CLV Investment Review
Fitch Ratings has reaffirmed Vietnam’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB+’ with a Stable Outlook. The decision reflects the country’s strong growth prospects, driven by sustained foreign direct investment (FDI) and sound public finances, but also highlights challenges such as an underdeveloped policy framework and high economic leverage.
Vietnam’s economy is expected to grow by 6% to 7% in the medium term, supported by robust FDI inflows. In 2023, FDI rose to USD 23.2 billion, representing 5.4% of GDP, with continued growth observed in early 2024. Despite recent political upheavals, including the resignation of key leaders amid an anti-corruption drive, Fitch notes that Vietnam’s macroeconomic stability remains intact.
Government Debt Level Is Projected To Stabilize At 34% Of GDP
The government debt level is projected to stabilize at 34% of GDP, well below the ‘BB’ median of 53%. The Vietnamese government’s strategy aims to keep public debt under 60% of GDP by 2030, though risks from the large state-owned sector persist. Additionally, foreign-exchange reserves have improved, reaching USD 90 billion in January 2024, supported by a current account surplus and a recovery in exports.
Vietnam’s banking sector is stabilizing after recent challenges in the real estate market. The State Bank of Vietnam has shown strong support for systemically important institutions, helping to maintain sector stability.
Inflation remains a concern, with headline inflation averaging 4.1% in the first five months of 2024, driven by higher food prices. The central bank has kept interest rates steady to support growth, though it may consider tightening policy if exchange rate volatility increases.
Assigned Vietnam An ESG Relevance Scores
Fitch Ratings assigned Vietnam an ESG Relevance Score of ‘5’ for Political Stability, Rule of Law, Institutional and Regulatory Quality, and Control of Corruption, reflecting significant governance challenges. Vietnam ranks below the 50th percentile in the World Bank Governance Indicators, negatively impacting its credit profile.
Additionally, Vietnam received an ESG Relevance Score of ‘4’ for Human Rights and Political Freedoms and a ‘4[+]’ for Creditor Rights, noting a positive impact from its 20-year record without public debt restructuring. Overall, Vietnam’s ‘BB+’ rating balances strong growth prospects with challenges in economic management and policy transparency.
