Moody's Downgrades Vietnam Outlook

Concern about inflation

Moody's Investors Service on June 4 downgraded its ratings outlook on Vietnam to negative from positive, expressing concerns about the ability of the government to rein in inflation. Moody's rating for Vietnam's long-term foreign and local currency debt is currently "Ba3." The change in outlook means the rating could be lowered later on, a sign to investors that Vietnam would be a high risk.

"The economic imbalances now emerging are greater than anticipated, thereby derailing the improving trend previously evident in the country's credit fundamentals," Moody's Senior Vice President Thomas Byrne said. "Rising inflation is proving very difficult to control, and pressures have rapidly built up on the balance of payments."

The move by Moody's came less than a week after credit risk evaluator Fitch Ratings lowered the outlook on Vietnam's BB-minus sovereign rating from stable to negative, calling double-digit inflation "a serious concern."

"For the authorities, the dilemma now is how to dampen growth without throwing the economy into recession or damaging the environment for FDI (foreign direct investment," Byrne said.

Vietnam's General Statistics Office last week estimated that consumer prices shot up by 25% 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 labor unrest and led the government to lower this year's gross domestic product (GDP) growth target to 7% from last year's 8.5%. The government has raised interest rates to increase savings and limit credit growth and has cut some public investment projects to reduce inflation.

Vietnam's trade deficit reached an estimated $14.4 billion for the first five months of the year as imports increased sharply, according to official figures released in May.

Copyright Agence France-Presse, 2008

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