Vietnam Business Channel

Fitch: Vietnam is stable and receives 'BB' rating

The COVID-19 pandemic has adversely affected Viet Nam's exports. — Photo

Fitch Ratings has revised the outlook on Vietnam's long-term foreign-currency issuer default rating (IDR) to stable, from positive, and has affirmed the rating at 'BB'.

Fitch said, “The outlook revision reflects the impact of the escalating COVID-19 pandemic on Vietnam's economy through its tourism and export sectors, and weakening domestic demand.”

“The affirmation reflects Vietnam's strong medium-term growth prospects, lengthening record of macrostability, lower government debt levels and stronger external finances compared with peers, including foreign-exchange reserves built up over the previous few years during more favorable economic conditions.”

Fitch also said that it currently projects Vietnam's GDP growth to slow to 3.3% in 2020, from 7.0% in 2019, the country’s lowest annual growth rate since the mid-1980s.

Fitch’s report notes that the 2020 forecast is highly uncertain and subject to downside risk, depending on the evolution of the pandemic, both within Vietnam and in its major export markets. Vietnam has so far recorded a relatively low number of COVID-19 cases, but these could increase, and large parts of the country are already subject to curbs on economic and business activity to prevent the spread.

The tourism and export sectors are particularly vulnerable to weaker activity. Tourism accounts for about 10% of GDP directly, but its contribution to overall GDP is considerably higher through indirect spillovers. Tourist arrivals for March fell by about 68% year-on-year.

Fitch’s baseline assumes the outbreak is contained by the second-half of this year and the global tourism industry starts to recover at a gradual pace.

“We expect exports to contract sharply, given the fall in demand in Vietnam's key export markets, including the US and China, although the latter has begun to recover; about 23% of total exports were to the US at end-2019, while about 16% went to China. Weak export demand will affect foreign direct investment (FDI) inflows into the manufacturing sector.”

Fitch said that using provisional GDP numbers, “We expect the current account to shift to a modest deficit in 2020, from a surplus of around 3.0% in 2019, as exports, tourism and remittances decline However, it should return to surplus in 2021 as the global economy recovers.”

Fitch also added that domestic demand is likely to stay muted as strict measures aimed at maintaining social distancing to contain spread of the virus are put in place. The authorities are implementing policies to mitigate the impact, including relief measures to assist households and the tourism and transport sectors. Specifics include payment extensions for value-added, personal income and land taxes for those affected by the outbreak, and cash handouts to workers who have lost jobs.

Fitch expects economic momentum to rebound in 2021, with growth projected at 7.3% as external and domestic demand gradually recover in line with global and regional trends. Exports and tourism are likely to rebound and FDI in the manufacturing sector should pick up, supporting strong medium-term growth prospects.




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