(Bloomberg) -- Vietnam won a sovereign rating upgrade from Fitch Ratings on rising foreign-exchange reserves and strong economic growth, putting the nation closer to investment grade. Bonds and stocks rose.
The rating on the nation’s long-term, foreign currency-denominated debt was raised one level to BB, with a stable outlook, Fitch said in a statement on Tuesday. The upgrade puts Vietnam at the second-highest speculative grade and on par with Costa Rica.
Vietnam’s communist government has transformed the nation into one of the most rapidly-growing economies in the world with Fitch forecasting expansion of 6.7 percent in 2018. The government is focusing on containing debt and reforming its state-owned enterprises, boosting its track record of policy making at a time when emerging markets face pressure from rising U.S. interest rates.
Reserves are forecast to climb to about $66 billion by the end of this year from $49 billion in 2017, while general government debt is likely to decline to below 50 percent of gross domestic product by 2019, according to Fitch calculations. The budget deficit is estimated to narrow to about 4.6 percent of GDP in 2018 from about 4.7 percent in 2017, Fitch said.
The yield on Vietnam’s 4.8 percent dollar notes due November 2024 fell five basis points to 4.63 percent on Tuesday, according to data compiled by Bloomberg. Those of similar-maturity debt from the Philippines was at 3.65 percent. Fitch rates the Philippines at BBB, three levels above Vietnam.
The benchmark VN Index of shares rose 0.8 percent, while the currency was little changed.
Here are other comments from Fitch:
- Vietnam’s banking sector remains structurally weak and weighs heavily on the sovereign rating
- Non-performing loans remain under-reported and true asset quality is likely to be weaker than stated
- A sustained rapid credit growth poses a risk to financial stability in the medium-term
- Government guarantees for state-owned entities and potential banking sector recapitalization costs continue to weigh on Vietnam’s public finances
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