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Moody’s optimistic over Vietnam’s economy
The Hanoitimes – Moody`s Investors Service on its latest assessment in April 3 stated that the Government of Vietnam`s (B1 positive) credit profile reflects the economy`s robust growth trends.
These trends are spurred in turn by the country’s increasing competitiveness and a rapid economic transition away from traditional sectors such as agriculture into manufacturing, and further up the value-added scale within these sectors.
Moody’s expects that strong foreign direct investment (FDI) inflows will continue to diversify Vietnam’s economy and strengthen growth compared with similarly rated peers; thereby supporting a stabilization in the government’s debt burden.
Moody’s conclusions are contained in its just-released credit analysis titled “Government of Vietnam — B1 positive” and which examines the sovereign in four categories: economic strength, which is assessed as “high (-)”; institutional strength “low (+)”; fiscal strength “moderate (-)”; and susceptibility to event risk “high (-)”.
The report constitutes an annual update to investors and is not a rating action.
Moody’s explains that Vietnam’s real GDP growth accelerated to 6.8% year-on-year in 2017, topping a 6.2% expansion in 2016. We expect real GDP growth to remain robust, averaging 6.7% in 2018, nearly twice as high as the average for B-rated sovereigns of 3.6%, and supported by domestic consumption and by strong investment growth on the back of public sector infrastructure development spending.
Rapid domestic credit growth has in part financed strong domestic demand, and continues to significantly outpace nominal GDP growth. Moody’s points out that while rapid credit growth presents risks to the banking system, it could also represent a degree of financial deepening.
High government debt levels and widening deficits act as a credit constraint, and as Vietnam graduates from the World Bank’s International Development Association program, its debt affordability may erode. Nonetheless, a continued shift away from foreign currency financing indicates a deepening in domestic financial markets, which will reduce refinancing risks.
The drive to privatize SOEs – which the government refers to as equitization – remains a key policy priority, and has gathered momentum with successful stake sales in large SOEs.
Upward rating pressures could come from: (1) the passage of concrete measures that lead to a significant reduction in the government’s debt burden; and (2) a further strengthening in the banking system and SOE sector that significantly diminishes contingent risks to the government and lowers macro-financial risks that could stem from boom-bust cycles.
Downward pressures could come from: (1) a re-emergence of macroeconomic instability leading to higher inflation, a rise in debt servicing costs, and/or a deterioration in the country’s external payments; (2) a material and durable weakening in economic growth compared with rated peers; or (3) a sizeable crystallization of contingent risks from either the banking system or the SOE sector.
The economy also posted its strongest first-quarter growth in 10 years, expanding 7.38 percent annually in January-March. Vietnam set the target for GDP growth rate at the minimum of 6.7% in 2018, requested the Prime Minister Nguyen Xuan Phuc at a regular government meeting on April 2.
The Purchasing Managers Index (PMI) of Viet Nam hit 51.6 points in March as announced by Nikkei on April 2, Phuc said. Despite suffering a fall in PMI compared to February, Viet Nam maintained its place as one of the two highest scoring Southeast Asian nations. Meanwhile, the PMI of many Asian countries fell off amid concerns over an emerging trade war between the U.S. and China.
Moody’s conclusions are contained in its just-released credit analysis titled “Government of Vietnam — B1 positive” and which examines the sovereign in four categories: economic strength, which is assessed as “high (-)”; institutional strength “low (+)”; fiscal strength “moderate (-)”; and susceptibility to event risk “high (-)”.
The report constitutes an annual update to investors and is not a rating action.
Moody’s explains that Vietnam’s real GDP growth accelerated to 6.8% year-on-year in 2017, topping a 6.2% expansion in 2016. We expect real GDP growth to remain robust, averaging 6.7% in 2018, nearly twice as high as the average for B-rated sovereigns of 3.6%, and supported by domestic consumption and by strong investment growth on the back of public sector infrastructure development spending.
Rapid domestic credit growth has in part financed strong domestic demand, and continues to significantly outpace nominal GDP growth. Moody’s points out that while rapid credit growth presents risks to the banking system, it could also represent a degree of financial deepening.
High government debt levels and widening deficits act as a credit constraint, and as Vietnam graduates from the World Bank’s International Development Association program, its debt affordability may erode. Nonetheless, a continued shift away from foreign currency financing indicates a deepening in domestic financial markets, which will reduce refinancing risks.
The drive to privatize SOEs – which the government refers to as equitization – remains a key policy priority, and has gathered momentum with successful stake sales in large SOEs.
Upward rating pressures could come from: (1) the passage of concrete measures that lead to a significant reduction in the government’s debt burden; and (2) a further strengthening in the banking system and SOE sector that significantly diminishes contingent risks to the government and lowers macro-financial risks that could stem from boom-bust cycles.
Downward pressures could come from: (1) a re-emergence of macroeconomic instability leading to higher inflation, a rise in debt servicing costs, and/or a deterioration in the country’s external payments; (2) a material and durable weakening in economic growth compared with rated peers; or (3) a sizeable crystallization of contingent risks from either the banking system or the SOE sector.
The economy also posted its strongest first-quarter growth in 10 years, expanding 7.38 percent annually in January-March. Vietnam set the target for GDP growth rate at the minimum of 6.7% in 2018, requested the Prime Minister Nguyen Xuan Phuc at a regular government meeting on April 2.
The Purchasing Managers Index (PMI) of Viet Nam hit 51.6 points in March as announced by Nikkei on April 2, Phuc said. Despite suffering a fall in PMI compared to February, Viet Nam maintained its place as one of the two highest scoring Southeast Asian nations. Meanwhile, the PMI of many Asian countries fell off amid concerns over an emerging trade war between the U.S. and China.
Source: http://www.hanoitimes.vn/economy/2018/04/81E0C43F/moody-s-optimistic-over-vietnam-s-economy/