Hanoi (VNA) - Vietnam’s recovery is set togather momentum in 2022, as domestic demand rebounds and export performanceremains strong, according to Fitch Ratings.

In its recent report, Fitch said that improving levels ofvaccination in the country should reduce the risk that the recovery is set back by further COVID-19outbreaks. However, the evolution of the pandemic remains subject touncertainties, in particular as daily cases have trended higher in recentmonths.

Economic growth in 2021, at 2.6 percent, was much weakerthan the 7 percent that Fitch had expected in April 2021, when it affirmedVietnam’s rating at ‘BB’ and revised the Outlook to Positive, from Stable.

According to Fitch, this partly reflected a 6 percent year on year contractionin real GDP in the third quarter last year as the authorities moved to control a surge in COVID-19cases. Further pandemic-related shocks, while possible, are unlikely to be sosevere, because the government has shifted from a “zero COVID” approach to oneof flexible adaptation as vaccination rates have increased, it said.

Growth will be led by exports, which rose by 19 percent in2021, it said, adding that it expects goods demand growth to decelerate inthe developed world in 2022 as activity normalises and services demand picksup. Inward investment remained strong in 2021, at 19.7 billion USD, down onlyslightly from 20 billion USD in 2020. The strong export performance that Fitchexpects in 2022-2023 will catalyse domestic investment and consumption, throughpositive spill-overs, for example from job creation.

Fitch’s current forecasts see Vietnam's public debt/GDP ratio broadly stableover 2022-2023, at around 41 percent of GDP. Since this forecast, thegovernment has approved a fiscal stimulus package covering the period, wortharound 15.3 billion USD (roughly 4 percent of 2021 GDP), but Vietnam’s debt/GDPlevel will remain below the peer median of 56.6 percent in 2022 and 56 percentin 2023, it noted. The package continues certain tax breaks and exemptions,which will weigh on the revenue base, but these may be rolled back as therecovery strengthens. It also contains additional infrastructure spending thatcould help to underpin medium-term growth prospects, Fitch commented.

Non-performing loans in Vietnam’s banking sector rose in 2021 amid disruptionto economic activity associated with efforts to control COVID-19 outbreaks, itsaid, adding that a return to strong economic growth should reduce risks toasset quality. It believed the pace of bank capital accrual will remain modestin 2022-2023, as much of the internal capital generated is likely to beconsumed by rapid balance-sheet growth. Last April, Fitch held that a materialreduction in risks posed to the sovereign balance sheet from weaknesses in thebanking sector could lead to a rating upgrade./.