S&P Global Ratings revises Vietnam’s outlook to ‘positive’

S&P Global Ratings revises Vietnam’s outlook to ‘positive

S&P GLOBAL Ratings has revised its outlook on Vietnam from ‘stable’ to ‘positive’, while maintaining the country’s ‘BB’ long-term and ‘B’ short-term sovereign credit ratings.

A statement from Vietnam’s Finance Ministry said the decision makes Vietnam the only country in the world to have its outlook improved by Moody’s, S&P and Fitch since the pandemic began, as reported by VnExpress International.

S&P made its decision to reflect the country’s continued economic outperformance amid Covid-19, as well as an improving track record in the government’s administrative processes.

While near-term risks remain elevated following larger domestic outbreaks of Covid-19 in recent weeks, Vietnam’s economy is still well-placed to achieve a healthy recovery over the next one to two years, said the S&P report.

The report also cited improvements in administrative processes. In particular, a directive was introduced last January that empowers Vietnam’s Ministry of Finance to make full and immediate payment of guaranteed government debt obligations directly to the creditor.

This will help prevent delays of the sort that surfaced in October 2019, when the government announced a delayed debt repayment. The delay represented shortcomings in Vietnam’s administrative capacity rather than financial resource stress, said the report.

Still, S&P is affirming its ‘BB’ long-term and ‘B’ short-term ratings on Vietnam at this time, reflecting its modest GDP per capita, legacy banking sector weaknesses, and evolving institutional settings. These weaknesses are balanced against the economy’s strong growth prospects, sound external position, solid external accounts, as well as the ability to attract consistently strong foreign direct investment.

The credit ratings agency added that it may raise its ratings on Vietnam over the next one to two years if the government sustains its track record of effective administrative capacity, in line with its 2020 reforms.

This also assumes that Vietnam’s economy will achieve a healthy recovery, and that the government’s fiscal settings will remain stable despite enduring pandemic risks.

S&P expects Vietnam’s real GDP growth to rebound to 8.5 per cent in 2021, before settling closer to the long-term growth trend from 2022. Vietnam’s real GDP growth has averaged 6 per cent annually from 2013 to 2020. Last year, it was one of the few countries globally to achieve real GDP growth, with a real GDP expansion of 2.9 per cent. GDP per capita also rose to US$3,572 in 2020, from US$1,964 in 2011.

Source: The Business Times