Illustrative photo (Photo: VNA) The upgrade reflects Vietnam's favourable medium-term growth outlook, underpinned by robust foreign direct investment (FDI) inflows, which Fitch Ratings expects will continue to drive sustained improvements in its structural credit metrics.
According to the organisation, it has increasing confidence that near-term economic headwinds from property-sector stresses, weak external demand, and delays in policy implementation owing to a corruption crackdown are unlikely to affect medium-term macroeconomic prospects and that policy buffers are sufficient to manage near-term risks.
Fitch Ratings forecasts Vietnam will achieve a medium-term growth of around 7% thanks to its cost competitiveness, educated workforce relative to peers, and entry into regional and global free-trade agreements bode well for continued strong FDI inflows amid global supply chain diversification.
The authorities estimate that FDI projects have disbursed about 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 were upgraded to a comprehensive strategic partnership in September, which could facilitate greater US FDI and trade.
In addition, Vietnam's foreign exchange 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 flows and a larger trade surplus. Vietnam’s reserves are expected to improve further in 2024-2025 with coverage of current external payments averaging about three months, under our baseline.
Vietnam's external debt composition remains favourable, as most of the debt is owed to bilateral and multilaterals. This leads to a lower external debt service burden and supports its high external liquidity ratio.
Fitch Ratings believes that as the Vietnamese Government continues to implement policies to support growth and stablise the macroeconomy, Vietnamese economy will regain growth momentum soon.
According to the Ministry of Finance, when the world economy is facing challenges relating to a slowdown in growth, economy, trade, and financial risks are increasing in countries, the upgraded rating of Fitch Ratings to Vietnam shows the international community's positive assessment of the direction and management efforts of the Party, National Assembly and Government of Vietnam.
The ministry will continue to coordinate with Fitch Ratings, other credit rating agencies, and international organisations to help them have a complete and updated assessment of Vietnam's credit profile./.
