~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Vietnam foreign currency rating upgraded to Ba3 from B1

HONG KONG - Moody's has raised Vietnam's foreign-currency rating by one notch to Ba3 from B1, citing an improved external performance following the implementation of a bilateral trade agreement with the US and the country's likely accession to the World Trade Organization (WTO). It said it has raised the foreign-currency country ceiling for bonds and notes and the foreign-currency rating for government debt to Ba3 from B1. The country's foreign-currency ceiling for bank deposits has been raised to B1 from B3. The rating outlook for all the ratings is stable. In addition to the implementation of the US trade accord, the recent visit of Prime Minister Phan Van Kai to the US has firmed up support from the Bush administration for Vietnam's WTO accession, a step that is likely to serve as an additional boost to export growth and foreign direct investment (FDI), Moody's said.

The accession to the WTO, which is likely to take place late this year or in 2006, is not only important for the long-term health of the country's external payments position, but because it will also help anchor domestic reforms to an external treaty commitment, it said. Vietnam's pace of restructuring of domestic state-owned enterprises and state-owned banks has been slow, but it will likely accelerate upon acceptance of WTO-mandated reforms, Moody's said. The country's external payments position provides the strongest support to the government's rating, it noted.

Exports, remittances from overseas Vietnamese, FDI and concessional loans from multilateral development banks and foreign governments should enable Vietnam to sustain moderate, investment-driven current account deficits, it said. Another source of strength is Vietnam's position as a net exporter of oil. Key external indicators place Vietnam in a favorable position compared with its peers, Moody's said.

The rating agency noted that Vietnam will however need to allay some concerns about its creditworthiness in the future. More consistent domestic policy performance is needed to quell a resurgence in inflationary expectations. Flexibility in exchange rate policy seems prudent to ensure domestic monetary stability and to protect external competitiveness as well. A more robust domestic reform agenda and performance will be necessary to limit the build up of contingent fiscal liabilities in the financial system, it said. In addition, weaknesses and the relative lack of timeliness and transparency in the country's economic and financial statistics remains a concern, it said.

Moody's believes that the long-run economic prospects for Vietnam will remain favorable provided the authorities can maintain a consistent commitment to sound macroeconomic policies, maintain external competitiveness, and generate momentum in favor of reforming the country's antiquated banking and industrial structures.

AFX News Limited - July 07, 2005.