Fitch Ratings revises Vietnam's outlook to positive

April 05, 2021 | 20:06
Fitch Ratings has revised Vietnam's outlook to positive from stable and affirmed its long-term Foreign-Currency Issuer Default Rating (IDR) at "BB".
fitch ratings revises vietnams outlook to positive
Fitch Ratings highlighted Vietnam's positive performance in a year of difficulties

Vietnam was among the few economies in the Asia-Pacific region and the "BB" rating category to maintain positive growth in 2020, at 2.9 per cent. The relative strength of Vietnam's performance was largely due to its success in bringing the coronavirus outbreak swiftly under control, despite the pandemic's impact on domestic economic activity and tourism inflows, alongside strong policy support and export demand.

The rollout of Vietnam's vaccination programme is off to a slow start, but the ratings agency nevertheless expects GDP growth to reach about 7 per cent in 2021 and 2022, in line with a broader global economic recovery sustaining export growth and a gradual normalisation of domestic economic activity based on its expectation of continued success by the authorities in containing domestic coronavirus infections.

Vietnam's external finances have strengthened further despite the pandemic. Exports rose by about 7 per cent in 2020 in US dollar terms, and the current account recorded a surplus of about 3.6 per cent of GDP. Strong export performance reflects a surge in demand for high-tech components associated with strong sales of IT equipment in the US and other advanced economies as well as continued benefits of trade diversion, associated with rising costs in China and the US-China trade war.

The bulk of the strong foreign direct investment (FDI) inflows in 2020 went into the manufacturing sector. Net FDI in 2020 was $15.4 billion (about 4 per cent of GDP), close to the previous year's level. We expect FDI inflows to stay healthy as Vietnam is likely to benefit from the ongoing trade diversion and also its entry into trade agreements such as the EU-Vietnam Free Trade Agreement and the Regional Comprehensive Economic Partnership.

Vietnam's economic prospects will remain susceptible to shifts in external demand due to the economy's high degree of openness.

In terms of macroeconomic policy and performance, the country has sustained high growth that reduces the GDP per capita gap vis-à-vis its peers while maintaining macroeconomic stability. With regards to public finances, Vietnam witnessed 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.

By Fitch Ratings

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