According to the World Economic Forum's Global Competitiveness Index, Vietnam is much more competitive than most other Ba-rated or B-rated sovereigns.
Moody's upgrade to Ba3 was based on the strong growth potential, supported by increasingly effective use of labor and capital in the economy. A long average maturity of government debt and a diminishing reliance on foreign-currency debt point to a stable and gradually moderating government debt burden, particularly if strong growth is sustained over time.
The structure of Vietnam's government debt also limits susceptibility to financial shocks. The upgrade also reflects improvements in the health of the banking sector that Moody's expects to be maintained, albeit from relatively weak levels.
The stable outlook reflects balanced risks at the Ba3 rating level. While downside risks may arise from persisting weaknesses in the banking system or if the ongoing trade dispute between the US and China resulted in a sharp slowdown in global trade, there are upside risks from further improvements in debt affordability and better trade performance than we currently project.
Furthermore, Moody's estimates that Vietnam's growth potential is strong, at around 6.5 per cent, supported by increasingly efficient use of labor and capital in the economy.
Globally, strong growth potential tends to be associated with relatively low competitiveness, yet Vietnam's economic strength combines high growth and high competitiveness as shown in the economy's ongoing shift towards high value-added sectors.
Rising competitiveness and a further transition towards higher-value added industrial activity will support growth at high levels in the medium term. Moody's projects GDP growth of 6.4 per cent in 2018-2022, higher than the median for B1-rated sovereigns at 3.7 per cent, and Ba-rated sovereigns at 3.5 per cent.
Moody's has also raised Vietnam's long-term foreign currency (FC) bond ceiling to Ba1 from Ba2 and its long-term FC deposit ceiling to B1 from B2. The short-term FC bond and deposit ceilings remain unchanged at Not Prime. Vietnam's local currency bond and deposit ceilings remain unchanged at Baa3.
Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation providing international financial research on bonds issued by commercial and government entities. Moody's, together with Standard & Poor's and Fitch Group, is considered one of the Big Three credit rating agencies.
