According to Fitch Ratings, the upgrade reflects Viet Nam's favorable medium-term growth outlook, underpinned by robust foreign direct investment (FDI) inflows, which is expected to continue to drive sustained improvements in its structural credit metrics.

The rating agency is confident that near-term economic headwinds from property-sector stresses, weak external demand and delays in policy implementation owing to a corruption crackdown are unlikely to affect medium-term macroeconomic prospects and that policy buffers are sufficient to manage near-term risks.

The Fitch Ratings forecasts Viet Nam's medium-term growth of around 7 percent. Viet Nam's cost competitiveness, educated workforce relative to peers, and entry into regional and global free-trade agreements bode well for continued strong FDI inflows amid global supply chain diversification.

The authorities estimate that FDI projects have disbursed about US$22.4 billion (6 percent of GDP) as of 20 December 2022, an increase of 13.5 percent year-on-year over the same period last year. Diplomatic relations with the U.S. were upgraded to a comprehensive strategic partnership in September, which could facilitate greater U.S. FDI and trade.

Viet Nam's foreign-exchange reserves improved modestly, to US$89 billion as of end-September 2023, after a sharp drop in 2022. This partly reflects some return of capital flows and a larger trade surplus.

The agency expects reserves to improve further in 2024-2025 with coverage of current external payments averaging about three months.

The government's 2030 financial strategy includes measures to broaden the value-added tax base, enhancing capacity of tax authorities, simplifying import tariffs, and providing electronic and digital services to taxpayers. These measures could support revenues over the medium term, the Fitch Ratings highlighted./.

Thuy Dung

Source: VGP

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