Fitch affirms Vietnam rating at 'BB-'; outlook stable

Fitch Ratings has affirmed Vietnam's long-term foreign and local currency issuer default rating at 'BB-' with a stable outlook.

The issued ratings on Vietnam's senior unsecured foreign- and local-currency bonds are also affirmed at 'BB-'.

The country ceiling is affirmed at 'BB-' and the short-term foreign-currency issuer default rating (IDR) at 'B'.

The affirmation of Vietnam's IDRs with a stable outlook reflects the following key rating drivers: Vietnam's ratings match its favorable macroeconomic outlook in the medium term and macroeconomic stabilization against high public debt levels, sizeable budget deficits, low foreign exchange reserves and relatively weak structural indicators.

Fitch forecasts a 2015 budget deficit of 6 percent of gross domestic product (GDP), compared with an estimated 6.2 percent of GDP in 2014 based on the agency's adjustments. The country’s budget revenues are estimated at about 2 percent of GDP in 2015 as the government has collected more taxes since then.

The 2016 budget deficit is forecast to increase to 6.5 percent of GDP. Fitch said Vietnamese regulators will have considerable difficulty in keeping the budget deficit under 4 percent of GDP from 2016-2020.

Fitch’s data shows that Vietnam’s public debt in 2015 continued to mount up to an estimated 51.1 percent of GDP, higher than 47.3 percent in 2014 and higher than the average rate of 43.6 percent of countries ranked “BB”.

Fitch forecasts Vietnam’s public debt in 2016 to rise to 53.7 percent.

According to Fitch, public debt will continue to rise in the medium term unless the government tightens fiscal policy.

Fitch said Vietnam's real GDP growth in the first quarter of this year was 5.6 percent, lower than the 6.7 percent in the same period last year but still higher than the average GDP growth rate of 4 percent of “BB”-ranked countries.

Fitch forecasts the Southeast Asian country’s GDP growth rate in 2016 at 6.2 percent.

Vietnam's medium-term growth prospects will be significantly enhanced by the Trans-Pacific Partnership (TPP). The free-trade elements of the TPP will lower tariff barriers, giving Vietnam greater access to large consumer markets like the US, Japan, Canada and Australia, said Fitch.

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