The ratings on Vietnam reflect the country’s low-income economy, its weak fiscal position, a developing monetary and financial framework, and the possibility that its evolving policy framework could weaken sovereign risk indicators.
Vietnam’s external indicators, reflecting moderate liquidity and a modest net narrow external debt level, support its sovereign creditworthiness.
We are revising the outlook on the foreign-currency and local-currency long-term ratings to stable from negative. In line with this, we are raising our ASEAN scale long-term rating to ‘axBB+’ from ‘axBB’. The ASEAN scale short-term rating remains unchanged at ‘axB’.
We are affirming our sovereign ratings on Vietnam at ‘BB-/B’.
SINGAPORE (Standard & Poor’s) June 6, 2012. Standard & Poor’s Ratings Services today revised the outlook on the Socialist Republic of Vietnam to stable from negative and affirmed the ‘BB-’ long-term and ‘B’ short-term sovereign credit ratings.
The outlook revision reflects our assessment of a reduction in the risks to macroeconomic and financial stability in Vietnam. Key indicators such as credit growth, the level of foreign exchange reserves, and domestic currency interest rates have improved over the past 18 months.
“We expect Vietnam to maintain these improvements as the government has expressed its intention to keep price stability high on its policy priorities,” said Standard & Poor’s credit analyst Kim Eng Tan.
The risks of macroeconomic and financial instability in Vietnam have subsided somewhat since early 2011, in our opinion. The tight credit policy implemented from that time appears to have improved confidence in the authorities’ determination to restore price stability.
“Outflow of resident capital to foreign assets has slowed as a result, allowing the exchange rate to stabilize and easing the liquidity squeeze that Vietnamese banks face,” Mr. Tan said.
Despite these improvements, risks of heightened macroeconomic instability in Vietnam remain. As the government eases its policy stance, it risks renewing concerns about its commitment to price stability. This could reverse the recent improvements. A sharper-than-expected slowdown in external demand is another risk that could trigger a renewed deterioration of credit indicators.
The stable outlook on the ratings reflects our view that Vietnam will maintain an appropriately tight economic policy stance until there are clear signs of macroeconomic instability receding, including sustained single-digit rates of inflation. This would allow fiscal, external, and economic indicators to remain close to current levels or improve over the next two to three years.
We could lower the sovereign credit ratings if an early easing of the policy stance causes a marked deterioration in one or more key indicators in the above areas. We could raise the ratings if the economy resumes strong and sustained growth as macroeconomic stability returns. Indications that Vietnam could sustain per capita real GDP growth of more than 6% in the next five to 10 years could lead to a rating upgrade.
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Standard & Poor’s Understanding Ratings
2012-09-03 Updated: Standard & Poor’s more confident in Vietnam, Saigon Times, Aug 23, 2012
Vu Duc Dam, minister-chairman of the Government Office, recently told the Daily that Vietnam’s economic monitoring was lauded by foreign credit organizations and investors. “Many foreign investors have told us if the government continues its current macro-monitoring, the economic growth will be increasingly firm and there might be a new investment wave into Vietnam over the next two years.”
Note: The Saigon Times report seems to refer to the Jun 6, 2012 S&P upgrade, not an Aug 2012 upgrade. See screenshot below, from the S&P web site, indicating the most recent ratings in June 2012.
2012-08-19 Previous S&P Rating: S&P lowers Vietnam’s LC rating to BB-