Orientation to attract, manage and use ODA and concessional loans of Vietnam

For the period of 2021-2025, the use of non-refundable ODA for Vietnam will implement priority for Natural Disaster Recovery and Climate Change Adaptation projects. Meanwhile, localities with difficult socio-economic development conditions may be considered to receive ODA loans first.

The plan on “Orientation for attracting, managing and using ODA and concessional loans from foreign donors for 2021 – 2025″ was recently approved by Deputy Prime Minister, Pham Binh Minh, in Decision 2109/QD-TTg on 15 December 2021.

Regarding the plan to arrange ODA and concessional loans of foreign donors, the total amount of ODA and concessional loans of foreign donors is expected about VND 527.1 trillion (over € 19.5 billion) for the period of 2021-2025. Of which, loans allocated from the central budget are VND 305.1 trillion (approx. 58 per cent of total loans, including VND 300 trillion is used for development investment, and VND 5.1 trillion is allocated for administrative agencies of agreements signed before 2017), on-lending is VND 222 trillion (including on-lending from the central budget to local budgets and on-lending to enterprises and public non-business units).

Pursuant to Resolution 29/2021/QH15 published on 28 July 2021 of the National Assembly on the medium-term public investment plan for 2021-2025, out of VND 300 trillion of ODA and concessional loans granted by foreign donors from the central budget, VND 270 trillion is allocated for transitional and new projects, and VND 30 trillion is reserve capital.

The allocation of ODA and concessional loans for the 2021 – 2025 period will comply with Decree 56/2020/ND-CP published on 25 May 2020.

In more detail, non-refundable ODA will be used priority for the execution of programs and projects for the development of socio-economic infrastructure, capacity improvement, institutional and administrative reform, natural disaster prevention, combat and mitigation, climate change adaptation, social security, preparation for investment projects or co-finance projects using concessional loans from foreign donors in order to increase the preferential component of loans.

ODA loans are prioritized to be used for programs and projects of healthcare, education, vocational training, climate change adaptation, environmental protection and essential traffic infrastructure investment.

ODA loans are prioritized to be used for programs and projects in the fields of health, education, vocational education, climate change adaptation, environmental protection, and essential economic infrastructure that are not available for the direct return of capital.

Foreign donors’ concessional loans shall be given priority to be used for on-lending programs/projects, in accordance with regulations on on-lending of ODA loans and foreign concessional loans of the Government of Vietnam. Socio-economic infrastructure development programs and projects fall under the spending plan of the state budget.

In addition, based on actual needs, the non-refundable ODA is prioritized for disasters, pandemics, green growth and creative innovation in this period.

Orientation to allocate ODA by economic region

The allocation of ODA capital and foreign donors’ concessional loans for the 2021-2025 period will be implemented by the economic region. Accordingly, non-refundable ODA and ODA loans are prioritized to allocate for localities with difficult socio-economic development conditions, through the allocation mechanism from the central budget.

Prioritize the use of ODA and concessional loans for infrastructure improvement projects, helping disadvantaged regions and localities to develop the economy and gradually catching up with other regions and localities. They will also prioritize regions and localities with a low ability to mobilize domestic capital and projects supporting in handling the problems in the process of rapid urbanization in the provinces.

The ODA and concessional loans are prioritized for developing localities and projects suitable to their development level and for increasing capacity to absorb and use ODA and concessional loans of the locality, inter-regional and inter-provincial connection projects in the Northwest, Central Highlands and Mekong River Delta regions for further development.

Low and slow disbursement of ODA in the 2016-2020 period in Vietnam and changes for the new period³

“During the last five years, Vietnam received over € 10.6 billion in ODA and concessional loans, and about 80 per cent of that was mobilised through the World Bank, the Asian Development Bank (ADB), the Japan International Cooperation Agency, the Export-Import Bank of Korea, the French Development Agency, and the KfW Development Bank.

Low and slow disbursement rates were the biggest limitation and one of the reasons for reducing the efficiency of ODA attraction into Vietnam. In the 2016-2020 period, ODA loans and foreign concessional loans that were adjusted according to the National Assembly’s resolution amounted to about VND 360 trillion (€ 13.3 billion). By the end of 2019, the total allocated capital in the state budget estimated for the 2016-2019 period was VND 244.3 trillion (€ 9.05 billion), equalling 67.9 per cent of the adjusted plan of the whole period. But the amount disbursed and accumulated until 2019 was just VND 133.04 trillion (€ 4.9 billion), a mere 54.5 per cent of the plan, according to the MPI’s data.

“It is necessary to amend legal regulations to increase investment efficiency and disbursement rates,” said Dr. Nguyen Xuan Thanh from Vietnam’s Fulbright University. According to Thanh, the delay of key investment projects is a serious problem for medium- and long-term economic growth as they limit the expansion of production capacity. “Economic activities in major economic centres and people’s quality of life are at risk of serious decline if infrastructure bottlenecks are not resolved,” warned Thanh.

To increase investment efficiency, Thanh recommended that the country keeps in mind the lessons of state governance on the use of ODA loans, starting with contractor selection over project preparation to implementation.”

The information was translated and collected from:

1. Website Chinhphu.vn. Định hướng thu hút, quản lý và sử dụng vốn ODA và vốn vay ưu đãi. Accessed on 15 January 2022. The article is available in Vietnamese here.
2. E-portal of the Vietnamese Ministry of Finance. Accessed on 15 January 2022. The article is available in English here.
3. Vietnamnet. Overhaul in motion for ODA utilisation. Accessed on 15 January 2022. Read full article here.