Fitch upgrades Vietnam rating to 'BB+'; outlook stable

Fitch Ratings has upgraded Vietnam's Long-Term Foreign-Currency Issuer Default Rating (IDR) to “BB+”, from “BB”, with stable outlook.

The upgrade reflects Vietnam's favorable medium-term growth outlook, underpinned by robust foreign direct investment (FDI) inflows, which Fitch Ratings expects will continue to drive sustained improvements in its structural credit metrics, the credit rating agency said in a Friday release.

“We have increasing confidence that near-term economic headwinds from property-sector stresses, weak external demand and delays in policy implementation owing to a corruption crackdown are unlikely to affect medium-term macroeconomic prospects and that policy buffers are sufficient to manage near-term risks,” it added.

The ratings agency forecast Vietnam’s medium-term economic growth of around 7%. The country’s cost competitiveness, educated workforce relative to peers, and entry into regional and global free-trade agreements bode well for continued strong FDI inflows amid global supply chain diversification.

Vietnam's foreign-exchange reserves improved modestly, to $89 billion as of end-September 2023, after a sharp drop in 2022. This partly reflects some return of capital flows and a larger trade surplus.

Fitch Ratings forecast reserves to improve further in 2024-2025 with coverage of current external payments averaging about three months

The firm expects some growth headwinds in the near term owing to a weaker external environment and some spillover to domestic demand from property-sector stresses.

Vietnam’s growth is forecast to moderate to 4.8% in 2023, from 8% in 2022, but pick up further to 6.3% in 2024 and 6.5% in 2025, Fitch Ratings said, noting that the reliance on credit growth in the policy mix to support economic activity will continue to pose a challenge to macroeconomic stability.

The State Bank of Vietnam, the country’s central bank, is expected to retain an accommodative policy stance in 2024, as some of the property-sector stresses are likely to linger.

The last time Fitch Ratings raised Vietnam’s rating was in May 2018, from “BB-” to “BB.” It affirmed the rating and lifted the outlook to “positive” from “stable” in April 2021.