Credit Rating Agency Lowers Vietnam Outlook

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June 2 – Last week, international credit ratings agency Fitch lowered its Vietnam rating from stable to negative.

Fitch Ratings, a global credit rating agency, gave Vietnam a BB-minus sovereign rating. The new rating is three levels below investment grade.

Investment grade refers to the quality of a company's credit. A rating below that increases the chances of a company not being able to repay debt.

Vietnam is battling soaring inflation and its stock market has plunged by 55 percent this year.

Inflation for the month of May reached more than 25 percent compared to the same period last year due to a sharp increase in food prices.

World Bank chief economist in Vietnam, Martin Rama, told Thanknien News that the 25-percent inflation rate, is the country’s highest in more than a decade, was ”a worrying figure, a very high inflation rate.”

In addition, the country’s trade deficit for the first five months of the year has more than tripled from US$4.25 billion during the same period last year to US$14.42 billion.

The General Statistics Office reported that exports increased by 27 percent to $23.4 billion, and imports surged by 67 percent to $37.82 billion.

The credit agency points out that Vietnam has been slow to implement policies and warns that inflation could pose risks to the stability of its banking system.

"There has been a sharp deterioration in the country's current account deficit, whose financing increasingly depends on non-FDI capital inflows. This highlights the increased external vulnerability of the sovereign, and the potential erosion of what had been a credit strength for the country," Franklin Poon, Director in Fitch's Asia Sovereign ratings team, said in the report.