The headquarters of the Vietnamese Ministry of Finance. (Source: MoF ) Hanoi (VNS/VNA) - The Vietnamese Ministry of Finance (MoF) has said thatMoody's Investors Service’s decision to place Vietnam’s Ba3 rating under reviewfor downgrade due to delayed payments on an obligation of the VietnameseGovernment was improper as the Government has never delayed meeting debtrepayment obligations.
Moody'sInvestors Service on October 9 placed the Ba3 local and foreign currency issuerand senior unsecured ratings of the Vietnamese Government under review fordowngrade, saying the decision was driven by institutional deficiencies thathave come to light.
Inparticular, Moody's became aware of delayed payments on an obligation by theGovernment.
While theinformation available so far points to no or minimal losses for creditors, thecoordination gaps within the administration that the delayed payments mayreflect, point to creditworthiness that may no longer be consistent with a Ba3rating, the rating agency said.
However,the MoF said that Moody’s decision was inappropriate as it was based on just asingle incident, noting that Moody's needed to clearly classify provisional anddirect payments of Government obligations.
The MoFexplained the delayed payments, which Moody’s mentioned, was guaranteed by theGovernment, meaning it was a provisional obligation, not a direct one.
“TheVietnamese Government has fulfilled the responsibility of the guarantor in thepayment obligation, even when it has yet received formal requests fromcreditors. The Government has never delayed in meeting its payment obligations,”the MoF stressed.
It saidthe Moody's decision, which was just based on a single incident, without takinginto account the Vietnamese Government’s efforts to ensure macroeconomicstability, is not really convinced.
Especially,the ministry noted, that Moody’s issued a press release while being unclear ofprocesses and mechanisms of Government-guaranteed payment obligations couldlead to misunderstanding by international investors about the VietnameseGovernment’s ability to repay its debts and may cause negative impacts on itscredibility and prestige in the international arena.
MoFexpected that Moody's would soon have scrutiny on the issue, saying it waswilling to discuss, work and provide information to Moody's as well as othercredit rating agencies to ensure the agencies have adequate and accurateinformation to clarify the issue.
Moody'sexpects to complete the review within three months. During the review period,Moody’s will assess the practices and systems the government has or is instituting,to ensure reliable, timely, and smooth payment of all obligations.
Accordingto Moody’s, the key driver behind its decision to place Vietnam's rating underreview for downgrade is institutional weaknesses, as revealed by delayedpayments on an obligation by the government.
Theseweaknesses seem to reflect deficient coordination and planning among variousarms of the government, with a degree of opacity around the decisions andactions needed to meet some of the government's obligations; and complexbureaucratic processes that can obstruct the smooth and timely payment ofGovernment obligations.
While Vietnam'slarge foreign exchange reserves and modest government financing requirementsdenote ample capacity to meet debt obligations, the review period will allowMoody's to ascertain if the revealed institutional weaknesses raise the risk offuture delayed or missed payments that could denote weaker willingness to paythan Moody's has previously assessed.
Duringthe review period, Moody's will aim to clarify the nature and likelyeffectiveness of the measures and processes that the government has put or isputting in place to ensure full and timely payment of all obligations.
Independentof the outcome of the rating review, Vietnam's credit profile will remainunderpinned by strong growth potential.
Absentsignificant economic or contingent liability shocks, Moody's expects thegovernment's debt burden to remain broadly stable, just under 50 percent ofGDP. Meanwhile, although the financial health of Vietnamese banks has improvedover recent years, the banking system remains the chief driver of overall eventrisks for the sovereign.
Moody'swould maintain and confirm Vietnam's Ba3 rating if the rating review were toconclude that there is evidence of clear and effective steps being taken thatoffer very high confidence that all debt obligations will be honoured in asmooth and timely manner.
Vietnam'slong-term foreign currency (FC) bond ceiling at Ba1, its long-term FC depositceiling at B1, and its local currency bond and deposit ceilings at Baa3 areunchanged. The short-term FC bond and deposit ceilings remain unchanged at NotPrime./.
VNA
