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Reduced ODA reliance can mean more funding choices

Update: July, 17/2014 - 09:14

 Viet Nam's status as a middle-income country can limit its sources of preferential capital, Duong Duc Ung, former Director of the External Economic Department, tells Radio Voice of Viet Nam (VOV).

Over the past 20 years, nearly US$80 billion in ODA has been granted to Viet Nam. How significant has this inflow been for the nation's development and international integration?

Through 19 consultative group (CG) meetings from 1993 to 2012, donors have committed US$78 billion in loans to Viet Nam, and this climbs to nearly $80 billion if one takes into account 2013 and the first half of this year.

However, it's important to note that Viet Nam became a middle income country in 2010 and donors agreed not to make ODA commitments for just one year; instead, they decided commitments could be made at any time of the year.

This is an important message, demonstrating that Viet Nam interacts with donors on the basis of equality, mutual trust and co-operation for mutal development.

Each year, Viet Nam disburses around $3 billion in ODA to help balance the macro-economy, ensure financial sources for investment development, and support sectoral development, especially of infrastructure.

Viet Nam fulfilled its millennium development goals (MDG) for poverty reduction in 2008, well ahead of the 2015 target. This achievement can well be attributed to effective use of ODA.

The capital disbursed every year ($3 billion) is said to meet only 60 per cent of the need. What does this slow disbursement mean for the economy?

Slow disbursement is akin to someone that needs food but does not eat when served. The slow disbursement of huge ODA capital over the past 20 years reflects weak absorbability, and this has several consequences.

First, slow investment causes economic losses. Delays in a planned project lead to a delay in the economic benefits from it, and lowers the project's value.

Second, slow disbursement is a waste of economic resources for not only Viet Nam but also for the global community. If Viet Nam does not have immediate use for the capital, it should be sent to other countries that can better utilize it.

Third, it diminishes the trust of foreign investors in the nation. When signing agreements, Viet Nam promises to carry out projects on schedule and make effective use of the resources.

If the nation does not make good on its commitments, it suffers economic losses as well as loss of prestige.

What are the main causes of slow disbursement?

Some of the projects require capital contributions from the government and the government has been slow in making them, leading to unnecessary delays in disbursing related ODA funds.

Many management agencies are not clear about their roles in the ODA process, nor are they fully aware of its importance.

ODA procedures of both Viet Nam and donors are cumbersome and inconsistent.

Lastly, ODA management regulations are not strictly observed and project management capacity is weak and unprofessional.

Many experts say that it is time for Viet Nam to lessen its reliance on ODA and shift to other capital sources with tighter conditions. What do you think?

Viet Nam has made the transition from a poor developing nation into a middle-income nation by world standards. So it cannot continue to enjoy as much ODA as it has in the past.

It is time for the country to look forward to other sources that are less preferential than ODA but more preferential than other commercial loans.

Such new loans will have higher interest rates and shorter repayment terms, but the borrower will have more choices, including choosing currencies like Yen and the Euro or the US dollar.

This means both opportunity and challenge for Viet Nam.

A reduction in preferential assistance means that Viet Nam must adjust its macroeconomic policy. What policy would you advocate for lessening reliance on ODA?

Traditionally, ODA is used to develop infrastructure and supply high quality public services in line with citizens' payment capacity.

To use the reducing preferential loans effectively, Viet Nam should devise incentives and create a highly competitive environment for all economic sectors, including private businesses.

For example, private businesses should be encouraged to invest in building a highway that is partly being funded by World Bank loans. This approach will help create equality in the market while optimising the roles of all sectors in economic development. — VNS

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