ODA and Two Contrariwise Trends

 

In the Project on "Orientations on mobilisation, use and management of ODA and preferential loans in the 2016-2020 period" approved by the Prime Minister, the Government of Vietnam will need to mobilise US$39.5 billion of ODA and soft loans in the next five years. The actually needed value may be higher since it was counted from incomplete reports from central and local agencies.

 

The project is part of a scheme to mobilise investment capital from various sources for economic and social development in the 2016-2020 period. To achieve the growth target of 6.5-7 per cent, Vietnam will need US$480 billion of total social investment capital, of which the State Budget will contribute US$180 billion. ODA and concessional loans will be mainly spent on transport, urban development, agriculture and rural development, environment, education, health, science and technology.

 

From positive achievements generated by ODA and preferential loans in the past years, we can clearly see the importance of this scheme in the context of limited State budgets and limited private investment resources. In the 2011-2015 period, in spite of being equal to 3 per cent of Vietnam's GDP, ODA and preferential loans from foreign donors helped the country develop economic and social infrastructure and reduce poverty in a sustainable manner. Many important national projects funded by ODA and preferential loans like Noi Bai - Lao Cai and HCM City - Long Thanh - Dau Giay highways, Vinh Thinh and Nhat Tan bridges, Nhat Tan - Noi Bai Highway, Terminal T2 at Noi Bai Airport have been completed and put into use to effectively contribute to social and economic infrastructure modernisation and economic competitiveness improvement.

 

It is a big challenge for Vietnam to mobilise nearly US$40 billion of ODA and preferential loans.

 

In the newly issued project, the Government admitted that pledged soft loans for Vietnam are on the fall. After becoming a lower middle income country in 2010, Vietnam has witnessed a decline in ODA in 2011-2015. ODA loans shrank from US$6.9 billion in 2011 to just US$2.7 billion in 2015.

 

Many donors reduced or ended ODA loans for Vietnam after it obtained the middle-income country status. Some offered Vietnam loans with less preference.

 

"With concrete steps, donors continue to change their development cooperation policies with Vietnam by changing from ODA to less preferential loans, including commercial loans, investment cooperation, and ending development support programmes for Vietnam," the government said in the project.

 

Regarding international financial institutions, the World Bank (WB) will end ODA loans carrying IDA preferential conditions and shift to loans bearing IBRD conditions with less preference from 2017. The Asian Development Bank (ADB) will stop concessional loans and offer less preferential loans for Vietnam one or two years later than WB.

 

This will lead to an increase in borrowing costs, thus requiring Vietnamese agencies to weigh up pros and cons before using loans from development banks to obtain high efficiency and ensure public debt in the safety zone. Because of high public debt pressures, Vietnamese authorities have also turned more careful with ODA and other preferential loans to ensure effective in use and repayment. At a meeting with development partners in Hanoi in December 2015, donors also pointed out that institutions for management and use of ODA capital and preferential loans did not keep pace with policy changes made by donors after Vietnam became a middle-income country.

 

Even though donors pledged to support and cooperate with Vietnam, total ODA and preferential loans for Vietnam are forecast at US$20-25 billion in 2016-2020 , much lower than the actual needs.

 

It is uncertain that how much ODA Vietnam will mobilise in the next five years, Vietnam still has a big amount of unused loans, estimated at US$22 billion, borrowed from previous years. Most of loans came from six development banks. Therefore, the Government also defined that the central task for this stage is to complete disbursement commitments for programmes and projects.

 

Based on the progress of ongoing programmes and projects, US$25-30 billion of ODA capital is expected to be disbursed in the 2016-2020 period, or an average of US$5-6 billion a year.

 

According to the project, the disbursement of ODA pledges and preferential loans in 2016-2020 will be favourable because most of projects are transferred from the 2011-2015 phase.

 

According to the project, the disbursement of ODA pledges and preferential loans in 2016-2020 will be favourable because most of projects are transferred from the 2011-2015 phase. It will be a waste if it is not fully disbursed. Once the term matures, undisbursed loans will be cancelled.