Fitch Ratings affirms Vietnam’s sovereign rating at ‘BB’ with positive outlook saying the delayed payment on a Vietnamese government-guaranteed loan in September was paid in full within the month and Fitch understands the administrative problems that gave rise to this delay are being addressed.
“Therefore, the delayed payment does not have an immediate impact on the rating,” the rating agency noted in a report released on Thursday.
Fitch’s latest rating has helped soothe concerns caused by last month’s statement made by Moody’s Investors Service.
Moody’s on October 9 placed the Ba3 local and foreign currency issuer and senior unsecured ratings of the Vietnamese Government under review for downgrade as it became aware of delayed payments on an obligation by the Government.
According to Moody’s, while the information available so far points to no or minimal losses for creditors, co-ordination gaps within the administration that the delayed payments may reflect point to creditworthiness that may no longer be consistent with a Ba3 rating.
Moody’s expects to complete the review within three months. During the period, Moody’s will assess the practices and systems the Government has or is instituting, to ensure reliable, timely, and smooth payments.
Moody’s would maintain and confirm Vietnam’s Ba3 rating if the rating review were to conclude there is evidence of clear and effective steps being taken that offer very high confidence all debt obligations will be honoured in a smooth and timely manner.
In the latest rating on Vietnam, Fitch said the country’s economic expansion had been driven by strong foreign investment and steady export growth.
Exports as a share of Vietnamese GDP rose from 2011-18. Vietnam’s current account surpluses helped build external buffers and its external liquidity ratio was well above the ‘BB’ category median, although funding costs would rise over time as Vietnam moves from concessional to market funding.
GDP growth remained strong in the first nine months of 2019 at 7 per cent year-on-year and a similar annual growth rate in the last quarter would keep Vietnam as one of the fastest-growing economies in APAC and in the ‘BB’ rating category globally.
Vietnam appears to be benefiting from production shifts resulting from US-China trade tensions, although large-scale relocation of manufacturing to Vietnam will take time, and the country’s high degree of trade openness means it may feel effects from the trade war, according to Fitch.
The revision of Fitch’s outlook on Vietnam to ‘Positive’ in May reflected improving economic management, current account surpluses, falling government debt, high growth and stable inflation.