Higher ADB rates in middle-income bracket

Nguyen Minh Cuong

After loans to Vietnam ceases early next year, what will this mean for Asian Development Bank (ADB) support for the country in the years ahead?

The ADB’s country partnership strategy (CPS) in Vietnam from 2016-2020 targets support across three outcome-based pillars. The first is promoting job creation and competitiveness; second is increasing the inclusiveness of infrastructure and service delivery; and the last pillar involves improving environmental sustainability and climate change response.

The ADB remains committed to maintaining a strong partnership with Vietnam in achieving these pillars in the CPS. To maximise value-addition and pipeline development anchored on the CPS for the period 2016-2020, the ADB will support Vietnam in mobilising grants and concessional co-financing to reduce the blended cost of non-concessional lending (OCR). Besides, the ADB will also support Vietnam in focusing on projects that include more responsive financing modalities and value-adding innovation and technology.

That can leverage either further concessional co-financing or increased private sector participation, including through public private partnership (PPP) support.

Besides, the support will also mean exploring opportunities to integrate more innovation and higher-level technology into projects.

Only three months remain in 2018. What do you think about Vietnam’s usage of official development assistance (ODA) from the ADB?

Vietnam has been effectively utilising ADB-financed projects. During 2010-2016, ADB-financed projects helped connect around 40,000 rural households to the power grid; improved educational facilities for nearly 900,000 students and trained over 400,000 teachers; constructed or improved more than 700 kilometres of expressways and national highways; and upgraded about 1,000km of provincial, district and rural roads.

Currently, the ADB is working closely with all concerned ministries to expedite the approval for the final batch of concessional lending projects for Vietnam, with the total budget of $613 million. This sum will finance seven projects across healthcare, education, vocational training, infrastructure and private sector development, and policy reforms.

If any of these projects are not approved before the end of this year, Vietnam would lose part of the allocated concessional lending which is very much needed for both development and poverty reduction.

What challenges is Vietnam facing in disbursement of ODA from the ADB?

In recent years, delayed project implementation and slow disbursement has caused the ADB-financed portfolio in Vietnam to underperform compared with other middle-income countries in Asia. The main constraints include complex and protracted procedures for project preparation, approvals, adjustment, and extension; delayed inclusion of government-approved projects in the medium-term investment plan (MTIP); and slow project startup. Further issues involve frequent revisions to ODA regulations; ODA budget ceilings and misaligned allocations set within a restrictive overall ODA budget; and safeguard compliance issues.

To improve and streamline Vietnam’s ODA management framework for a more speedy disbursement, it would be useful to strengthen project preparation, approval, adjustment and extension. The MTIP would consider allowing ODA loan projects to be included in the MTIP upon the government’s approval of the Investment Policy instead of the current requirement for loan-signing before MTIP inclusion, which typically delays startup by at least one year. It is also important if the overall national 2016-2020 ODA budget can be adjusted to match actual project needs during this period.

In its latest update on Vietnam’s economic developments, the World Bank stated that Vietnam has been well controlling public debt. Do you agree with this view?

The government’s fiscal consolidation programme has made progress in the first half of this year, when the budget posted a small surplus equal to 0.1 per cent of GDP.

Efforts to rein in the fiscal deficit helped to lower the ratio of public debt to GDP to an estimated 58.5 per cent by the end of June 2018, from 63.7 per cent at the beginning of 2017. It is expected that the public debt-to-GDP ratio will be 61.4 per cent this year, lower than the level of 63 per cent last year. That is quite an impressive achievement from the government.

The Ministry of Planning and Investment said that the share of investment from the private domestic sector within the economy is rising. What are your thoughts on this?

The private sector is an important stakeholder in Vietnam’s broader development strategy. It makes a significant contribution to the economy with about 40 per cent share of the total investment in the economy in 2018. This is largely due to the improved business environment.

However, to play this role, the sector is still facing multiple challenges such as underdeveloped infrastructure and logistics systems, inadequate public education and research, and limited access to credit and business services.