Fitch Ratings (Fitch) has elevated Vietnam’s long-term national credit rating from BB to BB+, accompanied by a ‘Stable’ outlook, as reported by the Ministry of Finance on Friday.
The upgrade reflects the positive indicators in the national economy, with Fitch attributing it to Vietnam’s favorable medium-term growth outlook. The agency emphasizes the role of robust foreign direct investment (FDI) inflows, expecting them to continue fostering sustained improvements in structural credit metrics.
Fitch expresses confidence that potential short-term economic challenges, such as stresses in the property sector, weak external demand, and delays in policy implementation due to a corruption crackdown, are unlikely to hinder medium-term macroeconomic prospects. The commentary notes that policy buffers are deemed sufficient to manage near-term risks.
Fitch’s forecast anticipates Vietnam achieving a medium-term growth of approximately seven percent, citing factors such as cost competitiveness, a well-educated workforce, and participation in regional and global free-trade agreements, which collectively contribute to maintaining robust FDI inflows amidst global supply chain diversification.
The credit rating agency points to the Vietnamese government’s estimate, indicating that FDI projects have disbursed about $2.4 billion (or 6 percent of GDP) as of December 20, 2022, marking a 13.5 percent year-on-year increase.
Vietnam and the U.S. upgraded their diplomatic relations to a comprehensive strategic partnership in September, potentially facilitating increased FDI from the U.S. to Vietnam and further boosting two-way trade.
Encouragingly, Vietnam’s foreign exchange reserves, which experienced a significant decline last year, have gradually improved, reaching US$89 billion by the end of September 2023. This improvement reflects some return of capital flows and a larger trade surplus. Fitch anticipates further enhancement of Vietnam’s reserves over the next two years, maintaining coverage of current external payments at around three months under its baseline.
Despite the third-quarter 2023 recovery of Vietnam’s GDP by 5.3 percent year on year, 1.6 percent higher than the first quarter, Fitch warns that continued reliance on credit growth in the policy mix could pose a challenge to macroeconomic stability.
Fitch’s baseline scenario projects Vietnam’s economic growth to moderate to 4.8 percent in 2023, down from eight percent in 2022, with a vigorous rebound to 6.3 percent in 2024 and 6.5 percent in 2025.
The Ministry of Finance notes that Fitch’s credit rating upgrade for Vietnam comes at a time when the world is grappling with challenges of declining economic and trade growth, with many countries facing financial risks.
