Fitch Ratings Revised Vietnam’s Long Term Outlook to Positive

Diep Nguyen

12:29 10/05/2019

BizLIVE -

The authorities' continued commitment to containing debt levels led to a decline in general government debt to 50.5% of GDP in 2018 from a peak of 53% in 2016, and Fitch expects this ratio to decline further to around 46% by 2020.

Fitch Ratings Revised Vietnam’s Long Term Outlook to Positive

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Fitch Ratings has affirmed Vietnam's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB' and revised the Outlook to Positive.
A full list of rating actions is at the end of this rating action commentary.
The revision of Vietnam's Outlook to Positive from Stable reflects an improving track record of economic management, which is evident in strengthening external buffers from persistent current account surpluses, falling government debt levels, high economic growth rates and stable inflation.
The authorities' continued commitment to containing debt levels led to a decline in general government debt to 50.5% of GDP in 2018 from a peak of 53% in 2016, and Fitch expects this ratio to decline further to around 46% by 2020. Vietnam's public debt (general government debt including guarantees) has also been declining, to around 58% of GDP by end-2018 after being close to the ceiling of 65% at end-2016. 
The decline has been facilitated by a reduction in outstanding government guarantees to around 8% of GDP by end-2018 from 9.1% at end-2017. The reduction has also been aided by stable receipts from privatisation of state-owned enterprises (known in Vietnam as equitization), high nominal GDP growth and lower fiscal deficits. The overall pace of equitization has slowed, but the process has nevertheless continued to advance, with 28 state-owned enterprises being equitized compared with 69 in 2017.
Fitch's debt and deficit estimates, which are more closely aligned with the Government Finance Statistics (GFS) standard of accounting, put the budget deficit at 3.6% of GDP in 2020, compared with the authorities' target of 3.5% of GDP by 2020 under their 2016-2020 medium-term budget plan.
The authorities are maintaining their policy focus on macroeconomic stability. GDP growth improved to 7.1% in 2018 from 6.8% in 2017 while inflation remained stable at 3.5%, within the National Assembly's target of below 4%. Growth remained supported by strong foreign direct investment (FDI) into the manufacturing sector as well as expansion in the services and agriculture sectors. 
Fitch expects growth to slow in 2019 to around 6.7%, still within the National Assembly's target of between 6.6% and 6.8%. Growth in Vietnam, which has a high degree of trade openness, is likely to be affected by slowing global growth and US-China trade tensions, which will weigh on regional trade flows and sentiment. Vietnam would nevertheless remain among the fastest-growing economies in the Asia-Pacific and in the 'BB' rating category globally.

DIEP NGUYEN

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