Moody's confirms Vietnam's ratings at Ba3, but changes outlook to negative

Moody's Investors Service late on Wednesday confirmed the Government of Vietnam's Ba3 local and foreign currency issuer and senior unsecured ratings, but changed the outlook to negative, concluding the review for downgrade that was initiated on October 9, 2019.

Illustrative photo

“The confirmation of the rating reflects Moody's assessment that enhanced attention by the administration on forthcoming payments of all the government's debt obligations, direct and indirect, reduces the risk of renewed payment delays,” the rating agency said in an announcement.

The Ba3 rating is underpinned by strong growth potential and economic diversification, supporting the economy's capacity to absorb shocks, including a prolonged slowdown in global trade. The rating also reflects Moody's expectation that the government's direct debt burden will decline gradually, from moderately high levels, and debt affordability will improve.

Moreover, while the rapid build-up of a large and diversified manufacturing sector denotes policy effectiveness, Moody's assesses the country's institutions and governance to be relatively weak, including administrative deficiencies 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, it added.

Moody’s on October 9 placed Vietnam’s Ba3 local and foreign currency issuer and senior unsecured ratings under review for downgrade, due to “institutional weaknesses, as revealed by delayed payments on an obligation by the government.”

During the rating review, Moody's has assessed the practices and systems the government has instituted or is instituting, to ensure reliable, timely, and smooth payment of all obligations, following some payment delays on government-guaranteed debt obligations over the past year.

Moody's has concluded that debt payment management practices have been strengthened within the administration, with greater scrutiny to the range of debt payments coming due. The government is able to monitor a full list of direct and indirect debt obligations.

As previously assessed, the government has the financial capacity to meet these obligations. With a coordinated focus on ensuring that the payments are planned for and processed promptly, the risk of renewed delays has diminished.

The payments that were delayed earlier this year have now been made in full, the agency noted.

Meanwhile, 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.

Vietnam's long-term foreign currency (FC) bond ceiling at Ba1, its long-term FC deposit ceiling at B1 and its local currency bond and deposit ceilings at Baa3 are unchanged. The short-term FC bond and deposit ceilings remain unchanged at Not Prime.