Preferential ODA loans to be cut off from July 2017

Instead, the country could be provided only preferential loans and gradually market-based financing, Truong Hung Long, head of the Ministry of Finance’s Department of Debt Management and External Finance said at the conference on the ODA relending polices.

Vietnam was working with the World Bank and other organisations on the roadmap of repayment of official development assistance (ODA) to prevent “shocks” to the State budget when interest rates on existing ODA increased or repayment period was shortened, heard a conference on March 22.

Long said that concessional terms of preferential loans provided to Vietnam gradually became stricter as the country turned into a middle-income country since 2010.

Long said that interest rates on existing ODA would be increased to between 2% and 3.5%, from below 1% per year or the repayment period should be shortened by half as the country needs to implement rapid debt repayment obligation after providing of the ODA.

Before 2010, average repayment period was around 30 years to 40 years with borrowing costs between 0.7 and 0.8% per year, including a grace period. In comparison, the average repayment period was between 10 years and 20 years and borrowing cost was from 2% during the 2011 to 2015 period.

The finance ministry said it was working with the World Bank, a major donor to Vietnam, and other organisations about ODA repayments to prevent negative impacts to the State budget. “The negotiations are underway,” Long said.

Repayment Pressure

As negotiations for ODA repayment were underway, Long said that he could not give an exact amount of the public debts Vietnam had to pay by 2020.

He said that debt repayment pressure would be the heaviest in 2022 to 2025 period, so the pressure would not be huge in the next four years.

Long said that payables this year would account for around 14.7% of the total budget collection, or VND150 trillion (US$6.7 billion).

Statistics from the finance ministry showed that Vietnam received US$45 billion worth of ODA between 2005 and 2020.

The finance ministry said that ODA contributed to the country’s socio-economic development and on improving the infrastructure system. However, while the credit risks were still put on the shoulder of the State budget, the management and use of ODA sometimes were inefficient.

Long said that from now to July 2017, Vietnam must take advantage of the ODA to invest in development of the infrastructure system.

In order to enhance the efficiency of the ODA management and use, Long said that the relending mechanism might be applied at localities with a better financial situation to share the public debt pressure with the State budget.