Fitch Ratings on December 8 upgraded Vietnam's sovereign credit rating from BB to BB+ with a stable outlook. This is good news for Vietnam's economic outlook.

According to Fitch Ratings, the upgrade reflects Vietnam's favorable medium-term growth prospects, underpinned by foreign direct investment (FDI) inflows. This will help to sustainably improve credit structural indicators.

According to Fitch Ratings, Vietnam's medium-term growth forecast is about 7%. Vietnam continues to attract FDI inflows in the context of the world diversifying global supply chains as well as having cost advantages, an abundant labor force and a rich number of free trade agreements (FTAs).

Upgrading relations with the US to a "Comprehensive Strategic Partnership" will continue to promote stronger FDI attraction into Vietnam.

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Fitch Ratings upgrades Vietnam's credit rating.

Fitch Ratings also assessed that the challenges facing the Vietnamese economy from difficulties in the real estate market and weakening global demand will have little impact on the macroeconomic outlook in the medium term. In addition, abundant policy space will contribute to controlling risks in the short term.

Under the baseline scenario, Vietnam's economic growth is expected to slow to 4.8% in 2023. Growth in 2024 will increase to 6.3% and to 6.5% in 2025.

According to the international credit rating agency, Vietnam's foreign exchange reserves have gradually improved after a sharp decline in 2022. Foreign exchange reserves will continue to improve in 2024 and 2025. This partly reflects the return of capital flows as well as a larger trade surplus.

One of the factors that Fitch Ratings highly appreciates in Vietnam's credit profile is that government debt is much lower than that of countries with the same rating.

In the medium term, Fitch Ratings believes that Vietnam's budget will be strengthened thanks to solutions to expand the tax base set out in Vietnam's Fiscal Strategy to 2030.

Fitch Ratings believes that the Vietnamese Government will continue to implement policies to support growth and stabilize the macro economy. Therefore, the economy will regain growth momentum in the coming time.

Accordingly, Fitch Ratings forecasts that the State Bank of Vietnam will maintain a loose monetary policy in 2024. The basis for this forecast is that the Vietnamese real estate market is expected to be under prolonged stress.

In 2023, the State Bank of Vietnam cut the refinancing rate by 150 basis points after increasing it by 200 basis points in 2022.

Inflation is forecast to continue to decline in 2024 and remain within the State Bank's target range, after falling to an average of 3.2% in 2023.

In addition, the government debt-to-GDP ratio is forecast to stabilize at 38%, well below the BB rating average.

3 economic growth scenarios in 2024 According to a representative of the Central Institute for Economic Management (CIEM), GDP growth in 2023 is estimated at 5.19%; at the same time, 3 growth scenarios for 2024 were proposed.