Vietnam economic resilience outperforms Asia’s frontier sovereigns: Fitch
Vietnam is one of only four Fitch-rated sovereigns in the Asia Pacific that Fitch Ratings expected to post positive economic growth in 2020.
Vietnam is positioned to stand out among Asia’s frontier and emerging markets this year in terms of its economic resilience and success in bringing the Covid-19 pandemic under control, according to Fitch Ratings.
Vietnam economic resilience out-performs Asia’s frontier sovereigns: Fitch Ratings. |
These factors should support Vietnam’s ‘BB’ rating, which the rating agency affirmed in April 2020 while revising the Outlook to Stable from Positive. Nevertheless, the country faces a number of challenges, including contingent liability risks from state-owned enterprises and structural weaknesses in the banking sector, Fitch said.
Vietnam is one of only four Fitch-rated sovereigns in the Asia Pacific (APAC) that Fitch Ratings expected to post positive economic growth in 2020.
Official data show the economy expanded by 0.4% year-on-year in the second quarter, despite the impact of the coronavirus pandemic on tourism and export demand, in line with Fitch’s full-year 2.8% growth projection. Fitch forecasts that the pace of expansion will accelerate in 2021, as external demand, including tourism exports, recovers.
The relative strength of Vietnam’s growth momentum owes much to its success in curbing the pandemic. Vietnam had no reported deaths from Covid-19 as of end-June, according to the World Health Organization. This could reflect a variety of factors, including the effectiveness of the official health policy response.
Vietnam has introduced fiscal stimulus of around VND271 trillion (US$11.72 billion or 3.4% of GDP) to help offset the effects of the pandemic. This includes tax deferrals, cuts and exemptions, as well as cash transfers to affected workers and households, the latter being worth 0.4% of GDP. It is expected the general government debt-to-GDP ratio to rise to around 42% in 2020, from 37% in 2019, based on Fitch estimates, but this still below the 59% median for ‘BB’ rated sovereigns.
The State Bank of Vietnam (SBV), the country’s central bank, has also loosened monetary policy to support the economy, but the lower interest-rate environment and state pressure on banks to ease lending terms will weigh on bank profitability.
Meanwhile, slower economic growth and loan forbearance will add to asset quality problems. These factors will aggravate the structural weaknesses in the banking sector, such as low capital buffers and under reporting of problem loans, which have already dragged on the sovereign rating. Slower credit growth may, however, provide some relief on capital.
Economic outlook remains vulnerable
However, Vietnam’s economic outlook remains vulnerable to shifts in external demand. The country has benefitted from trade diversion associated with rising costs in China and the US-China trade war, and early data suggest it made further gains as China’s exports were disrupted by the coronavirus.
Vietnam’s share of US apparel and textile imports rose to 15.5% in the first four months of 2020, from 12.9% in the same period last year, according to the US Office of Textiles and Apparel. The country also attracted a healthy US$8.7 billion in realized capital investment from overseas in the first half of this year.
Nonetheless, both textile and apparel exports to the US and realized capital investment were lower year-on-year, illustrating Vietnam’s vulnerability to the evolution and impact of the pandemic. As elsewhere, restrictions remain on inbound tourism and remittances are declining. Tourism directly accounts for about 10% of GDP, with a higher contribution if indirect spillover effects are considered, while remittances were worth over 6% of GDP in 2019.
Vietnam is also susceptible to policy action by its main trade partners. Vietnam’s National Assembly ratified the EU-Vietnam Free Trade Agreement on June 8, which should underpin stable trade relations with the EU. However, Vietnam is on the US Treasury’s watchlist of potential currency manipulators, and relations with China are complicated by clashing territorial claims in the South China Sea, Fitch said.
Nonetheless, Fitch’s base assumption is that trade ties with both countries will remain stable.
Other News
- Vietnam fruit, vegetable exports rise above 6% to over US$900 million in Q1
- Finance ministry turns to stock market for greater transparency in SOE privatization
- IMF maintains Vietnam GDP growth forecast at 6.5% in 2021
- Vietnam eyes services sector to make up 60% of GDP by 2030
- SK group buys 16.3% stake of Vietnam’s largest retailer
- Vietnam – Algeria – Senegal seeks greater trade and investment cooperation
- Vietnam car imports surge 70% in March
- Vietnam to borrow US$2 billion for Mekong Delta development
- External trade a new driver of Vietnam economic growth
- Casino investment to boost Vietnam GDP growth by 2%, says businessperson
Trending
-
The old man guarding Hanoi's last ancient gate for 20 years
-
C.bank expects credit growth to exceed 12%-target for 2021
-
Vietnam officially approves online schooling
-
Vietnam warned of imported Covid-19 transmission amid rising regional cases
-
Hanoi team ranks 1st at National Archery Championships 2021
-
Vietnam moves up in int’l vaccine regulation ranking
-
Vietnam to cut research time of Covid-19 vaccines amid thin supply
-
Corporate bonds of real estate - risky commercial debt for investors
-
Six major tasks await newly-appointed Hanoi Party Chief