The issue ratings on Vietnam’s senior unsecured foreign- and local-currency bonds are also affirmed at ‘BB-’. The country ceiling is affirmed at ‘BB-’ and the Short-Term Foreign-Currency IDR at ‘B’, the U.S. rating agency said in a press release on October 30.
The agency said the affirmation of Vietnam’s IDRs with a stable outlook reflects the balance of Vietnam’s recent macroeconomic stabilization and strong macroeconomic outlook against high public debt levels, sizeable budget deficits, and relatively weak structural indicators.
Fitch forecasts a 2015 budget deficit of 6.0% of GDP, compared with an estimated 6.2% of GDP in 2014. The budget deficit is forecast to consolidate to 5.4% of GDP in 2016. “Fitch does not anticipate a change in fiscal policy following the planned central leadership transition in 2016.”
General government gross debt (GGGD) rose to an estimated 47.3% of GDP in 2014, higher than the ‘BB’ median of 42.8% of GDP, and up from 42.3% the year prior.
Fitch expects Vietnam’s GGGD to rise to 49.3% of GDP in 2015 and stabilize at about 50% of GDP as the authorities move towards achieving their stated medium-term fiscal objectives of reducing the official budget deficit to below 4% of GDP.
Fitch expects Vietnam’s current-account balance to narrow to 0.8% of GDP in 2015, following surpluses averaging 4.1% of GDP over the past four years. Imports have surged by 14.3% in value terms during the first ten months of 2015 versus export growth of 8.5%. This has resulted in a trade deficit of $4.1 billion in the year to October 2015 versus a surplus of $2.4 billion in the same period of 2014.
The rating said that Vietnam’s medium-term growth prospects will be significantly enhanced should the Trans-Pacific Partnership (TPP) be successfully ratified by participating countries.
The free-trade elements of the TPP will lower tariff barriers, giving Vietnam greater access to large consumer markets in the US, Japan, Canada and Australia.
TPP signatories accounted for 39% of Vietnam’s total exports and 23% of imports in 2014. An agreement in principal on a separate free-trade deal with the European Union (18% of total exports) will also lower tariff barriers and enhance access to another key export market.
Fitch in November 2014 upgraded Vietnam's Long-Term Foreign and Local Currency IDRs to ‘BB-’ from ‘B+’, citing improved macroeconomic stability and stronger external balance. The outlook was revised to stable from positive.