Tough times ahead for loans

Friday, Oct 28, 2016 10:08

Workers at the construction site of Tan Vu – Lach Huyen Road in northern Hai Phong City, built with Japanese ODA. Tightening ODA loan management is believed to be one method to reduce public debt.— VNA/VNS Photo Huy Hung
HA NOI (Biz Hub) — A senior official of the Ministry of Finance (MoF) says Viet Nam needs to tighten its management of official development assistance (ODA) loans and mobilise private sector capital to ease the burden of public debt.

Hoang Hai, deputy head of the Department of Debt Management and External Finance told a press conference held by the ministry earlier this week that beginning in July 2017, Viet Nam may not enjoy preferential World Bank ODA loans, which have long been a major source of capital. Viet Nam would likely be excluded from the list of countries receiving concessional loans from WB's International Development Association as it has become a middle-income country since 2010.

Instead, the country must work with less preferential loans or loans at market conditions. In addition, for existing ODA loans, their repayment period will be halved or their interest rates will be increased to between 2 and 3.5 per cent, instead of the average of below 1 per cent in the past.

Hai said MoF and WB are working to compile different scenarios for quick repayment and assessing the shift's impacts to the national budget.

According to the MoF's report, the total of Viet Nam's ODA loans and other preferential loans reached US$45 billion during the 2005-2015 period, much of which were allocated for development of infrastructure, health care, education and training, agriculture, hunger reduction and poverty eradication, and environmental protection.

The MoF's representative said debt repayment this year remains on track.

In the first nine months of this year, Viet Nam spent about VND17.9 trillion ($801 million) repaying all types of debt, including VND8 trillion on domestic debts and VND9.9 trillion on foreign debts. Most of the money came from the national budget.

Viet Nam spends about $1 billion a year to pay off ODA debt, including principal and interest, according to Hai.

"Public debt remains below a safe threshold. Borrowing and repayment are within safe limits and comply with the Law on National Budget and Law on Public Debt Management," he said.

Last year, then Prime Minister Nguyen Tan Dung issued a directive to enhance the efficiency of public debt management and use, limiting the use of public loans for essential socio-economic projects.

The use of ODA capital has also been tightened, Hai said. For example, ODA capital can no longer be used for buying State-owned cars, except for very essential cases like specialised cars for public service. Each purchase must receive Government review and approval.

According to Hai, the MoF has issued a circular which includes several adjustments regarding financial management of programmes using ODA capital and preferential loans from foreign donors. The circular will take effect on November 1. — VNS

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