Vietnam urged to utilize higher credit rating

Standard & Poor’s has upped its long-term sovereign credit rating on Vietnam to “BB” from the previous “BB-” and has confirmed the country’s short-term rating at “B.”

According to Standard & Poor’s, Vietnam has a low-income but fast-growing and diversified economy, with gross domestic product growth averaging 6.2% annually since 2012. The Government’s socioeconomic development plans provide useful policy anchors that have improved macroeconomic stability and inflation management in recent years.

Phung Xuan Minh, chairman of Sai Gon Phat Thinh Credit Rating JSC, said Standard & Poor’s upgrade of Vietnam’s credit rating is the result of its institution and economy reform efforts.

The country’s global position is considered stable, meaning the Government can ensure the payment of foreign loans. As a result, the cost of foreign loans would be lower, Minh added.

Vietnam’s liquidity was also evaluated as “good,” at 90% for the 2018-2021 period, as it has sufficient foreign currencies to pay most of its foreign loans.

According to the Vietnam Institute for Economic and Policy Research (VERP), the State Bank of Vietnam has net bought foreign currencies since last quarter. The foreign reserves hit a new record high of more than US$65 billion at the end of last quarter, which will help stabilize the macroeconomy.

Although foreign loans accounted for 40% of the country’s total debt in 2017, most of these loans have long terms. The country’s trade surplus, foreign reserves, goods and service export revenue and strong foreign direct investment (FDI) inflow will help Vietnam pay its foreign loans.

Nguyen Tri Hieu, an economic expert, remarked that higher credit rating will help the country borrow loans at lower interest rates and attract more FDI.

However, it took nearly a decade for the country to see its national sovereign credit rating rise. Further, the long-term sovereign credit rating of “BB” has yet to be considered a good rating for the country to attract foreign investment.

At present, many shortcomings in the local economy have yet to be tackled. Specifically, the country’s exports are mainly products of low added value. It also relies heavily on the FDI sector.

According to statistics from the General Statistics Office, the total export revenue reached US$57.51 billion in the first quarter of the year, with 70.9% being contributed by FDI firms.

At first, Vietnam should work out solutions to maintain its credit rating by increasing its labor productivity and the competitiveness of locally made products.

Also, it is necessary to restructure the banking sector to better control State budget overspending.

According to VERP, the State budget revenue reached VND381 trillion (US$16.4 billion) in the first three months of 2019, up 13.2% year-on-year. Meanwhile, the spending was VND315.6 trillion, resulting in a balance of VND65.4 trillion.

Nevertheless, infrastructure projects, which are in dire need of capital, have put pressure on the State budget. If the Government cannot allocate enough capital for these projects, it must ask for foreign loans.

Hieu proposed the country enhance the transparency and effectiveness of foreign loans, besides encouraging saving.