With growth compared favorably with peers, Vietnam remains a regional and global growth out-performer, according to Andrew Wood, director for sovereign and international public finance ratings at Standard and Poors (S&P).
Overview of the seminar. Source: Ngoc Thuy.
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“Vietnam’s improving institutional setting will continue to underpin robust growth and support credit metrics,” said Wood at a seminar themed “Credit Spotlight on Vietnam” jointly held by S&P and the Vietnam Bond Market Association on August 23.
Wood stated the government effectiveness and political stability have been the key factors for S&P to raise Vietnam’s long-term credit rating from its “BB-” since to “BB” in March.
“The government has built a strong record of promoting balanced economic growth, with GDP growth averaging 6.2% annually since 2012,” he stated.
Additionally, strong FDI and export earnings are expected to support the country’s sound structural external dynamics, which has remained so since the global crisis, Wood said.
“Vietnam has repeatedly doing very well in receiving support from corporations and countries around the world in the past five years,” added Wood.
According to Wood, Vietnam’s average net foreign direct investment in the 2013 – 2018 period reached 6% of the GDP, the highest among emerging economies, followed by the Philippines and Indonesia with around the 3%-mark.
“Vietnam’s close geographic proximity to China and a similarity in governmental system between the two countries would help Vietnam attract more FDI, especially in a context of growing uncertainties surrounding the US – China trade talks,” he stated.
Nevertheless, Vietnam has to address its shortcomings in terms of inadequate infrastructure and lack of qualified human resources to maximize such capital inflow, Wood asserted.
The situation, however, looks not so bright for Asian economies as investments have been restricted due to unfavorable trade environment.
“Investment is sensitive to policy uncertainty, particularly as firms base their decision on expectation of the future,” Wood added.
In this regard, investment spending matters for demand in the short run growth, and for long run by shaping productive capacity and supply, Wood stated, saying investment in the more trade-dependent economies, including South Korea, Malaysia, Singapore, Taiwan (China) and Thailand, are especially weak.
As the US is expanding its efforts to seek fairer trade balance with the rest of the world, Wood said Vietnam has recently become one of the countries meeting the former's requirements.
“If the US continues to target electronics and steel, then Vietnam will not be affected as much, given these two products accounting for small proportion in Vietnam’s export exposure to the US,” Wood stated.
Taking into the bilateral relationship between the US and Vietnam into consideration, Wood suggested there would be no damage to Vietnam’s export profile.
Nevertheless, as Vietnam’s exports to the US grow particularly well compared to the rest of the region, Wood expected this trend would not continue for a long time. With the trade war looming, global trade will continue to come down and lose momentum, and in such situation, Vietnam’s economy will be affected, he said.
