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Vietnam’s credit gets downgraded
Vietnam has just been downgraded by Moody’s, the credit ratings agency, in a surprise move that highlights its odd-one-out position as a hot emerging market that nonetheless faces serious financial difficulties.
Moody’s lowered Vietnam’s bond rating to ‘B1' from ‘Ba3' on Wednesday, citing the heightened risk of a balance of payments crisis, inappropriate monetary and forex policies, and debt distress at Vinashin, a beleaguered state shipbuilder.
Tom Byrne, a senior vice president with Moody’s Sovereign Risk Group, said in a statement:
Moody’s considers that short-comings in economic policies have allowed pressures to remain unabated on the balance of payments and are resulting in ongoing macroeconomic instability.
He went on:
Although strong stimulus measures taken during the global financial crisis buoyed economic growth and allowed Vietnam to rank as one of the better performers globally in 2009, an unwillingness to tighten effectively monetary policy and to allow the exchange rate to depreciate in line with market pressures have weakened the balance of payments and have elevated the risk of an external payments crisis.
The previous Ba3 rating indicated ‘questionable credit quality’. The new B1rating means ’subject to high credit risk’.
In full, the ratings agency said the reasons for the decision were:
1. The heightened risk of a balance of payments crisis, arising from a widening trade deficit, capital flight, the reduced level of foreign exchange reserves, and depreciation pressure on the VN dong exchange rate;
2. The rise of inflation into double-digit territory, which will further increase pressure on the exchange rate and which results in capital flight in the external balance of payments;
3. Policies working at cross purposes have contributed to the rise in contingent liabilities on the government’s balance sheet in the public enterprise and banking systems;
4. Debt distress at the government-owned shipbuilder, Vinashin, which suggests a reduced ability or capacity on the part of the government to provide financial support to that, and perhaps other, large, state-owned enterprises.
Financial Times
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