Fitch Ratings: Vietnam outperforms Asian frontier sovereign countries
VIETNAM is positioned to stand out among Asia's frontier and emerging markets this year in terms of its economic resilience and success in bringing the coronavirus outbreak under control, says Fitch Ratings
VIETNAM is positioned to stand out among Asia's frontier and emerging markets this year in terms of its economic resilience and success in bringing the coronavirus outbreak under control, says Fitch Ratings.
'These factors should support Vietnam's 'BB' rating, which we affirmed in April 2020 while revising the Outlook to Stable from Positive. Nevertheless, the country faces a number of challenges, including contingent liability risks from state-owned enterprises and structural weaknesses in the banking sector,' said Fitch.
Vietnam is one of only four Fitch-rated sovereign states in the Asia Pacific (APAC) that is expected to post positive economic growth in 2020. Official data show the economy expanded by 0.4 per cent year on year in the second quarter.
Fitch forecasts that the pace of expansion will accelerate in 2021, as external demand, including tourism exports, recovers.
The relative strength of Vietnam's growth momentum owes much to its success in curbing the pandemic. Vietnam had no reported deaths from Covid-19 as of end-June, according to the World Health Organisation.
This could reflect a variety of factors, including the effectiveness of the official health policy response.
Vietnam has introduced fiscal stimulus of around VND271 trillion (US$11.6 billion) or 3.4 per cent of GDP to help offset the effects of the pandemic. This includes tax deferrals, cuts and exemptions, as well as cash transfers to affected workers and households, the latter being worth 0.4 per cent of GDP.
'We expect the general government debt-to-GDP ratio to rise to around 42 per cent in 2020, from 37 per cent in 2019, based on Fitch estimates, but this still below the 59 per cent median for 'BB' rated sovereigns,' said Fitch.
Both textile and apparel exports to the US and realised capital investment were lower year on year, illustrating Vietnam's vulnerability to the evolution and impact of the pandemic.
Its National Assembly ratified the EU-Vietnam Free Trade Agreement on June 8, which should underpin stable trade relations with the EU. However, Vietnam is on the US Treasury's watchlist of potential currency manipulators, and relations with China are complicated by clashing territorial claims in the South China Sea. Nonetheless, our base assumption is that trade ties with both countries will remain stable.