According to experts, the improvement is essential for creating a spillover effect in the entire economy and raising Vietnam’s prestige and trust with international investors, including direct and indirect investors in Vietnam.
In late March, Prime Minister Pham Minh Chinh issued a decision approving the National Credit Rating Improvement Project until 2030 under which Vietnam targets to raise its credit rating to ‘investment-grade’, meaning Baa3 or better on Moody’s scale and BBB- or better on the Standard & Poor’s and Fitch.
In the context of challenges in domestic and international macro-economics, the national credit rating and rating outlook of Vietnam has improved year by year.
According to the rating agencies, factors positively affecting Vietnam's credit rating are a diversified economy with positive growth prospects, stable fiscal environment and sustainable public debt. Besides that, large amounts of FDI capital, strong exports and reform of institutions have also been positive factors affecting the national credit rating.
This is the result of the synchronous and effective implementation of macro-economic stabilisation measures made by the Party, the National Assembly and the Government. It is also the result of enhancing the exchange of information among the ministries and sectors with the three international credit rating agencies.
Thus, to achieve the goal of Vietnam's national credit rating by 2030, the project has proposed specific targets on fiscal, monetary, banking, social, and environmental aspects to improve the above key factors.
Raising the national credit rating to investment grade by 2030 is highly dependent on strong economic growth.
Vietnam's strong growth in the years before the COVID-19 pandemic, along with its better economic performance than other countries at the same rank in 2020, made the credit rating agencies raise Vietnam's rating outlook to a positive level in 2021.
Vietnam needs to maintain a stable economic growth rate in the next 5-10 years to gain the goal of raising the national credit rating to investment grade by 2030.
Its main solutions are to build a firm public financial system, expand a sustainable revenue base to improve debt indices and promote fiscal consolidation, increase the transparency of fiscal policies, and improve the structure and quality of the banking system and State sector as well as the credit-related legal corridor.
The project also proposes solutions to raise awareness of the importance of national credit rating, and strengthen cooperation with the credit rating agencies and international organisations.
To achieve the goal of improving credit rating to investment grade, besides stabilising the macro-economy and improving the quality of institutions, governance and the economy, policymakers need to flexibly deal with the risk of the pandemic.
In addition, Vietnam should improve transparency and proactively share with the credit rating agencies and investors positive information on socio-economic development. It also needs to improve activities of information and data disclosure.
Vietnam's entry into the group of middle-income countries is an important milestone, opening up many new possibilities for proactive and effective management of debt. The rapid development of the domestic bond market offers an opportunity to raise long-term debt at a reasonable cost.
However, there are still potential risks to the domestic capital market. In addition, the COVID-19 pandemic increases unexpected short- and medium-term capital mobilisation needs.
Meanwhile, Vietnam officially graduated from the International Development Association (IDA) in 2017, so it has lost access to IDA concessional financing. The nation will have to rely more on market tools.
In that context, the goal of raising the national credit rating is a task with a long-term vision to reduce the cost of capital mobilisation, enhance the country's reputation in the world and meet more requirements of socio-economic development in the future.
