market movements
Fitch revises Vietnam’s outlook to positive Fitch Ratings has revised Vietnam's outlook to positive from stable and affirmed the long-term foreign-currency issuer default rating (IDR) at 'BB'.
T
he positive outlook reflects Vietnam's growth and public finances' resilience to the Covid-19 pandemic shock, and continued strengthening of external finances due to persistent current account surpluses and rising international reserves. Vietnam was among the few economies in the Asia Pacific region and the 'BB' rating category to maintain positive growth in 2020, at 2.9 percent. The relative strength of Vietnam's performance was largely due to its success in bringing the coronavirus outbreak swiftly under control, despite the pandemic's impact on domestic economic activity and tourism inflows, alongside strong policy support and export demand. Fitch expects GDP growth of about 7 percent in 2021 and 2022, in line with a broader global economic recovery sustaining export
growth and a gradual normalisation of domestic economic activity based on its expectation of continued success by the authorities in containing domestic coronavirus infections. Vietnam's external finances have strengthened further despite the pandemic. Exports rose by about 7 percent in 2020 in US dollar terms, and the current account recorded a surplus of about 3.6 percent of GDP. Strong export performance reflects a surge in demand for high-tech components associated with strong sales of IT equipment in the US and other advanced economies as well as continued benefits of trade diversion, associated with rising costs in China and the US-China trade war. Fitch forecasts Vietnam's current account to remain in surplus at 1.2 percent and 2 percent of GDP in 2021 and 2022, respectively, compared with an average deficit of 1.7 percent for the 'BB' median. Foreign-exchange reserves rose to USD95.2 billion by end-2020 likely due to a combination of factors, including a current-account surplus and foreign currency purchased by the State Bank of Vietnam (SBV). Fitch projected
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foreign-exchange reserves would continue to cover around 3.5 months of current external payments in 2021 and 2022, compared with a forecast 'BB' median of 5.2 and 4.7 months, respectively. Nevertheless, Vietnam's external liquidity ratio, measured by the ratio of the country's liquid external assets to its liquid external liabilities, also improved further to 388 percent in 2021, more than double the forecast of the 'BB' median. The bulk of the strong FDI inflows in 2020 went into the manufacturing sector. Net FDI in 2020 was USD15.4 billion (about 4 percent of GDP), close
