Moody's Ratings affirms Vietnam's Ba2 rating, maintains stable outlook

Moody's Ratings has retained the Government of Vietnam's issuer and senior unsecured ratings at Ba2 and maintained the stable outlook, the New York-headquartered credit rating giant said Monday.

The latest credit rating upgrade of the Vietnamese government was in September 2022, from Ba3 to Ba2.

The rating affirmation reflects Vietnam's track record of robust long-term growth prospects, trade dynamism, and attractiveness as a foreign investment destination, Moody’s said. Relatively low and stable debt burden, and strong debt affordability also underpins Vietnam's credit strengths, it added.

This is balanced against structural challenges, such as skills shortages and infrastructural limitations, that could start to constrain the country's strong investment-fueled growth going forward, and which reflect governance weaknesses.

Other credit challenges stem from banking system and property sector risks, corporate governance weaknesses for state-owned enterprises (SOEs), and long-term exposure to physical climate risks, Moody’s pointed out.

The stable outlook reflects balanced risks, it highlighted. Upward credit pressures would emerge as a result of improvements in institutions and governance strength, particularly through enhancements in macroprudential policies that strengthen financial stability, thereby limiting contingent liability risks from the banking sector.

Signs of success in addressing structural impediments towards stronger economic potential would also be credit positive.

On the other hand, downward pressures would stem from a reemergence of banking sector stresses that lead to crystallization of contingent liabilities and/or external stresses that disrupt trade flows and access to foreign investments. A possible sharp change in U.S. policies towards Vietnam after the U.S. elections, as well as a sustained rise in domestic political volatility would also pose downward pressure.

Vietnam benefits from FDI, “China+1” strategy

Vietnam continues to be a key beneficiary of a global reconfiguration in supply chains, with firms diversifying their manufacturing base from China given an intensifying geostrategic rivalry with the US.

Large foreign direct investments (FDI) inflows over the past decade have supported the development of a highly-competitive exports sector, fostering robust GDP growth potential and underpinning Vietnam's relatively high economic strength score compared to peers, Moody’s said.

Besides, FDI inflows have been distributed among a wide spectrum of sectors, including electronics, consumer durables, and labor-intensive manufacturing, such as textiles, garments and footwear.

Consequently, the Vietnamese economy has become increasingly diversified, gaining greater competency in higher-value-added manufacturing while retaining its ability to produce lower-value-added goods and primary commodities, such as rice and coffee, according to Moody's.

In the coming years, Vietnam is expected to continue to benefit from the "China+1" thematic, especially as the ecosystem of the export sector increasingly matures with continued investments and expansions by keystone investors like Samsung and Apple, which in turn facilitates and attracts peripheral suppliers into the country.

This will underpin a robust real GDP growth potential of around 6-7% over the medium term, above that of many peers, it added.

Sagarika Chandra, director of Sovereign Ratings for Asia-Pacific at Fitch Ratings, said 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,

Addressing the Fitch Conference on Vietnam 2024 held in Ho Chi Minh City on Tuesday, Chandra said she expected Vietnam to maintain medium-term growth of 6-7%, driven by strong FDI and favorable demographics.

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 that Vietnam’s economic growth could reach 6% this year, thanks to improvements in public investment disbursement and the booming tourism sector.