ODA Disbursement Dragging Leisurely

 

According to the Ministry of Planning and Investment, ODA capital for Vietnam reached a record of US$4.4 billion in 2006. The figure reflected the trust in the high growth of Vietnam and its efforts in poverty reduction.

 

However, international donors, especially the group of five development banks which account for 80 per cent of total ODA capital for Vietnam, pessimistically noted that new sponsorship commitments will be hard to meet, when disbursement of ODA capital for old projects is much slower than the commitment pace.

 

The Ministry of Planning and Investment said ODA capital disbursement is expected to reach US$1.9 billion in 2007, but disbursement is difficult to improve, looking at the situation in the first five months this year. From the beginning of the year to May 10, disbursement only fulfilled 37 per cent of the full-year plan, or US$709 million.

 

Mr James Adams, Vice President of WB said, “The slow implementation pace and low disbursement speed are a ‘perennial disease’ of ODA projects in Vietnam.” Meanwhile, the value of soft loans is sharply rising year after year (five banks annually pledge loans of US$1.6 billion). As of late 2006, five development banks pledged US$19 billion for socioeconomic development projects in Vietnam. However, only some US$9 billion had been disbursed.

 

There is a contradiction in increasing ODA capital commitments and slowing disbursement speed. The percentage of disbursed ODA capital provided by ADB, JBIC and WB in Vietnam is lower than the regional average. For example, disbursement of WB loans in Vietnam was only 12.5 per cent in 2006, compared with 20 per cent in regional countries.

 

Dr Vo Tri Thanh, chief of International Economic Integration Policy Research Committee under the Central Institute of Economic Management (CIEM), said sluggish capital disbursement results from time-consuming project appraisal and approval, and late project initiation and implementation. Many projects take a year or even longer to obtain approval. Most projects are given 5 per cent of capital within the first two years. Disbursement in WB-funded projects is especially late. It takes on average nine months to initiate disbursement, double the period provided for by the WB.

 

Low disbursement will lead to the low sponsor commitment, adversely impacting growth targets and poverty reduction targets of Vietnam, Mr James Adams said. Tardiness in project implementation will negatively affect the rights of beneficiaries and increase project costs. The outstanding example is the payment of commitment fees for undisbursed capital to ADB by the Vietnamese Government, resulting from soaring investment capital after the land price skyrocketed.

 

Planning and Investment Minister Vo Hong Phuc said the social and economic development plan in 2006-2010 needs a huge volume of ODA capital. Total investment capital of the country in the period is estimated at US$140-160 billion. Official development assistance (ODA) will play an important role in balancing foreign capital sources for the investment. ODA disbursement in this period is estimated at US$11 billion, out of pledged US$19-21 billion.

 

The group of five development banks will increase their loans by 1 per cent per year in 2006-2010, or an addition of US$500 million. If disbursement increases 10-20 per cent, the economic growth rate will grow 0.3 per cent per annum in the next five years.

 

To meet out long-term goals, many urgent measures have been proposed by international donors. Mr James Adams suggested Vietnam needs to encourage social organisations to take part in managing ODA. It is vital to resolve the issues related to overall ODA governance, streamline project preparation and initiation, guaranty efficient supervision and eradicate obstacles to implementation, James Adams said. Particularly, donors recommended a consensus based process between the government and international donors, the perfection of the legal system and consistency in issuing laws and instructive circulars. It is necessary to speed up project implementation by increasing the role of investors and adding more responsibilities for project authorities. If the above restraints are eliminated, time required for preparation can be shortened by 25 per cent.