Right path to further raise Vietnam's credit rating

June 09, 2022 | 15:53
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Raising the country’s credit rating by 2030 is imposing pressure to improve governance even after S&P Global Ratings upgraded the country's long-term credit rating to BB+ on May 26. VIR’s Van Nguyen talked to economist Dr. Vu Dinh Anh from the Ministry of Finance's Price Market Research Institute, about the road ahead.
Right path to further raise Vietnam's credit rating
Dr. Vu Dinh Anh, economist at the Ministry of Finance’s Price Market Research Institute

What does S&P’s upgraded rating mean for the economy in the context of limited development capital sources?

That Vietnam’s credit rating was raised to BB+ is a positive assessment of a reputable credit rating agency. This shows that Vietnam maintains growth and macroeconomic stability while controlling and minimising financial risks.

S&P also forecasts Vietnam’s 2022 GDP growth to be at around 6.9 per cent with a long-term trend of 6.5-7 per cent per year from 2023. S&P also gave a good assessment of the policies and mechanisms Vietnam is implementing.

S&P recommends that Vietnam continues to improve governance, in particular data quality and transparency, and its resistance to external influences. What difficulties will be encountered in carrying out these tasks?

These improvements have several issues. First, Vietnam is still in the process of building a data system according to international standards. For example, in the annual statistical yearbook of Vietnam, data on finance, banking, and payments remains patchy, and not in line with international standards.

Thus, it is difficult to make a comprehensive and accurate assessment of the economic situation of Vietnam as well as related to issues of national governance.

Second, Vietnam’s information systems are still not connected to each other. The State Bank and the Ministry of Finance still keep their own data, and so do the specialised ministries. The sharing of data has not yet reached the national level. That is not to mention informational and local data, as well as between localities.

Vietnam is in the process of improving, both in terms of accuracy and usefulness in national governance associated with state management and e-government. One thing is for sure, Vietnam must continue to perfect its governance at both central and local levels.

Do you think that improving national governance will reduce state intervention in the market?

State intervention in the market depends on two things. If the level of the market creates many defects, the state must intervene more. The other factor depends on the qualifications of the government. If the government does not manage macro policies, financial, and fiscal policies well, the state will have to intervene directly.

In the national credit rating and governance index are still concerns of credit rating agencies. But these do not change their meaning when the government and enterprises borrow foreign capital.

Previously, the government and borrowers had to bear higher interest rates due to low credit ratings. But when credit ratings are raised, interest rates would improve.

What is the main concern of credit rating agencies when rating countries?

The three rating organisations Moody’s, S&P, and Fitch are reviewing a country’s credit rating on four main factors: institutional capacity, economic and monetary performance, public finance, and external finance.

The national upgrade means not only higher prestige for the Vietnamese government in the international financial market but also offers more favourable conditions for large corporations and local financial institutions to participate in global markets.

If Vietnam continues to have stronger and more appropriate reforms, the national ranking will certainly further climb.

Dr. Nguyen Tri Hieu - Independent banking and finance expert

The fact that S&P upgraded Vietnam’s rating to BB+ is good news. The rating for Vietnam also means that in the short term, Vietnam's bonds have become less vulnerable, but in the long term, there is still a lot of uncertainty and risk.

With the BBB rating, Vietnam has escaped from the junk bond group, but it has to reform more strongly. Moving further into a market economy means that the government gradually removes the tight control and management of and lets the market operate according to supply and demand.

Economic institutions are the top criteria when rating a country’s credit. Vietnam has not been recognised as a market economy. Thus, Vietnam's bonds are less risky but still in the speculative category. However, interest rates on Vietnamese bonds are therefore higher and beneficial to investors.

Truong Hung Long - Director, Debt Management and External Finance Department, Ministry of Finance

The S&P upgrade is also a plus for Moody's and Fitch's rating review next year. The last time S&P upgraded Vietnam to BB was April 2019.

The credit rating upgrade has a very positive meaning, creating a spillover effect for the entire economy. The upgrade also contributes to helping the government expand capital mobilisation channels for development investment at a low cost and reasonable fees.

Strengthening cooperation with credit rating agencies and international organisations is very important, in addition to improving governance indicators to share the government's commitments to economic development. This also stabilises the macro-economy as a basis to convince credit rating agencies to closely and positively evaluate Vietnam’s credit profile.

The 10-year Socioeconomic Development Strategy for 2021-2030 and the Project on Improving the National Credit Rating in the 2021-2030 period have set the target of bringing Vietnam's credit rating to the investment level by 2030.

The country's credit rating is a basic indicator that investors consider as a factor to determine the level of risk and profitability before making an investment decision in that country. This coefficient is a qualitative measure of the government's ability to default, based on a quantitative assessment of debt indicators, budget revenue and expenditure, foreign exchange reserves, economic growth, inflation, investment, and many other factors such as a qualitative assessment of the political situation and future macroeconomic prospects.

Source: Ministry of Finance

By Van Nguyen

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