Vietnam Must Erase Balance-of-Payments Deficit, Moody’s Says
Vietnam needs to eliminate its balance-of-payments deficit and stabilize its foreign reserves at an adequate level before an upgrade of the nation’s credit rating outlook, Moody’s Investors Service said.
Vietnam’s lack of transparency and communication by the government of its financial and economic policies is a risk, Thomas Byrne, senior vice president at Moody’s, said in Singapore today. The ratings company last month cut the long- term foreign-currency rating to B1 from Ba3, with a negative outlook.
“A primary concern is the risk of a balance-of-payments crisis, which we think has become elevated because of the balance-of-payments deficits in the past three years, and the rundown of reserves,” Byrne said. Containing in inflation would help, he said.
Moody’s view on Vietnam contrasts with its outlook for most of Asia, where it has upgraded ratings for countries such as Indonesia and China. Asia Pacific sovereign ratings are mainly on a “stable to upward trajectory” and are not expected to suffer from contagion from Europe’s debt crisis, the company said today.
“Governments in the region have less reliance on external financing and generally more rapid fiscal consolidation has led to debt stabilization,” Byrne said. “Looking at Asia as a whole, we do not see any contagion from the euro zone periphery due to lower levels of gross government debt and more favorable growth prospects.”
Moody’s cut Vietnam’s sovereign credit rating in December, citing the risk of a balance-of-payments crisis and a drop in foreign reserves as inflation accelerates and the currency weakens.
“A balance-of-payments crisis basically means that somewhere in the economy you can’t pay what you need to pay in hard currency and you need to find it somewhere,” said Matt Hildebrandt, an economist at JPMorgan Chase & Co. in Singapore. “Usually that somewhere is from the International Monetary Fund, or it’s a huge devaluation in the currency.”
Moody’s on Jan. 17 upgraded Indonesia’s credit rating to the highest level since the 1997 Asian financial crisis, citing “economic resilience” and improving public debt. It raised the government’s foreign and local-currency bond rating to Ba1 from Ba2, one step below investment grade.
Indonesia’s external balances “look healthy” and Southeast Asia’s largest economy has buffers against external shocks, said Aninda Mitra, a vice president at Moody’s and its lead sovereign analyst for Indonesia. The country needs to manage inflation amid capital inflows, that were very large in 2010, he said.
“We don’t think the sizeable inflows will persist and we also think they may become more volatile,” Mitra said. “The large foreign holdings of government debt are an area of risk. This may have been heightened recently with the Bank Indonesia ruling to discourage large investments” into central bank notes, which may have pushed some of the flows into the government bond market, he said.
Indonesia has a “reasonable chance” of absorbing sudden reversals of inflows should they occur, Mitra said.
Moody’s raised China’s debt rating to the fourth-highest level of Aa3 on Nov. 11. It boosted its outlook on Thailand’s credit rating to stable from negative on Oct. 28, citing an improvement in government finances.
In the Philippines, Moody’s changed the outlook to positive from stable this month, saying the improved external-payments position cut its vulnerability to shocks. The Ba3 debt rating is three levels below investment grade.
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