Moody’s downgrades Vietnam outlook to negative

Moody's Investors Service on Wednesday changed the outlook to negative, concluding the review for downgrade that was initiated on October 9, 2019.

"The negative outlook reflects some ongoing risk of payment delays on some of the government's indirect debt obligations, in the absence of more tangible and significant measures to improve the coordination and transparency around debt management within the administration," the agency said in a statement.

But Vietnam’s has kept its Ba3 rating, which is underpinned by strong growth potential and economic diversification, supporting the economy's capacity to absorb shocks, including a prolonged slowdown in global trade, it said.

Moody’s said the rating also reflects its expectation that the government's direct debt burden will decline gradually, from moderately high levels, and debt affordability will improve.

However, while the rapid build-up of a large and diversified manufacturing sector denotes policy effectiveness, Moody's has assessed the country's institutions and governance to be relatively weak, and that administrative deficiencies have been revealed in the delayed debt payments.

And although the financial health of Vietnamese banks has improved over recent years, the banking system remains the chief driver of overall event risks for the sovereign, Moody’s said.

Other credit ratings firms, Fitch and Standards & Poors (S&P) have given Vietnam a BB rating, a notch higher than Moody’s Ba3, but both levels are described as "non-investment grade".

Latest figures released in late October by the Ministry of Finance predicted public debt this year to reach 49.2 percent of GDP, equivalent to around VND3.48 quadrillion ($150.23 billion), and down from 58.4 percent last year.

But National Assembly delegates warned in June that Vietnam might need to borrow around VND700 trillion ($30.22 billion) for three years to service its debts since repayment pressure is rising.