Fitch upgrades Vietnam’s outlook from stable to positive
Fitch said the ratings reflect Vietnam’s strong growth performance and prospects, persistent account surpluses, manageable debt service costs and sustained foreign direct investment (FDI) inflows.
The ratings also reflect a high public debt ratio, low foreign exchange reserve buffers, macro-prudential and banking sector risks, and a number of structural indicators being weaker than those of its peers.
Fitch said in a statement that the adjustment of the outlook to positive is driven by policies focused on macroeconomic stability, including greater exchange rate flexibility and an increasing focus on inflation stability.
The ratings agency expects Vietnam’s GDP to improve gradually to 6.3% in 2017 and 6.4% in 2018, supported by continued FDI inflows into the manufacturing sector and strong private consumption expenditure.
According to Fitch, Vietnam’s foreign exchange reserves continued to improve, thanks to the adoption of a new exchange rate mechanism in early 2016, a strong current account surplus and continued robust FDI inflows.
Outside of the positive aspects, Fitch warned that Vietnam’s public debt reached 63.7% at the end of 2016, just short of the official 65% debt ceiling.
However, Fitch expects the Vietnamese government will avoid breaching the debt ceiling by using a combination of fiscal measures and limits on guarantee issuance.
Proceeds from the State-owned enterprise equitisation programme could also help to contain the debt level.
Fitch said Vietnam’s rating could be downgraded if there is a shift in macroeconomic policy that results in macroeconomic instability, higher inflation and a rise in external imbalances, among other factors.
In April, Moody’s, another credit ratings agency, also upgraded Vietnam’s outlook from stable to positive due to anticipated high FDI inflows, macroeconomic and external stability and stable government debt levels.