Thu. May 26th, 2022

Standard Poor’s affirmed its ‘BB-‘ long-term and ‘B’ short-term
sovereign credit ratings on Vietnam late last week, with the outlook on
the long-term rating being stable.

The rating agency said that
although the stabilisation measures undertaken over the past two years
have dampened growth, they have also restored macroeconomic stability,
resulting in relatively low and stable inflation, higher confidence in
the local currency, and a much improved external liquidity.

Vietnam’s improving external liquidity and moderate foreign debt position supports its creditworthiness.

The
sovereign’s external borrowings remain modest with low-cost debt and
long maturity, and SP projects that the gross external debt will
decline to about 30 percent of the GDP in the next three years, while
the gross external financing needs will remain in a comfortable range of
between 80 and 90 percent of the sum of the current account receipts
and usable reserves in this period.

“The favourable outlook for
Vietnam’s external profile is based on our expectation of little or no
commercial external borrowing by the sovereign, along with continuing
overall balance-of-payment surpluses, driven by net inflows of foreign
direct investments of about 4 percent of the GDP and a dynamic export
sector,” SP said.

It said that Vietnam’s growth potential
is robust, given an export manufacturing sector that is well-diversified
and increasingly oriented toward higher value-added goods, a rising
share of services and manufacturing in economic output, and the growth
of the private sector.

Exports are also expected to get a further boost from recent and pending free-trade agreements, the agency said.

The
stable outlook on the ratings reflects SP’s expectation that over
the next 12 to 18 months, Vietnam’s policy stance will ensure
macroeconomic stability, cementing the economic improvements and gains
in policy credibility.

The outlook also incorporates SP’s
expectations that the Government’s key reform objectives targeting the
banking sector and State-owned enterprises will continue, and the risks
and inefficiencies posed by these sectors will reduce, SP said.

“We
may raise the ratings if there are indications that Vietnam is able to
generate per capita real GDP growth of more than 5.5 percent in the next
five to 10 years without causing macroeconomic imbalances. We may also
raise the ratings on signs of improved institutional and governance
effectiveness, likely based on greater macroeconomic policy consistency
and tangible progress in structural reforms,” it said.-VNA

By vivian