Global credit-rating agency Standard and Poor’s (S&P) announced that it is upgrading Vietnam’s long-term sovereign credit rating to “BB” ... from its previous rating of “BB“ This is the first time that Vietnam’s credit rating has been increased since 2010.
According to S&P, the upgrading of Vietnam’s rating recognizes that, “The stable outlook reflects our expectation that Vietnam’s economy will continue to expand rapidly, exemplifying gradual improvements in its policy-making setting and underpinning credit metrics. “
S&P said that the upgrade reflects the following metrics:
• Consistently high GDP growth
• Continued improvements in the government’s institutional settings
• Broadly balanced external accounts and manageable external debt
• Strong foreign direct investment inflow
S&P’s press release on Vietnam’s credit-rating upgrade said: “The Vietnamese government has delivered strong development outcomes since the global financial crisis and its own domestic banking sector crisis at the beginning of this decade.”
“We believe the government's accession as a founding signatory to the Comprehensive and Progressive Agreement to Trans-Pacific Partnership (CPTPP) in late 2018 reflects the government's willingness to adopt and implement necessary reforms, especially in the state sector, over the long term.”
“Continued improvements in macroeconomic stability have supported a strong performance in large foreign-owned and export-focused manufacturing sectors (electronics, mobile phones, and textiles). The robust FDI-oriented economy is fuelling stronger domestic activity, particularly through the private consumption channel.”
Although Vietnam is considered a low middle-income economy, the per capita income has increased from $1,754 in 2012 to $2,752 in 2018. Per capita GDP is estimated at $2,685 in is projected to increase to $4,500 in 2025, $6,500 in 2030 and $10,000 in 2035.
According to S&P, the Vietnamese economy is relatively diversified and strong FDI in manufacturing continued in 2018 despite a challenging external environment. S&P said: “The country's competitive unit labor costs, improving educational standards and constructive demographics implied continued growth in FDI and goods exports,”
Commenting on S&P’s upgrade of Vietnam’s credit-rating, Can Van Luc, Senior Economist from the Bank for Investment and Development said that the upgrade reflected the country’ stable economy, better business climate and improved fiscal policy and said that all these factors will reinforce investor confidence in the country and will help the country attract additional FDI investment.
While S&P’s credit upgrade is positive for the country, it noted that Vietnam still faces several domestic and external risks that can affect the country’s growth. These factors include: a relatively weak banking sector, fiscal deficits, public debt and potential trade disputes.
To rectify these risk factors, S&P recommends that Vietnam speed up its restructuring process, improve fiscal policy, resolve bad debt, and increase the country’s foreign currency reserves.
The sovereign credit-rating upgrade by S&P is the latest upgrade by the “big-three” international credit rating agencies. In May 2018 Fitch Group upgraded Vietnam’s rating to BB from BB- with a “stable” outlook and in August 2018, Moody’s upgraded Vietnam to Ba3 from B1 with a “positive” outlook.