American credit rating agency S&P Global Ratings on Thursday raised its long-term sovereign credit rating on Vietnam to 'BB+' from ‘BB,’ but maintained its outlook at ‘stable,’ according to the Ministry of Finance.
S&P’s sovereign ratings reflect its analysis of institutional and governance effectiveness, economic structure and growth prospects, external finances, and fiscal and monetary flexibility of a sovereign.
A sovereign is a state that administers its own government and is not subject to or dependent on another sovereign for all or most prerogatives, according to S&P's definition.
The upgrade to 'BB+' from ‘BB’ is a reflection of the Vietnamese economy’s strong recovery prospects following the progressive lift of domestic and cross-border mobility restrictions, outstanding improvement in vaccination rates, and a flexible shift in COVID containment policy.
The significant improvements in government administrative processes, in particular the governance quality of government-guaranteed debt obligations, robust economic growth prospects, strong external position and resilient foreign direct investment (FDI) flows despite pandemic disruptions were also factored in S&P’s decision to upgrade Vietnam’s ratings.
The stable outlook reflects S&P’s expectations that over the next 12-24 months, Vietnam’s economy will continue to recover from the challenges posed by the pandemic in the past two years, which will support the external position and contain fiscal deficits.
In the American credit rating agency's view, Vietnam’s gross domestic product (GDP) per capita has risen quickly in the past few years and is expected to reach a 10-year weighted average growth rate of real GDP per capita of approximately 4.8 percent, significantly higher than the average of Vietnam’s peers at a similar income level.
S&P forecasts real GDP will grow 6.9 percent in 2022 and maintain a long-term trend of growing 6.5-7 percent from 2023 onward.
Vietnam’s macroeconomic stability combined with advantages in competitive labor, improved education standards, and favorable demographics have been key growth drivers in strengthening the country's attractiveness as a destination for global enterprises in the manufacturing sector, creating momentum for export and consumption growth.
On the social front, S&P acknowledges that the Vietnamese government has generally delivered strong development outcomes in the past decade, strengthening a strong social compact between the government and citizens.
On the fiscal front, the credit rating company also recognizes that Vietnam’s public finances have been stable despite pressures from the pandemic.
This agency expects the fiscal deficit to be temporarily widened due to the implementation of the social-economic recovery program.
However, S&P states that the policy space is ample in the context of a sharp reduction in public debt.
Against the backdrop of challenging global developments and deep scarring effects of the coronavirus crisis leading to over 30 downgrades by credit rating agencies in the year to date, Vietnam is one of the only two representatives in the Asia-Pacific region to have been upgraded this year, with the other being Taiwan.