HANOI (AFP) — Credit risk evaluator Fitch Ratings on Thursday lowered the outlook on Vietnam’s BB-minus sovereign rating from stable to negative, calling double-digit inflation “a serious concern for Vietnam”.
The state-run General Statistics Office this week estimated that consumer prices shot up by 25 percent in May year-on-year in the country of 86 million, driven mainly by surging food, energy and construction materials prices.
The galloping inflation has stoked public anger and labour unrest and led the communist government in Hanoi to lower this year’s gross domestic product (GDP) growth target to 7.0 percent from last year’s 8.5 percent.
The Fitch report warned that “inflation is a serious concern for Vietnam” and said government responses, including price controls, higher interest rates, bond issues and other steps to soak up liquidity, haven’t yet worked.
“In Fitch’s view, the policy response has been both too slow — as official pronouncements have not been followed up by immediate action — and too small, as real policy interest rates remain deeply negative even following their recent increase,” the agency’s report said.
The agency affirmed Vietnam’s BB minus long-term foreign currency issuer default rating (IDR) and its BB long-term local currency IDR, but revised the outlook to negative from stable.
Fitch also affirmed its short-term foreign currency IDR at B and the country ceiling at BB minus, the agency statement said.
“In the medium term, crucial factors affecting the sovereign’s rating prospects include further fiscal and state enterprise reforms, ongoing efforts to keep inflation under control, policies to further attract FDI (foreign direct investment) and programmes to improve infrastructure,” said the agency.