Vietnam gears up for ODA acceleration to drive projects

Vietnam gears up for ODA acceleration to drive projects

The government has adopted Vietnam’s 2021-2025 plan on orientations for attracting, managing, and using official development assistance (ODA) and concessional loans from overseas sponsors.

Under the plan, about VND527 trillion (nearly $23 billion) in foreign ODA and concessional loans will be allocated during the 2021-2025 period. Next year alone, the government plans to borrow nearly VND68 trillion ($3 billion) worth of ODA.

Non-refundable ODA capital is prioritised for implementing socioeconomic infrastructure development programmes and projects; enhancing capacity; assisting policy and institutional building and reform; preventing, controlling and mitigating natural disaster risks and adapting to climate change; ensuring social welfare; and preparing for investment projects or co-funding ventures that use such concessional loans.

The capital will be prioritised for programmes and projects on healthcare, education, vocational training, climate change adaption and environmental protection, and building essential infrastructure facilities unable to directly recover capital.

In addition, the plan gives priority to spending ODA capital and concessional loans on infrastructure improvements to help disadvantaged regions and localities develop their economy, and in areas facing difficulties in mobilising domestic funding; as well as on projects dealing with rapid urbanisation.

Foreign concessional loans will also be prioritised for projects boosting connectivity among regions and provinces in the northwestern, Central Highlands, and Mekong Delta regions so that they can develop faster.

Key drivers

According to the Ministry of Planning and Investment (MPI), the economy grew 6.8 per cent in the 2016-2019 period and 5.99 per cent in the 2016-2020 period. This is higher than the growth rate of 5.91 per cent for 2011-2015. One of the key contributors to the economic growth for the 2016-2020 period was ODA, said the MPI.

After Vietnam became a middle-income nation, donors’ development cooperation policies were revised, with a gradual reduction or stop in non-refundable ODA sums and loans with preferential conditions gradually shifted to loans with less preferential conditions.

Total ODA and preferential loans from foreign donors for Vietnam in the 2016-2020 period were worth $12.99 billion, down 51 per cent from that of 2011-2015.

In 2016 - 2020, total ODA and concessional loans disbursed was estimated to be $13.6 billion, down 41 per cent from that in 2011-2015 – in which disbursement from the central budget in the 2016-2020 period’s medium-term public investment plan was estimated to hit $8.04 billion, or 64.8 per cent of the initial plan assigned by the prime minister (see chart).

“Despite a reduction from foreign donors in ODA and concessional loans in 2016-2020, this type of capital made positive contributions to national economic growth and development,” said Deputy Prime Minister Pham Binh Minh.

“Specifically, it has made an important contribution to Vietnam’s development capital sourced from the state budget. Disbursement of this capital still accounted for 3.3 per cent of the total development investment in the 2016-2019 period, and 18.08 per cent in total investment capital from the state budget.”

According to the MPI, ODA and preferential loans will be necessary for Vietnam over the next few years.

For example, the Japan International Cooperation Agency (JICA) and the Vietnamese government signed a loan agreement worth $195.5 million in 2013 to build the Mai Dich-South Thang Long viaduct section in Hanoi, which was opened for travel last year. Over the next few weeks, it is expected that the construction of this viaduct’s six ramps will be completely finished, helping end chronic traffic jams in the area.

Japan’s total financial support for Vietnam in infrastructure development, especially transport, is estimated to be over $10 billion so far. Since 1993, Vietnam has mobilised over $80 billion in ODA and preferential loans, making the country one of the largest ODA recipients globally.

New sums

According to the government, data collected from foreign donors showed that they can provide ODA and concessional loans worth about $25.82 billion in the 2021-2025 period, or $5.13 billion a year. This includes ODA (30.9 per cent), concessional loans (64.8 per cent), and grants (4.3 per cent). If capital transferred from the previous period is included, total ODA and concessional loans for this period will be higher.

Non-refundable ODA is estimated to reach $1.12 billion in the 2021-2025 period, down 41 per cent from the $1.9 billion in 2016-2020, mainly from the United Nations and bilateral donors. The new fund will be aimed largely to support the capacity building, and formulation of policies and institutions, as well as to help Vietnam respond to climate change and mitigation of natural disaster risks.

Meanwhile, ODA loans for 2021-2025 is estimated to stand at $7.97 billion, down 21 per cent from $10.07 billion in the previous period. This capital will come from some bilateral donors and international financial funds.

Regarding concessional loans from foreign donors, they can meet all requirements of Vietnam in the usage of preferential loans. The total sum is expected to be about $16.73 billion for 2021-2025, up 7.8 times from the $2.18 billion in 2016-2020 – the majority ($15.75 billion) of which will come from the six financial institutions of the World Bank (WB), Asian Development Bank (ADB), JICA, Export-Import Bank of Korea, French Development Agency, and German Development Bank.

At an October meeting with representatives from the banks, DPM Minh said that Vietnam is working on simplifying the ODA management process to speed up disbursement. It hopes ODA providers harmonise procedures with local legislation.

“The government gives priority to attracting funds for socioeconomic development, considering it an essential part of any mid-term public investment plan,” Minh said.

According to Minh, a number of laws stipulating the use of ODA, including the Law on Public Investment and the Law on Bidding, are subject to revision.

“The government aims to not only simplify the procurement process but also ensure efficiency in the use of ODA,” Minh said, noting that Vietnam has called for the aforementioned banks to consider harmonising their respective processes with local legislation. Leading up to 2025, Minh said the government is devising a portfolio of priority projects to be financed by the funds, expecting development banks to provide the funding in line with Vietnam’s objectives.

Andrew Jeffries, ADB country director for Vietnam, told VIR that the bank will continue to provide its support for Vietnam.

“The ADB is preparing its new Country Partnership Strategy 2021-2025 to support the government’s development priorities. Bold and strategic steps are needed to cope with future economic shocks and pursue a more sustainable development path,” Jeffries said.

According to Jeffries, on infrastructure, the ADB will provide sovereign support for climate-proofing existing key infrastructure, such as strengthened embankments to prevent land erosion, increased water supply, urban planning and developing smart cities, structural and ecosystem-based adaptation methods, and disaster early warning systems, as well as environmentally-friendly tourism infrastructure.

In the energy sector, the ADB will prioritise sovereign and non-sovereign investments for the application of energy-saving technologies in power consumption, transmission, and distribution, and non-sovereign investments in renewable energy generation. It will also continue its support through sovereign and non-sovereign investments in the development of low-carbon climate-resilient transport infrastructure.

The WB said it stands ready to provide more support for Vietnam. As of November 11, the WB has provided $25.27 billion in grants, credits, and concessional loans to Vietnam through 212 operations. Vietnam’s existing portfolio consists of 33 active projects, with total net commitments of $6.69 billion.

Most recently, the WB and the Institute for Social Development Studies signed an agreement for a $2.75 million grant provided by the Japan Social Development Fund for the ‘Strengthening preparedness and response to COVID-19 at grassroots level in Vietnam’ project. It aims to strengthen preparedness and response capacities for pandemics and other health emergencies at community level in Vinh Phuc, Khanh Hoa, and Long An provinces. It is estimated that 270,000 people will benefit from the project’s interventions with at least 3,500 people from vulnerable groups.