Fitch Ratings upgraded Vietnam’s long-term foreign-currency issuer default rating (IDR) from “BB” to “BB+” on December 8.

According to the ratings agency, the upgrade reflects Vietnam’s favorable medium-term growth outlook, underpinned by robust FDI inflows that are expected to continue to drive sustained improvements in its structural credit metrics.

Fitch said it is confident that near-term economic headwinds from property-sector stresses, weak external demand, and delays in policy implementation owing to a corruption crackdown are unlikely to affect medium-term macro-economic prospects and that policy buffers are sufficient to manage near-term risks.

It has forecast Vietnam’s medium-term growth at around 7 per cent. The country’s cost competitiveness, educated workforce relative to its peers, and entry into regional and global free-trade agreements bode well for continued strong FDI inflows amid global supply chain diversification, Fitch remarked.

Such a positive outlook is attributed to the fact that FDI projects had disbursed about $22.4 billion (or 6 per cent of GDP) as of December 20, 2022, an increase of 13.5 per cent year-on-year over the previous year, while diplomatic relations between Vietnam and the US were upgraded to a comprehensive strategic partnership in September, which could facilitate greater FDI and trade.

Vietnam’s foreign exchange reserves had improved modestly as of end-September, to $89 billion, after a sharp decline in 2022. This partly reflects some return of capital flows and a larger trade surplus, according to Fitch Ratings.

It expects reserves to improve further in 2024-2025 with coverage of current external payments averaging about three months.

The government’s 2030 financial strategy includes measures to broaden the value-added tax base, enhancing the capacity of tax authorities, simplifying import tariffs, and providing electronic and digital services to taxpayers. These measures could support revenues over the medium term, Fitch Ratings added.