ECONOMYBANKING & FINANCE

Fitch raises outlook for Vietnam

Updated at Friday, 19 May 2017, 20:05
The Hanoitimes - Fitch Ratings has revised its outlook on Viet Nam’s long-term foreign and local currency issuer default ratings (IDR) to Positive from "BB-."

The information was stated by the credit rating agency in a press release on its website on May 18.

According to the agency, Viet Nam’s ratings reflected strong growth performance and prospects, persistent current account surpluses, manageable debt service costs and sustained foreign direct investment inflow. However, the ratings still reflected a high public debt ratio, low foreign-exchange reserve buffers, macro-prudential and banking sector risks and some structural indicators being weaker than those of peers, including per capita income and human development standards.

The policy-making focused on macroeconomic stability had supported strong levels of foreign direct investment (FDI) and helped maintain robust economic growth, said the agency.

It cited statistics showing that Viet Nam’s real GDP expanded at 6.2% in 2016, supported by the country’s export-oriented manufacturing sector and steady expansion in services, despite weakness in the mining and quarrying sectors from ongoing oil and gas industry downtrend.

Fitch forecasts that Vietnam's real GDP growth would increase gradually to 6.3% in 2017 and 6.4% in 2018, fuelled by continued FDI inflow into the manufacturing sector and strong private consumption expenditure.
Government debt continued to rise. Based on preliminary estimate of authorities, government debt to GDP rose from 50.1% at the end of 2015 to 53.4% at the end of 2016. If explicit government guarantees were included, overall public debt reached 63.7%, just short of the official 65% debt ceiling.

Viet Nam’s foreign-exchange reserves also climbed continously to reach $37 bn by the end of 2016, from $28.5 bn in 2015.

Fitch expected that Viet Nam would avoid breaching the debt ceiling as the Government reaffirmed its commitment to remain within the ceiling through fiscal measures and limits on guarantee issuance. Fiscal deficit was expected to remain close to 5.7% of GDP in 2017-2018.

Although Fitch’s banking sector outlook for Viet Nam is stable, some challenges remain. The agency believes the large stock of non-performing loans (NPLs) is likely to take time to resolve due to legal impediments and the 2.5% reported system NPL ratio at the end of 2016 understates actual asset quality issues.

“While improving economic performance is likely to support lower NPL formation, a rapid and sustained increase in credit growth poses a risk to financial stability in the medium term,” Fitch said in the press release.

Overall credit growth at the end of 2016 was some 18% and the official credit growth target for this year has been capped at 18%. 

Tu Anh