Previous Quarterly Editions
Expropriation Risk: 57 56 56 56 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:15 13 13 11 ►Exchange Transfer and Trade Sanction Risk: 55 63 63 63 ►Sovereign Default Risk:47 47 47 47 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: HighAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Vietnam’s current debt situation is broadly manageable. Both the public debt-to-GDP ratio and external debt-to-GDP ratio are 39%, and the country’s debt service obligations amount to a quarter of government revenues. Moody’s rates Vietnam at BA2 (with a stable outlook), Standard & Poor’s at BB+ (with a stable outlook) and Fitch at BB (with a positive outlook).
Vietnam recorded below-normal GDP growth rates of 2.9% and 2.6% in 2020 and 2021, respectively, due to the COVID-19 pandemic’s impact, but saw GDP growth of 8% in 2022 — bucking a regional trend of more modest growth. The International Monetary Fund (IMF) anticipates GDP growth of 5.8% for 2023.
Earlier in 2023, the population of Vietnam passed the 100-million-person mark for the first time. In September 2023, U.S. President Joe Biden visited Hanoi, and it was announced that U.S.-Vietnam relations are to be upgraded from “Comprehensive Partnership” (agreed in 2013) to “Comprehensive Strategic Partnership” status. This reflects Washington’s desire to de-risk its dependence on China for various electronic products, including semiconductors. In addition, having opted not to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership nor the Regional Comprehensive Economic Partnership, Washington is looking to bolster its links in Asia and the Pacific on a bilateral basis.
Vietnam has also announced that it will resume work at its largest rare earths mine in 2024, for which it will tender multiple blocks. For Hanoi, the goal of the Comprehensive Strategic Partnership with Washington will be to continue to receive direct investment from U.S. companies and to share intellectual property needed for Vietnamese firms to advance up the value chain. There have also been reports of an arms deal between Vietnam and the United States, as Hanoi seeks to dilute its dependence on Russian-made military hardware. But this pivot towards the United States also poses a challenging balancing act for Hanoi, in order not to prompt an adverse reaction by Beijing nor exacerbate long-standing tensions around competing claims to territorial
waters in the South China Sea. The depth of feeling on this latter issue should not be discounted.
Possibly the largest economic difficulty in Vietnam at present is the slowdown in public spending on a wide range of large infrastructure and utilities projects, including urban mass transit systems and a new international airport for Ho Chi Minh City. While such projects in Vietnam have often been plagued by delays and corruption, things have become even more sclerotic since the leadership anti-corruption drive went into high gear. As an indirect consequence, many civil servants are opting not to move ahead with procurement decisions for fear of being accused of corrupt practices, preferring instead to do as a little as possible.
The expropriation risk regarding physical assets in Vietnam is relatively low, notwithstanding the lack of an independent judiciary and several weak institutions that make for a less-than-robust or benign operating environment for foreign business. Vietnam’s reliance on foreign direct investment to power its economic advancement, however, means that it has little incentive to gain a reputation for elevated expropriation risk.
Companies relying on the storage of internet data remain concerned about Vietnam’s 2018 cybersecurity law, which empowers the Ministry of Public Security to decide what constitutes undesirable online content and requires all internet service providers to keep all their Vietnam-related data stored on servers located in Vietnam and open to inspection. In August 2022, a long-awaited decree was issued providing details on how the law is to be implemented and enforced.
Foreign investors have worries about these data localization requirements and more general and reputational concerns around Hanoi’s intense monitoring and control over all online content. For the government, which has complete hegemony over conventional media, the internet and social media are undesirable sources of criticism. This is in addition to long-held concerns around the general inadequacy of Vietnam’s intellectual property protections.
The political violence risk is low: The communist government has no tolerance for anything resembling open dissent, within its own ranks or the population. Vietnam’s internal security apparatus is highly effective.
The most likely catalyst for public violence, such as riots, would be if China made further provocative moves over its competing territorial claims in the South China Sea; many Vietnamese have a deep-seated suspicion of China, and some feel their Vietnamese leadership is not sufficiently tough in opposing Beijing’s strategic ambitions. This has occurred before, with damage inflicted on businesses believed (rightly or wrongly) to be Chinese owned.
The ideological linkages between the Chinese and Vietnamese Communist parties do not always sit comfortably with the strong nationalist sentiment that runs through much of Vietnamese (and Chinese) society; however, Vietnam’s effective police and security apparatus would react speedily and firmly to any violence. The same apparatus ensured high compliance with COVID-19 pandemic-related lockdown regulations throughout 2020 to 2021.
Vietnam is at very low risk of terrorism; the security apparatus (though criticized for media controls) has been successful in thwarting any potential acts of organized terrorism and most forms of violent protest. While anti-government sentiment exists among some of the Vietnamese diaspora, their ability to conduct terrorist acts inside Vietnam is virtually nil.
The dong is not freely convertible outside Vietnam and has held relatively steady against the U.S. dollar in recent years. In December 2019, Washington placed Hanoi on a watch list for potential currency manipulation but in April 2021 announced that Vietnam had been removed from the list and therefore was no longer subject to the threat of economic sanctions. Hanoi had previously taken this threat of U.S. sanctions seriously and explored ways to absorb more U.S. exports, hoping to reduce its trade surplus with the United States.
Nonetheless, this trade surplus continues to rise, largely as growing numbers of export-oriented manufacturers relocate from China to Vietnam, hoping to sidestep China-U.S. trade tensions, from which Vietnam has been a net beneficiary. In early 2022, U.S. officials held a virtual meeting with Vietnamese officials, raising U.S. concerns over allegedly illegal practices in timber, agriculture and digital trade. While some retaliation by the United States or others for perceived trade violations is conceivable, these have yet to transpire and are unlikely to be large or long-lasting, given the scale of foreign investment in Vietnam and its burgeoning role as an important trading partner.
In mid-2022, the IMF released the findings of its latest “Article IV” negotiations with Vietnam, broadly giving the country a good bill of health. (The results of the June 2023 Article IV mission have yet to be released, at the time of writing.) The IMF estimates Vietnam’s foreign exchange reserves to be around US$125 billion, or about four months of import cover. The government is not a major borrower on the international financial markets, and the IMF estimates Vietnam’s total public and publicly guaranteed debt at a manageable 40% of GDP.
Total net borrowing by the government has been trending upward in recent years, largely due to the pandemic, according to the IMF. Most of Vietnam’s external debt, however, is long term and owed to multilateral development institutions at relatively “soft” terms. A significant proportion of publicly guaranteed debt stems from state-owned enterprises — many of which are loss-making, whether due to operational inefficiencies or being the subject of government price controls.
Concerns around corporate debt also contributed to the marked downturn in the stock market indices in 2022 of around 32%, making Vietnam one of the worst stock-market performers last year. There have also been growing concerns about rising nonperforming loan levels in the banking sector; however, as of late September 2023, the stock-market was up 13% year to date in 2023, with an average price-to-earnings ratio of 15.6.
In early September 2022, Moody’s revised its rating for Vietnam from Ba3 (with positive outlook) to Ba2 (with stable outlook). This followed Standard & Poor’s May decision to change Vietnam’s credit rating from BB (with positive outlook) to BB+ (with stable outlook). Fitch maintains Vietnam at BB with a positive outlook. There have been no revisions to any Vietnam ratings since September 2022.
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