HANOI, May 27 (Engineering Daily) -- Since March 23, 2016, the World Bank (WB) has announced that they would stop the preferential Official Development Assistance (ODA) loans in Vietnam from July 2017. The concession reduction really makes difficulty for the Vietnam financial structure, especially during the time that Vietnam is in need of capital to support the development of infrastructure, serving for the recent economy dramatically developing.
Vietnam has turned to lower middle income status, thus the concession level among ODA loans for Vietnam has remarkably decreased. Besides, ODA allocation mechanism for local projects is also considered as the one of the reasons of the reduction. Because of the allocation, the efficiency of capital use is not high, vulnerable to loose capital, even the projects’ capital is over a lot. Meanwhile, local authorities are not subject to credit risk, the risk belongs to the State.
The data from the Ministry of Finance shows that, in the past 10 years during 2005-2015, the total ODA capital and preferential loans of USD 45 billion have been signed. The domestic capital usage structure is split 1/3 for the central budget allocating to the programs and projects under the duties of the central budget expenditures; 1/3 for the local programs and projects; and 1/3 for on-lending the key projects of the state.
The fact that Vietnam has already become a country with per capita GDP over the threshold of poverty, but the development is not stable and firm. Vietnam still needs many preferential, low-interest and long-term loans to build and develop, especially in the transport sector. So, to cut the ODA, Vietnam also has to build itself an appropriate way and sought to mobilize other concessional loan sources than ODA.
After July 2017, the country must access less preferential loans and move toward using loans at market conditions.
The Ministry of Finance proposed in the coming time, Vietnamese government should focus ODA loans in key sectors and projects, narrow the scope of allocations from the state budget and alleviate state subsidies in use of foreign loans.