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Sustained record of macroeconomic stability, demonstrated in part by greater policy flexibility, including that related to the external sector to ensure adequate currency flexibility and maintenance of foreign exchange buffers.

Fitch Lists out the Factors that Can Help Vietnam’s Rating Upgrade
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'.
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 even after the corona pandemic.
Fitch's proprietary SRM assigns Vietnam a score equivalent to a rating of 'BBB' on the Long-Term Foreign-Currency IDR scale.
In accordance with its rating criteria, Fitch's sovereign rating committee decided not to adopt the score indicated by the SRM as the starting point for its analysis at this stage because in our view, the SRM output migration to 'BBB' has the potential to be temporary.
Assuming an SRM output of 'BBB-', Fitch's sovereign rating committee adjusted the output to arrive at the final Long-Term IDR by applying its QO, relative to rated peers, as follows:
- Structural Factors: -1 notch to reflect risks to macroeconomic stability, including rapid credit growth and unresolved legacy issues in the banking sector, to which Fitch assigns a Bank Systemic Risk indicator of 'b'.
- Public Finances: -1 notch to reflect high contingent liability risks stemming from government guarantees for state-owned enterprises and potential banking sector recapitalisation costs.
Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
- Sustained record of macroeconomic stability, demonstrated in part by greater policy flexibility, including that related to the external sector to ensure adequate currency flexibility and maintenance of foreign exchange buffers.
- Improvement in public finances, reflected in smaller budget deficits or a decline in the general government debt ratio or contingent liabilities.
- A material reduction in risks posed to the sovereign balance sheet from weaknesses in the banking sector.
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
- A shift in the macroeconomic policy mix that results in macroeconomic instability or an increase in macroeconomic imbalances.
- Crystallisation of contingent liabilities on the sovereign's balance sheet.
- Depletion of foreign-exchange reserves; for instance, through a decline in foreign investment on a scale sufficient to destabilise the economy.

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