Vietnam's economic stability depends on the government keeping its pledge to slow credit growth, and it's too soon to conclude the situation is improving, Standard & Poor's said.
"The government's policy measures include tighter fiscal and monetary policies," Kim Eng Tan, a Singapore-based analyst at Standard & Poor's, wrote in a report dated April 11. "The risk that the government may not follow through on these measures is significant."
Prime Minister Nguyen Tan Dung has cut the target for credit growth this year to less than 20 percent from 23 percent and ordered a tighter monetary policy as costlier fuel and electricity and a weaker currency stoke inflation. The central bank raised its refinancing and repurchase rates on April 1 and plans to boost reserve ratios for dollar deposits in May.
"It's too early to conclude that the economic situation is stabilizing or even improving," wrote Tan. "The outcome depends on policymakers' ability to deliver on their promises."
Vietnam's inflation rate accelerated to 13.89 percent in March, the highest in 25 months, while the trade gap widened to $1.15 billion that month from a revised $1.11 billion in February, according to preliminary figures.
The nation's financial stability has been damaged by the fastest consumer-price growth in the region and persistent trade deficits, wrote Tan.
Potential financial "distress" has weighed on the government's creditworthiness, according to S&P, which cut Vietnam's sovereign-debt rating in December. It maintained its negative outlook on Vietnam's BB- long-term foreign-currency sovereign credit rating. Moody's Investors Service and Fitch Ratings also downgraded the country last year.
Vietnam's gross foreign-exchange reserves fell to $12.4 billion by the end of 2010 from $14.1 billion in 2009 and $23 billion in 2008, the World Bank said in March.
"Many businesses in Vietnam struggle to obtain foreign exchange for their operations," wrote Tan. "Vietnamese have been big buyers of gold and foreign currencies against the local currency, which has kept the dong exchange rate weak."