Amid complicated developments in the world in the past eight months, Vietnam is the only in Asia-Pacific and one of the four countries globally to have ratings upgraded by Moody’s since early this year. Photo: Reuters

The Finance Ministry said on September 6 that the upgrade to Ba2 reflects the assessment by Moody's that Vietnam's economy has growing strengths and greater resilience to external macroeconomic shocks that are indicative of improved policy effectiveness, according to VietnamPlus.

Moody's expects the situation would continue as the economy benefits from supply chain reconfiguration, export diversification and continued inbound investment in manufacturing.

The rating also reflects a sounder fiscal footing backed by contained borrowing costs, a conservative approach to fiscal policy and improved government liquidity, driven by the ongoing transition from external concessional borrowing toward longer-dated, low-cost domestic market financing, said the ministry.

Amid complicated developments in the world in the past eight months, Vietnam is the only in Asia-Pacific and one of the four countries globally to have ratings upgraded by Moody’s since early this year.

rade tensions between the US and China, as well as the supply chain disruptions due to the waves of lockdowns within China, have accelerated manufacturing investment in Vietnam. Photo: Reuters

The increasing demand for Vietnamese exports through the coronavirus pandemic underpins the growing competitiveness of Vietnam’s manufacturing sector, which has "outperformed regional peers in the attraction of foreign direct investment (FDI) and has driven a rapid rise in per capita income."

Trade tensions between the US and China, as well as the supply chain disruptions due to the waves of lockdowns within China, have accelerated manufacturing investment in Vietnam given the similarity of Vietnam’s exports compared with China’s among Asia-Pacific economies, along with an ample supply of relatively low-cost labor, according to The Investor.

Disbursed foreign investment capital in Vietnam hit $12.8 billion in the year to August 20, a 10.5% rise year-on-year, Foreign Investment Agency (FIA) data shows.

Vietnam continues to be one of the top countries in Southeast Asia for FDI attraction, especially in the manufacturing sector, according to HSBC. The country has become a rising star in global supply chains, gaining a substantial global market share in many sectors including textiles, footwear, and consumer electronics, the bank noted in a report.

Vietnam continues to be one of the top countries in Southeast Asia for FDI attraction. Photo: The Saigon Times

At a Forbes Vietnam forum in August, economist Brian Lee Shun Rong at Maybank, Malaysia's largest financial services group, also called Vietnam "a rising star in the global supply chain".

Moody's expects Vietnam's centrality to multiple regional and bilateral trade agreements to affirm its entrenched position in global value chains.

Vietnam is a party to the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and bilateral free trade agreements (FTAs) with South Korea, and more recently, with the EU and the UK.

These trade agreements will strengthen Vietnam’s competitive position in lower-value products such as footwear, garments, and agricultural goods, while placing it firmly in higher-value-added regional tech supply chains for smartphones, computers and other electronic products, according to the credit rating agency.

On the downside

Moody’s, however, stressed that the relatively low capitalization levels of state-owned banks coupled with high domestic credit growth and potential risks from the real estate sector pose risks to the real economy in the event of a shock.

Uncertainties relating to regional and global geopolitical tensions, higher imported input prices and uncertain growth prospects in Vietnam’s key trading partners may also pose limits to external surpluses for Vietnam’s trade-reliant economy.

"Structural risks to this economic trajectory may emerge over the next 5-10 years as the existing stock of port, airport, electricity and railways infrastructure and the working age population, which will peak around 2035, may be insufficient to absorb large-scale shifts in supply chains to Vietnam from China and other higher-wage locations of production," it said.

Moody’s expects the authorities to seek to address these challenges through investment in education and worker training to support higher productivity and employment in higher value-added activities while targeting inflows of FDI into sectors and activities that lead to greater direct spillovers to domestic suppliers.

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