Fitch: Vietnam trade balance, inflation improves, risks remain
The easing in Vietnamese inflation and improvement in the country's trade balance suggest that the economy is stabilising. But the authorities need to maintain their commitment to the "Resolution 11" policies to maintain this progress, Fitch Ratings says.
The slow easing of inflation and improving external finances are building on the initial progress of last year, indicating that Resolution 11 is gradually paying off. Meanwhile, a cooling economy and better trade position are helping stabilise the exchange rate, and a more stable Vietnamese dong can provide additional help in containing inflation.
Although official Vietnamese foreign exchange reserve data are not regularly updated, there is a strong possibility that the smaller trade deficit means the country's FX reserves remain fairly healthy, lessening the risk of a balance-of-payments crisis. This also builds on the increase in official reserves to USD15.2bn at end-September, from USD12.0bn at the beginning of the year.
We rate Vietnam 'B+' with a Stable Outlook. Due to the risks from inflation, which remains very high relative to GDP growth, and the challenges of cooling an economy that has been overheated since 2008, we will continue to monitor the implementation and results of the Resolution 11 policies closely in our assessment of Vietnam.
Vietnam's trade deficit for January and February totalled USD628m, the General Statistics Office said on Monday, down from USD1.989bn in the same period last year. The consumer price index rose 16.4% year on year in February, down from 17.3% in January. Resolution 11 is a package of measures, including cutting credit growth and broad money growth, adopted a year ago to help cool the overheating economy.
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