Published on 06 January 2015
RAM Ratings has assigned respective global
and ASEAN-scale sovereign ratings of gBB3(pi)/stable and
seaBB1(pi)/stable to Vietnam. The ratings take into account persistent
fiscal deficits, debt levels approaching the government’s debt ceiling,
low reserve coverage, a large and inefficient state-owned enterprise
(SOE) sector that crowds out the private sector, and a central bank with
a chequered track record of macroeconomic stability that has overseen a
banking sector crisis and persistently high inflation. The economy’s
stable, solid growth rate and improvements in macroeconomic policy have
also been factored into our assessment.
“Vietnam’s economic performance has been hindered by a
banking sector that remains crippled following the global financial
crisis. The ratio of non-performing loans – already the highest in the
region – may be much larger as banks do not follow international
debt-classification standards. As a result, credit growth remains
stagnant,” notes Esther Lai, RAM’s Head of Sovereign Ratings. “Progress
in reforming the banking sector is slow, as crucial policies are often
delayed,” Lai adds.
Revenue collection has been declining, leading to
persistent primary fiscal deficits that are higher than peers’. As a
result, general government debt has ballooned, approaching the debt
ceiling of 65% of GDP. Multiple recent convictions are evidence of the
mismanagement and corruption within the large SOE sector, which further
poses a contingent liability risk to public finances.
Vietnam’s external strength is much thinner than that
of peers, with total foreign reserves only covering 2.2 months of
current account purchases as at end-2013. The fixed exchange rate faces
further pressure from rising imports in the near term as consumption and
investment activities pick up as expected.
“On a positive note, sources of economic growth are
becoming increasingly diverse. Notably, the manufacturing sector has
shifted towards higher value-added goods, particularly in the
electronics and electrical segment,” observes Lai. Improving business
conditions further complement positive macroeconomic policymaking
towards sustaining the inflow of FDI into the economy.
While the stable outlook mainly reflects the
country’s improved macroeconomic stability, the ratings could be
adjusted upwards if there is a sustained narrowing of the fiscal deficit
as well as a successful reform of the banking sector which leads to a
better credit environment. Conversely, a negative rating action could be
triggered by a severe reduction in FDI inflows that reduce external
flexibility and put pressure on the exchange rate and meagre foreign
reserves. Increased government debt owing to recapitalisation of the
banking sector and/or the SOE sector could also put downward pressure on
the ratings.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.