Viet Nam's improving external liquidity and moderate foreign debt position supports its creditworthiness.— Photo zaluan

HA NOI (Biz Hub) — Standard & Poor's affirmed its ‘BB-' long-term and ‘B' short-term sovereign credit ratings on Viet Nam late last week, with the outlook on the long-term rating being stable.

The rating agency said that although the stabilisation measures undertaken over the past two years have dampened growth, they have also restored macroeconomic stability, resulting in relatively low and stable inflation, higher confidence in the local currency, and a much improved external liquidity.

Viet Nam's improving external liquidity and moderate foreign debt position supports its creditworthiness.

The sovereign's external borrowings remain modest with low-cost debt and long maturity, and S&P projects that the gross external debt will decline to about 30 per cent of the GDP in the next three years, while the gross external financing needs will remain in a comfortable range of between 80 and 90 per cent of the sum of the current account receipts and usable reserves in this period.

"The favourable outlook for Viet Nam's external profile is based on our expectation of little or no commercial external borrowing by the sovereign, along with continuing overall balance-of-payment surpluses, driven by net inflows of foreign direct investments of about 4 per cent of the GDP and a dynamic export sector," S&P said.

It said that Viet Nam's growth potential is robust, given an export manufacturing sector that is well-diversified and increasingly oriented toward higher value-added goods, a rising share of services and manufacturing in economic output, and the growth of the private sector.

Exports are also expected to get a further boost from recent and pending free-trade agreements, the agency said.

The stable outlook on the ratings reflects S&P's expectation that over the next 12 to 18 months, Viet Nam's policy stance will ensure macroeconomic stability, cementing the economic improvements and gains in policy credibility.

The outlook also incorporates S&P's expectations that the Government's key reform objectives targeting the banking sector and State-owned enterprises will continue, and the risks and inefficiencies posed by these sectors will reduce, S&P said.

"We may raise the ratings if there are indications that Viet Nam is able to generate per capita real GDP growth of more than 5.5 per cent in the next five to 10 years without causing macroeconomic imbalances. We may also raise the ratings on signs of improved institutional and governance effectiveness, likely based on greater macroeconomic policy consistency and tangible progress in structural reforms," it said. — VNS