The signing of a free trade agreement (FTA) between the European Union and Vietnam will bring significant long-term macro-economic benefits for Vietnam, Fitch Ratings said.
|Processed shrimp for export (Source: VNA)|
"The deal would help to boost foreign investment, productivity and exports, strengthening potential growth and external accounts," Fitch said in a report released this week.
The agreement will eliminate almost all tariffs over a 10-year transition period, with most tariffs being removed once the agreement comes into effect.
The agreement will also open up parts of the Vietnamese services sector – including financial services – to European investment.
Fitch said Vietnam was already benefiting from strong external balances and relatively high real GDP growth rates. The average real GDP growth in the 2010-14 period was 5.9 percent, versus a ‘BB' country median of 4.5 percent, while Vietnam posted a current account surplus of 4.5 percent of the GDP in 2014 versus a peer median deficit of – 1.3 percent. External accounts are further strengthened by strong and stable FDI inflows, with the net FDI totalling 3.9 percent of the GDP (US$ 7.2 billion).
"The European Union countries, together, are Vietnam's second-largest trading partner after China, with Vietnam benefiting from a substantial goods trade surplus with Europe. Further lowering of trade and investment barriers should help support Vietnam's rapidly growing exports sector, and promote further FDI inflows," Fitch said.
Vietnam's exports to the European Union were reportedly worth US$27.9 billion in 2014, up by roughly 15 percent from 2013.
"Notably, too, Vietnam remains in the negotiations for the Trans-Pacific Partnership (TPP) free trade agreement with 11 other Pacific Rim countries, including the United States and Japan. Should the TPP be passed, Vietnam will have concluded free trade agreements with three of its top four export destinations."
Fitch expects Vietnam's improved macroeconomic stability and external accounts to remain a key support for its sovereign credit profile.