Efforts to Improve National Credit Rating

According to Mr Hoang Hai, due to recent international financial risk, national credit ratings of Vietnam as well as other countries in the world were downgraded. In 2011, credit rating agencies did not show any positive signs of raising the prestige of Vietnam. One of reasons is Vietnam’s economic instabilities: jumping inflation rate, low foreign exchange reserves, potentially high risk in the banking sector due to high credit growth rate for a long time.

 

Regarding investment environment in 2011, the World Bank downgraded Vietnam from 90^th place to 98^th place out of 183 countries, meanwhile S&P ranked credit in foreign exchanges and short term credit (both in foreign exchange and in VND) of Vietnam at BB- and B. The trend is expected to be worse. According to S&P, this fact reflects concerns about instabilities of the economy and financial market in the short term. Regarding the rating of BB- of Vietnam, S&P’s experts said that it is consistent with a well growing economy, where the financial market is developing thanks to Government’s efforts of restructuring…but incomes are still low, the economy has potential volatiles and depends heavily on administrative orders.

 

The Government has been making many efforts in implementing various solutions to stabilise the macro-economy, maintain growth, ensure the social security consistently with the spirit of Resolution no 11, and has achieved initial results such as: slowing down inflation rate, lowest trade deficit in recent 5 years, a surplus of balance of payments after many years of deficit, higher liquidity of the banking sector.

 

However, in the viewpoint of credit rating agencies, they are usually very cautious when considering about upgrading the national credit rating for a country. They require stable and sustainable economic development for a long term, from 6 months to 2 years.

 

National credit rating of Vietnam is a key indicator for foreign investors to assess capital costs of Vietnam in international capital markets. The move in which Ministry of Finance studies, and elaborates the Scheme of improving national credit rating is considered a positive activity. According to Mr Hoang Hai, it can be said that national credit rating of a country is an indicator giving initial references for investors who want to invest directly or indirectly into the country. Regarding mobilising money in international capital market, national credit rating is a factor that influences remarkably on costs of mobilising capital.

 

Annually, in addition to ODA, the Government and enterprises of Vietnam have to borrow a large volume of capital under commercial lending conditions to support demands of investment and development. The demand of borrowing capital under commercial lending conditions will increase when capital from ODA will gradually reduce in the future, because Vietnam has become a middle-income country.

 

Currently, the Ministry of Finance is drafting a Scheme of improving the national credit rating, including 2 groups of solutions. The first group of solutions is to stabilise the macro-economy, ensure major balances of the economy, including a range of mechanisms, large policies that have been and will be deployed. Those are policies that have major impact on the entire economy, if well implemented, they will have crucial impacts on national credit rating.

 

The second group of solutions is to improve the quality of credit rating activities, such as gathering, disclosing information, transparency and reliability of public information; improving capacity of people those who conduct rating…

 

It can be said that the study to build this project has shown awareness of the importance of national credit rating; at the same time, to provide necessary short term and long term solutions aiming to have higher rating in the future. This will contribute to reducing costs of borrowing money in international market both for the Government and enterprises; raising the prestige of Vietnam’s Government to international investors.

 

In the context of difficult economy, it is hard to achieve the target of upgrading national credit rating, even for countries with a stable economy in the world. Currently, improving national credit rating is a long term target which cannot be achieved just after one or two days, says Mr Hoang Hai.