Fitch exec upbeat about Vietnam’s FDI outlook

Vietnam's numerous free trade agreements and the elevation of its relationship with the U.S. to that of a comprehensive strategic partnership are key contributors to a favorable FDI outlook, says Sagarika Chandra, director of Sovereign Ratings for Asia-Pacific at Fitch Ratings.

Addressing the Fitch Conference on Vietnam 2024 held in Ho Chi Minh City Tuesday, Chandra not only mentioned a positive outlook for FDI in Vietnam, but also noted the country should leverage these developments. Tax incentives need to be given more attention, she said.

Reviewing recent FDI trends, Chandra noted that in 2023, FDI inflows into Vietnam reached $23.2 billion, up 3.5% from the previous year. This rise was particularly evident in the manufacturing sector.

“Most FDI is directed towards production. Although there is some investment in real estate, the majority of FDI, especially in terms of advantages and export proportion, is concentrated in manufacturing, with a significant share in electronics,” Chandra told The Investor.

She said Vietnam was expected to continue attracting foreign investment, primarily in electronics. Export turnover from the electronics industry will remain a major contributor to the national economy.

Chandra also pointed out some potential challenges. If contingent liabilities crystallize on the sovereign balance sheet or if fiscal deficits persist, it could hinder the stabilization of government debt in the medium term. Additionally, a sustained decline in foreign-exchange reserves, coupled with pressure on the exchange rate, could weaken the net external creditor position.

She said sustained high growth, without creating economic vulnerabilities, would help close the GDP per capita gap with rating peers.

Chandra also mentioned improvements in the economic policy framework, such as enhanced transparency and a significant reduction in risks associated with contingent liabilities through better accounting and clearer government commitments.

Fitch expected 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 was increasing urbanization, leading to the service sector’s expansion.

Vietnam’s economic growth could reach 6% this year, thanks to improvements in public investment disbursement and the booming tourism sector, Shinhan Bank Vietnam said in its latest forecast in July.

HSBC in July revised up its projection for Vietnam from 6% to 6.5% after seeing a better-than-expected performance in Q2.

Shinhan Bank and HSBC’s estimationd are also within the Vietnamese government’s target of 6-6.5% this year. Goldman Sachs's projection was 5.4%, World Bank 5.5%, the IMF 5.8%, Citigroup 5.9%, the ADB 6%, and Standard Chartered Bank 6%.