Illustrative photo (Photo: VNA) The upgrade reflects Vietnam's favourable medium-termgrowth outlook, underpinned by robust foreign direct investment (FDI) inflows,which Fitch Ratings expects will continue to drive sustained improvements inits structural credit metrics.
According to the organisation, it has increasingconfidence that near-term economic headwinds from property-sector stresses,weak external demand, and delays in policy implementation owing to a corruptioncrackdown are unlikely to affect medium-term macroeconomic prospects and thatpolicy buffers are sufficient to manage near-term risks.
Fitch Ratings forecasts Vietnam will achieve amedium-term growth of around 7% thanks to its cost competitiveness, educatedworkforce relative to peers, and entry into regional and global free-tradeagreements bode well for continued strong FDI inflows amid global supply chaindiversification.
The authorities estimate that FDI projects have disbursedabout 2.4 billion USD (6% of GDP) as of December 20, 2022, an increase of 13.5%yoy over the same period last year. Diplomatic relations with the US wereupgraded to a comprehensive strategic partnership in September, which couldfacilitate greater US FDI and trade.
In addition, Vietnam's foreignexchange reserves improved modestly, to 89 billion USD as of end-September 2023,after a sharp drop in 2022. This partly reflects some return of capital flowsand a larger trade surplus. Vietnam’s reserves are expected to improve furtherin 2024-2025 with coverage of current external payments averaging about threemonths, under our baseline.
Vietnam's external debt composition remains favourable,as most of the debt is owed to bilateral and multilaterals. This leads to alower external debt service burden and supports its high external liquidityratio.
Fitch Ratings believes that as the Vietnamese Governmentcontinues to implement policies to support growth and stablise themacroeconomy, Vietnamese economy will regain growth momentum soon.
According to the Ministry of Finance, when the worldeconomy is facing challenges relating to a slowdown in growth, economy,trade, and financial risks are increasing in countries, the upgraded rating ofFitch Ratings to Vietnam shows the international community's positiveassessment of the direction and management efforts of the Party, National Assembly and Government of Vietnam.
The ministry will continue to coordinate with FitchRatings, other credit rating agencies, and international organisations to helpthem have a complete and updated assessment of Vietnam's credit profile./.
