Olivier Rousselet. — Photo Bnews
Country Manager of BNP Paribas Vietnam Olivier Rousselet talks to Bnews - an online newspaper of Vietnam News Agency - about Viet Nam's sovereign rating movements.
Assessments on Viet Nam's sovereign rating movements during the last few years and the impact of Viet Nam government’s macro-economic management on sovereign ratings assessed by international rating agencies.
From 2013 to 2021, Viet Nam’s sovereign rating has been on an uptrend from B2 to Ba3 at Moody’s, BB- to BB at S&P and B+ to BB at Fitch. At the moment, all three rating agencies have a positive outlook for Viet Nam and this reflects favorably on the long-term growth prospects as well as the expected recovery for the economy despite enduring headwinds from the COVID-19 pandemic.
The positive ratings outlook places Viet Nam in a much better position today to achieve investment grade status in the foreseeable future. However, it can typically take between 4 to 10 years to achieve investment grade status from low BB ratings to low BBB ratings depending on various structural and economic reforms undertaken by the sovereign.
The upgrades during the last eight years are a reflection of Viet Nam’s sound macro-economic policies, which have been received positively by rating agencies.
There is consensus among the rating agencies that Viet Nam has sustained economic strength, high GDP growth and the ability to attract foreign direct investments (FDI).
They also appreciate the improvement in debt burden and debt affordability of the government as well as the nation’s stable public finance. This positive outlook is a testament to the government’s abilities to cope with the impact of COVID-19 and that its policies are trending in the right direction.
In comparing sovereign ratings between Viet Nam and other emerging countries in ASEAN and Asia, what insights can be gleaned?
From a ratings agency perspective, in order to achieve investment grade status, Viet Nam may need to focus more on qualitative factors than quantitative factors. Based on some of the category ratings of its peers, several quantitative metrics may already have achieved investment grade ratios. However, ratings agency thresholds for achieving investment grade status are typically bespoke to the sovereign entity and may have a layer of subjectivity. They would also need to be convinced of additional requirements in order to upgrade Viet Nam to investment grade status.
Recommended next steps:
Establishing a track record of stronger government administrative policy and frameworkImproving the predictability and transparency of the government policy decision-making. Often sovereigns work closely with multilateral agencies such as World Bank and IMF to develop a comprehensive and robust governance frameworkDeveloping appropriate and transparent framework of tools for executing fiscal and monetary policy effectivelyEstablishing a sustained framework to develop a strong and dependable banking sector in addition to building a broad and dependable domestic capital market platformImproving the corporate governance standards and strengthening institutional framework and human development factors such as access to quality education, healthcare, etc.Striving to continue improving fiscal, monetary, external ratios in order to ensure additional merit from a rating agency perspective
What are the benefits when the sovereign rating of a country is upgraded to investment grade? Assessments on Viet Nam potential to achieve investment grade status by 2030? What is the recommended roadmap in improving Viet Nam sovereign rating?
A sovereign credit rating is an objective and independent assessment of the creditworthiness of a country. Achieving sovereign credit rating upgrades and attaining investment grade status would benefit both the public and private sectors in many different ways.
Firstly, a ratings upgrade would be a positive recognition of the political and economic development of the country in the last decade.
Secondly, an upgrade could potentially reduce the cost of financing activities of the government and increase access to international capital markets.
Lastly, the country may attract more FDI as a higher credit rating will encourage investor confidence. Overall, it means more opportunities for the country for longer-term development.
As with the private sector, a higher sovereign rating will allow the country to establish a new and more cost-efficient credit and funding benchmark, which will in turn benefit the funding activities of the private sector.
The recommended roadmap will focus on qualitative factors such as:
Improving predictability and transparency of the government policy decision-making and public policy frameworkProviding a robust framework to strengthen the financial sector and improve their asset qualityStrengthening operational and functional independence of State Bank of Viet Nam, which would allow effective and transparent execution of fiscal and monetary policyImproving the corporate governance standards especially of the State-Owned Enterprises (SOEs)
What are key areas that Viet Nam should focus on and enhance in order to achieve ratings upgrade, especially in the context of COVID-19?
Viet Nam needs to focus on sustained economic strength and this can allow the country to improve GDP per capita and attract FDI especially after the global supply chain restructuring over COVID-19. It will also need to continue to strengthen fiscal and monetary policy effectiveness and stabilise debt. This would improve public finance and help target low inflation.
Finally, there is also a need to continue to reduce the risk of potential credit events and maintain timely payment obligations, which would boost foreign investor confidence.
The State Bank of Viet Nam has put in place a robust regulatory framework to support the economy both at the very early stage of the emergence of the pandemic (Circular 01-2020/TT-NHNN) and at the start of the fourth wave (Circular 03-2021/TT-NHNN). The financial regulator facilitated loan restructuring to companies operating in affected sectors, while providing certain relief on the loan provisioning mechanism. These policies have translated into an increase in the NPL ratio of the banking sector, which is a point of attention for rating agencies.
What are the Bank’s recommendations on both fiscal and monetary policies in epidemic prevention and economic recovery?
Robust governance standards and administrative policy would be helpful to develop a transparent framework of tools for executing fiscal and monetary policy effectively. Predictability and transparency in policy framework will be key to the country’s ability to navigate through crisis. Viet Nam has achieved tremendous economic growth in the last decade and the three credit rating agencies have a positive outlook of the sovereign rating of Viet Nam.
Viet Nam is the only sovereign state in ASEAN in the ‘BB’ rating category to achieve positive ratings momentum in 2021 and this is a reflection of its economic strength and resilience.
Nurturing long-term growth opportunities, improving trade dynamics and increasing foreign investment interest will be crucial in building a stronger economy and will put Viet Nam in a better position to achieve investment grade status in the medium term. — VNS