Vietnam outperforms among frontier Asian sovereigns: Fitch

07 Jul '20

3 min read

Pic: Shutterstock

Vietnam will stand out among Asia’s frontier and emerging markets this year in terms of economic resilience and success in bringing the COVID-19 outbreak under control, according to Fitch Ratings, which recently said these factors should support Vietnam’s ‘BB’ rating, which it affirmed in April this year while revising its outlook to stable from positive.

Nevertheless, the country faces a number of challenges, including contingent liability risks from state-owned enterprises and structural weaknesses in the banking sector, Fitch Ratings said in a press release.

Vietnam is one of only four Fitch-rated sovereigns in the Asia Pacific (APAC) that the rating agency expects to post positive economic growth in 2020.

Official data show the economy expanded by 0.4 per cent year on year (YoY) in the second quarter of 2020 despite the impact of the pandemic on tourism and export demand, in line with the agency’s full-year 2.8 per cent growth projection.

Fitch forecasts that the pace of expansion will accelerate in 2021, as external demand, including tourism exports, recovers.

The relative strength of Vietnam’s growth momentum owes much to its success in curbing the pandemic. Vietnam had no reported deaths from COVID-19 as of end-June, according to the World Health Organisation. This could reflect a variety of factors, including the effectiveness of the official health policy response.

Vietnam has introduced fiscal stimulus of around VND271 trillion (3.4 per cent of gross domestic product or GDP) to help offset the effects of the pandemic. This includes tax deferrals, cuts and exemptions, as well as cash transfers to affected workers and households, the latter being worth 0.4 per cent of GDP.

Fitch expect the general government debt-to-GDP ratio to rise to around 42 per cent in 2020, from 37 per cent in 2019, based on Fitch estimates, but this still below the 59 per cent median for ‘BB’ rated sovereigns.

Vietnam’s economic outlook remains vulnerable to shifts in external demand. The country has benefitted from trade diversion associated with rising costs in China and the US-China trade war, and early data suggest it made further gains as China’s exports were disrupted by the novel coronavirus.

Vietnam’s share of US apparel and textile imports rose to 15.5 per cent in April 2020, from 12.9 per cent in April 2019, according to the US Office of Textiles and Apparel. The country also attracted a healthy $8.7 billion in realised capital investment from overseas in the first half of this year.

Nonetheless, both textile and apparel exports to the US and realised capital investment were lower YoY, illustrating Vietnam’s vulnerability to the evolution and impact of the pandemic.

Fibre2Fashion News Desk (DS)