Experts at the conference organised by The Asset and Fitch Ratings, held in Hanoi on June 13. (Photo: VNA) Despite current economic turbulence, Vietnam has managed to maintainmacroeconomic stability and keep its currency robust. However, both externaland internal challenges persist.
At the end of May, global ratings agency Fitch affirmed Vietnam's Long-TermForeign-Currency Issuer Default Rating at 'BB', with a positive outlook,reflecting strong medium-term growth prospects, supported by FDI inflows,favourable demographics and strong external liquidity.
This exceptional growth and looming obstacles were discussed at a conferenceheld in Hanoi on June 13, co-organised by The Asset and Fitch Ratings.
Speaking at the event, Nguyen Nhu Quynh, president of the National Institute ofFinance, Ministry of Finance, said: “Vietnam faces many challenges this year,from both internal and external factors.
“On one side, the slowdown of the global economy, the prolonged effects of theCOVID-19 pandemic, and the ongoing escalation of the conflict between Russiaand Ukraine are having negative impacts on the Vietnamese economy.
“Also weighing on the country's development is persistently high inflation,causing many central banks to tighten monetary policies and hike rates.”
FDI surge
Vietnam saw the disbursement of Foreign Direct Investment (FDI) reach a five-yearhigh in 2022. Manufacturing projects are garnering the lion’s share withnotable investment from companies such as Nike and Lego. It is not just theallure of cheap labour and land, but also Vietnam's green policy path thatchimes with these corporations' philosophies, setting the trend for continuedgrowth.
Sajal Kishore, Head of Asia-Pacific Infrastructure and Project Finance at FitchRatings, remains optimistic about the impact of FDI, saying: “FDI is coming inthe infrastructure space and Vietnam is clearly benefiting from the supplychain rebalancing that's happening. We see a lot of that coming in thetransportation, logistics, and manufacturing sectors. I think that willcontinue. The challenge there is really around whether these kinds of infrastructureinvestment projects can really be sustainable on their own.”
Speaking at the conference, experts provided opinions on how to sustain thisFDI flow, especially as global economic woes are forecast to continue for theforeseeable future.
Alexandre Macarie, Chief Financial Officer at Techcombank, suggested Vietnamfocuses on “facilitating investments for investors and cutting bureaucracy,making administrative processes more streamlined.
“[Another solution is] addressing sustainable development issues.”
The focal point of this development is how to power the country’s future growthwhile following a sustainable trajectory and meeting net-zero goals.
Muralidharan Ramakrishnan, Head of South & South-East Asia energy andutilities, Fitch Ratings, said: “It's not just about moving away into greenenergy, but it's also about making it affordable because affordable power willbe key to sustain this level of economic growth.
“If they're unable to achieve either of these in terms of maintainingaffordability or unable to transition, it's going to have a huge impact oneither the cost of financing or impact growth in some other way because it'sgoing to make it more expensive for the population in general.”
The green growth path extends into consumption, with businesses taking morenotice of environmental, social and governance (ESG) practices and theGovernment following suit.
“From the government perspective, we are developing policies to promotesustainable consumption. And one of the key areas we are working on is thecircular economy,” said Nguyen Anh Duong, Director of the Department forGeneral Economic Issues and Integration Studies at the Central Institute forEconomic Management.
Inflation under control
Unlike many other countries, Vietnam maintained a low inflation rate, at 3.15%in 2022. It stood out as the only nation in the Asia Pacific, and one of justfour globally, to have its rating upgraded by Moody's.
In addition to a stable economic climate, Vietnam is striving to improve itslegal framework to lure green finance. This includes implementing legislationon green banking and green credit, along with the establishment of a carbon tradingmarket, echoing its COP26 commitments to bring net emissions to zero by 2050.
Sustainable growth, however, faces several challenges, including importedinflation and an increasing public debt-to-GDP ratio. Slow disbursement ofpublic investment capital and falling exports also pose difficulties, placingpressure on the economy.
Sectors with high exposure to imports and exports are particularly vulnerable.The banking sector, while more resilient than it was five to ten years ago, isseeing a rise in non-performing loans, though experts believe this is likely toremain under control. The overall consensus is that after a few challengingquarters, the growth is set to resume.
Challenges loom
Despite the promising picture painted by GDP growth and FDI, there have beensetbacks. The equity market concluded 2022 down 32.78%, its worst performancesince the 2008 financial crisis. Negative issues linked with the propertymarket have also surfaced, with policy-driven crackdowns leading to heightenedrisk.
While problems in the property market are a cause for concern, Willie Tanoto,Fitch's Asia-Pacific bankgs director, is more measured about the knock-oneffects for the country’s banking sector.
“The banking sector's exposure to the property market is a little on the highside, but it's not terribly high. In ASEAN, on the high end, you have Singaporeand Malaysia, where about half the loan portfolio is exposed to the propertymarket. And on the low end, you have Indonesia, the Philippines, and Thailand,which are in the low 20s. Vietnam is just over 30%,” Tanoto explained.
Vietnam's banking sector, while resilient, is grappling with weak assetquality. However, profitability remains strong and the central bank actedpromptly to inject liquidity into the system.
Vietnam's economic rise may be filled with turbulence, but the overalltrajectory remains upward. As experts agree, the country seems poised toharness its challenges, striving towards a sustainable and green future./.
VNA
