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Fitch Ratings has revised Vietnam's Outlook to Positive from Stable and affirmed the Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB'.

Factors That Could, Individually or Collectively, Lead to Vietnam’s Positive Rating Action/Upgrade
Photo Credit: GetyImages
The Fitch's Positive Outlook reflects Vietnam's growth and public finances' resilience to the Covid-19 pandemic shock, and continued strengthening of external finances due to persistent current account surpluses and rising international reserves.
There are many factors that can help to upgrade Vietnam’s sovereign rating:
- Macroeconomic Policy and Performance: Sustained high growth that reduces the GDP per capita gap vis-à-vis Vietnam's peers while maintaining macroeconomic stability.
- Public Finances: Further improvement in public finances, for example, through sustainable fiscal consolidation and debt stabilisation over the medium term, as well as a higher revenue base or a reduction in the risk of contingent liabilities.
- Structural: A material reduction in risks posed to the sovereign balance sheet from weaknesses in the banking sector, for instance, through improvements in capitalisation, transparency regarding asset quality and the regulatory framework
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
- Macroeconomic: A deterioration in Vietnam's policy mix that creates risks for macroeconomic stability or leads to an increase in macroeconomic imbalances, for instance, resulting in a sustained decline in foreign-currency reserves.
- Public Finances: Crystallisation of contingent liabilities on the sovereign's balance sheet, which leads to a failure to stabilise government debt over the medium term.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Vietnam a score equivalent to a rating of 'BBB-' on the Long-Term Foreign-Currency (LT FC) IDR scale.
Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows:
- Structural Factors: -1 notch to reflect structural weaknesses in Vietnam's large financial sector (about 162% of GDP) related to unresolved legacy issues in banks, weaker asset quality than official data indicate and low capitalisation.
- Public Finances: -1 notch to reflect relatively high contingent liability risks stemming from a large state-owned enterprise sector, including government guarantees for state-owned enterprises and potential banking-sector recapitalisation costs, as well as institutional weaknesses in public-finance management.
Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

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