Fitch affirms Vietnam’s rating at BB+, unfazed by anti-corruption drive

Fitch Ratings has affirmed Vietnam’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB+’, with a stable outlook.

In a statement last Friday, Fitch said the rating indicates a strong medium-term growth outlook for Vietnam, underpinned by sustained foreign direct investment (FDI) inflows, sound public finances reflected by low government debt levels, and a favorable external debt profile.

“Near-term economic pressures from a corruption crackdown and political reshuffle are unlikely to affect medium-term economic prospects,” Fitch added.

Regarding FDI, Fitch expects Vietnam to maintain medium-term growth of 6-7%, driven by strong FDI and favorable demographics.

An educated workforce, cost competitiveness and entry into numerous regional and global trade agreements should support continued strong FDI inflows, particularly amid the ongoing global supply chain diversification. Another supporting factor is increasing urbanization, leading to the service sector’s expansion, Fitch said.

Registered FDI in Vietnam reached $15.2 billion in the year to June 20, up 13% year-on-year, the Ministry of Planning and Investment reported.

For the country’s anti-corruption drive, Fitch said: “There is limited spillover of the ongoing political reshuffle on the broader macroeconomic and policy outlook.”

About government debt, Fitch noted that general government debt can stabilize at 34% of GDP, below the 'BB' median of 53%. Vietnam’s 2030 fiscal strategy entails keeping public debt (government debt, government-guaranteed debt and sub-national debt) at or below 60% of GDP by 2030.

Discussing foreign-exchange reserves, Fitch emphasized the reserves have improved slightly, reaching $90 billion in January 2024. Fitch foresees “a recovery in exports to sustain a large trade and current account surplus.” This underpins a further improvement in reserves, which Fitch forecasts to average about three months of current external payment cover over 2024-2026.

Regarding the banking sector, with a link to the real estate sector, Fitch highlighted “real estate sector is recovering from an earlier loss of confidence, but if weaknesses are more protracted, they could put pressure on forecasts that asset quality at banks will not deteriorate further.”

A landmark corruption case at a major bank confirmed the presence of financial supervisory shortcomings in Vietnam but does not appear to present new contagion risks to the banking system, Fitch stressed.

The State Bank of Vietnam rates cuts in 2023 aim to support growth and ease credit market stresses associated with the property sector. For 2024, Fitch expects the SBV, the country’s central bank, to keep the policy rate unchanged. But, in the event of excess volatility in the exchange rate, the SBV could shift to a tightening monetary policy stance, Fitch stated.

Another credit rating agency S&P Global on June 20 affirmed a 'BB+' long-term sovereign credit rating and a 'B' short-term rating for Vietnam, adding that its long-term rating outlook is stable.

S&P Global said Vietnam's economy will accelerate over the next 12 months as global demand picks up and the country gradually resolves its domestic challenges.