Moody’s ups Vietnam’s credit rating, deems government debt stable

By Dat Nguyen   August 12, 2018 | 07:03 pm PT
Moody’s ups Vietnam’s credit rating, deems government debt stable
Vietnamese workers arrange steel structures in Hanoi. Photo by Reuters/Kham
Moody’s has upgraded its outlook on Vietnam from positive to stable, assessing that government debt will stay at moderate levels.

“The upgrade [from B1] to Ba3 is underpinned by strong growth potential, supported by increasingly efficient use of labor and capital in the economy,” the credit ratings agency said in a recent statement.

With an average GDP growth rate of over 6 percent over the past decade, Vietnam has climbed up the manufacturing value chain with higher value-added electronic products like smartphones, it said.

The country continues to retain its comparative advantage in the export of labor-intensive goods, such as textiles and garments, it added.

If strong growth is sustained over time, government debt is likely to be stable and will gradually moderate, Moody’s said.

The agency expects that government debt will remain broadly stable around the current levels, at close to 52 percent of GDP in 2017.

The debt burden should gradually moderate after 2020, the ratings agency said.

Some state-owned enterprises (SOEs) are likely financially weak and the government may need to bear a portion of their overall debt. But the degree of support that may be provided is not likely to be substantial, it added.

Moody's projects that Vietnam will see an average GDP growth of 6.4 percent in 2018-2022.

It also warned of risks that may arise from persisting weaknesses in the banking system or the ongoing trade dispute between the U.S. and China.

In May, Fitch, another ratings firm, also raised Vietnam’s sovereign credit from ‘BB-‘ to ‘BB” with a stable outlook.

Fitch said it expects Vietnam’s gross domestic product to grow by the targeted 6.7 percent this year. The counry grew 6.8 percent in 2017.

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