HÀ NỘI – Two major credit rating agencies, Moody’s and Standard & Poor’s (S&P), on Friday affirmed Việt Nam’s sovereign rating, citing the country’s strong foreign direct investment (FDI) inflows, macroeconomic and external stability and modest external debt burden.

Moody’s affirmed the Government of Việt Nam’s B1 issuer and senior unsecured debt ratings, while it raised the outlook to positive from stable.

Moody’s B1 rating, four steps below investment grade, is considered relatively stable, with a moderate chance of default.

The company also raised its assessment of Việt Nam’s local-currency bond to Baa3 from Ba1, while the foreign currency bond remained at Ba2.

The positive outlook for Việt Nam is based on three key drivers, including strong FDI inflows, boosted by ongoing economic reform and liberalisation; macroeconomic and external stability; and the stabilization of prospective debt and an improved funding profile.

Moody’s noted that robust FDI inflows will continue to sustain Việt Nam’s dynamic economic performance relative to similar-rated peers, as it allows Việt Nam to diversify its economy and gain market share in international trade.

Việt Nam has seen significant improvements in the investment climate. Its ranking rose to 60^th out of 138 countries in the 2016-2017 World Economic Forum Global Competitiveness Index, up from 70^th in 2013-14, while its showings in the World Bank’s Doing Business Indicators similarly rose to 82^nd out of 190 countries in 2017, and from 99^th in 2014.

Further, Việt Nam has become a more important node in the regional supply chain for electronics, especially for mobile phones, as foreign investments have helped to diversify the economy towards higher value-added manufacturing. Its market share nearly doubled to 1.2 per cent of world exports in 2016, from 0.7 per cent in 2013.

Moody’s expected the country’s economic growth to remain robust at around 6.3 per cent per annum through 2019.

S&P Global Ratings on Friday also affirmed Việt Nam’s long-term ‘BB-’ credit ratings and short-term ‘B’ credit ratings with a stable outlook.

The ratings have reflected the country’s lower middle-income, banking sector weakness, and emerging institutional settings that hamper the responsiveness of policy.

“These weaknesses are offset by Việt Nam’s external settings that feature balanced external accounts, strong foreign direct investment inflows and a modest external debt burden,” S&P said in a press release.

The rating company said financial and technical assistance that Việt Nam has received from donors also contributed to the rating.

Its stable outlook reflected the company’s expectation that Việt Nam’s growth prospects will continue to improve, leading to gains in its key economic and fiscal measures, it said.

However, it has cautioned that the large fiscal deficit and rising debt burden, with net general government debt at 46.6 per cent of GDP in 2016, signal a further delay in fiscal consolidation. S&P estimates that the fiscal deficits will average 4.9 per cent of GDP over 2017-20, down from an average 6.4 per cent over 2012-16.– VNS