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Vietnam Country Risk Report

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Vietnam Country Risk Report

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K59 Tran Kha Vy

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Q2 2022

www.fitchsolutions.com

Vietnam
Country Risk R
Report
eport
Includes 10-year forecasts to 2031
Vietnam Country Risk Report | Q2 2022

Contents
Executive Summary...................................................................................................................................................................... 4
Key View ..................................................................................................................................................................................................................4
Risk Summary.........................................................................................................................................................................................................5
Economic SWOT ......................................................................................................................................................................................................6
Political SWOT .........................................................................................................................................................................................................7
Economic Outlook......................................................................................................................................................................... 8
Vietnam's Economy To Bounce Back In 2022 ....................................................................................................................................................8
GDP By Expenditure Outlook ............................................................................................................................................................................. 12
External Trade And Investment Outlook .............................................................................................................................14
Vietnam's Manufacturing To Face Further Disruptions In 2022 .................................................................................................................. 14
Outlook On External Position............................................................................................................................................................................ 17
Monetary Policy Outlook...........................................................................................................................................................20
Vietnam To Face Inflationary Rebound But Overshoot Risks Contained ................................................................................................... 20
Monetary Policy Framework .............................................................................................................................................................................. 22
Fiscal Policy And Public Debt Outlook..................................................................................................................................24
Structural Fiscal Position ................................................................................................................................................................................... 24
Currency Forecast .......................................................................................................................................................................26
Vietnamese Dong To Trade Stronger In The Near Term ................................................................................................................................. 26
10-Year Forecasts.........................................................................................................................................................................30
A New Focus On Quality Growth ....................................................................................................................................................................... 30
Political Outlook...........................................................................................................................................................................34
Vietnam-China Economic Ties To Improve Despite Geopolitical Tensions ................................................................................................ 34
Long-Term Political Outlook ....................................................................................................................................................36
Key Political Challenges Over The Coming Decade ....................................................................................................................................... 36
Operational Risk...........................................................................................................................................................................39
Logistics Risk Key View ...................................................................................................................................................................................... 39
Transport Network Analysis ............................................................................................................................................................................. 41
Extent And Quality Of Transport Network ...................................................................................................................................................................................................42
Trade Procedures And Governance Analysis .................................................................................................................................................. 50
Ease And Costs Of Trade ....................................................................................................................................................................................................................................50

Global Macro Outlook .................................................................................................................................................................53

Mid-Cycle Risks To Test The Global Economy ................................................................................................................................................. 53
Index Table .....................................................................................................................................................................................59
Macroeconomic Forecasts........................................................................................................................................................63

All information, analysis, forecasts and data provided by Fitch Solutions Group Limited is for the exclusive use of subscribing persons or organisations (including those
using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.

All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Fitch
Solutions Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability
whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an
affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2022 Fitch
Solutions Group Limited.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Vietnam Country Risk Report | Q2 2022

Executive Summary

Key View
Core Views

• We forecast Vietnam’s economy to grow 7.0% in 2022, revised down from 8.0% as growth in 2021 proved stronger than expected resulting in
less favourable base effects. In Q421, real GDP growth rebounded to 5.2% y-o-y (up from a contraction of 6.2% y-o-y in Q321), which took 2021
full-year growth to 2.6%. We expect base effects and stronger domestic activity to bolster growth in 2022, although we note downside risks
from the Omicron variant and supply-chain issues.
• We expect Vietnam’s inflation rate to pick up from an average of 1.8% y-o-y in 2021 to 3.2% in 2022 due to higher imported costs and
rebounding demand-side pressures. We anticipate that the State Bank of Vietnam (SBV) will allow for some appreciation of the Vietnamese
dong to offset imported inflationary pressures over the course of 2022, while easing food price inflation and lingering Covid-19 drags on
domestic activity in Q122 will also keep inflation broadly below the government’s 4.0% upper limit.
• We forecast the Vietnamese dong to trade slightly stronger as the SBV allows for the unit to appreciate in the face of heightened import price
pressures. Recovering foreign direct investment and trade inflows will support the unit, such that the unit averages VND22,600/USD in 2022,
up 1.5% from the average in 2021 and slightly revised from our previous forecast of VND22,800/USD. In the long term, we forecast an average
a slight weakening of the exchange rate of VND23,000/USD in 2023, given the dong’s slight overvaluation, elevated inflation and the SBV’s
desire to see the country’s export competitiveness boosted.

Key Risks

• The potential for a worsened maritime dispute with China poses downside risks to Vietnam's otherwise stable short-term political outlook.
• Economic policy slippages could dent investor confidence and result in a slowdown in foreign direct investment inflows and manufacturing
growth.

MACROECONOMIC FORECASTS (VIETNAM 2020-2023)

Indicator 2020 2021e 2022f 2023f
Nominal GDP, USDbn 271.2 286.7 321.7 348.9
Real GDP growth, % y-o-y 2.9 2.6 7.0 6.5
Consumer price inflation, % y-o-y, eop 0.2 1.8 3.2 3.5
Budget balance, % of GDP -7.5 -7.7 -6.1 -6.0
Current account balance, % of GDP 6.6 2.9 2.9 2.7
Exchange rate VND/USD, ave 23,208.37 22,933.30 22,600.00 23,000.00
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

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Vietnam Country Risk Report | Q2 2022

Risk Summary
Economic Risk Index

Vietnam's Short-Term Economic Risk Index score of 66.7 reflects the country's chronic fiscal deficits. The 'fiscal policy' sub-component scores just
26.7 out of 100. This is partly offset by a robust score of 80.0 in the 'economic growth' sub-component, reflecting the strong potential for rapid
economic expansion and bringing the Long-Term Economic Risk Index to 66.0.

Political Risk Index

Vietnam's Short-Term Political Risk Index score of 81.7 out of a possible 100 reflects a largely stable political system, kept in place by the ruling
Communist Party of Vietnam's monopoly on power. The potential for a cooling of relations with Beijing provides some external drags on the score,
given Vietnam's deepening trade relations with China. We view the one-party rule as inherently unsustainable in the longer term, and thus accord
Vietnam a score of 63.6 in our Long-Term Political Risk Index, mainly due to a score of 34.4 in the 'characteristics of polity' sub-component.

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Vietnam Country Risk Report | Q2 2022

Economic SWOT
SWOT Analysis
Strengths • Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging
6.0% annually between 2011 and 2020.
• The country has a fairly large population, ranking third in South East Asia, and its working population will
continue to rise over the coming years.
• Wages are competitive relative to regional peers such as China, Malaysia and Thailand.
• Vietnam has been pushing for greater international economic integration through the participation in free
trade agreements/communities, and its exports are well-diversified both geographically and product wise.

Weaknesses • Vietnam still suffers from bloated fiscal deficits and high public sector debt, leaving the economy vulnerable
to global economic uncertainties. The fiscal deficit is dominated by substantial spending on social subsidies
that could be difficult to withdraw.
• The country relies heavily on imported inputs for its export and manufacturing sectors. This could
undermine its export competitiveness and make the economy more vulnerable to currency volatility.

Opportunities • WTO membership and the ASEAN economic integration should give Vietnam greater access to both foreign
markets and capital, while making Vietnamese enterprises stronger through increased foreign competition.
• The government has continued to move forward with market reforms, including privatisation of state-owned
enterprises, addressing the high level of bad loans in the banking sector as well as liberalising the banking
sector.
• Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population rising
from 32% of the population in 2013 to more than 50% by the early 2040s.

Threats • Although inflation has subsided in 2014, complacency by the State Bank of Vietnam on this front could still
pose downside risks to macroeconomic stability.
• The potential for an escalation of political tensions with China over disputes over the South China Sea could
have a negative impact on the economy, given deepening trade ties.
• Market reforms could progress at a much slower pace as the government remains cautious about ceding
ownership to foreign investors.

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Vietnam Country Risk Report | Q2 2022

Political SWOT
SWOT Analysis
Strengths • The Communist Party of Vietnam remains committed to market-oriented reforms, and we do not expect
major shifts in policy direction over the coming years. The one-party system is generally conducive to short-
term political stability.
• Relations with the US have witnessed a marked improvement and Washington sees Hanoi as a potential
geopolitical ally in South East Asia.

Weaknesses • Corruption among government officials poses a major risk to the legitimacy of the ruling Communist Party.
• There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political
dissent.

Opportunities • The government recognises the threat corruption poses to its legitimacy and has acted to clamp down on
graft among party officials.
• Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up
opportunities for more checks and balances within the one-party system.

Threats • Relations with China have deteriorated over recent years due disputes over maritime territory in the South
China Sea.

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Vietnam Country Risk Report | Q2 2022

Economic Outlook

Vietnam's Economy To Bounce Back In 2022

Key View

• We forecast Vietnam’s economy to grow 7.0% in 2022, revised down from 8.0% as growth in 2021 proved stronger than expected resulting in
less favourable base effects.
• In Q421, real GDP growth rebounded to 5.2% y-o-y (up from a contraction of 6.2% y-o-y in Q321), which took 2021 full-year growth to 2.6%.
• We expect base effects and stronger domestic activity to bolster growth in 2022, although we note downside risks from the Omicron variant
and supply-chain issues.

Vietnam’s real GDP growth print of 5.2% y-o-y in Q421 proved that the economy is on the recovery path and we expect it will
continue to expand through 2022. The economy was recovering from its steepest contraction since the authorities began releasing quarterly
data in 2000, as output had fallen 6.2% y-o-y in Q321 due to strict lockdowns in the country’s key economic hubs of Hanoi and Ho Chi Minh City.
While the Covid-19 outbreaks could continue to dampen activity, we believe the rapid rollout of vaccines and a gradual shift to a softer approach to
managing outbreaks suggests the economy will be more resilient to the threat of Covid-19 in 2022. With favourable base effects and scope for a
further normalisation of activity, we believe growth will run above trend over the coming quarters. That said, given growth outperformed our
expectations in 2021, we have tempered our forecast for growth in 2022 as base effects prove less significant. We now forecast economic growth
to pick-up from 2.6% in 2021 to 7.0% in 2022, revised down from 8.0% previously but above the government’s own estimate of 6.0-6.5%.

Growth To Rebound Strongly

Vietnam - Real GDP Growth, %

e/f = Fitch Solutions estimate/forecast. Source: GSO, Fitch Solutions

Growth in Q421 came in above Bloomberg consensus expectations of 3.9%, but was not enough to stop full-year growth from slowing from 2.9%
in 2020 to 2.6% (see chart above). On a sectoral basis, the agriculture, forestry and fishery sector increased by 3.2% y-o-y in Q421, taking full-year
growth to 2.9%. Industry and construction increased by 5.6% in Q421, buoyed by the processing and manufacturing sectors, while mining
continued to be a drag. On the services side, activity rebound from its 9.3% y-o-y contraction in Q321 to growth of 5.4% in Q421. However, for the
full-year it was the services sector which continued to drag on headline growth, averaging 1.2% y-o-y growth. In contrast, industry and
construction proved the driver, growing 4.1%. We expect the services sector to stage a stronger recovery in 2022 given our expectation for
receding disruptions from Covid-19 and some green shoots for the tourism sector in H2. From an expenditure approach, final consumption
increased by 2.1% compared to 2020; fixed investment increased by 4.0%; exports of goods and services increased by 14.0%; and imports
increased by 16.2%.

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Vietnam Country Risk Report | Q2 2022

Strong Recovery In Q421

Vietnam - Real GDP Growth, % chg y-o-y

Source: Bloomberg, Fitch Solutions

We expect activity to normalise further over the course of 2022, despite potential disruptions from Covid-19 outbreaks. The economy is now more
resilient to outbreaks following the government’s push to vaccinate the population. As of January 2 2022, Vietnam had given 79.9% of its
population at least one vaccine dose and 57.9% were fully vaccinated, according to Our World In Data. Reuters reported that the health ministry is
also aiming to offer booster jabs to all the adult population in Q122, although we believe this may take longer given the three-month wait between
the second dose and booster dose in Vietnam. Covid-19 cases have picked up since the easing of restrictions in Q421 but authorities have yet to
show signs of imposing new lockdowns. As such, mobility data shows a gradual recovery in activity in Q421, in line with the GDP print (see chart
below).

Improvement In Q421 But Further Scope For Normalisation

Vietnam – Google Mobility Data, % chg from baseline

Source: Google, Fitch Solutions

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Vietnam Country Risk Report | Q2 2022

However, the mobility data suggests further room for a recovery in domestic demand and this should boost services (42% of GDP
pre-pandemic). Retail sales growth remained in contraction in December 2021, coming in at -3.8% y-o-y, albeit better than -8.7% in November
2021. As more of the population is vaccinated and the population’s concerns about being exposed to Covid-19 ease, we expect retail activity to
bounce back. The major drag on retail sales proved to be consumption of services, with sales of accommodation, food and beverage services
declining 19.3% y-o-y and tourism services down 59.9%. Consumption of these services should pick up activity in 2022 as restrictions ease and
favourable base effects from the Q321 lockdown should also buoy growth readings in H222.

Retail To Rebound In 2022

Vietnam - Retail sales, % chg y-o-y

Source: Bloomberg, Fitch Solutions

Manufacturing activity (17% of GDP pre-pandemic) will also benefit from the normalisation of activity. In the near term, we highlight
potential disruptions to the sector from rising Covid-19 cases and issues around shipping. Industrial production grew 8.7% y-o-y in December, up
from growth of 3.6% in November 2021. However, the 12-month moving average continued to decline from 6.2% y-o-y in November to 6.1% in
December. The sector has struggled with employment shortages, as workers continued to avoid returning to cities and manufacturing hubs due
to Covid-19 concerns. With vaccination rates higher we do expect this issue to ease in 2022, but note that the spread of Omicron could delay the
process.

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Vietnam Country Risk Report | Q2 2022

Industrial Activity Eased In H221

Vietnam – Industrial Production, % chg

Source: Bloomberg, Fitch Solutions

The December Manufacturing Purchasing Managers’ Index (PMI) reading offered some optimism though, showing a recovery in the sector. The
PMI rose from 52.2 in November to 52.5, marking the third consecutive month of expansion (above 50 indicates an expansion in output). The
December PMI report noted that employment had marked its first increase in six months as workers returned amid some easing of supply-chain
disruptions. As such, while output may be disrupted, there should be some normalisation as the year goes on.

Construction activity (5.5% of GDP pre-pandemic) should also recover through 2022. The relaxing of domestic restrictions will prove a
boost and we expect some easing of border restrictions to boost foreign direct investment in 2022. We continue to flag Vietnam as a beneficiary of
shifting supply chains, particularly in regards to low value-add manufacturing relocating out of China. This should boost infrastructure investment
activity. We note that elevated input prices, rising energy costs and shipping delays may hamper activity in early 2022, but across the year our
outlook is for commodity prices to ease. Our Commodities team forecasts iron ore prices to fall 41.9% from their 2021 heights, albeit remaining
higher than pre-pandemic levels.

Risks To Outlook

A significant Covid-19 outbreak could force authorities to reimpose some restrictions if the healthcare sector becomes overwhelmed. With the
Omicron variant proving more transmissible and the threat of new variants emerging, we cannot rule out further disruptions to Vietnam’s
economic recovery. Moreover, China’s ‘zero-Covid’ approach could result in supply-chain disruptions in 2022, particularly if key manufacturing
hubs in China are put into lockdown. Vietnamese businesses have complained about disruptions to trade due to tough border control measures
by China and this could intensify if Vietnam or China experiences a further surge in cases.

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Vietnam Country Risk Report | Q2 2022

GDP By Expenditure Outlook

We forecast real GDP growth to average a strong 6.0% over the coming decade, with private consumption, fixed capital formation and trade being
the key drivers of this trend.

GDP GROWTH FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021 2022f 2023f 2024f 2025f
Nominal GDP, VNDbn 6,293,631.6 6,574,777.8 7,257,336.5 8,008,231.5 8,807,973.9 9,695,019.7
Real GDP growth, % y-o-y 2.9 2.6 7.0 6.5 6.2 6.1
GDP per capita, VND 64,657,114.2 66,974,187.4 73,340,847.0 80,324,387.8 87,716,515.9 95,888,865.5
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions
GDP GROWTH FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Nominal GDP, VNDbn 10,640,851.4 11,666,128.8 12,794,021.6 14,035,727.6 15,376,684.5 16,882,307.1
Real GDP growth, % y-o-y 5.8 5.7 5.8 5.8 5.6 5.9
GDP per capita, VND 104,548,959.3 113,898,370.2 124,161,610.9 135,448,446.7 147,620,631.8 161,305,551.9
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

Private Consumption

We forecast private consumption as a share of GDP to increase very gradually over the coming years. Vietnam's large and youthful population,
rising affluence and sustained remittance inflows are some factors that will keep private consumption growth robust at an average of 6.9% per
annum over the coming decade.

PRIVATE CONSUMPTION FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021 2022f 2023f 2024f 2025f
Private final consumption, VNDbn 4,284,995.0 4,442,860.8 4,837,209.1 5,412,256.5 6,027,630.1 6,700,699.4
Private final consumption, % of GDP 68.1 67.6 66.7 67.6 68.4 69.1
Private final consumption, real growth % y-o-y 0.8 1.8 5.5 8.0 7.5 7.2
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions
PRIVATE CONSUMPTION FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Private final consumption, VNDbn 7,400,285.9 8,172,912.7 9,026,205.7 9,968,586.7 11,009,357.0 12,158,788.9
Private final consumption, % of GDP 69.5 70.1 70.6 71.0 71.6 72.0
Private final consumption, real growth % y-o-y 6.5 6.5 6.5 6.5 6.5 6.5
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

Government Consumption

We forecast government consumption as a share of GDP to gradually fall over our forecast period from 2022 to 2031, as we expect fiscal revenue
constraints as well as persistent execution challenges to limit the pace of public expenditure growth.

GOVERNMENT CONSUMPTION FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021 2022f 2023f 2024f 2025f
Government final consumption, VNDbn 419,039.6 448,091.1 476,302.9 518,122.3 563,613.4 612,521.5
Government final consumption, % of GDP 6.7 6.8 6.6 6.5 6.4 6.3
Government final consumption, real growth % y-o-y 4.0 5.0 3.0 5.0 5.0 4.8
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions
GOVERNMENT CONSUMPTION FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Government final consumption, VNDbn 665,673.7 723,438.2 786,215.3 854,439.9 928,584.8 1,009,163.7
Government final consumption, % of GDP 6.3 6.2 6.1 6.1 6.0 6.0
Government final consumption, real growth % y-o-y 4.8 4.8 4.8 4.8 4.8 4.8
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

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Vietnam Country Risk Report | Q2 2022

Fixed Investment

Vietnam will be able to continue to attract foreign firms by providing them with a low-cost production base, generous tax incentives and a large
pool of young and skilled workforce. We expect an increasing number of labour intensive foreign manufacturing firms to shift their production
plants to the country. Sustained foreign direct investment inflows will be supportive of fixed investment growth over the coming years.

In addition, Vietnam's persistent current account surpluses for the past few years implies that the private sector has accumulated savings.
Unlocking these savings would allow for greater private sector participation in the country's economic development and provide an immense
boost to growth over the long term. Accordingly, we forecast gross fixed capital formation as a share of GDP to rise from around 25.0% in 2020 to
around 30% by 2031.

FIXED INVESTMENT FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021 2022f 2023f 2024f 2025f
Fixed capital formation, VNDbn 1,574,746.3 1,667,884.1 1,858,956.9 2,070,320.3 2,310,005.4 2,579,927.3
Fixed capital formation, % of GDP 25.0 25.4 25.6 25.9 26.2 26.6
Fixed capital formation, real growth % y-o-y 4.2 4.0 8.0 7.5 7.7 7.7
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions
FIXED INVESTMENT FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Fixed capital formation, VNDbn 2,881,389.2 3,218,076.6 3,594,105.6 4,014,073.3 4,483,113.8 5,006,961.1
Fixed capital formation, % of GDP 27.1 27.6 28.1 28.6 29.2 29.7
Fixed capital formation, real growth % y-o-y 7.7 7.7 7.7 7.7 7.7 7.7
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

Net Exports

Vietnam's goods trade account flipped from a structural deficit to a surplus in 2012, and the country has managed to sustain a net goods export
surplus since. While sustained growth in the export-oriented manufacturing sector will keep exports as a share of GDP rising, firm domestic
demand conditions and high import-content of manufactured goods will also result in elevated levels of imports. Hence, we expect net exports as
a share of GDP to remain low below 5% of GDP over our forecast period.

NET EXPORTS FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021 2022f 2023f 2024f 2025f
Net exports of goods and services, VNDbn 204,774.2 85,249.5 200,489.3 186,768.2 153,857.2 122,385.9
Net exports of goods and services, % of GDP 3.3 1.3 2.8 2.3 1.7 1.3
Net exports of goods and services, real growth % y-o-y -16.7 49.2 -3.4 14.5 14.9 13.0
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions
NET EXPORTS FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Net exports of goods and services, VNDbn 95,066.3 43,480.9 -21,417.7 -101,597.0 -220,876.1 -340,619.8
Net exports of goods and services, % of GDP 0.9 0.4 -0.2 -0.7 -1.4 -2.0
Net exports of goods and services, real growth % y-o-y 11.6 12.3 11.9 11.5 12.2 10.7
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

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External Trade And Investment Outlook

Vietnam's Manufacturing To Face Further Disruptions In 2022

Key View

• We believe Vietnam’s industrial production recovery will be gradual over the coming quarters.
• Continued disruptions caused by the Covid-19 pandemic have hampered output and we expect further challenges in 2022 given still elevated
concerns amongst workers about the pandemic.

We expect Vietnam’s industrial production to face further pandemic-related disruptions over the coming months, weighing on
the pace of recovery. In the period January to November 2021, industrial production rose 3.6% from the same period in 2020, marking a modest
pace of expansion. Production picked up in November as the economy benefited from the easing of Covid-related restrictions which had in been
in place through Q321, with industrial production rising 5.5% m-o-m. Vietnam’s rollout of Covid-19 vaccines will make the economy somewhat
more resilient to domestic outbreaks, allowing for less stringent restrictions on activities. However, with cases once again rising in December 2021,
the emergence of the Omicron variant and authorities reimposing some restrictions on activities, disruptions are likely to persist into 2022. This will
hamper the pace of the recovery in industrial production.

Industrial Production Recovery To Remain Gradual Amid Pandemic Disruptions

Vietnam – Industrial Production, % chg y-o-y

Source: Bloomberg, GSO, Fitch Solutions

The November Manufacturing Purchasing Managers’ Index (PMI) report highlighted the continued recovery in activity, but also the lingering
disruptions and uncertainty from the pandemic. The PMI came in at 52.2, slightly up from 52.1 in October, marking the second consecutive month
of expansion after the sharp contraction through Q321 (see chart below). Manufacturers reported the steepest expansion in new orders since
April. However, output was partly restrained by labour shortages, as workers continued to avoid returning to cities and manufacturing hubs, in fear
of Covid-19 outbreaks.

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Vietnam Country Risk Report | Q2 2022

Manufacturing Recovery To Be Capped By Pandemic Concerns

Vietnam – Manufacturing PMI

Note: above 50 indicates an expansion in manufacturing output. Source: Bloomberg, Fitch Solutions

Data from Google shows activity remains impaired in Q421, with activity at workplaces and transit stations significantly below levels observed prior
to the lockdowns in Q321 (see chart below). This suggests that output constraints will likely persist until workers’ concerns surrounding the
pandemic abate. With cases rising again in December 2021 – the seven-day average stood at 14,499 on December 9, up from 7,493 on November
9 – workers are likely to delay returning until they feel confident about the effectiveness of vaccines and outbreak prevention measures. As noted,
the Omicron variant will likely add to concerns and further stall the normalisation of manufacturing activity. The upside is that Vietnam’s
vaccination rate is approaching similar levels to developed markets (76.1% of the population had received at least one dose by December 8 2021)
and this should help to reduce concerns around hospitalisation rates in the country.

Activity Still Constrained In Q421

Vietnam – Google Mobility Tracker, % chg from base

Source: Google, Fitch Solutions

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Vietnam Country Risk Report | Q2 2022

The disruptions reinforce our view for Vietnam’s current account surplus to narrow from 6.6% of GDP in 2020 to 2.9% in 2021,
before rebounding modestly to 3.0% in 2022. The disruptions to manufacturing will mean Vietnam’s exports remain hampered over the
coming months, adding to disruptions to global supply-chains into 2022. Vietnam’s exports growth dropped sharply during the lockdowns, falling
from an average of 32.6% y-o-y in Q221 to 0.8% y-o-y in Q321. There has been a gradual pick-up in Q421, with growth averaging 9.3% y-o-y
through October and November. In contrast, imports have proved more resilient, averaging growth of 14.4% y-o-y through October and
November, suggesting manufacturers have been able to source inputs. That said, manufacturers continued to report some issues with shipping
and raw material shortages and as such, even as the domestic situation improves, external disruptions could cap the extent to which Vietnam’s
manufacturing sector recovers.

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Vietnam Country Risk Report | Q2 2022

Outlook On External Position

According to Vietnam's financial account data dating back to 1996, the country runs a net international investment deficit of around 25% of GDP
as of the end of 2019, owing to high levels of foreign direct investment into the country, particularly over the past decade.

External Position To Improve

Vietnam - Current Account Balance (2020-2031)

e/f = Fitch Solutions estimate/forecast. Source: ADB, Fitch Solutions

Vietnamese exports had performed well over the last two decades, but rapid import growth kept the country's trade and current account balances
mostly in deficit. However, this trend appears to have changed as the export-oriented manufacturing sector powers ahead. The reason for
Vietnam's export sector boom is largely due to foreign firms increasingly moving their manufacturing facilities into Vietnam to take advantage of
demographic advantages and trade openness. Over the coming years, we believe that improvements in Vietnam's productive capacity and growth
in its manufacturing and service exports will continue to support the country's trade balance, despite strong import growth due to growing
domestic demand. In addition, strong remittances growth will also help to keep it current account in surplus.

Meanwhile, Vietnam's financial account experienced net inflows, reflecting sustained foreign investor interest in the country.

MAIN EXPORT AND IMPORT PARTNERS (2020)

Main Export Destinations % Of Total Main Import Sources % Of Total

US 27.4 China 32.2

China 17.4 South Korea 17.9

Japan 6.8 Japan 7.8

South Korea 6.8 Taiwan 6.4

Hong Kong 3.7 US 5.3

Note: Includes territories and special administrative regions. Source: Trademap, Fitch Solutions

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MAIN EXPORTS AND IMPORTS (2020)

Main Export Products % Of Total Main Import Products % Of Total

Electronics, mobile phones, computers 39.5 Electrical machinery and equipment 36.5

Machinery 6.5 Machinery and appliances 8.3

Mineral fuels, lubricants and related
Clothing 9.6 5.0
materials
Footwear 6.2 Fabrics 4.0

Furniture and bedding 4.3 Iron and Steel 3.8

Source: Trademap, Fitch Solutions

External Indebtedness To Decline

Vietnam - Total External Debt (2020-2031)

e/f = Fitch Solutions estimate/forecast. Source: World Bank, Fitch Solutions

CAPITAL & FINANCIAL ACCOUNT BALANCE (VIETNAM 2016-2020)

Indicator 2016 2017 2018 2019 2020
Capital and financial account, % of GDP 4.1 5.6 2.5 8.9 6.1
Net FDI inflows per capita, USD 119.7 143.3 156.0 162.3 158.4
Net portfolio investment, USDbn 0.2 1.9 3.0 3.0 -1.0
Net other Investment, USDbn 1.9 11.7 3.2 4.7 2.3
Source: Asian Development Bank, Fitch Solutions

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CURRENT ACCOUNT BALANCE FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Balance of trade in goods, USDbn 30.5 25.4 29.5 32.2 34.5 37.3
Balance of trade in goods, % of GDP 11.2 8.9 9.3 9.3 9.1 9.0
Balance of trade in services, USDbn -11.5 -12.9 -15.1 -17.1 -18.7 -20.4
Balance of trade in services, % of GDP -4.2 -4.5 -4.7 -4.9 -4.9 -4.9
Primary income balance, USDbn -14.7 -17.9 -19.5 -21.3 -23.2 -25.4
Primary income balance, % of GDP -5.4 -6.2 -6.1 -6.1 -6.1 -6.1
Secondary income balance, USDbn 13.6 13.7 14.6 15.4 16.4 17.4
Secondary income balance, % of GDP 5.0 4.8 4.6 4.4 4.3 4.2
Current account balance, USDbn 17.8 8.4 9.4 9.3 9.0 8.8
Current account balance, % of GDP 6.6 2.9 3.0 2.7 2.4 2.1
e/f = Fitch Solutions estimate/forecast. Source: Wind, Fitch Solutions
CURRENT ACCOUNT BALANCE FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Balance of trade in goods, USDbn 40.7 45.2 49.0 53.8 56.4 61.4
Balance of trade in goods, % of GDP 9.1 9.3 9.3 9.4 9.0 9.1
Balance of trade in services, USDbn -22.3 -24.4 -26.6 -29.1 -31.7 -34.7
Balance of trade in services, % of GDP -5.0 -5.0 -5.0 -5.1 -5.1 -5.1
Primary income balance, USDbn -27.7 -30.2 -32.9 -35.9 -39.2 -42.8
Primary income balance, % of GDP -6.2 -6.2 -6.2 -6.3 -6.3 -6.3
Secondary income balance, USDbn 18.4 19.5 20.7 21.9 23.2 24.6
Secondary income balance, % of GDP 4.1 4.0 3.9 3.8 3.7 3.6
Current account balance, USDbn 9.1 10.1 10.1 10.7 8.6 8.6
Current account balance, % of GDP 2.0 2.1 1.9 1.9 1.4 1.3
f = Fitch Solutions forecast. Source: Wind, Fitch Solutions

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Monetary Policy Outlook

Vietnam To Face Inflationary Rebound But Overshoot Risks Contained

Key View

• We expect Vietnam’s inflation rate to pick up from an average of 1.8% y-o-y in 2021 to 3.2% in 2022 due to higher imported costs and
rebounding demand-side pressures.
• We anticipate that the SBV will allow for some appreciation of the Vietnamese dong to offset imported inflationary pressures over the course of
2022, while easing food price inflation and lingering Covid-19 drags on domestic activity in Q122 will also keep inflation broadly below the
government’s 4.0% upper limit.

We expect inflation in Vietnam to begin to pick-up over the course of 2022, as economic activity normalises and imported price
pressures remain elevated. The headline inflation rate came in at 1.9% y-o-y in January, slightly up from 1.8% in December. Inflation averaged
lower through 2021 as Vietnam experienced significant disruptions to economic activity due to the Covid-19 pandemic. A surge in Covid-19 cases
in Q321 led to a sharp drop in economic activity, particularly retail activity, weighing on domestic demand side price pressures. While Vietnam is
grappling with a further outbreak of Covid-19 cases in Q122, we anticipate that economic activity will begin to accelerate from a preliminary
growth rate of 2.6% in 2021 to a forecast 7.0% in 2022 as Covid-19 disruptions abate through the year. As domestic demand picks up and the
manufacturing sector rebounds, we expect both demand-side and imported price growth to put upward pressure on headline inflation readings.
However, given the government’s target of keeping inflation under 4.0%, we believe that the State Bank of Vietnam (SBV) will tolerate
dong appreciation to offset some of the import price pressures and thus, we do not foresee inflation surging.

Inflation To Rebound But Overheating Risks Limited

Vietnam – Headline Inflation Rate, % chg y-o-y

f = Fitch Solutions forecast. Source: GSO, Bloomberg, Fitch Solutions

We forecast inflation to rise from an average of 1.8% y-o-y in 2021 to 3.2% in 2022 and 3.6% in 2023. Inflation averaged lower in 2021,
relative to 2019 (an average of 2.8%) and 2020 (an average of 3.2%). However, we expect inflation to rebound as economic activity normalises,
although we note some delays in Q122 due to consumers wary of a high number of new Covid-19 infections. While retail sales growth improved
from 1.1% y-o-y in December 2021 to 1.3% in January 2022, month-on-month sales growth came in at -3.2% in January, marking consecutive
month-on-month retail sales declines. Vietnam has seen a surge in new Covid-19 cases since November 2021, however the government is
shifting towards treating the virus as endemic, given 73.9% of the population is fully vaccinated (as of February 1 2022). The January Manufacturing
Purchasing Managers’ Index (PMI) report noted workers were still yet to return to manufacturing hubs due to concerns over Covid-19.
Nevertheless, Google mobility data paints a better picture, with clear signs of a recovery in domestic activity through January 2022, relative to
December 2021. In particular, grocery and pharmacy activity has surged – likely ahead of Lunar New Year celebrations on February 1 2022. We
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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expect demand-side pressures to recover gradually in Q122, given this hesitancy from consumers, but show a more robust recovery as the year
progresses and the endemic approach becomes more accepted.

January Data Points To Rebounding Domestic Activity

Vietnam – Google Mobility Data, % chg from baseline

Source: Google, Fitch Solutions

On the supply side, we expect still elevated commodity prices and import costs to put upward pressure on headline inflation. Our
Commodities team notes upward pressures on prices due to geopolitical tensions. Significantly, grains prices are facing upward pressure and with
food and foodstuff accounting for 40% of Vietnam’s consumer price index basket, headline inflation could surprise to the upside. The PMI report
also noted manufacturers flagging higher charges for freight and shipping costs, which is putting upward pressure on input prices. As
manufacturers begin to grow more confident, we expect supply constraints to become more pronounced once again and this to add to input
costs. Alongside rebounding domestic demand, we expect manufacturers to pass on costs to consumers at an increased rate.

That said, we do not expect inflation to surge past the government's 4.0% upper limit, for three reasons. Firstly, we expect the SBV to
tolerate dong appreciation to offset some of imported inflationary pressures. We expect the dong to appreciate on average 1.5% y-o-y on the back
of recovering foreign direct investment and trade inflows. Secondly, easing pork prices should offset upside pressures on food prices. Food
inflation was elevated between January and September 2020, coming in above 10% y-o-y, as high pork prices due to an outbreak the African swine
fever (ASF) pushed up food prices. However, food price inflation has eased to 3.1% y-o-y in January 2022 and increased pork imports, alongside the
containment of ASF in Vietnam, should stop food inflation from surging once again. Thirdly, elevated shipping costs aside, manufacturers are
reporting easing input price growth. In the near term, this should also ease headline inflationary pressures.

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Monetary Policy Framework

We expect inflation to remain manageable over the coming years, as Vietnamese policymakers should have learnt from past economic missteps
that resulted in elevated price pressures in the country. Hence, we forecast inflation to average around 3.7% per annum from 2022 to 2031, versus
its historical average of 5.5% per annum over the period from 2011 to 2020.

Inflation Credibility: The lack of monetary prudence by the central bank resulted in rapid credit growth and soaring price pressures in the last
decade. However in recent years, the government has succeeded in bringing inflation below its target of 5.0% in 2014-2017 and 4.0% in 2019
and 2020. While this achievement was partly attributed to lower oil prices, we are optimistic that the central bank will be increasingly prudent in its
monetary policy over the coming years as it seeks to ensure financial stability in the country.

Food And Housing Account For Largest Shares

Vietnam - Breakdown Of CPI Basket, %

Source: GSO, Fitch Solutions

Central Bank Targets And Operations: The government fixes an annual inflation target and the State Bank of Vietnam employs monetary tools
to ensure that the inflation target is met. Some of these tools include the refinancing rate, exchange rate, reserve requirement ratio, open market
operations, as well as other ad hoc measures as stipulated by the government.

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Inflation To Stabilise Over The Long Run

Vietnam - Consumer Price Inflation (2013-2031)

f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

MONETARY POLICY FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Consumer price inflation, % y-o-y, eop 0.2 1.8 2.0 3.5 3.5 3.5
M2, VNDbn 10,130,020.1 10,737,821.3 11,382,090.5 11,951,195.1 12,548,754.8 13,176,192.6
M2, % y-o-y 7.0 6.0 6.0 5.0 5.0 5.0
Central bank policy rate, % eop 4.00 4.00 4.25 4.50 4.50 4.50
e/f = Fitch Solutions estimate/forecast. Source: GSO, Fitch Solutions
MONETARY POLICY FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Consumer price inflation, % y-o-y, eop 3.5 3.5 3.5 3.5 3.5 3.5
M2, VNDbn 13,966,764.1 14,804,770.0 15,693,056.2 16,634,639.5 17,699,256.5 18,902,805.9
M2, % y-o-y 6.0 6.0 6.0 6.0 6.4 6.8
Central bank policy rate, % eop 4.50 4.50 4.50 4.50 4.50 4.50
f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

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Fiscal Policy And Public Debt Outlook

Structural Fiscal Position

Fiscal Deficit: Vietnam's fiscal position has been precarious, having posted consistent annual budget deficits (including debt repayment) in
excess of 4.0% since 2009. While positive developments on the fiscal revenue front have continued to unfold, poor expenditure management
continues to undermine Vietnam's fiscal position. Accordingly, we expect Vietnam's fiscal balance to remain in deficit over our forecast period from
2022 to 2031, posing a salient risk to the country's strong economic growth momentum.

MAIN REVENUE AND EXPENDITURE CATEGORIES (2020)

Main Sources Of Revenue % Of Total Main Areas Of Expenditure % Of Total
VAT 22.7 Development expenditure 30.8
Corporate income tax 17.2 Education and training 14.4
Capital revenues 11.6 Interest payments 6.0
Personal income tax 7.6 Salary reform expenditures 3.1
Excise tax 6.7
Export-import tax 5.2

Source: Ministry of Finance, Fitch Solutions

Government Debt: Poor fiscal management has led to rising public debt as a share of GDP. However, we expect a gradual improvement in the
country's fiscal position on the back of ongoing positive tax revenue and state-owned enterprise reforms, which should help to limit government
borrowing and decrease the level of public debt as a share of GDP.

Fiscal Consolidation On The Horizon

Vietnam - Gross Debt & Fiscal Balance (2013-2031)

e/f = Fitch Solutions estimate/forecast. Source: Ministry Of Finance, Fitch Solutions

Government Share Of GDP: While we expect government expenditure to rise as a share of GDP over the coming decade, supported by growing
revenue collection, government consumption's share of GDP is likely to decline as the private sector plays an increasing role in the economy.

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Private Sector To Play An Increasingly Larger Role

Vietnam - Government Spending & Revenue (2013-2031)

e/f = Fitch Solutions estimate/forecast. Source: Ministry of Finance, Fitch Solutions

FISCAL AND PUBLIC DEBT FORECASTS (VIETNAM 2020-2025)

Indicator 2020 2021e 2022f 2023f 2024f 2025f
Total revenue, VNDbn 1,537,036.0 1,272,730.8 1,491,629.3 1,663,383.0 1,847,815.4 2,052,983.8
Total revenue, VND, % y-o-y 5.5 -17.2 17.2 11.5 11.1 11.1
Total expenditure, VNDbn 2,010,579.5 1,781,084.2 1,932,861.4 2,146,631.6 2,369,458.2 2,615,816.1
Total expenditure, VND, % y-o-y 8.2 -11.4 8.5 11.1 10.4 10.4
Budget balance, VNDbn -473,543.5 -508,353.4 -441,232.1 -483,248.6 -521,642.8 -562,832.3
Budget balance, % of GDP -7.5 -7.7 -6.1 -6.0 -5.9 -5.8
Total government debt, USDbn 154.0 157.4 170.7 181.0 191.8 203.2
Total government debt, % of GDP 56.8 54.8 53.6 52.0 50.6 49.2
e/f = Fitch Solutions estimate/forecast. Source: Ministry Of Finance, Fitch Solutions
FISCAL AND PUBLIC DEBT FORECASTS (VIETNAM 2026-2031)
Indicator 2026f 2027f 2028f 2029f 2030f 2031f
Total revenue, VNDbn 2,281,235.0 2,535,182.5 2,817,737.2 3,132,141.2 3,482,005.5 3,871,352.5
Total revenue, VND, % y-o-y 11.1 11.1 11.1 11.2 11.2 11.2
Total expenditure, VNDbn 2,888,216.8 3,189,441.5 3,522,570.7 3,891,015.7 4,298,555.1 4,749,373.9
Total expenditure, VND, % y-o-y 10.4 10.4 10.4 10.5 10.5 10.5
Budget balance, VNDbn -606,981.8 -654,259.0 -704,833.5 -758,874.5 -816,549.6 -878,021.4
Budget balance, % of GDP -5.7 -5.6 -5.5 -5.4 -5.3 -5.2
Total government debt, USDbn 215.3 228.1 241.6 256.0 271.2 287.3
Total government debt, % of GDP 47.9 46.8 45.6 44.5 43.5 42.4
f = Fitch Solutions forecast. Source: Ministry Of Finance, Fitch Solutions

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Currency Forecast

Vietnamese Dong To Trade Stronger In The Near Term

VIETNAM CURRENCY FORECAST
2021 Spot 2022 2023
VND/USD, ave 22,933 22,645 22,600 23,000
VND/EUR, ave 27,128 25,461 25,764 26,680
SBV refinancing rate, % eop 4.00 4.00 4.25 4.5

Source: Bloomberg, Fitch Solutions. Last updated: February 3 2022

Key View

• We forecast the Vietnamese dong to trade slightly stronger as the central bank allows for the unit to appreciate in the face of heightened
import price pressures.
• Recovering foreign direct investment and trade inflows will support the unit, such that the unit averages VND22,600/USD in 2022, up 1.5%
from the average in 2021 and slightly revised from our previous forecast of VND22,800/USD.
• In the long term, we forecast an average a slight weakening of the exchange rate of VND23,000/USD in 2023, given the dong’s slight
overvaluation, elevated inflation and the SBV’s desire to see the country’s export competitiveness boosted.

Short-Term Outlook (three-to-six months)

In the near term, we expect the Vietnamese dong to trade slightly stronger at around VND22,400/USD-VND22,800/USD, as the
State Bank of Vietnam (SBV) allows for the unit to strengthen in the face of elevated imported inflationary pressures. This would mark a slight
appreciation of 1.5% from the average of VND22,933/USD in 2021. In the year-to-date, the dong has averaged VND22,707/USD and delivered a
spot rate return of 0.7%. Despite the US dollar strengthening since June 2021 on the back of an increasingly hawkish US Fed, the dong has
appreciated (see chart below). This should ease pressure from the US Treasury Department, which has threatened punitive tariffs if Vietnam
continues to fall within its ‘currency manipulator’ criteria. We maintain the view from our update in October, 'that strong net inflows from trade and
foreign direct investment (FDI) will continue to drive dong strength, but more importantly, the central bank still appears to be favouring a stronger
dong in order to curb imported inflation from high global commodity prices and international logistics costs'. With imported inflationary pressures
still elevated, we believe the SBV will tolerate the exchange rate to shift stronger over the short term.

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Dong Appreciates Despite US Dollar Strength

VND Exchange Rate (weekly) & DXY Index (inverted)

Source: Bloomberg, Fitch Solutions

The dong will continue to be supported by strong net inflows from trade and FDI. We expect Vietnam’s exports to benefit from a recovery
in its manufacturing sector, following significant disruptions due to Covid-19 outbreaks in 2021. Vietnam’s Manufacturing Purchasing Managers’
Index (PMI) has jumped from 40.2 in September to 53.7 in January, as lockdown restrictions eased and workers began returning to manufacturing
hubs. However, according to the January PMI report, some manufacturers are still reporting absent workers, suggesting further scope for
manufacturing improvements over the coming months. Improvements in border trade with China (after disruptions in December) will also boost
trade prospects. Vietnamese tourist receipts should also begin to recover somewhat as Vietnam relaxes travel restrictions, further fuelling external
demand for the dong. Eased travel restrictions should also boost FDI inflows, which suffered due to the lockdown measures imposed by
Vietnamese authorities in Q321. FDI inflows ended 2021 1.2% lower than in 2020, in line with our view from October. We believe the easing of
Vietnam’s restrictions should bolster FDI once again.

Manufacturing Recovery To Support The Dong

Vietnam – Manufacturing PMI

Note: above 50 indicates an expansion. Source: Bloomberg, Fitch Solutions

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These appreciatory factors will be allowed to support the dong due to the SBV’s concerns about elevated imported inflation. In
2021, inflation ran lower than in previous years, averaging at 1.8% y-o-y compared to 2.8% in 2019 and 3.2% in 2020, leaving scope for a rebound
in inflation in 2022. We forecast inflation to average 3.2% y-o-y in 2022. We expect a rebound in economic growth – we forecast real GDP growth
to surge from a preliminary 2.6% in 2021 to 7.0% in 2022 – to boost demand-side inflationary pressures, while imported inflationary pressures will
remain elevated in the near term. Our Commodities team notes upward pressures on prices due to geopolitical tensions. Significantly, grains prices
are facing upward pressure and with food and foodstuff accounting for 40% of the consumer price index basket, households will likely feel these
inflationary pressures. Alongside the consumer impact, manufacturers face higher prices from rising input and shipping costs and we expect the
SBV to ease this burden on the sector by allowing a slightly stronger dong.

Long-Term Outlook (six-to-24 months)

Beyond the near term appreciation, we forecast the unit to depreciate slightly from an average of VND22,600/USD in 2022
(revised from VND22,800/USD) to VND23,000 in 2023. Given the Vietnamese authorities desire to attract FDI inflows and maintain export
competitiveness, we expect the dong to remain relatively stable over the coming quarters. Higher inflation in the US versus Vietnam in 2022 (5.0%
versus 3.4%) will allow the dong scope to appreciate without eroding too much of the SBV’s export competitiveness. However, as US inflation
abates in 2023, Vietnam’s higher structural levels of inflation will require some dong depreciation in order to maintain export competitiveness. The
dong is both overvalued on a CPI-basis and a PPI-basis suggesting scope for some weakness in the longer term (see chart below).

Dong Overvalued In Real Terms

Vietnam – Real Effective Exchange Rate Indices

Source: Bloomberg, Fitch Solutions

However, to avoid punitive tariffs by the US, we do not expect the SBV to allow significant swings in the dong. We believe the SBV will continue to
slowly build its reserves buffer over the coming quarters, allowing it to stabilise the dong during periods of global market volatility. We expect
reserves to be boosted by both trade surpluses as well as increased investor inflows into Vietnam, given its growth outperform over the coming
years. We forecast Vietnam’s real GDP growth to average 6.8%, relative to US growth of 2.7% over the period 2022 to 2023.

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Reserves Accumulation To Cover Rising Imports

Vietnam – Total Reserves Excluding Gold, USDbn & Import Cover, months

Source: Bloomberg, Fitch Solutions

Risks To Outlook

The SBV could prioritise a stronger dong than we are currently expecting in the near term to offset import price pressures, particularly given that
exports remain elevated due to strong global demand. However, over the longer term, the SBV could desire a weaker dong to support Vietnam’s
export competitiveness, particularly if the Chinese yuan and other emerging market currencies were to weaken.

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10-Year Forecasts

A New Focus On Quality Growth

Key View: Vietnam's growth prospects over the next decade remain positive in our view, as reflected by our bullish forecasts for real GDP growth
to average 6.0% over 2022-2031. We foresee a more stable economic environment, with inflation averaging 3.7% and the current account balance
recording a modest surplus over our forecast period.

Vietnam's growth story over the past decade has been marked by tumultuous periods of high inflation, multiple currency devaluations and
widespread economic wastage as a result of inefficient state-owned enterprises (SOEs) that continue to hold dominance in key economic sectors.
However, we believe that 2013 marked a major turning point for the economy. While structural factors underpinning Vietnam's potential for long-
term growth (including favourable demographics, proximity to China and low cost of labour relative to the region) remain largely unchanged, we
highlight several developments that reinforce our bullish outlook on the economy in the coming decade.

A More Stable Growth Model

Vietnam - Real GDP Growth & Fixed Capital Formation, % of GDP

f = Fitch Solutions forecast. Source: GSO, Fitch Solutions

Firstly, we foresee a more stable economic environment in Vietnam, brought on by a decisive shift in the government's focus towards policies
aimed at maintaining price stability and ongoing efforts to further address macroeconomic imbalances in the economy. In this respect, the
government has made significant progress in recent years, by reversing the country's stubborn trade deficits into a mild surplus towards the end of
2012. We expect Vietnam's current account balance to be in surplus over our forecast period out to 2031.

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Rebalancing In Play
Vietnam - Goods & Services Balance & Current Account Balance, % of GDP

e/f = Fitch Solutions estimate/forecast. Source: ADB, Fitch Solutions

Inflation had eased significantly from a double-digit high of 23.0% y-o-y in August 2011 over recent years. While we expect inflation to rise over the
coming years mainly due to food and fuel prices, we do not expect the extent of inflation to be in the double digits as it was over the past decade.
Increasing damming activity upstream of the Mekong River will have a negative impact on fish stocks and also the soil fertility of the Mekong Delta,
which would put upside pressure on food prices. Separately, we expect credit growth to be slower as compared with the 2008-2017 period, where
credit growth averaged 18.8% annually. We see encouraging evidence that the State Bank of Vietnam (SBV) remains fully committed towards its
mandate of maintaining price stability. The SBV has also been tasked to push ahead with banking sector reforms to improve risk management and
improve credit quality over the coming years. We believe that these efforts should help to drive credit growth down towards an average of about
13.4% over the coming decade. Accordingly, we expect headline consumer price inflation to average a benign 3.5% annually over the same period.
Given that high inflation has been a major contributing factor to Vietnam's exchange rate policy woes, the reverse would be positive for the
Vietnamese dong over the longer term.

We believe that the government's stance on maintaining macroeconomic stability, coupled with a renewed impetus to speed up economic
reforms to enhance long-term growth, will play a crucial role in attracting foreign direct investment into Vietnam. Plans to speed up privatisation of
SOEs as well as reforms to encourage private sector participation in Vietnam's economic development is in line with our view that gross fixed
capital formation growth will average a robust 7.4% over the next decade.

Alongside the government's efforts to liberalise trade and expand its free trade agreement network, multinational companies (MNCs) have
expressed optimism over plans by the Vietnamese government to gradually lift restrictions on foreign participation in the banking industry (and
other sectors that are tightly regulated and closely supervised by the state). As the economy gradually shifts towards a more market-oriented
system by allowing for increased foreign competition, we believe that this will open up opportunities for MNCs seeking to penetrate the
Vietnamese market. Increased foreign participation in sectors that are presently dominated by SOEs should also contribute to an overall
improvement in the efficiency of the economy. We believe that this will provide support to real GDP growth, which we expect to average at a robust
5.8% over the coming decade.

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Moderating Population Growth

Vietnam - Population & Growth (2009-2031)

e/f = Fitch Solutions estimate/forecast. Source: UN, Fitch Solutions

Although timely intervention by the SBV appears to have helped reinstil confidence and fend off a banking crisis in 2013, we believe that the stock
of bad debt due to poor lending practices and a lack of regulatory oversight will remain a daunting task for the government to tackle. We expect
banks that are unable to compete effectively to be absorbed eventually by the larger state-owned banks under a directive from the SBV or
gradually exit the industry altogether. On the whole, we see this necessary adjustment as an effective way of eliminating uncompetitive banks in
the economy, and we are encouraged by the SBV's aggressive stance towards addressing the banking sector's weaknesses. The SBV has
announced plans to restructure ailing banks. Furthermore, the Vietnamese government also established a debt management agency, known as
the Vietnam Asset Management Company, in July 2013, which will help to strengthen risk management practices and address the high non-
performing loans ratios among local banks over the long run. We believe that such efforts should play a significant role in boosting Vietnam's
competitiveness and economic growth over the longer term.

Vietnam's favourable demographics, which present considerable scope for policymakers to unlock gains in labour productivity, underscore the
potential for labour market reforms as a powerful policy tool to drive economic growth over the long term. We believe that Vietnam's young and
relatively low cost labour force versus the region will remain a key distinguishing factor that makes the country one of the most attractive
investment destinations for MNCs. We point out that Vietnam is still lagging behind its regional peers in terms of investment in education and
productivity-enhancing technologies. While countries across South East Asia are focusing on efforts to move up the manufacturing value chain by
investing heavily in education, training and new technology, the Vietnamese government has maintained its focus on attracting foreign
investment in its existing industries. We believe that the government will eventually have to redirect public spending towards a greater emphasis
on investment in education and infrastructure in order to sustain its current pace of strong economic growth over the longer term.

LONG-TERM MACROECONOMIC FORECASTS (VIETNAM 2022-2031)

Indicator 2022f 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f
Nominal GDP, USDbn 321.7 348.9 379.9 414.0 449.9 488.4 530.3 576.0 624.8 679.2
Real GDP growth, % y-o-y 7.0 6.5 6.2 6.1 5.8 5.7 5.8 5.8 5.6 5.9
GDP per capita, USD 3,251 3,499 3,783 4,094 4,420 4,768 5,146 5,558 5,998 6,489
Population, mn 98.95 99.70 100.41 101.11 101.78 102.43 103.04 103.62 104.16 104.66
Consumer price inflation, % y-o-y, ave 3.4 3.6 3.6 3.7 3.7 3.7 3.7 3.7 3.7 3.7
Exchange rate VND/USD, ave 22,600.00 23,000.00 23,230.00 23,462.30 23,696.92 23,933.89 24,173.23 24,414.96 24,659.11 24,905.70
Current account balance, % of GDP 2.9 2.7 2.4 2.2 2.0 2.1 1.9 1.9 1.4 1.3
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

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DISCLAIMER

Our long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most cases that growth eventually
converges to a long-term trend, with economic potential being determined by factors such as capital investment, demographics and productivity growth. Because quantitative
frameworks often fail to capture key dynamics behind long-term growth determinants, our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as
institutional strength and political stability. We assess trends in the composition of the economy on a GDP by expenditure basis in order to determine the degree to which
private and government consumption, fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for
exchange rates, external account balances and interest rates.

Source: Fitch Solutions

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Political Outlook

Vietnam-China Economic Ties To Improve Despite Geopolitical Tensions

Key View

• We believe that Vietnam and China will continue to foster stronger economic ties over the coming years, as their supply chains become
increasingly integrated and two-way trade rises.
• This is notwithstanding occasional disagreements and longer-standing disputes such as their competing claims over the South China Sea and
the damming of the Mekong river.
• This informs our Vietnam’s Long-Term Political Risk Index score of 63.6 out of 100, which sits below the Long-Term Economic Risk Index score
of 65.6 out of 100; however, these sporadic frictions could cause some short-term volatility in bilateral economic cooperation.

We believe that Vietnam and China will continue to foster stronger economic ties over the coming years even as occasional
disagreement arises and long-standing disputes over territory and resources persist. This partly informs our Vietnam’s Long-Term
Political Risk Index (LTPRI) score of 63.6 (out of 100), which sits lower than our Long-Term Economic Risk Index (LTER) score of 65.6 out of 100.
Indeed, the ‘scope of state’ sub-component weighs down our LTPRI score reflecting some external challenges for Vietnam; in contrast, the
‘external’ sub-component boosts our LTER score. Nevertheless, we expect long-standing disputes in the South China Sea and over the damming of
the Mekong River to cause some volatility in bilateral relations.

Trade between the two countries has grown despite the Covid-19 outbreak, with supply chain integration prospects rising amid the shift to a
‘China Plus One’ strategy among international manufacturers. Vietnam’s trade with China rose as a share of its total trade in 2020 (see LHS chart
below) and as China shifts up the value chain, we expect Vietnam to be a major beneficiary of the relocation of some of China’s manufacturing. On
the services front, Chinese tourists have helped to drive Vietnam’s tourism industry, pre-pandemic, offering another avenue of cooperation
between the two countries over the coming years (see chart below).

Vietnam-China Trade Increasingly Important

Vietnam – Trade With China, % of total trade (LHS) & Chinese Tourists, % of total tourists (RHS)

Source: GSO, Fitch Solutions

The longer-term outlook for bilateral economic ties also remains favourable given the mutual benefit from their development. On
January 1 2022, the Regional Comprehensive Economic Partnership Agreement came into force, for which both China and Vietnam are
signatories. The Agreement should spur further trade integration and cooperation between the two countries. On January 13 2022, Chinese
Premier Li Keqiang spoke by phone with Vietnamese Prime Minister Phạm Minh Chính, covering the subject of improving relations, along with
economic and trade cooperation. Li stated that China would seek to improve clearance procedures for Vietnam’s high-quality agricultural produce,
while Pham said that Vietnam would speed up its border processes. In January 2022, Chinese President Xi Jinping also lauded relations with
Vietnam and called for more cooperation.

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However, occasional disputes are likely to emerge, and long standing territorial disputes will mean that economic ties could
experience short-term volatility. For instance, disagreement could arise between Vietnam and China if the latter moved to further tighten land
borders and restrict trade in order to stop the spread of the more infectious Omicron variant. This could be a source of near-term disruption for
Vietnamese exporters, particularly as Vietnam’s ‘living with the virus’ approach to Covid-19 outbreaks diverges from China’s ‘zero case’ approach.

Vietnam And China Taking Different Approaches To Covid-19

New Covid-19 Cases, per mn (smoothed)

Source: Our World In Data, Fitch Solutions

In December 2021, the Chinese authorities ordered the closure of key trade routes between the two countries to contain the potential spread of
Covid-19. China reported an uptick in new Covid-19 cases in Guangxi province, which borders Vietnam, in December and subsequently tightened
border controls. The border had already been tightened between the two countries during the onset of the pandemic in 2020, but with Vietnam
experiencing a surge in new Covid-19 cases, ports were shut and land routes suspended to stop the spread into China. China also suspended the
import of dragon fruit from Vietnam for four weeks until January 26 2022 due to traces of Covid-19 in some shipments. Following talks between
the two countries in early January, restrictions began easing, but trade disruptions in the near term are likely to continue, with Vietnam reporting its
first case of the more infectious Omicron variant on January 19 2022.

In addition, an escalation in longer-standing territorial disputes could disrupt economic ties between Vietnam and China. Both
Vietnam and China claim control of the Paracel Islands, situated in disputed territorial waters in the South China Sea, and these tensions are likely
to persist as neither side is likely to compromise on sovereignty issues. Vietnam has also disagreed with China over issues such as hydrocarbon
exploration and fishing rights in the disputed waters. The persistence of territorial disputes with China in the South China Sea has prompted Hanoi
to enhance defence cooperation with Washington over the past decade.

Chinese-led damming of the Mekong River could also increasingly become another source of tensions with Vietnam. The Mekong River is vital to
Vietnam’s agricultural sector, which accounts for around 25% of GDP, as well providing employment and food security. However, increased
damming of the river further upstream has led to the disruption of water flows, creating irregular water levels further downstream, impacting
agriculture. The dams have also disrupted the migration and breeding of fish, threatening the livelihoods of fishing communities further
downstream. The Mekong Delta in Vietnam is at risk of subsidence as damming disrupts sediment flows. Given the importance of agriculture to
Vietnam and the likely ecological disruptions, we see tensions over the issue rising over the coming decade.

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Long-Term Political Outlook

Key Political Challenges Over The Coming Decade

Key View: Vietnam's biggest political question over the coming decade is whether one-party rule under the CPV will face growing calls for
democratisation, as was the case in other major South East Asian countries. While our core scenario envisages the CPV transforming itself into a
technocratic administration, it faces major economic challenges, which could lead to widespread unrest if mismanaged. On the foreign policy
front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian countries with close relations with the US.

Although Vietnam is a politically stable country, we view the ruling Communist Party of Vietnam (CPV)'s monopoly on political power as
unsustainable over the long term. One of the CPV's biggest challenges will be managing Vietnam's transformation into a more pluralistic society
over the coming decade and beyond. The CPV's strict control of the media and political opinion is already cracking, with a growing number of
internet users becoming increasingly critical and vocal of government policy on social media platforms.

Challenges And Threats To Stability

Inflation And Devaluation As Drivers Of Discontent: As in neighbouring China, economic growth has brought sizeable material gains for the
majority of the population. However, the Vietnamese government's loose fiscal and monetary policies have led to high levels of inflation and
repeated devaluations of the dong in recent years, which have eroded the real value of wages and savings. Although inflation was brought down
from a double-digit high of 23.0% in August 2011 to an average of 3.2% in 2020, we continue to flag the risk that an inability to
consistently contain inflation at a reasonable level and uphold the real value of the dong could undermine consumer and investor confidence in
the regime.

Divisions Within The Communist Party: Elevated levels of public debt and high fiscal deficits have opened schisms within the CPV leadership
between proponents of continued economic reform and a more conservative wing that believes that a deceleration or even a reversal of reform
policies would benefit macroeconomic stability.

Ethnic And Regional Tensions: Vietnam is relatively homogeneous, with ethnic Viet comprising almost 90% of the population. Ethnic minorities
in the Central Highlands have previously objected to government policies promoting migration of ethnic Viet into the highland region. While
protests have died down, they could emerge in future.

There are also continued cultural differences between the population of the Red River Delta around the capital Hanoi in the north and the
population of the Mekong Delta in the south, where Ho Chi Minh City (formerly Saigon, the former capital of South Vietnam) remains the
commercial capital. While the general perception is that northerners are more supportive of socialist rule and the southerners more inclined to
support continued economic reform, a strong concept of national unity nevertheless exists in both parts of the country.

Demands For Increased Religious Rights: One of the most concerted challenges against the CPV in recent years has come from Catholics
hoping for a stronger recognition of their right to worship in what is still a nominally secular country. Hanoi has ceded to pressure from the US to
allow a higher degree of religious freedom but is wary of the Catholic Church becoming a rallying point of political opposition, as was the case in
Communist Poland and the Philippines during the Marcos dictatorship. The Vietnamese government has slapped heavy sentences on Catholic
activists who have extended their fight to encompass increased political freedom.

Relations With China: Relations with China have become increasingly strained in recent years as Beijing has expanded its economic, political and
military influence southwards. The main point of contention are the conflicting territorial claims for the Paracel and Spratly Islands in the South
China Sea. Vietnam's relations with China have also been strained by the large bilateral trade deficit it runs with its northern neighbour and
criticism of a China-financed bauxite mining project in the central highlands.

The regimes in Beijing and Hanoi share the same ideological base and political system, and contacts between their respective politburos have
decreased tensions between them. Nonetheless, we believe that Vietnam will seek increasingly closer relations with the US - and potentially
Australia, India and Japan - in the defence sphere, as a hedge against China's rising power in the region.

Vietnam's Long-Term Political Risk Index score of 63.6 out of 100 is weighed down by a score of 34.4 in the 'characteristics of polity' sub-
component. This is due to the limited independence of the judiciary, the ban on political parties other than the CPV and severe limitations on the
media and civil society. While these factors may presage stability in the short term, the experience of other South East Asian countries shows that
rising wealth and development later lead to calls for political liberalisation. We have thus drawn up three scenarios for Vietnam's political future.

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Low Score In The Characteristics Of Polity Component

Vietnam - Long-Term Political Risk Index

Note: Scores out of 100, higher score = lower risk. Source: Fitch Solutions

Scenarios For Political Change

Core Scenario - CPV Turns Into A Technocratic Regime: Our core scenario is for the CPV to shift increasingly towards a technocratic form of
government aimed at maintaining high economic growth levels and an acceptable distribution of wealth across the population. Ambitious young
Vietnamese are already joining the CPV as a career path and as a means to serve their country rather than because of ideological convictions. We
thus foresee a continuation of economic reforms in spite of the criticism emanating from older and more traditionally minded party members.
However, intermittent periods of harsh repression against pro-democracy activists and other government critics are a strong indication that
political liberalisation is not in the offing.

Best-Case Scenario - Gradual Political Liberalisation: Our best-case scenario is the above scenario combined with a gradual move towards
political liberalisation involving an expanded role for the National Assembly, greater scope for differing opinion within the CPV, increased political
competition at elections and greater media freedom. This scenario would see Vietnam moving from a one-party system towards a dominant-party
system of the kind seen in neighbouring Cambodia and Singapore, where elections are held, but where only the ruling party has a realistic chance
of winning them. The experiences of South Korea, Taiwan, Japan and more recently Malaysia have shown that even dominant-party systems
eventually give way to opposition rule. However, in Vietnam's case, this is likely to be more than a decade away.

Worst-Case Scenario - Mass Unrest And Violent Suppression: Our worst-case scenario involves severe policy missteps that lead to a period
of prolonged economic upheaval with high unemployment and rapid inflation eroding wealth. This would significantly strengthen the case for
regime change, as advocated by the pro-democracy movement. Faced with widespread street protests and an all-out challenge to the one-party
rule, we believe at least part of the CPV leadership would support a crackdown on demonstrators by security forces in order to stay in power. A
violent suppression of street protests as seen in Beijing in 1989 and in Myanmar in 2007 could easily result in a number of deaths and the
imposition of sanctions by the international community. If so, Vietnam would most likely face not only diplomatic isolation but also economic
weakness as exports and foreign direct investment tumble.

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VIETNAM - POLITICAL OVERVIEW

System of government Single-party socialist republic

Head of state President Nguyễn Xuân Phúc

Head of government Prime Minister Phạm Minh Chính

Last election Parliamentary - April 2021
Presidential - April 2021
Composition of current government Communist Party of Vietnam (CPV)
Key figures The 16-person Communist Party Politburo, elected by the 175-person party central committee at the national party
congress, acts as the de facto highest decision-making body and comprises the top leadership of the CPV. Its most
important members are Party General Secretary Nguyễn Phú Trọng, President Nguyễn Xuân Phúc, Prime Minister Phạm
Minh Chính and National Assembly Chairperson Vuong Dinh Hue.
Other key posts Minister of National Defence - Phan Van Giang, Minister of Planning and Investment - Nguyễn Chí Dũng, Vice President - Võ
Thị Ánh Xuân, Central Bank governor - Nguyen Thi Hong
Main political parties (number of seats in CPV: Founded in Hong Kong in 1930, the CPV has been in power in North Vietnam since independence in 1954 and in
parliament) the south since the end of the American War in 1975. Divisions exist within the party between a younger, more reform-
minded faction originating from Southern Vietnam and an older generation, originating from the north, more aligned to
traditionally communist ideology.
Next election Presidential and parliamentary - April 2026

Ongoing disputes Ongoing dispute with China, Malaysia, the Philippines and Taiwan over the Spratly Islands in the South China Sea.
Key relations/treaties Association of Southeast Asian Nations and World Trade Organization member
Short-Term Political Risk Index 81.7
Long-Term Political Risk Index 63.6

Source: National sources, Fitch Solutions

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Operational Risk

Logistics Risk Key View

Key View: Vietnam’s overall logistics profile will benefit from transport and utilities infrastructure projects that the government is rolling out. This is
further positioning Vietnam as a destination for export-dependent manufacturers, as China's higher labour costs and trade tensions with the US
mean that businesses could be prompted to consider locations such as Vietnam as part of their diversification strategy. Additionally, the ICT sector
is becoming increasingly competitive on a cost basis, which benefits internet-reliant operations such as e-commerce, mobile financial services and
business communication. The risk of state intervention and tight monitoring of online activities could slow the development of the digital
economy. Furthermore, the efficiency of transport services and reliability of utilities vary across regions, with risks higher in rural and non-coastal
areas. Overall, Vietnam receives a moderately high score of 66.6 out of 100 for Logistics Risk, placing it in ninth position out of 18 markets in the
East and South East Asia and 48th globally.

Transport Risks Dent Appeal

Vietnam & Regional Average - Logistics Risk

Source: Note: 100= Lowest risk; 0= highest risk. Source: Fitch Solutions Logistics Risk Index.

Trade Procedures And Governance (73.7/100): While Vietnam's overall logistics competitiveness is showing signs of improvement with
infrastructure developments underway to improve overland transport connectivity, lengthy document preparation requirements, covid-19 -related
disruptions, high shipping costs and inefficiency at ports continue to inhibit trade activities in the near term. That said, the country benefits from
strong liner connectivity that will benefit shippers once the global supply chain bottlenecks ease and looking ahead, the increasing economic
integration in Asia bodes well for Vietnam's overall logistics profile in the long run.

Transport Network (56.0/100): The limited extent and quality of the network infrastructure, together with an overreliance on road for moving
both goods and passengers internally underpin the key transport risks in the country. This exposes businesses to congestion and safety risks for
employees and goods in transit. As such, businesses spend more on insurance to protect against the risk of their goods being damaged or
employees getting injured. Nevertheless, supply chains do benefit from the relatively good airports as well as a growing number of port options
that facilitate regional and international linkages for Vietnam’s economy, which is increasingly export-oriented. Additionally, the completion of
planned projects, particularly rail, will improve the quality of transport services over the medium-long term by taking some of the pressure off the
road network

Utilities Network (70.2/100): The overall outlook for Vietnam’s utilities sector is improving, benefiting from a number of projects that are
coming online. This will help alleviate some sporadic electricity blackouts, variable water quality and fuel shocks. Rising levels of internet
penetration and improving quality of telecommunications services on offer bode well for e-commerce firms and business communications.
Regulatory restrictions on the freedom of the internet will hamper Vietnam’s appeal among businesses that thrive on unrestricted internet access,
such as financial services, telecoms and online retailers. Additionally, power demand continues to outweigh supply, raising electricity risks that
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com 39
Vietnam Country Risk Report | Q2 2022

could undermine Vietnam’s appeal as an emerging manufacturing hub.

VIETNAM - LOGISTICS RISK

Utilities Network Transport Network Trade Procedures and Governance Logistics Risk
Vietnam Score 70.2 56 73.7 66.6
East and Southeast Asia Average 57.9 58.9 63.7 60.2
East and Southeast Asia Position (out of 18) 5 11 8 9
Asia Average 47.7 47.3 47.1 47.4
Asia Position (out of 35) 5 13 9 9
Global Average 48.6 48.8 47.6 48.4
Global Position (out of 201) 18 71 43 48

Note: 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Logistics Risk Index

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Transport Network Analysis

Key View: The limited extent and quality of the network infrastructure, together with an overreliance on road for moving both goods and
passengers internally underpin the key transport risks in the country. This exposes businesses to congestion and safety risks for employees and
goods in transit. As such, businesses spend more on insurance to protect against the risk of their goods being damaged or employees getting
injured. Nevertheless, supply chains do benefit from the relatively good airports as well as a growing number of port options that facilitate regional
and international linkages for Vietnam’s economy, which is increasingly export-oriented. Additionally, the completion of planned projects,
particularly rail, will improve the quality of transport services over the medium-long term by taking some of the pressure off the road
network. Overall, Vietnam has a regionally moderate score of 56.0 out of 100 for its Transport Network, ranking in a middling 11th position out of
18 markets in East and South East Asia, behind Thailand but ahead of Cambodia and the Philippines, which are some of its key comparable
regional peers. Globally, Vietnam ranks in 71st position out of 201 countries.

Overland Transport Connectivity Raises Costs And Congestion Risks

East & South East Asia - Transport Network

Note: 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Logistics Risk Index

Latest Transport Network Analysis

• In November 2021, Vietnam’s Ministry of Transport stated that it hopes to break ground on a high-speed rail link between Hanoi and Ho Chi
Minh City in 2028 if approval is granted by the country’s Politburo and its National Assembly. In the north, the country is building a 250km
section between Hanoi and Vinh, and in the south a 450km line between Ho Chi Minh and Nha Trang. These two projects are expected to have
a total cost of USD5bn. When complete, the standard gauge line will run for a little over 1,500km. At present the country’s political and
commercial capitals are jointed by a narrow gauge link, which will be kept in operation, but will be reserved for freight.
• Our Infrastructure team forecasts the transport sector to expand by 7.6% in 2021, with the strongest growth in terms of roads, bridges and
railways. These two sectors will continue to drive growth in the transport infrastructure market over the next decade, with our forecasts
projecting overall annual average growth of 6.0% between 2022 and 2030. Vietnam is upgrading and expanding its road and expressway
networks, to improve transport and logistics in rural regions and to increase the capacity of major thoroughfares to accommodate growing
passenger and commercial traffic in urban areas. By 2040, half of the Vietnamese population is projected to be living in cities. The government
plans to expand the current network by more than five-fold, to 7,000km by 2030, which is an upward revision of the target set in 2016
(6,400km). The plan includes the construction of new expressways linking the northern and southern regions, ring routes that will circle
existing urban cores to enhance suburban connectivity, and the expansion of existing expressways by extending routes and increasing the
number of lanes.
• Vietnam Airlines operated its first international commercial flight with service from Taiwan to Danang in March 2021 following a months-
long hiatus to curb the spread of Covid-19. Vietnam suspended all international flights in March 2020 as part of efforts to keep Covid-19 at bay,
with only Vietnamese repatriates, foreign experts and highly-skilled workers allowed in, under stringent conditions. Conditions for entry remain
relatively stringent. On this first flight on March 25, more than 200 passengers were onboard the flight, with travellers required to present a
negative Covid-19 test result obtained 72 hours prior to departure. Upon arrival, they had to undergo a second round of testing, in addition to a
14-day mandatory quarantine at their own expense. Additionally, they will be required to take a third Covid test six days later.
• Urban transit investment will remain in focus in Vietnam, particularly as urbanisation trends and traffic congestion continue to be major issues
in the large cities. As the number of people living in urban areas continue to rise, major cities such as Hanoi and Ho Chi Minh City are
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com 41
Vietnam Country Risk Report | Q2 2022

attempting to ease pressure on existing networks and reduce air pollution by building rail transit systems, alongside traditional urban highway
and road improvement initiatives.

Extent And Quality Of Transport Network

Vietnam offers relatively strong transport connectivity to international markets mainly via maritime trade routes, as air transport is largely confined
within the region. Roads provide most internal and cross-border regional connections, making the sector the mode of choice for the vast majority
of internal freight shipping. Alternative options are limited, as both railways and inland waterways are underdeveloped from a freight transport
perspective, although there is strong growth potential in both sectors. Over the short to medium term Vietnam will be one of the fastest growing
construction markets in South East Asia, which will boost its logistics capacity, as the government seeks to attract private investment in
infrastructure assets. Nevertheless, regulatory uncertainties will continue to hamper the market's appeal, with implications for logistics
competitiveness, as some projects may be subject to cancellation, delays and revision. Overall, Vietnam scores a high 72.5 out of 100 for Extent of
Transport Network, ranking ninth out of 18 markets in the East and Southeast Asia region, behind Thailand and Malaysia.

Transport infrastructure quality in Vietnam is variable, depending on region, and generally inferior to that seen in most of the country's regional
peers, such as Malaysia, Taiwan and China. Inland freight transport options are of poorer quality, particularly the underfunded railways, though main
road links, particularly in urban areas, are of a good standard. The risk of congestion in the urban road network and inefficiency at the main ports
will become even more pronounced over the medium to long term on account of rapid industrialisation and urbanisation. Vietnam ranks 11th out
of 18 markets in the region for Quality of Transport Network, with a modest score of 39.5 out of 100, above Cambodia but behind Thailand.

Road

Road transport is the backbone of Vietnamese freight transport. Supply chains have access to an extensive but inadequate road network that
makes transporting goods particularly challenging in congested areas, as well as on poor-quality rural roads. Faced with rapid industrialisation and
urbanisation that are putting pressure on the transport network, the government is aggressively upgrading and expanding its road and expressway
networks. This will improve transport logistics in rural regions and the capacity of major thoroughfares to accommodate growing passenger and
commercial traffic.

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VIETNAM - ROAD RISKS

Internal Coverage

Total road network: • The road network extends for 195,468km, of which 17,300km are government-administered national roads, with most of the widest
195,468km roads having fewer than four lanes and separate interchanges.
• The two most popular freight roads are Highway 5, which links industrial parks to the port complex at Hai Phong, and Highway 51,
which links Ho Chi Minh City to Cai Mep-Thi Vai in the south.
• Vietnam has a moderate road density of 0.19km per 100sq km, compared to the regional average of 0.95. This indicates that relative
to most regional peers, some parts of Vietnam are less accessible by road, and increases congestion risks for businesses.

International Connections

Roads connect to all • The road network offers good connections to neighbouring countries.
neighbouring states • Several major road projects are underway, including a USD303.5mn expressway project in the Mekong Delta, which has received
government approval.

Infrastructure Quality

24.1% of roads unpaved • Due to congestion and the poor quality of the road network, 90% of containerised cargo going through Cai Mep-Thi Vai is loaded
onto barges, which costs half as much as trucking on Highway 51.
• Road surfaces in the country vary, with 76% of Vietnam's roads paved and suitable for carrying heavy cargo loads.
• However, around 58% of non-paved roads are considered to be in poor condition, making them unsuitable to transport heavy loads.
In addition, the limited number of lanes even for paved roads together with high road usage for both goods and passenger moved
reduce the efficiency of transportation chains due to congestion.

Usage

Accounts for 99% of internal • Roads are the major mode of freight transport in Vietnam, with greater importance for imports of capital goods and consumer items.
freight tonnage • An over-reliance on the road network has resulted in congestion and degradation of infrastructure.
• This will improve in the medium term as rail and road expansion and improvement projects are completed.

Disruption

26.4 road deaths per • Traffic congestion in urban areas has become a severe problem, causing delays to supply chains which are heavily reliant on the road
100,000 people network. An additional serious issue is the high frequency of road accidents.
• Traffic volumes are growing rapidly, but the dangers on the major roads are due to inappropriate design and a diverse traffic mix,
including cars, trucks, buses, motorcycles and even trains, causing serious congestion on major routes and heightened risk of delays
to supply chains.
• Vietnam has the second highest rate of road deaths in Asia, after Thailand. This increases the likelihood of accidents causing
damage to freight carried by road and creating delays for supply chains while also exposing employees to safety risks.

Planned Projects

• Overview: According to our Key Projects Database, there are 137 road projects currently in the planning or construction phases,
representing 60% of all pipeline projects. We are positive that most of these projects will be implemented over the next few years,
given a projected surge in demand for road infrastructure, supported by sustained and robust economic growth.
• Financing and regulatory barriers pose main risk to projects: The government’s decision in September 2019 to remove foreign
investors in the bidding process for eight public private partnership (PPP) projects associated with the North-South Expressway
highlights that regulatory uncertainty will continue to be a key risk for major transport infrastructure projects. The 2,000km trans-
national expressway (the largest project in the Vietnamese road sector) that would connect Nam Dinh province in the north to Vinh
Long province in the south had been segmented into 11 contracts, 654km long, of which three would be undertaken by the public
sector, with the rest earmarked for development via a PPP. The Vietnamese government had launched the tender process earlier in
2019 and attracted 60 foreign and domestic bids (including 30 bids from China and 15 from Vietnam) in total. However, in
September 2019, the government announced the exclusion of foreign investors, restricting the bidding process to domestic
companies. This poses a downside risk to timely project execution.
• An Huu-Cao Lãnh Expressway: Construction of the VND5.5trn (USD237mn) An Huu-Cao Lãnh Expressway is scheduled to start in
2021. The Ministry of Transport has completed a pre-feasibility study for the 28km road, which will start at the Trung Luong-My
Thuan Expressway and terminate at Cao Lãnh in Dong Thap. The expressway will have four lanes in the first phase and six in the
second. The project, financed by Vietnamese government, will be completed in 2025, according to VN Express.
• New bridges planned: The first bridge, a 5.5km bridge over the Red River will link Long Bien and Hoan Kiem, and will have three
lanes in each direction. It will have a width of 31m and will allow vehicles to run at up to 80km/h. The project will require an
investment of USD386mn. Another bridge planned in Hanoi, the new USD109mn Duong bridge will connect Hanoi and Bach Ninh.

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Construction of the PPP project will start in 2021 and will be completed in 2025. Ho Chi Minh City will host the 3.4Km new Can Gio
Bridge. Construction is due to start in Q321, and is likely to be completed in late 2025 or early 2026. The four-lane cable-stayed
bridge will cost USD227mn.

Source: CIA World Factbook, WHO, Fitch Solutions

Extensive Road Network

Map Of Vietnam's Road Network

Source: Fitch Solutions. Template Image: D-maps.com

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Railways

Vietnam's railway network plays a smaller role in the country's supply chain due to its limited extent, low quality and gauge incompatibility with
neighbouring states. As a result, government funding has been diverted away from rail freight in favour of investment in passenger services,
limiting its potential role in cargo supply chains.

Rapid urbanisation and economic growth are putting significant pressure on the road transport infrastructure in the cities. Hanoi and Ho Chi Minh
City are pursuing networks of metro and monorail lines that will help alleviate congestion on the road network.

VIETNAM - RAIL RISKS

Internal Coverage
Total railway network: The railway network extends for 2,600km, although the North-South Railway between Hanoi and Ho Chi Minh City accounts for most
2,600km of this (1,725km).
The country's rail network pales in comparison to other transport modes (195,468km of road network and 47,130km of inland waters),
which makes other freight options more convenient.
The rail track in Vietnam primarily operates on narrow gauge (2,105km), meaning that freight operations with China at the Dong Dang
border in Lang Son province are subject to delays of up to five hours.

International Connections
Railways connect to The mining sector in Yunnan province, China, uses the Yunnan-Vietnam railway line to transport various ores across the border. The
neighbouring states. route operates on dual gauge in Vietnam, which can easily be converted to standard gauge to match China's network, eliminating
track change issues for this specific supply chain.
There are currently no railway connections between Vietnam and Laos or Cambodia, meaning that most regional freight runs on the
road network and, consequently, border delays are not uncommon.
The Ministry of Transportation and the Korea International Cooperation Agency are considering a 500km railway link to Laos, as the
current railway, built by the French colonial government, is incompatible with railways in neighbouring China. In the longer term, Vietnam
has plans to build a standard-gauge high-speed railway parallel to the current line that will integrate with a proposed South East Asian
high-speed rail network.

Infrastructure Quality
The lack of investment and the poor quality of the infrastructure increases the risk of accidents and derailments. The railway network
is crossed by roads in several crowded areas, resulting in accidents involving vehicles and pedestrians.
Around 90% of all railway accidents occur at level crossings without safety fences, and most are said to be caused by motorists failing to
follow traffic safety laws. Railway accidents lead to closure of railway tracks and delays in supply chains. Those involved in accidents also
face costs in terms of damaged freight.
Plans to build sub-regional rail lines will expand transport options for supply chains in the medium term.
We believe that the huge capital costs of high-speed rail mean it is unlikely that these projects will be built in Vietnam without external
financing.

Usage
Accounts for 1% of internal Though of minimal importance for supply chains compared to roads, there is potential for rail freight to expand considerably as
freight tonnage investment in railway infrastructure improves transit times, reliability and international connections.
Disruption
The main source of disruption to the rail network comes from accidents at level crossings.

Planned Projects
Overview: With the number of people living in urban areas having ballooned from 19mn in 2000 to 31mn in 2015, Hanoi and Ho Chi
Minh City are attempting to ease pressure on existing networks and reduce air pollution by building rail transit systems with a
combined length of nearly 220km and worth USD22.6bn.
Hanoi-Ho Chi Minh City High-Speed Rail Project: The largest project in the railway pipeline is the Hanoi-Ho Chi Minh City High Speed
Rail Project. According to initial estimates, the 1,560km route is valued at USD58.7bn, more than three times the next costliest
infrastructure project, the USD16bn Long Thanh International Airport Project in Dong Nai province, next to Ho Chi Minh City. The high-
speed rail project is spilt into two phases: phase I is the 360km Ho Chi Minh to Nha Trang southern segment and the 280km Hanoi to
Vinh northern segment; these segments are targeted for completion by 2030. Phase II will link the northern and the southern segments,
and is planned for completion around 2045.
We expect the above project to benefit the development of smaller cities along the route, such as Thanh Hoa and Vinh along the
northern segment and Phan Thiet and Nha Trang along the southern segment. Although these cities are currently served by airports and

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Vietnam Country Risk Report | Q2 2022

Internal Coverage

roads, a rail link via the high-speed rail will reduce commute time to the larger cities of Hanoi and Ho Chi Minh City.
Traffic congestion prompting construction of metro and monorail lines in Hanoi and Ho Chi Minh City: Hanoi is currently building
two metro lines, Lines 2 and 3, and has another four planned in the longer term. The USD890mn Line 2, which will run 11.5km between
Nam Thang Long and Tran Hung Dao, is being built by a consortium led by South Korea's Daelim. Line 3, which will run 12.5km from
Nhon to Hanoi Railway Station, is under construction and its expected opening date has been pushed back from 2020 to 2023 due to
financing difficulties and issues with land clearance. The project is financed by the World Bank, the Asian Development Bank (ADB), the
European Investment Bank (EIB) and is being constructed by Daelim Industrial Company and Systra. Ho Chi Minh City is currently building
two metro lines totalling 32km and has another five lines in planning stages. The USD2bn Line 2 has an estimated opening date of 2024
and is financed by loans from the Asian Development Bank, the European Investment Bank, and the German Bank for Reconstruction.
Laos-Vietnam Railway Project: The government of Laos has signed a memorandum of understanding with Petroleum Trading Lao
(PetroTrade) to carry out a feasibility study and complete a detailed design for the Laos-Vietnam Railway Project. The railway will go from
Thakhaek district in Khammuan province, Laos, to Vung Ang seaport in Vietnam's central Hà Tinh province. The single-track railway line
will cover around 150km in Laos and another 120km on the Vietnamese side. It will be used for both freight and passenger transport.
Construction is expected to start by the end of 2021, with completion expected by 2024, according to a press release from PetroTrade.

Source: CIA World Factbook, Fitch Solutions

Inadequate Rail Network Puts Pressure On Roads

Vietnam & Regional Average - Infrastructure Quality

Note: 7 = highest score; 1 = lowest score. Source: World Economic Forum's Global Competitiveness Index, Fitch Solutions

Ports And Inland Waterways

Vietnam has 11 major seaports along its 3,400km coastline. These include Cai-Mep and Ho Chi Minh City in the south, Hai Phong in the north and
Da Nang in the centre. Significant investment in recent years has seen the quantity of ports expand in line with, and surpassing, economic growth,
which brings both advantages and disadvantages for supply chains. Seaports handle most of the country's international trade, offering
connectivity to both regional and international peers. Unlike those of many of its neighbours, Vietnamese ports do not suffer from under capacity
but mainly operational inefficiency. Improving the efficiency of existing ports will become increasingly important as Vietnam positions itself as a
lower-cost manufacturing hub.

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VIETNAM - PORTS AND INLAND WATERWAY RISKS

Internal Coverage

Total length of navigable inland waterways: 47,130km • The main seaports currently in operation are Cam Pha Port, Da Nang, Haiphong, Ho Chi Minh, Phu
My and Quy Nhon.
• While inland waterways remain attractive for the transport of coal, rice, sand, stone, gravel, and other
usually high weight-low value goods, the sector's development potential has been inhibited due to
lack of investment.
• Inland waterways are also heavily used for personal transport in the delta regions of the Mekong and
Red Rivers.

International Connections

Liner Connectivity: 66.51 (highest score 151.91 by China) • Vietnam is an increasingly important shipping destination both in terms of regional and global trade,
ranking seventh in the region for liner connectivity.
• The country's location and economic growth are resulting in ports increasingly offering direct
services on Asia-US and Asia-Europe routes.

Infrastructure Quality

• Underinvestment in port facilities and the lack of major multinational port operators overseeing
activities at any of Vietnam's ports means that the quality of infrastructure and facilities is sub-
standard, and the management of ports may not be able to cope with increased throughput.
• This suggests that investment will be necessary to prevent congestion and provide more direct
connections for shipping liners when trade volumes begin to pick up.
• Ports are operating at under capacity and so prices have dropped across facilities in an effort to
attract business, which makes it cheaper to trade. Even though the minister of transport set a
mandatory two-year minimum handling rate of USD46 per twenty-foot container, this rate is still low
by regional standards.

Usage

Port of Ho Chi Minh City throughput: 5.66mn TEUs; Port of • Despite investment in Vietnam's ports, with some now connected to the major trade routes of Asia-
Da Nang throughput: 0.27mn TEUs (based on our 2019 Europe and Asia-US, companies in Vietnam remain heavily reliant on transhipment. Transhipment
estimates) drives up costs, as two ships instead of one are required for goods to reach their final destination,
and transit times are increased.
• Vietnam's inland waterways stretch for 47,130km, the fourth longest in the world. The country's
inland waterways include the Mekong River, which enables freight connections with Vietnam's
neighbours.
• At present, the average river-going cargo vessel in Vietnam's national fleet has a carrying capacity of
approximately 100 deadweight tonnes (DWT), compared with 2,500DWT in Western Europe,
meaning that costs and timescales are elevated compared with more-developed countries.

Disruption

• Vietnam's ports, unlike those of many of its neighbours, do not suffer from capacity constraints as
much as operational inefficiency. Two ports near Ho Chi Minh City illustrate this: while the old port of
Cat Lai along the Saigon River has been operating at its 2.5mn twenty-foot equivalent unit capacity
for years, the newer Cai Mep International Terminal downstream operates at barely 25% of capacity.
• Improving the efficiency of existing ports will become increasingly important as Vietnam positions
itself as a lower-cost manufacturing hub compared to neighbours such as China.
• As efficiency upgrades will be prioritised over new construction, we expect investment in the ports
segment to focus on integrating with surrounding road and rail networks and improving the overall
logistics situation.

Planned Projects

• Overview: Vietnamese ports, unlike those of many of its neighbours, do not suffer from under
capacity but simply operational inefficiency. As a result, the project pipeline is limited in the port

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sector. Any new investments in the ports sub-sector will focus on integrating with investments in
surrounding road and rail networks to improve the overall logistics situation in the country.

Source: World Bank, UNCTAD, Fitch Solutions

Increasingly Important In Regional And Global Maritime Trade

East & South East Asia - Liner Connectivity

Note: 151.91 = highest score, 0 = lowest score. Source: UNCTAD, Fitch Solutions

Airports

Due to the fact that Vietnam mainly exports machinery, garments and agricultural products that are heavy and more suited to overland transport,
air freight plays a smaller role in the country's supply chains than its roads and ports. Vietnam operates regional and international routes from its
three international airports and offers both passenger and cargo services. Moreover, due to impressive growth in the tourism sector, major
investment in airports has expanded the quality of its aviation supply chain offerings.

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VIETNAM - AIR TRANSPORT RISKS

Internal Coverage

• Vietnam has 44 airports with paved runways, 10 of which are capable of handling the biggest aircraft
Total of 44 airports with paved runways; 10 have runways at in service.
least 3,047m needed for the largest planes in service to land • Vietnam also boasts three international gateways, well dispersed across the country: Noi Bai serving
Hanoi, Da Nang serving Da Nang city and Tan Son Nhat serving Ho Chi Minh City.

International Connections

• Tan Son Nhat is the largest airport, handling 75% of international passenger traffic. It is also the hub
for the nation's flag carrier, Vietnam Airlines, and offers flights to 17 countries on five continents,
which boosts connectivity, as well as belly hold options for freight.
0.48 air passengers carried per capita
• Jetstar Pacific offers domestic and regional connections to Macau, Hong Kong and mainland China.
National airlines are free to operate in foreign airspace, thereby increasing the safety guarantee for
goods and employees in transit.

Infrastructure Quality

• The government has ambitious plans to modernise and expand Vietnam's airport infrastructure.
• Many airports are operating below capacity, struggling financially and face significant competition
from nearby international hubs in Singapore, Kuala Lumpur, Bangkok and Hong Kong. As such, most
airports handle mostly regional flights that do not generate as much revenue as intercontinental
flights.
• Although the government aims to further liberalise the sector and introduce greater private-sector
participation, the unfavourable finances of Vietnamese airports could deter companies.

Usage

• In terms of freight, supply chains benefit from foreign participation in the market, in addition to the
cargo divisions of domestic airlines.
Air freight volumes: 481.37mn tonnes-km in 2017 (latest
• For example, Malaysia Airlines' cargo division, MASkargo, operates an airbus A330-200 freight flight
available).
to Hanoi. Finnair Cargo operates three weekly freighter flights, which increases cargo offerings
between Europe and Vietnam.

Disruption

• Safety concerns are the main risk to freight and passengers, but these will be alleviated by the
replacement of aircraft and growing investment in infrastructure.
• Given Vietnam's poor track record of delivering projects on time, we do not expect that planned
airports will be complete by their current deadlines.

Planned Projects

• Overview: The Vietnamese airport infrastructure sector is set to experience higher growth on the
back of a growing project pipeline to tap into the rapidly expanding aviation industry. The
government has committed to projects relating to the expansion and upgrade of airport
infrastructure.
• Focus on expansion to tackle existing capacity issues. The two largest airports in Vietnam, Tan
Son Nhat International Airport in Ho Chi Minh City and Noi Bai International Airport in Hanoi, will
undergo expansion to tackle existing capacity issues. Smaller projects are also in the pipeline,
including construction of the new Lao Cai International Airport and the expansion of Phu Cat Airport,
Phu Bai Airport and Chu Lai International Airport.
• Long Thanh Airport: In 2015 the government announced a PPP programme to build a new 100mn
passengers/year Long Thanh Airport in Dong Nai province by 2050. The government’s decision to
bring forward the start of construction from 2021 to 2019 highlights the urgency of increasing
airport capacity.

Source: CIA World Factbook, World Bank, Fitch Solutions

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Trade Procedures And Governance Analysis

Key View: While Vietnam's overall logistics competitiveness is showing signs of improvement with infrastructure developments underway to
improve overland transport connectivity, lengthy document preparation requirements, Covid-related disruptions, high shipping costs and
inefficiency at ports continue to inhibit trade activities in the near term. That said, the country benefits from strong liner connectivity that will
benefit shippers once the global supply chain bottlenecks ease and looking ahead, the increasing economic integration in Asia bodes well for
Vietnam's overall logistics profile in the long run. Overall, Vietnam ranks eighth out of 18 markets in East and South East Asia and 43rd globally in
the Trade Procedures and Governance pillar of the Logistics Risk Index, with a score of 73.7 out of 100.

Long-Term Outlook Remains Bright, Despite Near-Term Congestion Risks

East & Southeast Asia - Trade Procedures & Governance

Note: 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Logistics Risk Index

Latest Trade Procedures And Governance Analysis

• South China’s Guangxi Zhuang autonomous region handled 235 China-Vietnam freight train trips in the first nine months of 2021, up 117% y-
o-y. A total of 6,772 twenty-foot equivalent unit (TEU) containers were transported from January to September, surpassing the entire 2020
figure. China-Vietnam freight train services were launched in 2017. The number of operated train trips increased from 59 in 2018 to 166 in
2020, and it is estimated that the number will exceed 300 in 2021.
• Businesses in Vietnam will benefit from the country's commitment to reducing import tariffs, which will enhance economic integration and
trade with the rest of the world. There are further commitments to progressively reduce tariffs to 0% by 2022 for a range of commodities. For
instance, under the ASEAN-Japan Comprehensive Economic Partnership, the existing 5% import tax rate for various commodities will be
removed. Similarly, under the ASEAN-India FTA, items currently subject to import tax rates of between 1% and 3% will see 0% import tariffs.
Under the Vietnam-Korea FTA, a range of commodities with import tax rates ranging from 10% to 20% will also see a gradual reduction to 0%,
by 2022.

Ease And Costs Of Trade

Vietnam's international trade competitiveness is enhanced by the country's commitment towards global integration, which is shown by a liberal
trade policy. In particular, Vietnam continues to remove tariffs for a number of products and is a signatory to many free trade agreements, which
improves the competitiveness of goods imported into and exported from Vietnam. Nevertheless, the country's weak transport network, lengthy
document preparation process and a lack of cohesive logistics services still complicate the process of doing cross border trade for businesses.
Overall, Vietnam has a moderate score of 67.2 out of 100 for Ease of Trading, ranking ninth out of 18 markets in East and South East Asia.

Vietnam's Ministry of Planning and Investment acknowledged that tightly controlled and specialised customs checks were causing delays and
increasing costs for businesses. The government has therefore taken measures in recent years to simplify specialised check procedures and
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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gradually eliminate stringent regulations, which is expected to speed up custom clearance, facilitate smoother trade flows and reduce the cost for
businesses. That said, logistics services are still underdeveloped and lack standardisation, while trade procedures still need to be fully streamlined,
with inefficiencies at ports causing major delays for supply chains. These factors reflect Vietnam's balanced score of 80.2 out of 100 ranking in
eighth position regionally, and 33rd globally with a broadly positive outlook over the medium-to-long term for Connectivity.

Although the signing of numerous free trade agreements has made Vietnam one of the most open economies in the world from a tariffs
perspective, the country’s overall trade competitiveness is undermined by inefficient border procedures, such as customs clearance. The
involvement of multiple ministries in the customs clearance procedure cause major delays, increasing the costs of cross border trade for
businesses. A number of customs procedures are still paper-based in Vietnam and subject to complicated checks, including on quality,
specifications, quantity and volume of the goods. There is also a large number of documents that must accompany imported and exported goods,
which increases the administrative burden for cross border traders. We nevertheless expect that the authorities will continue to streamline
customs procedures as the country becomes an increasingly prominent destination for exporters and manufacturers in the East and South East
Asia. In 2017 Vietnam made exporting and importing easier by implementing an electronic customs clearance system, which should help smooth
the flow of trade. Prior to this, it reduced the time for exporting and importing by implementing World Trade Organization rules for customs
administration. Increasing competition in the logistics industry also helped reduce delays. Meanwhile, in 2018 Vietnam made exporting and
importing easier by upgrading the automated cargo clearance system and extending the operating hours of the customs department.

Inefficient Customs Procedures Weigh On Operating Profile

Vietnam - Deviation From Regional & Global Average Trade Procedures Scores, %

Note: Higher value = better relative performance; calculation based on percentage difference from the average score for the region/world. Source: World Bank Logistics
Performance Index, Fitch Solutions

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VIETNAM - TRADE PROCEDURES AND GOVERNANCE RISKS

Border Compliance

• Customs compliance remains a burdensome element of the trading process, adding costs for businesses, particularly when importing.
• Vietnam is a major manufacturing base for clothes, shoes, and electronics. But a months-long lockdown and recent worker exodus from the country's business hub
have caused operational disruptions on the factory floors and at ports.
• Procedures are not adequately streamlined in line with regional peers such as Singapore, Malaysia and China.
• Border costs are also onerous, constituting 68-69% of the total costs of trade procedures.

Documentary Compliance

• Businesses must deal with a significant amount of red tape when trading in Vietnam, adding to the length and cost of exporting and importing.
• Documentary compliance in Vietnam is more time-consuming than customs procedures in the trade process, taking up 48% of the total lead time for exports and
55% for imports.
• Collectively, it takes at least 30% more time to carry out import procedures than export procedures.

Ports And Inland Transport

• There are delays associated with ports and terminal handling, due to congestion issues and the huge volume of trade passing through.
• There are significant quality issues at the country's ports in spite of the growing number of facilities, raising the cost to import and export.

Corruption And Other Risks

• Businesses face a high risk of being solicited for bribes when dealing with the judicial system or public services. This is exacerbated in the case of customs
procedures due to the convoluted nature of the process, the number of officials involved, and the requirement for expediency.
• In addition, exchanging gifts and small favours in order to build connections in the business environment is common practice in Vietnam and may be regarded as a
form of bribery.
• The 2021 shipping crisis drove some companies to ship their goods via air charters.
• Businesses should ensure compliance procedures are in place to avoid any involvement in wrongdoing and potential reputational harm.

Source: World Bank, Fitch Solutions

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Global Macro Outlook

Mid-Cycle Risks To Test The Global Economy

We continue to forecast a cyclical slowdown in global growth from 5.6% in 2021 to 4.1% in 2022 as base effects wear off, economies
brush up against capacity constraints and policy starts tightening globally. That said, our global growth forecast for 2022 remains well above the
10-year pre-pandemic average of 3.2%. This is mainly due to several economies still regaining lost output from the pandemic and the ‘carryover’
boost from the unprecedented policy responses that governments around the world have implemented to counter the economic recession.

High frequency data such as the global PMI data show that momentum has already started to slow, with rising infections being a
factor behind such deceleration. Survey readings remained well above the 50 level which marks expansion in December 2021, with a rising
number of economies showing readings above the 50 level, suggesting that momentum continued to broaden out. While momentum in
developed markets eased slightly towards the end of 2021, momentum likely picked up across many emerging markets (see EM section below).

A key reason for our above-trend growth view in 2022 is that we continue to believe that most economies will begin treating the
coronavirus as endemic by the end of 2022 as vaccines provide sufficient protection and new viral treatments help to manage symptoms.
Latest data suggest that despite the sharp rise in infections – with Omicron dominating – fatalities remain relatively low, which is a very
encouraging sign as policymakers move towards more endemic policy and reduce the restrictions within their economies. However, the transition
from pandemic to endemic will be uneven, with markets with higher levels of vaccinations and better access to treatments being able to transition
faster. This means that developed markets will lead this transition.

Despite our bullish outlook for growth in 2022, we continue to highlight several risks, which could have a significant impact on
global growth. First, our core view is that inflation will peak in the first half of the year, and decline relatively quickly by the end of 2022. However,
if inflation continues to surprise to the upside and remains elevated for longer, we could see central banks take an even more hawkish stance than
we currently anticipate, which could lead to much greater financial market volatility and currency weakness for emerging markets. For example, we
forecast the US Federal Reserve (Fed) will raise interest rates at least twice in 2022, but the market is pricing in about four interest rate hikes by the
end of 2022. The hawkish shift in market expectations for the Fed since late December 2021 has resulted in a sell-off in global equity markets, with
the S&P 500 down by about 7% in the year to date. Moreover, growth in China continues to slow, which could have negative growth implications
for other economies through the trade channel. In such an event, global policymakers could be faced with a challenging trade-off given high
inflation and slower growth.

We also believe that social unrest and policy uncertainty could pose downside risks to growth. The combination of uneven economic
recoveries, high energy costs and vaccine mandates are leading to a rise in political risk. Protests in Kazakhstan in response to higher oil prices in
part reflect this risk, and we see greater social tensions arising due to vaccine mandates. While difficult to predict whether a market will see a sharp
rise in protests, we do believe that these dynamics will likely result in weakening support for incumbent governments that are up for election and
could result in greater policy uncertainty or deadlock. Some important elections include the French, Korean, Philippines and Brazilian presidential
elections, the US mid-terms, as well as China’s 20th Party Congress. The global economic policy uncertainty index which had been falling since
May 2020, seems to be bottoming out and looks like it is starting to rise again, signalling greater policy uncertainty.

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GLOBAL - MACROECONOMIC FORECASTS (2019-2026)

2019 2020 2021 2022f 2023f 2024f 2025f 2026f

Real GDP Growth (%)

US 2.2 -3.5 5.6 3.7 2.1 2.0 2.0 2.0

Eurozone 1.6 -6.4 5.1 4.1 2.5 2.0 1.8 1.8

Japan 0.0 -4.6 2.2 2.0 1.3 1.0 1.0 0.9

China 6.0 2.3 7.8 5.4 5.5 5.4 5.3 5.3

World 2.6 -3.2 5.6 4.1 3.3 3.1 3.1 3.1

Consumer Inflation (avg)

US 1.8 1.2 4.7 5.0 1.9 2.0 2.1 2.1

Eurozone 1.2 0.3 2.6 3.4 1.5 1.7 2.0 2.0

Japan 0.5 0.0 -0.3 0.4 0.8 1.0 1.0 1.0

China 2.9 2.5 1.0 2.2 2.3 2.3 2.3 2.3

World 2.9 2.7 4.3 4.6 3.0 2.7 2.7 2.7

Interest Rates (eop)

Fed Funds Rate 1.50 0.00 0.00 0.50 1.00 1.50 2.00 2.00

ECB Refinancing Rate 0.00 0.00 0.00 0.00 0.00 0.00 0.05 0.25

Japan Overnight Call -0.10 -0.10 -0.10 -0.10 -0.10 0.00 0.00 0.00
Rate

Exchange Rates (avg)

USD/EUR 1.12 1.14 1.18 1.14 1.16 1.20 1.23 1.24

JPY/USD 109 106 110 115 116 117 114 114

CNY/USD 6.91 6.90 6.45 6.65 6.70 6.70 6.72 6.74

Oil Prices (avg)

OPEC Basket (USD/bbl) 64.04 41.47 69.89 69.00 70.00 72.00 75.00 75.00
Brent Crude (USD/bbl) 64.16 43.21 70.95 72.00 73.00 75.00 78.00 78.00

f = Fitch Solutions forecast. Source: Bloomberg, national sources, Fitch Solutions

Developed Markets: Robust Growth In 2022 Despite Omicron And Policy Headwinds

Developed markets (DM) will grow at a buoyant pace in 2022, but growth will gradually converge back to trend over the year as momentum
following the global reopening weakens and headwinds from tighter monetary policy and less supportive fiscal policy intensify. This month, we
have raised our 2021 real GDP growth estimate slightly to 5.1% in January 2022, from 5.0% in December 2021. Concurrently, we have trimmed our
2022 DM growth forecast down to 3.6% from 3.7% previously. The 2021 upward revision largely reflects higher expected growth in Belgium (4.7%
to 7.2%), Ireland (11.4% to 13.1%), Spain (5.0% to 5.2%), and Norway (2.9% to 3.6%). Conversely, we attribute the 2022 downward revision to a
slightly less bullish view on France (4.0% to 3.6%), Germany (4.7% to 4.3%) and the UK (5.0% to 4.5%).

The balance of risks to the DM outlook has shifted slightly to the downside over the past month. The spread of the more contagious
Omicron variant has led several DM governments to reintroduce domestic and border restrictions, with negative growth implications. Indeed, there
has been a sharp rise in the Oxford Stringency Index (OSI) in several economies between December 6 2021 and January 10 2022. Although the
number of markets that have tightened restrictions is roughly the same as the number that have loosened them (14 versus 10), those which have
tightened account for around 75.4% of DM GDP while those which have loosened add up to around 9.4% of DM GDP, implying a potentially
disproportionate negative impact on growth.

The latest purchasing managers' indices (PMIs) suggest that the recovery in activity may be losing some momentum in the face
of growing Omicron-induced challenges to the private sector. The IHS/Markit composite PMI remained above the expansionary 50-mark
threshold in the largest DM economies in December 2021, illustrating still robust momentum, with the exception of Germany where the indicator
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

fitchsolutions.com 54
Vietnam Country Risk Report | Q2 2022

dipped below 50 for the first time since June 2020. Across Germany’s peers, the December PMIs declined relative to November, pointing to
softening (albeit still strong) momentum overall. Besides Omicron-induced softening of demand, ongoing material and components shortages
continued to be a factor behind weaker activity in the private sector.

More positively, the latest export data suggest supportive global trade conditions overall. In November 2021, export growth
accelerated Germany, France, Japan and Canada, while easing slightly in the US. In October 2021, export growth decelerated in Australia and the
UK, while Italy benefitted from stronger exports. The growth rate of exports remains elevated and above trend across the board, owing to still-
favourable (albeit weaker) base effects and still elevated levels of global demand.

Meanwhile, DM inflation accelerated in November 2021, coming in at 4.9% y-o-y, up from 4.4% in October. At the market level, inflation
remains significantly above target in all the largest DM economies with the exception of Japan, especially in the US (7.0% y-o-y), Germany (5.3%),
the UK (5.1%) and Canada (4.7%).

Inflation should gradually converge back towards target over H222 as temporary inflation-boosting factors dissipate (although it
will remain well above pre-Covid lows). However, persistently above-target inflation prints will prompt a hawkish pivot by several major DM
central banks in 2022. We forecast the most hikes in New Zealand (125bps to 2.00%) and Norway (75bps to 1.25%). By contrast, we do not expect
hikes in Sweden, the eurozone, Japan and Switzerland. In the US, we forecast two federal funds rate hikes of 25bps in 2022 although we see upside
risks to this view.

DEVELOPED MARKETS - REAL GDP GROWTH FORECASTS, % Y-O-Y (2019-2026)

2019 2020 2021 2022f 2023f 2024f 2025f 2026f
Developed Markets Aggregate
1.7 -4.5 5.1 3.6 2.2 1.9 1.9 1.9
Growth
G7 1.6 -4.8 5.1 3.6 2.1 1.8 1.8 1.8
Eurozone 1.6 -6.4 5.1 4.1 2.5 2.0 1.8 1.8
EU-27 1.8 -5.9 5.0 4.1 2.6 2.1 2.0 1.9

Selected Developed Markets

Australia 2.0 -2.1 4.2 3.5 2.9 2.6 2.6 2.7
Austria 1.5 -6.7 4.1 4.3 2.4 1.8 1.5 1.5
Belgium 2.2 -5.7 7.2 4.6 1.7 1.1 1.1 1.1
Canada 1.9 -5.2 5.1 3.8 2.3 1.9 1.8 1.8
Czech Republic 3.0 -5.8 2.2 3.8 4.5 2.4 2.4 2.3
Denmark 3.4 -2.7 3.5 3.0 1.6 1.5 1.5 1.5
Finland 1.3 -2.9 3.4 3.1 2.1 1.6 1.5 1.6
France 1.8 -8.0 6.8 3.6 2.1 1.7 1.7 1.5
Germany 1.1 -4.6 2.8 4.3 2.2 1.7 1.7 1.7
Hong Kong -1.2 -6.1 6.1 1.9 1.3 1.3 1.8 1.8
Ireland 5.6 3.4 13.1 7.4 5.9 6.1 5.6 5.7
Italy 0.4 -8.9 6.2 4.0 2.1 1.3 1.3 1.3
Japan 0.0 -4.6 2.2 2.0 1.3 1.0 1.0 0.9
Netherlands 1.7 -3.7 3.9 3.1 2.2 2.1 1.5 1.4
Norway 0.7 -0.7 3.6 2.1 1.6 1.5 1.4 1.4
Portugal 2.5 -7.6 4.9 3.0 1.1 1.0 0.8 0.8
Singapore 2.7 -4.8 7.2 3.6 2.8 2.9 2.9 2.9
South Korea 2.0 -1.0 3.8 2.8 2.6 2.5 2.5 2.5
Spain 2.1 -10.8 5.2 4.5 3.9 2.8 2.7 2.5
Sweden 1.2 -2.8 4.5 2.9 2.0 2.1 2.1 2.1
Switzerland 1.2 -2.4 3.6 2.8 1.8 1.5 1.5 1.5
Taiwan 3.0 3.1 6.0 2.7 2.9 2.9 2.9 2.9
UK 1.7 -9.4 7.1 4.5 2.6 1.7 1.7 1.7

fitchsolutions.com 55
Vietnam Country Risk Report | Q2 2022

2019 2020 2021 2022f 2023f 2024f 2025f 2026f

US 2.2 -3.5 5.6 3.7 2.1 2.0 2.0 2.0

Note: Includes territories and special administrative regions. f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

EMs: Mixed End To 2021, Slight Downward Revisions For 2022

The latest timely figures suggest that growth was picking up in most emerging markets (EMs) in late 2021. In China, however, GDP
growth slowed from 4.9% y-o-y in Q321 to 4.0% in Q421. Economies in Southern Africa also faltered as a result of travel curbs prompted by the
Omicron outbreak, but elsewhere we think that economic conditions likely improved.

Manufacturing figures, for example, were generally positive. Most EMs’ official output figures only cover October 2021, but year-on-year
growth picked up in all of the markets that have released November figures.

December’s manufacturing PMIs suggest that growth probably accelerated a little further in the last month of 2021. As in
November 2021, 14 of the 16 major EM PMIs that we track most closely were above the 50 mark that divides expansion from contraction.

Trade figures suggest that the US dollar value of EMs export growth picked up at the end of 2021. Most EMs’ latest export figures only cover
October, but figures from economies with more timely data – which provide a reasonable leading indicator – point to export growth strengthening
in November and December. The growth of exports from Brazil, Chile, Turkey and Vietnam accelerated from 17.3% y-o-y in October to 30.6% in
December.

Consumer-facing sectors, however, faced greater headwinds in late 2021 and early 2022. Beyond increased Covid-19 risks, rising price
pressures are squeezing incomes. Our measure of EM-wide inflation picked up from 3.6% y-o-y in October to a 21-month high of 4.2% y-o-y in
November. If China is excluded, EM-wide inflation reached 6.2% in the penultimate month of 2021.

While the situation varied across individual EMs, the key story is that inflation is above policymakers’ targets in most major
markets. Of the 20 EMs for which we track inflation most closely, 13 posted inflation above their central bank’s midpoint target.

Above-target inflation prompted EM central banks to continue their interest rate hiking cycle in December 2021. Policymakers hiked their key
rates in Brazil (7.75% to 9.25%), the Czech Republic (2.75% to 3.75%), Russia (7.50% to 8.50%), Colombia (2.50% to 3.0%), Mexico (5.00% to 5.50%)
and Poland (1.25% to 1.75%). Argentina’s central bank followed suit by hiking their policy rate from 38.00% to 40.00% in January 2022.

With industrial sectors performing well at the end of 2021, but inflation building, we left our headline EM GDP growth forecast for
2022 at 4.9%. The stability of the headline figure, however, does obscure some variation at the regional level.

EM Asia: India Still The Fastest-Growing Economy

We left our forecasts for key Asian EMs unchanged over the past month. We expect that India (where we expect growth of 7.6%) will remain the
fastest-growing major Asian EM for the second consecutive year. In China, by contrast, we forecast that economic expansion will slow to just 5.4%.
Excluding 2020, this would be the country’s slowest rate of growth since 1990. It would also be the first time this century that China’s growth is
slower than that of EM Asia as a whole. In contrast to China, we see economic activity accelerating in 2022 in Indonesia (3.9% in 2021 to 4.7% to
2022), Malaysia (1.5% to 5.5%), Vietnam (2.6% to 7.0%) and the Philippines (4.5% to 6.5%).

EM Europe: Russia, Hungary Drive Upward Revision

We revised our 2021 growth forecast for EM Europe from 3.5% to 3.7%. The upward revision was due to increased optimism about
Hungary and Russia. We moved our 2022 forecast for Hungarian economic growth from 3.7% to 5.8% due to stronger-than-expected growth in
Q321, a strengthening manufacturing sector and the expectation of loosening fiscal policy ahead of the 2022 election. This was the largest
upward revision we made to any EM over the past month. In Russia, we revised our 2022 growth forecast from 2.3% to 2.7% following positive
signs that oil and gas output will rise in 2022.

Despite this revision, we think that elevated inflation and weak consumer confidence mean that growth in Russia will be weak by regional
standards. Risks to this forecast are weighted to the downside given that any Russian invasion of Ukraine would result in Western sanctions, which
would drag on economic growth.

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Vietnam Country Risk Report | Q2 2022

MENA: Slight Upward Revision

We raised our regional growth forecast for the Middle East and North Africa (MENA) from 4.1% to 4.3%. The upward revision is largely
due to a change to our forecast for Iran, where we raised our 2022 growth forecast from 3.1% to 3.8%. Despite this higher headline figure, we
stress that economic conditions will remain challenging. The revision is largely due to import compression – we think that continued currency
weakness will cut demand for foreign goods.

In Algeria, by contrast, we reduced our 2022 growth forecast from 2.4% to 2.2%. The country’s government faces the difficult challenge of
tightening fiscal policy during a time of weak demand, which we think will depress growth.

SSA: Slight Upward Revision

We raised our 2022 growth forecast for Sub-Saharan Africa (SSA) from 3.6% to 3.7% over the past month. We retain the view that the
region will be the second-slowest growing part of the EM world in 2022, with only Latin America performing worse. This month’s very small upward
revision came as more optimistic views about Nigeria and Ethiopia outweighed increased pessimism about South Africa.

The biggest upward revision was to our forecast for Ethiopia. We shifted our Ethiopia growth forecast from 3.6% to 5.6% to reflect the country's
improving security situation. It now seems likely that violence will be limited to Tigray, allowing an economic recovery elsewhere. We also revised
our Nigeria growth forecast from 3.1% to 3.5% to reflect higher oil production and the completion of the Dangote refinery. However, we reduced
our forecast for growth in South Africa from 2.3% to 2.1% based on the view that the Covid-19 pandemic will continue to constrain economic
activity in 2022 and that private consumption will remain very weak in 2022.

Latin America: Pessimism Increasing

We revised our 2022 regional growth forecast for Latin America from 2.8% to 2.2%. All of our largest downward revisions were to
economies in the region. We revised our 2022 Mexican growth forecast from 3.3% to 2.8% due to accelerating inflation, weaker US growth and the
spread of the Omicron variant. We expect that these factors will cause the growth of private consumption to slow from 7.4% in 2021 to just 3.0% in
2022.

Elsewhere, we reduced our 2022 forecast for growth in Chile from 2.8% to 2.2%. The change was largely due to base effects cause by an upward
revision to our 2021 estimate. But we think that reduced fiscal stimulus and increased investor worries following the country’s recent election will
weigh on growth. The revision to our 2022 Argentina forecast (3.0% to 2.1%) was also driven by base effects caused by surprisingly strong growth
in 2021. Our largest downward revision this month was to Brazil, where we cut our forecast from 1.9% to just 0.7%. The downward revision was
due to a more challenging external environment, escalating inflation and tightening monetary policy and increased political uncertainty ahead of
October’s presidential election.

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Vietnam Country Risk Report | Q2 2022

EMERGING MARKETS - REAL GDP GROWTH FORECASTS, % Y-O-Y (2019-2026)

2019 2020 2021 2022f 2023f 2024f 2025f 2026f
Emerging Markets Aggregate
3.8 -1.3 6.4 4.9 4.7 4.6 4.5 4.5
Growth

Latin America 0.8 -6.6 6.6 2.2 2.2 2.5 2.5 2.5
Argentina -2.0 -9.9 9.4 2.1 2.3 2.3 2.1 2.5
Brazil 1.2 -3.9 4.7 0.7 1.5 2.3 2.4 2.5
Chile 0.9 -5.8 12.1 2.2 2.5 2.4 2.4 2.2
Colombia 3.3 -6.8 8.5 3.9 3.3 3.2 3.2 3.1
Mexico -0.2 -8.2 5.6 2.8 2.2 2.1 2.2 2.3

Middle East And North Africa 0.6 -2.6 3.8 4.3 4.8 4.0 3.8 3.5
Saudi Arabia 0.3 -4.1 2.8 5.6 2.2 2.6 2.3 2.3
UAE 3.4 -6.1 3.7 4.1 3.9 3.8 3.8 3.4
Iran -6.8 3.4 4.5 3.8 8.5 6.3 4.8 4.8
Algeria 0.8 -4.9 3.3 2.2 2.2 1.8 1.8 2.0
Egypt 5.6 3.6 3.3 5.0 5.5 4.2 4.1 4.3

Sub-Saharan Africa 2.6 -2.0 3.7 3.7 3.9 3.7 3.8 4.0
South Africa 0.1 -6.4 4.8 2.1 2.5 2.7 2.9 2.8
Kenya 5.4 -0.3 7.1 5.0 5.4 5.3 5.4 6.0
Ethiopia 8.3 6.1 1.3 5.6 6.2 6.6 6.9 6.6
Nigeria 2.2 -1.8 3.1 3.5 2.9 2.8 2.7 3.2

Emerging Asia 5.5 0.2 7.3 5.8 5.6 5.5 5.4 5.4
China 6.0 2.3 7.8 5.4 5.5 5.4 5.3 5.3
India* 4.0 -7.3 8.6 7.6 6.7 6.6 6.7 7.0
Indonesia 5.0 -2.1 3.9 4.7 5.3 5.0 4.5 5.2
Malaysia 4.3 -5.6 1.5 5.5 3.8 3.8 3.8 3.8
Philippines 6.1 -9.6 4.5 6.5 7.3 6.5 6.5 5.9
Thailand 2.3 -6.1 1.1 3.7 2.4 3.8 2.7 2.2

Emerging Europe 2.7 -2.3 5.2 3.7 3.1 2.9 2.8 2.7
Russia 2.0 -3.0 4.1 2.7 2.1 1.9 1.7 1.6
Turkey 0.9 1.8 8.9 4.0 3.9 3.7 3.4 3.4
Hungary 4.3 -4.9 5.2 5.8 2.1 2.1 2.2 2.3
Romania 4.1 -3.9 5.8 4.5 3.2 3.1 3.1 3.1
Poland 4.1 -2.8 4.8 5.0 4.3 3.6 3.5 3.2

Note: *Fiscal years ending March 31 (2021 = 2021/22). f = forecast. Source: Fitch Solutions

Note: Our forecasts are updated frequently; as a result, the views and forecasts in this section may not match those in other sections of the report.

fitchsolutions.com 58
Vietnam Country Risk Report | Q2 2022

Index Table

SHORT-TERM POLITICAL RISK INDEX

Score Trend Regional Rank Global Rank

Singapore 95.2 = 1 1

Brunei Darussalam 90.8 = 2 4

New Zealand 84.6 - 3 11

Japan 83.5 = 4 13

Vietnam 81.7 = 5 19

Macao 79.6 = 6 27

China 79.4 = 7 28

Hong Kong 75.6 + 8 35

Taiwan 74.8 = 9 39

Laos 74.6 = 10 41

South Korea 73.5 = 11 48

Australia 71.5 + 12 56

Kiribati 70.4 = 13 63

India 67.5 = 14 73

Mongolia 66.3 = 15 76

Malaysia 65.2 = 16 81

North Korea 64.8 = 17 85

Sri Lanka 64.6 = 18 86

Cambodia 64.4 = 19 90

Indonesia 64.2 = 20 91

Philippines 64.0 = 21 92

Bhutan 61.3 = 22 103

Thailand 61.0 = 23 105

Bangladesh 60.6 = 24 108

Fiji 57.5 = 25 120

Timor-Leste 55.0 = 26 132

Nepal 51.9 = 27 144

Papua New Guinea 44.0 = 28 160

Pakistan 42.7 = 29 161

Myanmar 34.2 = 30 173

Afghanistan 31.9 = 31 176

Regional average 66.3/Global average 61.9/Emerging Markets average 58.2

Note: Includes territories and special administrative regions. Scores out of 100; higher score = lower risk. Source: Fitch Solutions

fitchsolutions.com 59
Vietnam Country Risk Report | Q2 2022

LONG-TERM POLITICAL RISK INDEX

Score Trend Regional Rank Global Rank

Japan 87.3 = 1 13

New Zealand 85.8 = 2 16

South Korea 83.5 = 3 18

Australia 83.4 = 4 19

Singapore 81.2 = 5 23

Kiribati 76.1 = 6 34

Taiwan 74.7 = 7 40

Mongolia 70.1 = 8 61

China 68.2 = 9 70

Macao 64.8 = 10 78

India 64.7 = 11 79

Malaysia 64.5 = 12 80

Vietnam 63.6 = 13 83

Sri Lanka 63.0 = 14 86

Indonesia 62.7 = 15 87

Philippines 62.4 = 16 88

Brunei Darussalam 61.8 = 17 92

Hong Kong 60.5 = 18 100

Cambodia 59.5 = 19 104

Bhutan 59.2 = 20 105

Bangladesh 58.9 = 21 107

Thailand 56.8 = 22 115

North Korea 54.7 = 23 127

Laos 53.5 = 24 134

Pakistan 52.6 = 25 138

Fiji 50.4 = 26 144

Nepal 50.1 = 27 146

Papua New Guinea 49.6 = 28 148

Timor-Leste 47.5 = 29 151

Myanmar 30.6 = 30 179

Afghanistan 21.3 = 31 186

Regional average 62.0/Global average 61.5/Emerging Markets average 56.8

Note: Includes territories and special administrative regions. Scores out of 100; higher score = lower risk. Source: Fitch Solutions

fitchsolutions.com 60
Vietnam Country Risk Report | Q2 2022

SHORT-TERM ECONOMIC RISK INDEX

Score Trend Regional Rank Global Rank

South Korea 84.2 + 1 1

Taiwan 84.0 + 2 2

Malaysia 76.3 + 3 13

New Zealand 76.0 - 4 15

Australia 74.0 = 5 20

China 73.5 - 6 24

Singapore 73.3 - 7 25

Philippines 70.8 - 8 30

India 69.4 - 9 36

Indonesia 67.9 + 10 40

Bangladesh 66.7 + 11 43

Vietnam 66.7 + 11 43

Thailand 66.0 + 13 46

Hong Kong 65.8 - 14 47

Macao 64.8 - 15 52

Japan 62.3 + 16 60

Timor-Leste 54.2 + 17 81

Papua New Guinea 52.5 + 18 93

Fiji 52.1 + 19 98

Bhutan 51.0 - 20 101

Pakistan 49.6 - 21 106

Nepal 49.4 + 22 109

Brunei Darussalam 48.5 - 23 118

Cambodia 47.3 + 24 121

Mongolia 46.9 + 25 122

Kiribati 46.0 - 26 126

Sri Lanka 44.8 - 27 135

Laos 41.7 + 28 149

Afghanistan 36.0 + 29 173

Myanmar 33.5 + 30 179

North Korea 25.0 - 31 185

Regional average 58.7/Global average 54.2/Emerging Markets average 49.8

Note: Includes territories and special administrative regions. Scores out of 100; higher score = lower risk. Source: Fitch Solutions

fitchsolutions.com 61
Vietnam Country Risk Report | Q2 2022

LONG-TERM ECONOMIC RISK INDEX

Score Trend Regional Rank Global Rank

South Korea 82.6 + 1 2

Taiwan 82.1 + 2 3

New Zealand 78.8 + 3 10

Australia 77.6 + 4 15

China 74.2 - 5 21

Hong Kong 72.7 - 6 26

Singapore 72.7 + 6 26

Malaysia 71.7 + 8 30

Thailand 69.5 + 9 35

Indonesia 67.7 + 10 41

Japan 67.3 + 11 42

Vietnam 66.0 + 12 44

Philippines 63.6 + 13 51

Bangladesh 63.1 + 14 53

Macao 62.4 - 15 57

India 57.9 - 16 72

Nepal 52.6 + 17 99

Sri Lanka 51.7 + 18 104

Brunei Darussalam 51.3 + 19 106

Pakistan 51.0 + 20 110

Cambodia 49.5 + 21 114

Papua New Guinea 47.1 + 22 126

Fiji 46.5 + 23 131

Mongolia 46.4 + 24 132

Laos 44.7 + 25 144

Timor-Leste 43.1 + 26 152

Kiribati 41.8 - 27 156

Afghanistan 41.2 + 28 158

Myanmar 39.4 + 29 165

Bhutan 37.8 + 30 170

North Korea 30.8 + 31 184

Regional average 58.2/Global average 55.0/Emerging Markets average 50.6

Note: Includes territories and special administrative regions. Scores out of 100; higher score = lower risk. Source: Fitch Solutions

Note: Fitch Solutions' Country Risk Indices are updated frequently; as a result, the scores in this section may not match those in other sections of
the report.

fitchsolutions.com 62
Vietnam Country Risk Report | Q2 2022

Macroeconomic Forecasts

MACROECONOMIC FORECASTS (VIETNAM 2021-2026)

Indicator 2021e 2022f 2023f 2024f 2025f 2026f
Nominal GDP, USDbn 286.7 321.7 348.9 379.9 414.0 449.9
Nominal GDP, EURbn 242.4 282.2 300.7 316.6 336.6 362.8
Real GDP growth, % y-o-y 2.6 7.0 6.5 6.2 6.1 5.8
GDP per capita, USD 2,920 3,251 3,499 3,783 4,094 4,420
GDP per capita, EUR 2,468 2,852 3,016 3,152 3,329 3,564
Population, mn 98.17 98.95 99.70 100.41 101.11 101.78
Consumer price inflation, % y-o-y, ave 1.8 3.4 3.6 3.6 3.7 3.7
Lending rate, %, ave 5.0 5.3 5.5 5.5 5.5 5.5
Central bank policy rate, % eop 4.00 4.25 4.50 4.50 4.50 4.50
Private final consumption, % of GDP 67.6 66.7 67.6 68.4 69.1 69.5
Private final consumption, real growth % y-o-y 1.8 5.5 8.0 7.5 7.2 6.5
Government final consumption, % of GDP 6.8 6.6 6.5 6.4 6.3 6.3
Government final consumption, real growth % y-o-y 5.0 3.0 5.0 5.0 4.8 4.8
Fixed capital formation, % of GDP 25.4 25.6 25.9 26.2 26.6 27.1
Fixed capital formation, real growth % y-o-y 4.0 8.0 7.5 7.7 7.7 7.7
Exchange rate VND/USD, ave 22,933.30 22,600.00 23,000.00 23,230.00 23,462.30 23,696.92
Exchange rate VND/EUR, ave 27,127.91 25,764.00 26,680.00 27,876.00 28,858.63 29,384.18
Goods and services exports, USDbn 340.0 404.7 463.7 527.6 600.0 682.2
Goods and services imports, USDbn 289.5 346.7 399.2 458.1 524.5 600.0
Balance of trade in goods and services, USDbn 50.5 58.0 64.4 69.6 75.4 82.3
Balance of trade in goods and services, % of GDP 17.6 18.0 18.5 18.3 18.2 18.3
Current account balance, USDbn 8.4 9.5 9.3 9.0 8.9 9.2
Current account balance, % of GDP 2.9 2.9 2.7 2.4 2.2 2.0
Foreign reserves ex gold, USDbn 136.9 163.7 191.2 219.1 247.6 276.8
Import cover, months 5.3 5.3 5.4 5.4 5.4 5.3
Budget balance, USDbn -22.2 -19.5 -21.0 -22.5 -24.0 -25.6
Budget balance, % of GDP -7.7 -6.1 -6.0 -5.9 -5.8 -5.7
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

fitchsolutions.com 63
Vietnam Country Risk Report | Q2 2022

MACROECONOMIC FORECASTS (VIETNAM 2027-2031)

Indicator 2027f 2028f 2029f 2030f 2031f
Nominal GDP, USDbn 488.4 530.3 576.0 624.8 679.2
Nominal GDP, EURbn 390.7 424.2 460.8 499.8 543.3
Real GDP growth, % y-o-y 5.7 5.8 5.8 5.6 5.9
GDP per capita, USD 4,768 5,146 5,558 5,998 6,489
GDP per capita, EUR 3,814 4,117 4,446 4,798 5,191
Population, mn 102.43 103.04 103.62 104.16 104.66
Consumer price inflation, % y-o-y, ave 3.7 3.7 3.7 3.7 3.7
Lending rate, %, ave 5.5 5.5 5.5 5.5 5.5
Central bank policy rate, % eop 4.50 4.50 4.50 4.50 4.50
Private final consumption, % of GDP 70.1 70.6 71.0 71.6 72.0
Private final consumption, real growth % y-o-y 6.5 6.5 6.5 6.5 6.5
Government final consumption, % of GDP 6.2 6.1 6.1 6.0 6.0
Government final consumption, real growth % y-o-y 4.8 4.8 4.8 4.8 4.8
Fixed capital formation, % of GDP 27.6 28.1 28.6 29.2 29.7
Fixed capital formation, real growth % y-o-y 7.7 7.7 7.7 7.7 7.7
Exchange rate VND/USD, ave 23,933.89 24,173.23 24,414.96 24,659.11 24,905.70
Exchange rate VND/EUR, ave 29,917.37 30,216.54 30,518.70 30,823.89 31,132.13
Goods and services exports, USDbn 779.7 884.2 1,002.7 1,139.9 1,288.0
Goods and services imports, USDbn 689.3 785.9 895.2 1,025.1 1,162.9
Balance of trade in goods and services, USDbn 90.5 98.3 107.5 114.8 125.1
Balance of trade in goods and services, % of GDP 18.5 18.5 18.7 18.4 18.4
Current account balance, USDbn 10.2 10.2 10.9 8.8 8.8
Current account balance, % of GDP 2.1 1.9 1.9 1.4 1.3
Foreign reserves ex gold, USDbn 307.7 339.3 372.1 403.4 435.5
Import cover, months 5.1 4.9 4.8 4.5 4.3
Budget balance, USDbn -27.3 -29.2 -31.1 -33.1 -35.3
Budget balance, % of GDP -5.6 -5.5 -5.4 -5.3 -5.2
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

fitchsolutions.com 64
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Tel: +44 (0)20 7248 0468

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