Bangkok--15 Jan--Moody's
Moody's Investors Service has assigned a foreign currency rating of Ba3 with a negative outlook to the government of Vietnam's forthcoming global bond issuance.
Support for Vietnam's rating primarily comes from progress made in externally oriented policies, which have boosted trade, investment and income levels. Furthermore, ongoing state enterprise restructuring and reform are helping to improve the structure of the economy.
"In addition, public finances are manageable, even though the deficit has swelled as a result of a robust stimulus package and the adverse effects of the global financial crisis and recession," adds Byrne. Although the downturn in global trade dims somewhat Vietnam's near-term economic prospects, the country's growth model retains the potential to engender relatively vigorous growth over the long term.
Moody's further notes that Vietnam's economic and political event risks are low. Rapid growth and rising incomes in the past decade have been accompanied by social and political stability. "Prospects that Vietnam can continue on a path of relatively rapid economic growth seem favorable, if policies are supportive," says Byrne.
In this context, the negative outlook on the rating reflects difficulty the authorities are encountering in conducting pro-growth policies while maintaining macroeconomic stability and anchoring inflationary expectations. This has spilled over into the external accounts, placing downward pressure on the exchange rate.
"We view the decline in official foreign exchange reserves in 2009 as a negative credit development," says Tom Byrne, a Moody's Senior Vice President.
"For Moody's to consider a change in the rating outlook to stable, there would need to be a reduction in external imbalances and a stemming of the loss of official foreign exchange reserves," says Byrne. Such a development would likely require additional monetary and fiscal policy adjustments, as well as a boost from stronger external demand and improved global economic conditions.
The last rating action with respect to Vietnam was on 4 June 2008 when Moody's changed the rating outlook to negative from positive on the government's Ba3 ratings.
The principal methodology used in rating the government of Vietnam is Moody's Sovereign Bond Ratings, published in September 2008, which can be found at www.moodys.com in the Research & Ratings directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies subdirectory on Moody's website.