From July 2017, Viet Nam would no longer receive preferential loans in the form of official development assistance (ODA), a finance department official said at a conference yesterday, March 22.

Nhat Tan Bridge is funded by ODA capital of Japan. — File Photo

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.

Viet Nam 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 yesterday.

Long said that concessional terms of preferential loans provided to Viet Nam 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 per cent and 3.5 per cent, from below 1 per cent 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 cent 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 per cent during the 2011 to 2015 period.

The finance ministry said it was working with the World Bank, a major donor to Viet Nam, 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 Viet Nam 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 per cent of the total budget collection, or VND150 trillion (US$6.7 billion).

Statistics from the finance ministry showed that Viet Nam 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, Viet Nam 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.