Solutions promoted to improve national credit rating
Improving the national credit rating is implemented with a longterm vision to reduce the cost of capital mobilisation, enhance the country's reputation, and meet the needs of socio-economic development in the future.
Trương Hùng Long, director of the Department of Debt Management and External Finance under the Ministry of Finance, spoke with Vietnam News Agency about the issues.
The Prime Minister has just approved a project to improve the national credit rating by 2030. The Department of Debt Management and External Finance is assigned to develop and implement the project. What will the department do to fulfil this task?
The Government issued Decision 304/QĐ-TTG on February 6, 2013 to approve a project on improving the national credit rating. That created favourable conditions for the Government in accessing the international capital market. It is also a way to introduce Việt Nam's economic prospects to foreign investors and other countries in the world.
During more than eight years of implementing the project, the Ministry of Finance on behalf of the Government has developed reliable and sustainable cooperation between Việt Nam and all three largest international credit rating agencies, namely Moody's, Standard&poor's (S&P) and Fitch.
In the context of challenges in domestic and international macro-economics, the national credit rating and rating outlook of Việt Nam has improved year by year.
By 2021, Moody's credit rating for Việt Nam stood at Ba3 with a positive outlook, up two ranks. Fitch's credit rating for Việt Nam was at BB with a positive outlook, also up two places. S&P'S credit rating for Việt Nam raised one place compared to 2013.
According to the rating agencies,
factors positively affecting Việt Nam's credit rating are a diversified economy with positive growth prospects, stable fiscal environment and sustainable public debt. Besides that, large amounts of FDI capital, strong exports and reform of institutions have also been positive factors affecting the national credit rating.
This is the result of the synchronous and effective implementation of macro-economic stabilisation measures made by the Party, the National Assembly and the Government. It is also the result of enhancing the exchange of information among the ministries and sectors with the three international credit rating agencies.
By 2030, in the context of becoming a middle-income country, Việt Nam will have more dependence on foreign commercial loans. The improvement of the national credit rating will help the Government, businesses, and financial and credit institutions have more cost-effectiveness when mobilising loans or issuing bonds on international capital markets.
The Prime Minister's approval of the Project on Improving the National Credit Rating by 2030 is very important to implement the goal of increasing Việt Nam's position and prestige in the world under the socio-economic development strategy for the 2021-30 period.
What are the goals and specific actions to improve the national credit rating of Việt Nam in
this project?
The National Credit Rating Improvement Project aims to turn Việt Nam into a developing country with modern industry and high middle income by 2030; improve Việt Nam's position and prestige in the international arena; and create favourable conditions to raise the national credit rating to investment grade by 2030, thus helping to reduce capital mobilisation costs and national credit risks.
The specific goal is to achieve a credit rating of Baa3 (for Moody's) or BBB- (for S&P and Fitch) and above by 2030. The rating of the credit rating agencies is based on main factors including institutional capacity, the effectiveness of economic and monetary activities, and public and external finance.
Thus, to achieve the goal of Việt Nam's national credit rating by 2030, the project has proposed specific targets on fiscal, monetary, banking, social, and environmental aspects to improve the above key factors.
Raising the national credit rating to investment grade by 2030 is highly dependent on strong economic growth.
Việt Nam's strong growth in the years before the COVID-19 pandemic, along with its better economic performance than other countries at the same rank in 2020, made the credit rating agencies raise Việt Nam's rating outlook to a positive level in 2021.
Việt Nam needs to maintain a stable economic growth rate in the next 5-10 years to gain the goal of raising the national credit rating to investment grade by 2030.
Its main solutions are to build a firm public financial system, expand a sustainable revenue base to improve debt indices and promote fiscal consolidation, increase the transparency of fiscal policies, and improve the structure and quality of the banking system and State sector as well as the credit-related legal corridor.
The project also proposes solutions to raise awareness of the importance of national credit rating, and strengthen cooperation with the credit rating agencies and international organisations.
Some international financial institutions have commented that the roadmap to improve Việt Nam's credit rating to investment grade in the next 10 years will include a combination of quantitative and qualitative objectives. What is Việt Nam's strategy for these goals?
The national credit rating reflects the ability and willingness of a country in the future to fulfil its obligations on payment of the Government's principal and interest.
This rating is issued by the credit rating agencies based on the quantitative assessment of debt indicators, budget revenue and expenditure, foreign exchange reserves, economic growth, inflation, investment, and interest rates, as well as qualitative assessment of secondary factors, including political risk, government liquidity risk, banking system risk and vulnerability to external factors.
The rating is a basic indicator that investors will consider determining the level of risk and profitability before deciding to invest in a country.
To achieve the goal of improving credit rating to investment grade, besides stabilising the macro-economy and improving the quality of institutions, governance and the economy, policymakers need to flexibly deal with the risk of the pandemic.
In addition, Việt Nam should improve transparency and proactively share with the credit rating agencies and investors positive information on socio-economic development. It also needs to improve activities of information and data disclosure.
Việt Nam's entry into the group of middle-income countries is an important milestone, opening up many new possibilities for proactive and effective management of debt. The rapid development of the domestic bond market offers an opportunity to raise long-term debt at a reasonable cost.
However, there are still potential risks to the domestic capital market. In addition, the COVID-19 pandemic increases unexpected short- and medium-term capital mobilisation needs.
Meanwhile, Việt Nam officially graduated from the International Development Association (IDA) in 2017, so it has lost access to IDA concessional financing. The nation will have to rely more on market tools.
In that context, the goal of raising the national credit rating is a task with a long-term vision to reduce the cost of capital mobilisation, enhance the country's reputation in the world and meet more requirements of socio-economic development in the future.