Fitch Ratings sustains Viet Nam at 'BB' with positive outlook

In a rating action commentary published on its website, Fitch Ratings said Viet Nam's rating reflects its strong medium-term growth prospects, lower government debt compared to peers, and favourable external debt profile.

The agency expected a growth rate of 7.4 percent for Viet Nam in 2022, led by strong gains in industry, construction and services. High FDI in manufacturing should continue to support robust growth in the medium term.

However, as downside risks remain, related to the economic implications of the Ukraine war and tighter global funding conditions, Fitch Ratings forecast a slowdown in GDP growth, to 6.2 percent in 2023.

According to Fitch Ratings, Viet Nam's high degree of trade openness leaves the economy vulnerable to external shocks. However, we expect exports to keep performing well in the medium term, benefitting from Viet Nam's cost competitiveness, trade diversion from China, and implementation of key trade agreements. Exports grew by 17 percent yoy in 9M22, compared with 18 percent yoy growth during the same period last year.

According to the agency, the State Bank of Viet Nam (SBV) has intervened in the foreign exchange market, which led to FX reserves falling to under US$100 billion, after rising to a record US$109.8 billion at the end of 2021.

Fitch Ratings forecasts a rise in the general government debt-GDP ratio to 41.3% in 2022, from about 39 percent in 2021, but this would still be far below the 'BB' median. The increase is driven by a widening of the budget deficit to our forecast of 4.5 percent of GDP in 2022. General government revenues are lower than the peer median. Cuts to the VAT, environmental tax and certain tax exemptions, part of a near-term economic recovery programme, will dampen revenues in the near term. These are measures to keep inflation under control and are likely to be reversed as inflationary pressures subside./.