A report released by the rating agency says the 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 per cent.
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.
“The rollout of Vietnam's vaccination programme is off to a slow start, but we nevertheless expect GDP growth of about 7 per cent 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 our expectation of continued success by the authorities in containing domestic coronavirus infections,” Fitch said.
Vietnam's external finances have strengthened further despite the pandemic.
Exports rose by about 7 per cent in 2020 in US dollar terms, and the current account recorded a surplus of about 3.6 per cent 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 forecast Vietnam's current account to remain in surplus at 1.2 per cent and 2 per cent of GDP in 2021 and 2022, respectively, compared with an average deficit of 1.7 per cent for the 'BB' median.
Foreign-exchange reserves rose to US$95.2 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 Việt Nam (SBV).
“We project foreign-exchange reserves will 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 per cent in 2021, more than double the forecast of the 'BB' median.” - Vietnam News/ANN