Fitch Ratings confirms Vietnam’s positive credit outlook with positive forecasts

Rating agency Fitch Ratings has just announced information confirming Vietnam’s long-term debt issuer credit rating (IDR) at ‘BB’ with a positive outlook.

This rating is currently constrained by risks related to state-owned enterprises (SOEs) as well as structural weaknesses in the banking industry.

Regarding the medium-term economic outlook, Fitch Ratings believes that Vietnam’s GDP growth will accelerate to 6.1% in 2022 and 6.3% in 2023 from 2.6% in 2021. Vietnam will be significantly supported by the recovery of domestic demand, higher exports and strong FDI inflows, especially in the manufacturing sector.

Vietnam’s economy once shrunk 6% year-on-year in the third quarter of 2021 due to measures to control the COVID-19 pandemic. Economic activity resumed in the fourth quarter of 2021 when policies were adjusted to better adapt to the new situation of the COVID-19 epidemic, a fact made possible by a very high vaccination rate, almost All adults in Vietnam are now fully vaccinated with the COVID-19 vaccine.

According to Fitch, risks to the economic growth outlook remain, including the economic impact from the Russia-Ukraine tension and sanctions on Russia, shocks related to the COVID-19 pandemic. and high cost of goods. Fitch Ratings forecasts that Vietnam’s GDP growth will be affected as global economic growth is forecast to slow to 3.5% in 2022 from 4.2% previously forecast.

Fitch Ratings analyzes Vietnam’s vulnerability to external shocks. Vietnam’s economic growth prospects are still affected by the shift of external demand due to the large openness of the economy. However, Fitch Ratings believes that Vietnam’s export sector will still grow well in the medium term by benefiting from Vietnam’s cost advantage, trade navigation activities away from China as well as the implementation of agreements. important trade.

Export-related FDI inflows did not wane despite supply disruptions in the third quarter of 2021. Domestic investment in Vietnam remains strong in 2021 at $19.7 billion, down slightly from $20 billion in 2020.

Fitch Ratings also forecasts that tourism will recover in 2022, although some disease control measures are still in place.

According to the database and information obtained by Fitch Ratings, Vietnam will have a current account surplus in 2022 and 2023 from a 1% deficit in 2021.

Fitch Ratings forecasts that foreign exchange reserves will continue to increase when the State Bank of Vietnam (SBV) intervenes in the foreign exchange market to stabilize the VND exchange rate. Vietnam’s foreign exchange reserves rose to a record high of $109.4 billion by the end of 2021, supported by strong FDI inflows.

Fitch believes that the dong exchange rate will increase in 2022, in line with the forecast for a current account surplus, although Fitch insists that the SBV will intervene in the event of strong currency fluctuations or the dong copes with pressures. strong upward price force. Vietnam’s large foreign currency reserves provide Vietnam with an important “shield” against shocks and at the same time support a high liquidity ratio.

The newly approved fiscal stimulus package disbursed for the period 2022-2023 equivalent to about 4% of GDP in 2021 will lead to a fiscal deficit of 4.8% in 2022 and 4.2% of GDP in 2023. The package includes measures such as tax breaks or support for businesses, ensuring social security and job creation, and strengthening the health system.

Vietnam’s government debt is still lower than that of many similarly ranked countries, Fitch pointed out. According to Fitch, compared to countries with the same ‘BB’ rating, the COVID-19 pandemic has had a smaller impact on public finances. Fitch forecasts Vietnam’s debt-to-GDP ratio will rise to 42% in 2023 from 39.7% in 2021, based on adjusted GDP figures. This is lower than the ‘BB’ group averages of 54.5% of GDP in 2022 and 55.3% in 2023.

Vietnam’s per capita income and human development indicators are lower than those of countries with the same credit rating. Fitch estimates per capita income at around $3,685 at the end of 2021, while the average for ‘BB’ countries is $5,261.

Vietnam ranks 38th in the UN’s human development index, while the average level of ‘BB’ countries is 50. In the World Bank’s (WB) governance ranking, Vietnam Men ranked 43rd while the average for the ‘BB’ group of countries was 46.

According to Ngoc Diep