The Standard & Poor’s (S&P) has recently revised Vietnam's credit rating, though placed at BB+/B, to negative from stable, showing the first anxiety of global community over the country's ability to calm down its overheated economy, state media reported May 6.
S&P's ratings outlook is likely to have adverse impact on foreign capital mobilizing capacities of Vietnamese government and domestic enterprises, the source said, citing local financial analysts.
In a recent statement, S&P cited risks of widespread economic and financial distress as the Vietnamese government struggled to rein in excessive bank lending and spending by state enterprises.
Vietnam, with one of Asia's fastest-growing economies in the past few years, has been wrestling with skyrocketing inflation, which hit 21 per cent in April, and a ballooning trade deficit.
The soaring prices, which are fueling worker discontent and demands for higher wages, are blamed on excessive credit growth by the loosely regulated banking system, especially smaller private banks that have lent aggressively while seeking to build their presence in the market.
S&P has also predicted domestic credit to reach 95 per cent of GDP by late this year, up from 71 per cent in 2006.
Much of the bank lending has been poured into real estate and a wave of public investment by state enterprises, which have also been branching into real estate and other non-core business activities at a time when the economy has expanded about 8.5 per cent a year.
Tackling the dual problems of high inflation and a huge trade deficit has left the nation's top regulators scratching their heads and has forced the government to cut the growth target this year from 8.5 per cent to 7.5 per cent.
Despite these near-term risks, S&P affirmed Vietnam's credit rating at BB/B for foreign currency and BB+/B for local currency, citing “good prospects for sustained economic growth” driven partially by a wave of foreign investment.
The credit rating agency cautioned that Vietnam's ratings could be lowered if a banking system crisis emerged. However, it said the ratings outlook could improve “on indications that the economy was rising to a sustainable growth path.”
Other ratings agencies have, meanwhile, not changed their positions on Vietnam. Moody's maintains a positive outlook, putting a Ba3 rating on the country's long-term debt in both foreign and local currencies. Fitch rates Vietnam's outlook as stable. (www.vietstock.com.vn, VNS)
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