Using ODA and concessional loans in efficient manner

By Tran Quoc Phuong-Deputy Minister of Planning and Investment

Over the past five years many new guidelines, policies, and orientations on mobilising and using ODA capital and preferential loans were issued to adapt to the new context of Vietnam becoming a middle-income country.

Vietnam’s economy has achieved much. However, there are still many long-term bottlenecks and emerging challenges. The need for ODA and concessional loans from foreign donors is still essential in the new stage of development.

Firstly, the economy should be recovered after the pandemic by restructuring and renewing growth quality, developing high-quality human resources, applying sci-tech, promoting innovation and the digital economy, developing highly connected infrastructure, and reforming state management, and public services. They all require a huge investment.

Next, rapid urbanisation leads to the increase and overload of urban transport systems, the environment, and public services like healthcare and education.

In addition, regional inequality has not been controlled. The state should continue investing to increase accessibility to basic social services and economic opportunities for underdeveloped regions, where private investment is negligible.

It is also necessary to retrain most of the workforce in order to adapt to the rapid development of science and technology, economic restructuring, especially in terms of Industry 4.0.

Lastly, Vietnam is facing a lot of challenges with emerging global problems such as climate change and sea-level rise, which requires mobilising a large amount of capital to overcome.

Based on the goals of the socioeconomic development plan to 2025 and the 10-year socioeconomic development strategy to 2030, the average annual GDP growth rate should reach 6.5-7 per cent and development investment should make up 33-35 per cent of GDP.

In the current situation, the balance between needs and responsiveness, domestic and foreign fluctuations in the coming time, orientation on attraction, management, and use of ODA and concessional loans over the next few years must be associated with the restructuring of public investment. Any new loan needs to be considered on economic efficiency, financial options, impact assessment on medium-term public investment plans, public debt targets, budget, and the ability to repay debts in the future.

The negotiation and signing of loan agreements must be consistent with the conditions and criteria of socioeconomic efficiency and debt repayment ability. The loans will not be applied for projects including unfavourable regulations for Vietnam or poor performance as compared to the local loans.

These loans from overseas donors are only used for development investment expenditures, not for recurrent expenditures. They will pour into key areas to ensure the maximum promotion of economies of scale, prioritising investment in projects with socioeconomic efficiency, directly promoting growth along with sustainable development.

This is especially true for projects generating foreign currency revenue in the medium and long term to enhance the nation’s debt repayment capacity; and projects supplying public goods and belonging to the expenditure tasks of the state budget, having spillover effects such as climate change adaptation, environmental quality improvement, education, healthcare, and technology.

ODA and concessional loans should be spent on fields and projects that cannot be met by domestic public investment, or that the private sector has no incentive to invest, or some special areas need the investment and management of the state to facilitate the development of other economic sectors. Funding for the budget with appropriate costs, quick disbursement into the state budget capital is encouraged to pour into national target programmes.

Foreign sponsors’ concessional loans similar to market interest rates should be considered for on-lending loans. ODA and concessional loans should not be spent on projects that do not require foreign currency and local expenditures.

It is necessary to reduce the proportion of allocation, increase the proportion of loans on on-lending for local programmes and projects under the partial allocation of the state budget, and partly on-lending from the local budget at the rate determined in the regulations.