-A decision by Fitch Ratings has resulted in a revision of its outlook on Vietnam’s long-term credit rating to positive from stable, affirming its B+ rating.
The ratings agency cited Vietnam’s improved macro fundamentals, stronger external finances, and expansionary fiscal policy as the primary reasons for raising the credit outlook.
The firm said the improvement is also justified based on data since the start of the year and a number of factors, including - steady financial indicators resulting in the curtailment of inflation, a narrowing of the trade balance, steady growth in retail sales, a stabilization in its currency, and a rallying stock market.
According to AZN’s latest economics update, Vietnam’s GDP growth is forecast to be 5.6% and 5.8% in 2014 and 2015 respectively on the back of steady economic improvements.
January inflation moderated more than expected to 5.45% year on year. Consumer prices rose 0.69% month on month, the slowest monthly gain in January since 2010.
Credit expanded by 1% in January to VND952.9 trillion, while foreign currency loans marginally rose 0.8%, versus a 22% decline over the same period in 2013, ANZ reported.
Multilateral organisations have been pouring funds into the economy via export and import funding programmes. Nonetheless, access to credit is still stifled by the structural challenges posed by high nonperforming loans (NPLs) on banks’ balance sheets.
According to official sources, the bad debt ratio has declined to 3.79% by end-2013, around 1% lower at the start of 2013. However, various international agencies estimate that NPLs are more than double the official estimates if international accounting standards are followed.
Vietnam’s currency has evolved as an unexpected bastion of stability in the region, regardless of the challenges that remain. The USD/VND remains stable, trading near the midpoint of the trading band.
From the start of 2014 to January 20, Vietnam attracted US$397.1 million in registered foreign direct investment (FDI), from US$257.1 million over the same period last year. Realised FDI also increased to US$465 million from US$420 million.
In 2014, export of phones and spare parts are expected to benefit from recent FDI, especially textiles and garments, crude oil, aqua products, footwear, computers, electronics, and phones and spare parts, said ANZ.