International credit agency Moody's has just issued its latest Vietnam rating and has upgraded the country’s credit outlook from “negative to positive”, thanks in part to the country’s improvements in fiscal strength, manufacturing shift from China to Vietnam, and the country’s positive response to the global COVID-19 pandemic.
Moody’s notes that sustained fiscal consolidation has led to improvements in fiscal and debt metrics, which has received only limited interruptions from the pandemic.
The company also notes that Vietnam's economic strength “should continue to benefit from global shifts in production, trade and consumption following the coronavirus pandemic.”
Many multinational companies that were manufacturing in China have shifted their operations to Vietnam due the US – China trade war of ex-President, Donald Trump. The trend of multinationals shifting production to locations in Southeast Asia is expected to continue, and this will see many companies moving their production to Vietnam thanks to the country’s political stability, competitive labor prices and government investment incentives.
Additionally, Moody’s has forecasted that Vietnam’s inclusion in several recent free trade agreements should firm up the country’s "competitive position in lower value products such as footwear and garments" while placing it at the center of higher-value-added regional tech supply chains for smartphones, semiconductors and other electronic products.
In December 2019 Moody's gave Vietnam a negative outlook due to delays in paying government guaranteed debt. However, the company has now upgraded its outlook after the government enhanced its scrutiny of payments.
The government has been monitoring the list of direct and indirect debt obligations, and instituted an administrative process whereby relevant ministries set aside funding in advance to fulfill these obligations, Moody's said.
Moody’s stated in its report that it would consider downgrading Vietnam's rating if there is a reemergence of financial instability, leading to higher inflation, a rise in debt-servicing costs or a worsening of the country's external payments position.