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“The stable outlook reflects our expectation that Vietnam’s economy will continue to expand rapidly, exemplifying gradual improvements in its policymaking settings and underpinning credit metrics,” the rating agency said in a release.
The country’s external settings, which feature broadly balanced external accounts, strong foreign direct investment inflows and a manageable external debt burden, provide further support to the rating, it added.
Vietnam, being a low-income country, has a rapidly growing economy — 6.2 percent annual growth on average since 2012 — and is estimated to grow by 5.7 percent on average until 2022, higher than most other countries with the same income level, said S&P.
GDP per capita has grown from $1,754 in 2012 to $2,752 last year, it added.
The country’s ranking in the World Bank’s 2019 Doing Business index has surged to 69th now from 99th in 2013, with strong gains in contract enforcement and regulatory environment.
The ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) last year reflects the government’s willingness to adopt and implement necessary reforms, especially in the state sector, S&P said.
However, challenges remain for Vietnam as international trade tensions could undermine the export momentum of the country, which has a large share of trade relative to the size of its economy, it warned.
Domestically, elevated fiscal deficits and public indebtedness mean new sources of funding would likely be needed to continue to spur strong infrastructure investment, it said.
Relatively weak banks, characterized by low levels of capitalization and poor asset quality, also pose a degree of risk to the economic outlook, it added.
S&P’s move comes after two other global credit ratings agencies upgraded Vietnam last year. First Fitch raised the country’s long-term foreign-currency issuer default rating to ‘BB’ from ‘BB-‘, with a stable outlook. Then Moody’s upped the country’s ratings from B1 to Ba3, with a stable outlook.