Vietnam won a sovereign rating upgrade from Fitch Ratings on rising foreign-exchange reserves and strong economic growth, putting the nation closer to investment grade. Bonds and stocks rose.
The rating on the nation’s long-term, foreign currency-denominated debt was raised one level to BB, with a stable outlook, Fitch said in a statement on Tuesday. The upgrade puts Vietnam at the second-highest speculative grade and on par with Costa Rica.
Vietnam’s communist government has transformed the nation into one of the most rapidly-growing economies in the world with Fitch forecasting expansion of 6.7% in 2018. The government is focusing on containing debt and reforming its state-owned enterprises, boosting its track record of policy making at a time when emerging markets face pressure from rising US interest rates.
Reserves are forecast to climb to about $66 billion by the end of this year from $49 billion in 2017, while general government debt is likely to decline to below 50% of gross domestic product by 2019, according to Fitch calculations. The budget deficit is estimated to narrow to about 4.6% of GDP in 2018 from about 4.7% in 2017, Fitch said.
The yield on Vietnam’s 4.8% dollar notes due November 2024 fell five basis points to 4.63% on Tuesday, according to data compiled by Bloomberg. Those of similar-maturity debt from the Philippines was at 3.65%. Fitch rates the Philippines at BBB, three levels above Vietnam.
The benchmark VN Index of shares rose 0.8%, while the currency was little changed.
Here are other comments from Fitch:
- Vietnam’s banking sector remains structurally weak and weighs heavily on the sovereign rating
- Non-performing loans remain under-reported and true asset quality is likely to be weaker than stated
- A sustained rapid credit growth poses a risk to financial stability in the medium-term
- Government guarantees for state-owned entities and potential banking sector recapitalization costs continue to weigh on Vietnam’s public finances