International ratings agency Fitch Ratings said on Friday it had placed a negative outlook on Vietnam's debt rating, citing deteriorating confidence in the dong currency and growing inflation risks. The agency said it had placed the country's long-term foreign and local currency issuer default rating of BB minus on watch for a possible downgrade.
The rating is a few notches below the agency's lowest investment-grade rating of BBB. "This reflects the deterioration in domestic confidence in the Vietnamese dong and a lack of data transparency regarding international reserves and the balance of payments at a time of weakening external finances," the agency said in a statement.
Vietnam devalued the dong for the second time in three months on February 10 amid widespread concerns over a high trade deficit and inflation. The currency was trading on Friday at between 19,300 and 19,350 to the dollar on the black market, compared with the official rate of 18,544 and 17,941 before its devaluation last month.
Fitch said the ongoing divergence between the black market and official rates indicated continuing depreciation pressures. "The strength of Vietnam's external finance position, which has provided support to the sovereign's overall creditworthiness, has been sharply eroded as the economy displays signs of domestic overheating and residents lose confidence in the local currency," said Ai Ling Ngiam, director in Fitch's Asia Sovereign team.
The ratings agency said Vietnam's preference for devaluation to boost exports and the authorities' policy measures favouring growth ahead of the January 2011 national congress of the ruling communist party indicate the risk of "a further build-up in inflationary pressures." Vietnam's economy grew 5.32 percent last year but with a budget deficit that official data said reached seven percent of gross domestic product.
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