finance Ministry. (Photo: MoF) Hanoi (VNS/VNA) - TheVietnamese Ministry of Finance (MoF) on December 18 said Moody's InvestorsService’s decision to confirm Vietnam’s rating at Ba3 but change the outlook tonegative was not appropriate, given it is grounded on an isolated incident anddoes not adequately recognise the Vietnamese Government’s instituted policiesand procedures to ensure smooth and timely debt repayment on governmentguaranteed borrowings.
On December 18, Moody'sreleased the latest rating action on Vietnam, confirming the VietnameseGovernment’s Ba3 local and foreign currency issuer and senior unsecuredratings, and changed the outlook to negative, concluding the review fordowngrade that was initiated on October 9, 2019.
Earlier, on October 9, Moody'sannounced to place the Ba3 local and foreign currency issuer and seniorunsecured ratings of the Vietnamese Government under review within three monthsfor downgrade, saying the decision was driven by institutional deficienciesthat have come to light. In particular, Moody's became aware of delayedpayments on an obligation by the Government.
Under the new rating action,Moody’s said the confirmation of the rating reflects its assessment thatenhanced attention by the administration on forthcoming payments of all thegovernment's debt obligations, direct and indirect, reduces the risk of renewedpayment delays.
The Ba3 rating is underpinnedby strong growth potential and economic diversification, supporting theeconomy's capacity to absorb shocks, including a prolonged slowdown in globaltrade. The rating also reflects Moody's expectation that the government'sdirect debt burden will decline gradually, from moderately high levels, anddebt affordability will improve.
Moreover, while the rapidbuild-up of a large and diversified manufacturing sector denotes policyeffectiveness, Moody's assesses the country's institutions and governance to berelatively weak, including administrative deficiencies revealed in the delayeddebt payments. And although the financial health of Vietnamese banks hasimproved over recent years, the banking system remains the chief driver ofoverall event risks for the sovereign.
The negative outlook reflectssome ongoing risk of payment delays on some of the government's indirect debtobligations, in the absence of more tangible and significant measures toimprove the coordination and transparency around debt management within theadministration.
According to the MoF, Moody’sacknowledged in its press release that with a coordinated focus on ensuringthat the payments are planned for and processed promptly, the risk of reneweddelays has significantly receded. Nevertheless, the MoF believes Moody’s signalto keep monitoring Vietnam’s credit profile with a negative outlook isincommensurate with the strong and timely directives of the Government, as wellas the set of drastic measures which the Government of Vietnam, the MoF andcompetent authorities have implemented to improve administrative coordinationand to immediately address the payment delays on the Government’s contingentliabilities, ensuring no loss for creditors.
“On this occasion, the MoFaffirms that the Government of Vietnam always honours all debt obligations in areliable and timely manner as per commitments pledged with development partnersand international financial institutions. This principle has been unambiguouslydemonstrated as the Government of Vietnam has proactively performed theguarantor’s obligation in debt servicing even in the absence of an officialdemand from the creditors,” the MoF said in a statement.
According to the MoF, toprevent potential future payment delays on contingent liability of theGovernment, which may cause unnecessary misconception in the investor communityabout the Government’s debt repayment capacity and adversely affect thecountry’s reputation and national image, the Prime Minister has directed theMoF and competent authorities to allocate sufficient resources to ensure timelypayments on both direct and indirect debt obligations.
“In the coming years, theGovernment of Vietnam shall continue to pursue enabling policies to ensuremacro-economic stability, improve the country’s competitiveness, accelerateinstitutional reforms and utilise resources to ensure debt repayment capacityand debt sustainability,” the MoF noted.
The MoF and competent agenciesare willing to provide information to underline the Government’s firmcommitment to fulfilling debt obligations in a transparent manner, the MoFsaid, expecting that Moody’s, other rating agencies as well as internationalorganisations shall have adequate information and concrete evidence to form amore accurate assessment of Vietnam’s strong credit profile
At the latest rating ofMoody’s, Vietnam's long-term foreign currency (FC) bond ceiling at Ba1, itslong-term FC deposit ceiling at B1 and its local currency bond and depositceilings at Baa3 were unchanged. The short-term FC bond and deposit ceilingsalso remained unchanged at Not Prime./.
VNA
