Vietnam will need to invest 110 billion USD between 2021 and 2025 for infrastructure (Photo: cafef.vn) Hanoi (VNS/VNA) - As Vietnam is estimated toneed an average of 210 billion USD for infrastructure per year through 2030 tomeet its development targets, an Asian Development Bank (ADB) expert suggestedthe country should adopt new approaches to get the huge capital.
Donald Lambert, Principal Private Sector DevelopmentSpecialist from ADB’s Southeast Asia Department, said the Global InfrastructureHub also estimated that the country needs to invest 110 billion USD between2021 and 2025 for infrastructure and to meet the Sustainable Development Goals.Based on historical trends, this will leave a projected 22 billion USD fundingshortfall for Vietnam.
According to Lambert, 22 billion USD over five years is a bignumber, but it’s not insurmountable. In fact, Vietnam is in a better positionthan many. Whereas the Philippines, India, and other Asian countries haveprivately funded a large portion of their infrastructure, the private sectorhas historically only funded 10 percent of Vietnam’s. That means there is a lotof scope for Vietnam – particularly given its compelling growth story – toattract more infrastructure investment.
To make this happen, the ADB expert recommended that Vietnamshould pursue three complementary strategies.
“The first strategy is more catalytic use of developmentassistance,” Lambert said, noting this required a different mindset.
He explained that Vietnam is no longer a low-income country,but it is also not ready to fund itself exclusively through private investmentand domestic capital markets. A transition period is needed where Vietnam usesdonors’ assistance to catalyse private investment that would not come otherwise.
“This transition period will, however, require new tools.This includes issuing counter-guarantees to ADB and other development partnersso they can use their strong international credit ratings to de-risk projects.”
Vietnam should also prioritise development assistance tostrengthen the financial sector, providing stand-by facilities or otherenhancements to make it easier for State-owned enterprises tasked with keyprojects to access affordable financing, and allowing development partners toissue dong-linked bonds to lower the cost of capital for Vietnamese borrowers.
Using development assistance to attract private investmentclosely ties to the second priority: passing a strong law on public-privatepartnerships (PPP).
“The law needs to better mitigate the risk that the demandfor an infrastructure project falls short of projections,” Lambert said, addingthat Vietnam already does this with feed-in-tariffs for power generationprojects. The PPP law should afford similar protection to other sectors,particularly transport. This can be achieved through minimum revenue guaranteesor ensuring that availability payments extend automatically beyond the currentceiling of five years.
Lambert said the final strategic priority is bettermobilisation of domestic capital markets. The passage of the new Securities Lawin November 2019 was a good step as are recent regulatory changes that encouragecompanies to turn to the bond market instead of banks to fund long-termobligations./.
VNA
