Vietnam’s general government gross debt (GGGD) is predicted to rise to 53.7% of GDP
in 2016 and rise over the medium-term without a tightening of fiscal policy settings, Fitch Ratings
has said in a press release.
The country’s GGGD continued to rise in 2015 to an estimated 51.1% of GDP, up from 47.3% in 2014, and higher than the ‘BB’ median of 43.6%.
Fitch estimates the 2015 fiscal deficit
to have fallen to 5.8% of GDP, down from 6.2% in 2014, based on the agency's adjusted measure that more closely aligns fiscal accounts with the Government Finance Statistics standard.
Fiscal revenues outperformed by approximately 2.0% of GDP in 2015 due to strong growth in domestic tax collection. “We anticipate the majority of the 2015 revenue outperformance to be carried forward and spent in the current fiscal year, which suggests the 2016 adjusted fiscal deficit could rise to about 6.5% of GDP,” Fitch said.
“Fitch expects the authorities efforts to reduce the budget deficit to below 4.0% of GDP over 2016-2020 will prove challenging in light of upcoming enhancements to fiscal reporting standards starting in 2017, which will bring more off-budget capital expenditure into the official state budget,” the U.S.-based rating agency adds.
Vietnam’s sovereign funding profile remains stable, but has increasingly pivoted toward domestic marketable debt in order to prepare for reduced access to concessionary financing resulting from the country's forthcoming graduation from the World Bank’s International Development Association.
Efforts to lengthen the average term to maturity of domestic debt have largely proved successful, with the average term of issuance increasing to seven years in the first quarter of 2016, from five years in 2014.
Five-year domestic government bond yields were 6.3% in May 2016, up by 40 basis points since last year, but have broadly been on a declining trend over the past five years.
The rating agency has affirmed Vietnam’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BB-’ with a stable outlook.
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.-based rating agency said in a statement released Wednesday.
The affirmation of Vietnam's IDRs with a stable outlook reflects the country’s “strong macroeconomic performance and favorable medium-term growth prospects against high public debt, low foreign-reserve buffers, and relatively weak structural indicators,” says the statement.
A view of the State Bank of Vietnam's headquarters. Photo: Minh Tuan/BizLIVE.
Fitch forecasts Vietnam's current account to post a surplus of about 1% of GDP in 2016, which reflects resilient export performance and depressed prices across nearly all primary commodity imports.
Foreign reserves were eroded significantly during 2H15 following efforts to stabilize the exchange rate amidst market pressures across Asian currencies and a pick-up in dollarization.
However, the agency believes the recent introduction of a more flexible exchange-rate mechanism, policies to discourage U.S. dollar hoarding, and improved trade performance have alleviated balance-of-payment pressures and contributed to more than $4 billion in foreign-reserve replenishment during 1Q16.
Fitch forecasts foreign-reserve coverage will rise to 2.2x current account payments by end-2016, still well below the 'BB' median of 4.3x.