A view of the ongoing project of Nhon-Hanoi Station Urban Railway. The investment capital for the project is now about 1.17 billion EUR (1.3 billion USD) instead of 783 million EUR as initially planned (Photo: VNA) Hanoi (VNS/VNA) - Vietnam has beenadvised to carefully consider whether to borrow official development assistance(ODA) loans in the future.
The Ministry of Planning and Investment (MPI) madethe warning during its recent report consulting the government on ODA.
Statistics from the ministry showed that during2016-2017, Vietnam borrowed 6.7 billion USD in ODA loans, including 2.2 billionUSD in preferential loans and 216.8 million USD from non-refundable aid,the Tien Phong (Vanguard) newspaper reported.
In the past, the interest rate of many ODAprojects stayed at a low level and the payback period was about 25-40 years,with a reasonable grace period of 5-10 years.
They helped Vietnam access advancedtechnologies, boost innovation and were a catalyst to attract other investmentcapital, especially, from domestic sources, the report said.
However, ODA projects have shown shortcomings,such as interest rates reportedly increasing now, the ministry said.
If Vietnam did not tread carefully, it couldfall into an “ODA and preferential loan’s trap,” with ODA’s interest rates andarrangement fees higher than interest rates on commercial loans in the domesticmarket, the ministry said.
For example, some ODA loans could haverequirements of technologies and selected contractors, causing the actualborrowing cost to be higher than competitive bidding, the ministry said.
Additionally, the capability of localities thathost ODA projects was still limited. Some ongoing ODA projects had to extendtheir execution time, the ministry said.
“Some localities do not give priority forallocating capital for ODA projects from their local budget, they often waitfor the State budget,” the ministry added.
The ministry also named ODA projects that hadinvestment capital increasing a lot compared to initial estimates.
For instance, the investment capital forthe ongoing project of Nhon-Hanoi Station Urban Railway is now about 1.17billion EURO (1.3 billion USD) instead of 783 million EURO as initiallyplanned.
Delays in land clearance and slow constructionprogress were blamed as the major causes for the increases of investmentcapital, the ministry said.
According to the ministry, another shortcomingin implementing ODA projects during 2016-17 was a lack of reciprocal capitalfrom the Government, delaying land clearance. The situation mainly occurred intransport projects and projects in Hanoi and Hai Phong city.
Minister of Planning and Investment Nguyen ChiDung said that in the future, the government should only provide ODA capitalfor large-scale projects and projects that harmoniously combined domestic andinternational loans.
International loans should only be used toimport technologies, machines and equipment, he said.
The ministry said ODA loans and preferentialloans should only account for about 30-50 percent of the total investmentcapital for a project.
The government was urged to better use ODA loansfor projects to improve infrastructure, develop smart agriculture or boostexport activities, the ministry said. “Vietnam should be prepared for an exitstrategy,” the ministry said.
ODA should be only a temporary foreign-currencymobilisation channel. The biggest benefit of foreign loans is having foreigncurrency resources to access technology, assets and advanced expertise.
Vietnam needs to focus on building the domesticcapital market, accessing foreign capital market and improving the quality ofdomestic human resources to approach the international level, the ministrysaid.-VNS/VNA
VNA
