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Recently, Fitch released a report, in which Fitch revised Vietnam’s Outlook on Vietnam's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable, from Positive, and has affirmed the rating at 'BB'.

Fitch Fears Domestic Demand in Vietnam Stay Muted as Result of Social Distancing
The Outlook revision reflects the impact of the escalating COVID-19 pandemic on Vietnam's economy through its tourism and export sectors, and weakening domestic demand.
According to Fitch, domestic demand is likely to stay muted as strict measures aimed at maintaining social distancing to contain spread of the virus are put in place. The authorities are implementing policies to mitigate the impact, including relief measures to assist households and the tourism and transport sectors. Specifics include payment extensions for value-added, personal income and land taxes for those affected by the outbreak, and cash handouts to workers who have lost jobs.
The relief package to combat COVID-19 so far amounts to VND171 trillion (around 2.1% of GDP). Additional measures may be introduced if downward economic pressures intensify, including an acceleration of infrastructure spending.
Fiscal consolidation is likely to be delayed due to the pandemic relief measures and higher spending to cushion the economic impact of the outbreak. Fitch expects the budget deficit to widen to 6.5% of GDP in 2020, from an estimated 3.4% in 2019, and for gross general government debt to increase to 42.5% of GDP, from about 38% of GDP in 2019, which is in line with the 'BB' median. The projected deficit and debt levels could rise if the outbreak lasts longer than we expect. Our calculations are based on the provisional numbers for the revised GDP series.
The State Bank of Vietnam (SBV) has eased monetary policy since September last year by a cumulative 125bp cut in the policy rate, including 100bp in March. The exchange rate has weakened marginally against the US dollar, and by much less than regional peers.
Foreign exchange reserves have increased in recent years, providing the SBV some capacity to stabilise currency volatility. Foreign currency reserves reached a record high of USD78.5 billion in 2019, driven by inflows associated with a large current-account surplus, foreign currency purchases by the SBV and significant FDI inflows as Vietnam benefitted from trade diversion from the US-China trade dispute. Vietnam's external liquidity ratio is likely to remain far above the 'BB' median, at around 300%, under our baseline assumptions.
Fitch expects economic momentum to rebound in 2021, with growth projected at 7.3% as external and domestic demand gradually recover in line with global and regional trends. Exports and tourism are likely to rebound and FDI in the manufacturing sector should pick up, supporting strong medium-term growth prospects.
The 'BB' IDR also reflects the following key rating drivers:
Contingent liability risks associated with legacy issues at large state-owned enterprises are a weakness for Vietnam's broader public finances, although government debt and guarantees have fallen over time. Government guarantees issued to state-owned entities and potential banking-sector recapitalisation costs also weigh on public finances. We estimate gross general government debt/GDP at 37.8% at end-2019.
In September 2019, payment on a government-guaranteed loan contracted by the Ministry of Transport was delayed. Authorities say this was due to a lengthy procedure in utilising an accumulation fund for debt repayment of realised government contingent liabilities. 
Steps have been taken to ensure the smooth and timely execution of future payments, including an allocation of funds for upcoming guaranteed payments in the 2020 budget and a directive to the Ministry of Finance and other agencies to allocate sufficient resources to ensure timely payments. Furthermore, Fitch understands that measures have been taken to improve coordination between the Ministry of Finance, Ministry of Planning and Investment and the Ministry of Transport.
Structural weaknesses in the banking sector weigh on the sovereign rating. The banking system's non-performing loans remain under-reported and asset quality is likely to be weaker than official data indicate. 
Some banks also continue to grapple with legacy non-performing loans. The economic downturn in 2020 will exert downward pressure on bank balance sheets, and could ultimately pose risks to the sovereign balance sheet. Mitigating these risks is a sharp slowdown in credit growth, which fell to 0.7% at March end-2020 compared to end-2019 level), and progress in reducing non-performing loans; loan recoveries by Vietnam Asset Management Company (VAMC) amounted to VND32.7 trillion in 2019. 
By end-2019, 12 commercial banks, including Kienlongbank , Joint Stock Commercial Bank For Foreign Trade of Vietnam (BB-/Positive), Vietnam International Commercial Joint Stock Bank and Vietnam Technological And Commercial Joint Stock Bank, had settled all their bad debt through VAMC. By end-March 2020, there were two additional banks, the Joint Stock Commercial Bank for Investment and Development of Vietnam and VietCapital Bank
Vietnam's per capita income and human development indicators are weaker than those of peer medians. Fitch estimates per capita income was USD3,419 at end-2019, against the 'BB' median of USD6,188. Furthermore, Vietnam is in the 38th percentile on the UN Human Development Index, compared with the 'BB' median's 55th percentile. The country's World Bank Governance Indicator ranking is in the 41st percentile, still below the peer median. On the Ease of Doing Business Index, however, Vietnam ranks in the 64th percentile, above the 'BB' median of the 60th percentile.
ESG - Governance: Vietnam has an ESG Relevance Score of '5' for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. These scores reflect the high weight that the World Bank Governance Indicators have in our proprietary Sovereign Rating Model. Vietnam has a medium ranking at the 41st percentile, reflecting a recent peaceful political transition, a moderate level of rights for participation in the political process, moderate institutional capacity, and a high level of corruption compared with peers.

DIEP NGUYEN