Decision 2109/QD-TTg 2021 attraction, management and use of ODA and concessional loans in 2021 - 2025

DECISION

Approving the Scheme on orientations for attraction, management and use of official development assistance and concessional loans of foreign donors for the 2021-2025 period^[1]

THE PRIME MINISTER

Pursuant to the June 19, 2015 Law on Organization of the Government; and the November 22, 2019 Law Amending and Supplementing a Number of Articles of the Law on Organization of the Government and the Law on Organization of Local Administration;

Pursuant to the June 13, 2019 Law on Public Investment;

Pursuant to the Government’s Decree No. 56/2020/ND-CP of May 25, 2020, on management and use of official development assistance and concessional loans of foreign donors;

At the proposal of the Minister of Planning and Investment.

DECIDES:

Article 1. To approve the Scheme on orientations for attraction, management and use of official development assistance (ODA) and concessional loans of foreign donors for the 2021-2025 period (below referred to as the Scheme) enclosed with this Decision.

Article 2. Funds for implementation of the Scheme shall be included in annual budget estimates of ministries, central agencies and localities in accordance with the Law on the State Budget.

Article 3. This Decision takes effect on the date of its signing.

Article 4. Ministers, heads of ministerial-level agencies, heads of government-attached agencies, and chairpersons of provincial-level People’s Committees shall implement this Decision.-

For the Prime Minister
Deputy Prime Minister
PHAM BINH MINH

SCHEME

On orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2021-2025 period

(Enclosed with the Prime Minister’s Decision No. 2109/QD-TTg
of December 15, 2021)

PREAMBLE

I. NECESSITY OF THE SCHEME

During the 2016-2020 period, Vietnam’s economy recorded outstanding achievements. The economic growth saw a fairly high rate and the average GDP growth rate reached 6.8% during 2016-2019 and 5.99% for the whole 2016-2020 five-year period (due to the impacts of the COVID-19 pandemic in 2020), which still surpassed the rate of 5.91% in the 2011-2015 period; the macro-economy had been maintained stable; public debts and Government’s debts witnessed a decline, creating a considerable “room” for mobilizing more resources for public investment. The raised funds for development investment made up 33.47% of the GDP on average; the structure of raised funds saw a positive change.

In order to attract, manage and effectively use ODA and concessional loans of foreign donors, in the 2016-2020 period when Vietnam became a middle-income country, especially after Vietnam “graduated” from the International Development Association (IDA) with preferential interest rates of the World Bank (WB) in 2017 and from the Asian Development Fund (ADF) in 2019, some donors had revised aid policies for Vietnam, while the Vietnamese Party and State had issued numerous new guidelines and policies on and orientations for mobilization and use of ODA and concessional loans of foreign donors.

At the same time, the institutional and legal frameworks regulating these funding sources had been unceasingly improved^[2]. Also during this period, the Prime Minister promulgated Decision No. 251/QD-TTg of February 17, 2016, approving the Scheme on orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2016-2020 period, and Decision No. 1489/QD-TTg of November 6, 2018, approving the Scheme on orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2016-2020 period, with a vision for the 2021-2025 period. Moreover, the drastic and close direction and administration by the Government and the Prime Minister and joint efforts of sectors and authorities at all levels had helped improve the effectiveness of the management and use of ODA and concessional loans of foreign donors.

However, due to subjective and objective causes, particularly when Vietnam became a middle-income country, some donors have lessened their priorities when providing ODA to Vietnam. The total amount of ODA and concessional loans of foreign donors under signed agreements in the 2016-2020 period merely equaled around 51% of that in the 2011-2015 period, thus, the contribution rate of these funding sources to the total development investment amount of the entire society in the 2016-2020 period was only around 3.3% compared to 8.8% in the 2011-2015 period.

Although Vietnam has “graduated” from using ODA with preferential interest rates of the WB and the Asian Development Bank (ADB), in the time to come, ODA and concessional loans of foreign donors will still constitute an important resource for investment in key socio-economic infrastructure facilities with spillover effects and importance.

So, it is really necessary to formulate the Scheme in order to mobilize and effectively use ODA and concessional loans of foreign donors, thus helping successfully implement the 2021-2030 ten-year socio-economic development strategy in the spirit of the Resolution of the XIII^th National Party Congress, the 2021-2025 five-year socio-economic development plan, the 2021-2025 medium-term public investment plan and the 2021-2025 five-year plan on national finance and borrowing and payment of public debts under the National Assembly’s Resolutions No. 16/2021/QH15, No. 29/2021/QH15, and No. 23/2021/QH15.

II. LEGAL GROUNDS FOR FORMULATION OF THE SCHEME

- The National Assembly’s Resolution No. 16/2021/QH15 of July 27, 2021, on the 2021-2025 five-year socio-economic development plan;

- The National Assembly’s Resolution No. 29/2021/QH15 of July 28, 2021, on the 2021-2025 medium-term public investment plan;

- The National Assembly’s Resolution No. 23/2021/QH15 of July 28, 2021, on the 2021-2025 five-year plan on national finance and borrowing and payment of public debts;

- The Prime Minister’s Decision No. 1489/QD-TTg of November 6, 2018, approving the Scheme on orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2018-2020 period, with a vision for the 2021-2025 period, and the Prime Minister’s Directive No. 03/CT-TTg of January 30, 2019, on organization of the implementation of Resolution No. 582/NQ-UBTVQH14 of October 5, 2018, on a number of tasks and solutions for further stepping up the implementation of policies and laws on management and use of foreign loans. The Ministry of Planning and Investment has been assigned by the Prime Minister to assume the prime responsibility for, and coordinate with related agencies in, further improving orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2021-2025 period in conformity with the 2021-2030 ten-year socio-economic development strategy and the 2021-2025 five-year socio-economic development plan; and study and propose a framework strategy for new development partners with a vision to 2030 for use as a basis for formulation of programs and projects to be funded by ODA and concessional loans and development cooperation activities in the coming period.

III. PURPOSES OF THE SCHEME

The Scheme is a document presenting the Government’s policies that aim to concretize guidelines and policies of the Party and the State on attraction, management and use of ODA and concessional loans of foreign donors to support the implementation of the 2021-2030 ten-year socio-economic development strategy and the 2021-2025 five-year socio-economic development plan. The Scheme serves as a basis for sectors and authorities at all levels to mobilize and use ODA and concessional loans of foreign donors in the 2021-2025 period and for donors to apply in the process of policymaking and formulation of programs on development cooperation with Vietnam at regional, national and ministerial levels and in central agencies and localities. The Scheme also aims to transparentize policies of the Vietnamese Government in the attraction, management and use of the aforesaid funding sources domestically and internationally.

Major objectives of the Scheme:

1. To evaluate the attraction, management and use of ODA and concessional loans of foreign donors in the 2016-2020 period.

2. To forecast economic growth perspective and demand for ODA and concessional loans of foreign donors for the 2021-2025 period.

3. To update and revise principles and orientations for attraction and use of ODA and concessional loans of foreign donors for new projects in the 2021-2025 period, particularly, to clearly identify major orientations for attraction of foreign loans in this period.

IV. SCOPE OF THE SCHEME

The Scheme focuses on analyzing the mobilization, management and use of ODA and concessional loans of foreign donors nationwide in the 2016-2020 period for use as a basis for setting orientations for attraction, management and use of these funding sources for the 2021-2025 period.

V. STRUCTURE OF THE SCHEME

The Scheme consists of three major parts:

Part I: Evaluation of the attraction, management and use of ODA and concessional loans of foreign donors in the 2016-2020 period.

Part II. Importance of and capacity to mobilize ODA and concessional loans of foreign donors for the 2021-2025 period.

Part III. Orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2021-2025 period.

Part I

EVALUATION OF THE ATTRACTION, MANAGEMENT AND USE OF ODA AND CONCESSIONAL LOANS OF FOREIGN DONORS IN THE 2016-2020 PERIOD

I. MAJOR ACHIEVEMENTS

Findings of the evaluation of practical attraction and use of ODA and concessional loans of foreign donors in the 2016-2020 period show the following major points:

1. After Vietnam became a middle-income country, development cooperation policies of donors had been revised toward gradually reducing or terminating non-refundable ODA amounts while gradually turning ODA loans with preferential interest rates into loans with lower incentives. Some bilateral donors still provided ODA and foreign concessional loans in the form of export credit that were often accompanied with binding conditions on services and origin of goods in certain ratios.

2. The amount of ODA and concessional loans of foreign donors mobilized for the 2016-2020 period was lower than that of the 2011-2015 period. The amount signed for the 2016-2020 period was USD 12.99 billion, down by 51% as compared to the 2011-2015 period’s figure.

3. In the 2016-2020 period, the total disbursed amount of ODA and concessional loans of foreign donors was estimated at USD 13.6 billion, a reduction of some 41% against the figure of the 2011-2015 period, or down by 16% on annual average, of which the disbursed amount of foreign capital amounts allocated from the central budget under the medium-term public investment plan of this period was estimated at VND 185.1 trillion^[3], equal to 64.8% of the amount assigned by the Prime Minister (see Table 1).

Table 1. Disbursement of ODA and concessional loans of foreign donors under the medium-term public investment plan in the 2016-2020 period

Unit of calculation: VND billion

Source: Ministry of Planning and Investment and Ministry of Finance

4. Below are some basic causes of the decline in mobilized and disbursed amounts of ODA and concessional loans of foreign donors over the past time: (1) After Vietnam became a middle-income country, donors had revised the policy of providing funds, particularly ODA loans and non-refundable aid; (2) Vietnam’s public debts, including foreign debts, had previously increased rapidly, placing pressure on the attraction of foreign loans and repayment of foreign debts; (3) The Government’s structure of domestic loans and foreign loans had been adjusted in response to the increased expenses for getting foreign loans (as a result of lowered incentives of ODA); and (4) the Government’s policy institutions had been adjusted to suit reality, including relatively unexpected adjustments that restrict the accessibility to and disbursement of funds for projects.

5. Despite the decline in ODA and concessional loans of foreign donors in the 2016-2020 period, these funding sources still made positive contributions to growth and development of the economy, which were manifested in the following aspects:

- ODA and concessional loans of foreign donors remained important contributions to development investment funds from the state budget. The disbursed amount of this funding channel accounted for 3.33% of the total development investment amount of the entire society (averagely for the whole 2016-2019 period) and made up 18.08% of the total investment amount from the state budget (see Figure 1).

Figure 1. ODA and concessional loans of foreign donors in development investment

Source: Ministry of Planning and Investment

- ODA and concessional loans of foreign donors had been distributed in conformity with the Government’s guidelines and orientations on mobilization and use of ODA and concessional loans of foreign donors. Specifically, ODA and concessional loans of foreign donors were set as a priority for a number of sectors with spillover effects and inter-regional connectivity and creating a driving force for regional development and concurrently for a number of disadvantaged areas. The per-capita amount of ODA and concessional loans of foreign donors had been distributed more evenly as compared to the previous period (see Table 2).

- The number of inter-regional projects funded by ODA and concessional loans of foreign donors increased, showing capacity of the central budget and conformity with priorities for projects under the Scheme on orientations for attraction, management and use of ODA and concessional loans of foreign donors in the 2016-2020 period.

- The policy on on-lending of loans for projects was correct, aiming to raise responsibility of loan recipients, particularly localities. However, some shortcomings were revealed in the process of implementation. Some localities that faced socio-economic difficulties and had limited revenues found it hard to access ODA and concessional loans of foreign donors due to the low public debt ceiling. In addition, the order and procedures for appraisal and signing of contracts on on-lending of loans, disbursement method, especially for projects applying a mixed domestic financial mechanism (allocation-cum-on-lending of funds), remained complicated. This affected the progress of implementation of and fund disbursement for projects.

Table 2. ODA and concessional loans of foreign donors distributed for regions under signed agreements

Source: Ministry of Planning and Investment

- ODA and concessional loans of foreign donors had been distributed by sector and field, focusing on transport, environmental protection and urban development with large projects. The hunger elimination and poverty reduction sector still received priority. The social infrastructure sector received a proportion of loans higher than the previous period (see Figure 2).

Figure 2. Structure of mobilized ODA and concessional loans of foreign donors by sector/field (%)

Source: Ministry of Planning and Investment

II. GENERAL EVALUATION

1. General evaluation of achievements in the last period:

- Guidelines and policies on attraction, management and use of ODA and concessional loans of foreign donors have been promptly revised to suit changes in the new situation.

- The work of management and use of ODA and concessional loans of foreign donors has been strengthened with a better mechanism for interdisciplinary and inter-regional coordination.

- ODA and concessional loans of foreign donors have played a significant role in the state budget’s investment as a catalyst for development, and helped strengthen the development cooperation relationship between Vietnam and countries and organizations around the world and in the region.

2. General evaluation of shortcomings and limitations:

- Mechanisms, policies and institutions on attraction, management and use of ODA and concessional loans of foreign donors saw rapid changes and remained unstable and incomplete.

- There existed shortcomings and problems in the course of implementation, for example, project designs were inappropriate and had to be adjusted for multiple times; and the quality of formulation, appraisal and approval of investment projects remained low.

- The rate of disbursement was lower than that in the previous period; a number of projects were implemented behind schedule, requiring refund of capital allocated under plans due to failure to make disbursement.

- The efficiency of a number of projects remained low due to their prolonged implementation period and delayed operation and use for serving the people’s life.

3. Major causes of shortcomings and limitations:

- Regulations on ODA and concessional loans of foreign donors were incomplete; some procedures remained complicated.

- The readiness in project preparation was not good enough, with low quality of project preparation, frequently requiring project adjustment or project design change in the course of implementation.

- Procedures for appraisal, approval, and negotiation for conclusion of agreements and modification of projects to be funded with ODA and concessional loans of foreign donors seemed to be complicated and prolonged, leading to the fact that many projects became no longer appropriate when being implemented and had to be adjusted or had their implementation period prolonged.

- There were problems arising in the implementation of the Law on Public Investment and the Government’s Decree No. 56/2020/ND-CP of May 25, 2020, on management and use of ODA and concessional loans of foreign donors (complicated procedures for modification of investment policy; lack of regulations applicable to state enterprises that were on-lent 100% of ODA or concessional loans; and complicated procedures for determining expenses eligible to be covered by ODA and concessional loans, and for conclusion, modification, supplementation and extension of treaties in the name of the Government and specific agreements on ODA and concessional loans).

- Formulated plans on ODA and concessional loans of foreign donors remained not suitable to reality.

- There were difficulties and problems in the work of compensation and ground clearance for projects to be funded with ODA and concessional loans of foreign donors due to the need for harmony between domestic procedures and policies of donors.

- Counterpart funds had not yet been allocated fully and on time.

- The coordination among ministries, central agencies, localities and donors remained not close enough.

- The project organization and management lacked professionalism and failed to meet requirements of donors, especially in bidding, financial management, and formulation of environmental and social policies, etc.

Part II

IMPORTANCE OF AND CAPACITY TO MOBILIZE ODA AND CONCESSIONAL LOANS OF FOREIGN DONORS IN THE 2021-2025 PERIOD

I. NECESSITY TO MOBILIZE ODA AND CONCESSIONAL LOANS OF FOREIGN DONORS IN THE COMING PERIOD

1. Background on socio-economic development and investment demand

Over the past time, Vietnam’s economy has recorded certain achievements; however, long-term bottlenecks still existed, making the country encounter emerging challenges; many factors prompted the need to attract ODA and concessional loans of foreign donors for the new development period:

Firstly, according to the Government’s policies, in the 2021-2025 period, Vietnam will focus on economic recovery after the COVID-19 pandemic, with a greater focus on restructuring the economy, changing the growth model and raising the growth quality toward development of high-quality human resources, promotion of science and technology, innovation, digital technology, digital economy, development of highly connectible infrastructure, reform of state management, improvement of public services, etc., that require great amounts of investment capital.

Secondly, the increasing demand for urban embellishment as a result of rapid urbanization leads to an increase or even overload on the urban transport system, the environment and public services such as health or education.

Thirdly, region-based inequality has not yet been controlled. The State still needs to make investment for increasing the accessibility to basic social services and economic opportunities for underdeveloped areas when the private sector’s investment in these areas remained modest.

Fourthly, there is a demand for retraining of a majority of the workforce to catch up with the development level of science and technology, economic restructuring, especially in the context of the Fourth Industrial Revolution.

Fifthly, Vietnam is facing numerous challenges with global emerging issues such as climate change and sea level rise, requiring large amounts of capital for response thereto.

2. Necessity of loans to deal with the lack of state budget funds

Against the backdrop that state budget funds are insufficient as the country has not yet regained its economic growth, ODA and concessional loans seem to be necessary for investment in development of large-scale and pivotal infrastructure facilities of the economy that have spillover effects and inter-regional connectivity, and public investment programs and projects to be implemented in multiple areas, etc. While state budget funds remain modest and the private sector’s investment cannot be mobilized, failure to attract ODA and concessional loans will exert certain impacts on socio-economic development goals in the long run.

The scale and development level of the domestic bond market remain modest although the Government has been restructuring debts toward gradually increasing domestic loans. It is infeasible to get loans from commercial banks because of the lack of legal grounds. Other lending sources all reveal certain limitations on the scope and purpose of borrowing. With regard to the central budget, loans provided in the form of government bonds only meet about 70% of loan demands; the remaining 30% must rely on foreign loans. Regarding local budgets, loans on-lent from ODA and concessional loans of foreign donors seem the most appropriate to increase expenditures for development investment. Compared to domestic loans, foreign loans are more stable and less impacted by domestic and foreign short-term capital markets, thus ensuring capital adequacy during project implementation periods.

Foreign loans may be accompanied by knowledge, technology, and new management processes (particularly for the fields of urban railways, airports, big seaports, vocational schools, and international-standard universities, etc.), thus helping improve capacity and experience for Vietnamese companies and workers to participate in project implementation to meet economic development requirements of a middle-income country.

3. Economic growth perspective and demands for ODA and concessional loans of foreign donors for the 2021-2025 period

According to the objectives of the 2021-2025 five-year socio-economic development plan^[4] and the 2021-2030 ten-year economic development strategy^[5], the annual GDP growth rate will reach 6.5-7% on average and development investment will account for 32-34% of GDP.

Table 3. Economic growth perspective and demands for ODA and concessional loans for the 2021-2025 period

With respect to state budget funds and loans, in the coming time, to-be-mobilized funds for budget fund balancing and development investment purposes will still focus on issuance of government bonds in the country, disbursement of ODA and concessional loans of foreign donors, and temporary mobilization of a number of loans from the State Treasury Cash-Balance Fund, the Vietnam Social Security, the Sinking Fund, and other funding sources as prescribed by law.

II. CAPACITY TO ATTRACT ODA AND CONCESSIONAL LOANS OF FOREIGN DONORS IN THE COMING TIME

1. Capacity to provide ODA and concessional loans of foreign donors:

Information from donors shows that the amount of ODA and concessional loans of foreign donors to be provided for Vietnam in the 2021-2025 period will reach around USD 25.82 billion (approximately USD 5.13 billion per year), which will be distributed by structure of funding sources: ODA loans, about 30.9%; concessional loans of foreign donors, around 64.8%; and ODA as non-refundable aid, about 4.3%. If inclusive of the capital amount carried forward from the previous period, the amount of ODA and concessional loans of foreign donors for Vietnam in the 2021-2025 period will be larger.

- ODA as non-refundable aid: estimated at around USD 1.12 billion in the 2021-2025 period (down by 41% against USD 1.9 billion during 2016-2020) mainly from United Nations organizations and bilateral donors, which will be used with priority for capacity building, formulation of policies and institutions, and reform; disaster prevention and control and disaster risk reduction and adaptability to climate change; social security, or preparation of investment projects, or co-funding for projects using concessional loans of foreign donors with a view to increasing the grant element of loans.

- ODA loans: Vietnam is to access ODA loans only from some bilateral donors and international financial funds. The total amount of ODA loans of foreign donors in the 2021-2025 period is estimated at USD 7.97 billion (a reduction of around 21% against USD 10.07 billion of the 2016-2020 period).

- Concessional loans of foreign donors: In general, foreign donors are able to meet all demands of Vietnam for use of their concessional loans, with the total amount estimated at USD 16.73 billion for the 2021-2025 period (7.8 times the figure of USD 2.18 billion in the 2016-2020 period), mainly from the Group of 6 Development Banks (USD 15.75 billion).

Regarding lending conditions, in the coming period, preferences (interest rate, repayment period, grace period, etc.) of loans will be lower than those previously applied but remain better than commercial loans. For ODA loans, some donors still maintain binding conditions on origin of goods and services from donor countries but have revised their policies to be more flexible to enable Vietnamese contractors to participate in project implementation.

2. Priority fields of donors:

Findings from surveys show that in the 2021-2025 period, donors will still support the development of economic and social infrastructure and emerging domains such as response to climate change and green growth, etc., among them, donors of the Group of 6 Development Banks will prioritize the provision of ODA and concessional loans to help Vietnam in development of transport and urban infrastructure, response to climate change, clean energy, agriculture and rural development, and social domains (health, education and training, vocational training, etc.).

3. Supply-demand balancing for ODA and concessional loans of foreign donors for the 2021-2025 period:

As seen in Table 4, the capacity to provide ODA and concessional loans of foreign donors exceeds the demand of the reporting ministries, central agencies and localities. This is a good signal of the capacity to mobilize and selectively use these funding sources.

Table 4. Summary of demands of ministries, central agencies and localities for, and capacity to provide, ODA and concessional loans of foreign donors for the 2021-2025 period

 Note: The exchange rate to be applied in the 2021-2025 period shall be based on the assumption that the annual inflation rate of Vietnam dong will be around 1% of GDP.

With regard to public debts, estimations show that the demand for ODA and concessional loans of foreign donors according to development scenarios as well as demands of localities and ministries and sectors will not affect public debt safety indicators with respect to public debt safety thresholds set in the 2021-2025 public debt plan (under which the public debt ceiling must not exceed 60% of GDP and government debts must not exceed 50% of GDP). According to the plan on borrowing of ODA loans, the approved amount of foreign concessional loans is VND 527 trillion; public debt safety indicators are as follows: public debts/GDP ratio - about 44.2% in 2021 and about 45.3% in 2025; and government debts/GDP ratio - about 40% in 2021 and about 41.6% in 2025. The ratio of ODA and concessional loans of foreign donors to GDP will be around 0.85% (which will be reduced from 0.91% in 2021 to 0.8% in 2025). In general, with a rather low mobilization rate compared to domestic loans, the influence of ODA and concessional loans of foreign donors on public debts in the coming period will be inconsiderable.

Part III

ORIENTATIONS FOR ATTRACTION, MANAGEMENT AND USE OF ODA AND CONCESSIONAL LOANS OF FOREIGN DONORS FOR THE 2021-2025 PERIOD

Based on basic contents of the 5-year socio-economic development plan and the 2021-2025 medium-term public investment plan, and the evaluation of the current situation, demand and capacity, and domestic and international developments in the coming time, orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2021-2025 period are set to include the following principal contents:

I. DIRECTING VIEWPOINTS AND BASIC PRINCIPLES

- To comply with general viewpoints and principles as stated in directing documents and orientations of the Party and the Government, particularly the 2021-2025 medium-term public investment plan, the Government’s Decree No. 56/2020/ND-CP of May 25, 2020, on the management and use of ODA and concessional loans of foreign donors, the Prime Minister’s Decision No. 1489/QD-TTg of November 6, 2018, approving orientations for attraction, management and use of ODA and concessional loans of foreign donors for the 2018-2020 period, and with a vision for the 2021-2025 period, and Directive No. 18/CT-TTg of June 29, 2019, on strengthening the management and improving the use efficiency of ODA and concessional loans of foreign donors in the new situation.

- The mobilization, management and use of ODA and concessional loans of foreign donors must be associated with the restructuring of public investment; for any new loan, it is required to consider its economic efficiency and financial plans, and evaluate its impacts on medium-term public investment plans, public debt indicators, budget as well as repayment capacity in the future.

- The negotiation for and conclusion of loan treaties or agreements must suit conditions and criteria on socio-economic efficiency and repayment capacity; to refrain from borrowing loans for projects that are accompanied by conditions disadvantageous to Vietnam or less efficient than when they use domestic loans.

- ODA and concessional loans of foreign donors shall be used only for development investment, but not for payment of recurrent expenditures. To focus on a number of key sectors to maximize economic efficiency based on scale, prioritizing investment in projects that will bring about socio-economic efficiency and directly promote growth in association with sustainable development, especially projects capable of generating medium- and long-term foreign currency revenues with a view to increasing the nation’s repayment capacity; and projects involving public goods to be covered by state budget expenditures and having spillover effects in such fields as climate change adaptation, improvement of environmental quality, education, health care, technology, and skills.

- To use ODA and concessional loans of foreign donors for fields and projects for which domestic public investment cannot finance or the private sector has no driving force to make investment, or a number of particular fields in which state investment is needed for control and management so as to facilitate the development of other economic sectors.

- To encourage the method of financing through providing budget support with appropriate expenses and quick disbursement into the state budget to allocate funds for national target programs.

- To prioritize the use of low-cost ODA loans and concessional loans of foreign donors for allocation of state budget funds; to consider on-lending foreign donors’ concessional loans with interest rates close to market interest rates; to comply with regulations on investment spending tasks of each budget level.

- To limit the use of ODA and concessional loans of foreign donors for projects not requiring foreign exchange to obtain goods or technology. To restrict the fulfillment of foreign currency obligations to finance local expenditures.

- To reduce the proportion of allocations while increasing the proportion of loans for on-lending for local programs and projects with funds partially allocated by the state budget and partially on-lent to local budgets according to the ratio set by the Government.

II. ORIENTATIONS FOR MOBILIZATION AND USE OF ODA AND CONCESSIONAL LOANS OF FOREIGN DONORS FOR THE 2021-2025 PERIOD

1. Plan on allocation of ODA and concessional loans of foreign donors for the 2021-2025 period

Under the 5-year plan on  loan borrowing and public debt repayment for the 2021-2025 period approved by the National Assembly in Resolution No. 23/2021/QH15 of July 28, 2021, and the Government’s Report No. 05/TTr-CP of April 6, 2021, on the situation of the 2016-2020 five-year loan borrowing and debt repayment and the 5-year plan on loan borrowing and public debt repayment for the 2021-2025 period, the total amount of ODA and concessional loans of foreign donors is estimated at about VND 527.1 trillion for the 2021-2025 period, of which the amount of loans allocated from the central budget is VND 305 trillion (including VND 300 trillion for development investment and VND 5.1 trillion for non-business administrative affairs for agreements signed in 2017 and earlier), and the amount of loans borrowed for on-lending is VND 222 trillion (including loans on-lent from the central budget to local budgets and on-lent to enterprises and public non-business units).

According to the National Assembly’s Resolution No. 29/2021/QH15 of July 28, 2021, on the medium-term public investment plan for the 2021-2025 period, out of VND 300 trillion of ODA and concessional loans of foreign donors allocated from the central budget, VND 270 trillion are used for projects carried forward from the previous period and new projects (including VND 179,657.898 billion allocated to ministries, central agencies and localities, and VND 90,342,102 billion not yet allocated to ministries, central agencies and localities), and VND 30 trillion are provision funds.

2. Sector-based priority orientations

a/ Sector-based orientations on priority for use of ODA and concessional loans of foreign donors for the 2021-2025 period must basically comply with with the Government’s Decree No. 56/2020/ND-CP of May 25, 2020, specifically as follows:

- Non-refundable ODA shall be used with priority for implementation of programs and projects on socio-economic infrastructure development; capacity building; support for formulation of policies and institutions and reforms; disaster prevention and control and disaster risk reduction and adaptation to climate change; social security; preparation of investment projects or co-financing for projects to be funded with concessional loans of foreign donors with a view to increasing the grant element of a loan.

- ODA loans shall be used with priority for programs and projects in the fields of health, education, vocational education, adaptation to climate change, environmental protection, and construction of essential economic infrastructure facilities which are incapable of directly recovering invested funds.

- Concessional loans of foreign donors shall be used with priority for programs and projects that will use loans for on-lending under the Government’s regulations on on-lending of ODA and concessional loans; and programs and projects to be covered by state budget expenditures in the field of socio-economic infrastructure development.

At the same time, based on actual needs, the fields of catastrophe and epidemic control, green growth and innovation will be added for prioritization of the use of non-refundable ODA in this period.

b/ Based on objectives, tasks and priority fields stated in the socio-economic development strategy for the 2021-2030 period, the socio-economic development plan and the medium-term public investment plan for the 2021-2025 period are as follows:

- To restructure the economy in association with changing the growth model, with priority given to capacity building; formulation and improvement of policies and institutions and reforms; formulation of national, sectoral and regional master plans; development of the financial and banking system, and trade facilitation.

- To develop socio-economic infrastructure, and implement sustainable development goals, giving priority to the following fields:

+ Infrastructure development and urban development:

Regarding urban areas as a driving force for development, ODA and concessional loans of foreign donors in the coming time shall be provided with priority to support the urbanization process toward synchronous development of the infrastructure system, formation of economic corridors, and settlement of urban challenges (traffic congestion, environmental pollution, inundation, etc.), thereby improving urban economic efficiency, linking localities with urban centers to drive development, specifically as follows:

(i)The Red River delta region: To develop and strengthen connectivity between Hanoi and surrounding urban areas; to build the Hai Phong-Quang Ninh area into a marine economic center.

(ii) The North Central Vietnam and Central Coast region: To continue to form and develop the coastal urban system, and marine tourism and eco-tourism centers of regional and international levels.

(iii) The Southeast region: To effectively develop large urban areas and Ho Chi Minh City to become the driving force of the Southeast and Southwest regions.

(iv) The Mekong River delta region: To accelerate urbanization, and build a regional urban network to create a driving force for development.

+ Development of transport system:

Expressways, national highways, railways and inland waterways, especially in the Mekong River delta region, seaports, airports, major urban ring routes, and coastal roads, with priority given to coastal routes in the North, South Central Vietnam and Mekong River delta region, specifically as follows:

(i) The North Central and Central Coast region: To develop seaports and seaport services.

(ii) The Central Highlands region: To upgrade routes connecting the Central Highlands provinces with coastal provinces of the South Central Vietnam region and with Southern Laos and Northeast Cambodia.

(iii) The Southeast region: To rearrange and upgrade systems of seaports, airports, and modern urban transport infrastructure.

(iv) The Mekong River delta region: To promote development linkages and develop transport infrastructure connecting with the Southeast region and Ho Chi Minh City. To ensure connection with major economic centers in the region and the world.

+ National energy security:

To quickly and synchronously develop clean energy and renewable energy.

c/ Management of natural resources and environment, with priority given to the following fields:

Management of natural resources and environment, protection of ecological environment; disaster prevention and control and disaster risk reduction, effective response to climate change, combat of desertification, riverbank and coastal erosion; and inundation prevention in Ho Chi Minh City.

d/ Agriculture and rural development, with priority given to the following fields:

Development of smart agriculture, clean agriculture, afforestation and forest certification, construction of irrigation systems and reservoirs to ensure water security for production activities and people’s lives.

dd/ Science, technology, innovation, and Industry 4.0, with priority given to the following fields:

Development of science, technology and innovation ecosystem. Establishment of the National Innovation Center.

e/ Improving the quality of human resources, with priority given to the following fields:

Development of education and vocational education in association with rapid restructuring of labor, especially in rural areas, and training of high-quality human resources.

g/ Health, culture and social affairs, with priority given to the following fields:

Community health, specialized health, preventive medicine system to control the COVID-19 pandemic; promotion of cultural values, and assurance of equity and social security.

h/ Strengthening regional connectivity, with priority given to regional connectivity projects with spillover effects and great impacts on the economy:

To strengthen connectivity with the Red River delta region and Hanoi capital; to effectively promote the operation of the East-West economic corridor; to raise the connectivity of regional infrastructure, creating a driving force for increasing linkage and producing spillover effects to promote cooperation and development with the Central Highlands, South Central Vietnam and Mekong River delta region.

The plan on sector-based allocation of ODA and concessional loans of foreign donors for the 2021-2025 period (including loans allocated from the central budget and loans on-lent from the central budget to local budgets) is shown in Table 5 below:

Table 5. Plan on sector-based allocation of ODA and concessional loans of foreign donors for the 2021-2025 period

Unit of calculation: VND trillion

Table 5 shows that for the 2021-2025 period, the proportion of ODA and foreign concessional loans allocated from the central budget for the fields of infrastructure development and urban development, transport system development, agriculture and rural development, and strengthening of regional connectivity is high.

3. Orientations for priority based on regions and territorial areas

Orientations for allocation of ODA and concessional loans of foreign donors for the 2021-2025 period are based on economic regions, specifically as follows:

- To prioritize the use of non-refundable ODA and ODA loans for localities with difficult socio-economic development conditions that are entitled to central budget allocations.

- To prioritize the use of ODA and concessional loans of foreign donors for projects on improvement of infrastructure to assist underdeveloped regions and localities in economic development and gradually catching up with other regions and localities; to prioritize the use of ODA and concessional loans of foreign donors in regions and localities that can hardly raise domestic funds.

- To prioritize projects to support the settlement of pressing issues in the process of rapid urbanization in provinces.

- To prioritize the use of concessional loans of foreign donors for developed localities and projects suitable to the receiving localities’ development level and capacity of getting and using ODA and concessional loans of foreign donors.

- Projects on inter-regional and inter-provincial connectivity in the Northwest, Central Highlands and Mekong River delta region for faster development.

The plan on ODA and concessional loans of foreign donors allocated from the central budget based on economic region (excluding centrally run projects implemented in localities) is shown in Table 6 below:

Table 6. Plan on ODA and concessional loans of foreign donors based on regions and territorial areas for the 2021-2025 period

Unit of calculation: VND trillion

4. Orientations for methods of providing ODA and concessional loans based on priority fields

Table 7 below proposes the use of loans and methods of providing loans based on sectors and fields prioritized for use of ODA and concessional loans of foreign donors:

Table 7. Orientations for use of loans and methods of providing ODA and concessional loans of foreign donors based on priority sectors and fields

5. Orientations for priorities for donor-based use of ODA and concessional loans

- To take advantage of the remaining ODA loan amounts of multilateral donors, and continue to focus on donors providing large amounts of ODA. To attach special importance to attracting and using ODA from the Group of 6 Development Banks.

- IBRD concessional loans of the WB and OCR loans of the ADB together with loans from Japan, Republic of Korea, France and Germany must be reserved for important and large-scale socio-economic infrastructure programs and projects (in the transport and hydraulic-work sectors, and for budget support programs aiming at green growth, response to climate change, or urban infrastructure in motive urban areas). It is also necessary to consider and negotiate loan terms with donors to ensure suitability with specific development priorities of Vietnam as well as the capacity of borrowing and debt repayment of ministries, sectors and localities in case of on-lending.

- At the same time, to take advantage of technical assistance and non-refundable aid of other donors to improve institutions for, and enhance the capacity, share knowledge, and transfer technology, and support localities in development of health, education, environment, and social affairs. To attach importance to coordinating with donors in accessing, and attracting aid from global and regional funds, particularly for “public goods” sectors such as environment and climate change.

- To further maintain relationships with multiple partners and institutional donors; to closely coordinate with donors in formulating 5-year and 10-year programs, plans and projects to be funded with ODA and concessional loans of foreign donors and formulate a plan for the country to gradually stop reliance on concessional loans of foreign donors.

6. Orientations for the strategic framework of the new development partnership

Methods of the development partnership via the dialogue process and mechanism between Vietnam and development partners must be renewed and adjusted to suit the new situation, including:

- High-level policy dialogues (For example, the Vietnam Reform and Development Forum - VRDF), focusing on sustainable development goals (SDG), and short-term and long-term development priorities and policy priorities of Vietnam which are supported by technical consultancy groups for specific topics when necessary;

- To add tasks to, and intensify the operation of, the National Steering Committee on ODA and Concessional Loans of Foreign Donors regarding research for renewal of the development partnership between Vietnam and foreign donors in the upcoming period. To attach special importance to new development cooperation methods of efficient blended funding among foreign donors to create concerted impacts;

- To encourage the renewal of dialogues among groups of donors (such as the Group of 6 Development Banks, European Union (EU), United Nations (UN), and Development Partners Group - DPG), and between them and the Vietnamese Government on the harmonious promotion, division of labor, and coordination in advantageous sectors to get the highest support efficiency;

- To renovate a number of existing partnership groups or establish new ones, focusing on dialogues, coordination and policy support of prioritized sectors/fields in the new situation, such as multi-dimensional poverty reduction, poverty reduction in ethnic minority regions, social protection, climate change and disaster prevention and control, etc., toward broadening the participation of Vietnam in global and regional programs on “public goods”;

- To shape and broaden the partnership with the private sector and charity funds toward using dialogues and improving the institutional environment to call for their contributions to the health sector (For example, COVID-19), creativity (For example, Industry 4.0), and infrastructure investment (For example, investment in the form of public-private partnership - PPP), in which ODA and concessional loans of foreign donors will serve as a catalyst;

- To shape and reform new bilateral partnerships (especially with European countries) toward broadening governmental-level relationships to partnerships between organizations, universities, and enterprises of Vietnam and other countries, associating ODA with investment and trading to create the global chains, etc., in which ODA will serve as a catalyst;

- To formulate a strategy and allocate resources for enhancing the role and proactivity of Vietnam in the global development cooperation relationship. With technical assistance provided via the South-South Cooperation mechanism, Vietnam will be able to transfer its experience and knowledge to countries with lower levels of development.

In addition, in the upcoming time, the development cooperation relationship between Vietnam and development partners needs to be further intensified and consolidated to be extensive and intensive, not only bilateral but also in regional and global. Vietnam needs to attach importance to renewing and expanding its relationship with partner countries, from the development cooperation to economic, investment and trade cooperation (For example, within the framework of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), etc.). Within that development partnership model, foreign donors will have to adjust their assistance to help Vietnam uphold its role in the international arena.

7. Criteria for selection of projects to be funded with ODA and concessional loans of foreign donors

To ensure the use efficiency of ODA and concessional loans of foreign donors, it is required to consider selecting projects based on 5 criteria set by the Organization for Economic Cooperation and Development (OECD), namely: (1) relevance, (2) effectiveness, (3) efficiency, (4) impact, and (5) sustainability. These criteria shall be applied in the stages of proposal, appraisal and approval of a project; furthermore, other criteria can be added in pursuance to the regulations of Vietnam and donors, specifically as follows:

- Relevance of a project: necessity of the project and its relevance with socio-economic development strategies, master plans and plans; its relevance with orientations for the attraction of ODA and concessional loans of foreign donors, and policies and orientations on priorities in the provision of ODA and concessional loans of foreign donors; its relevance with donors’ policies on aid provision, and framework agreements signed with donors (if any); its relevance with foreign donors’ capacity to balance ODA or concessional loans, or counterpart funds, and its relevance with priorities in use of donations and ODA and concessional loans of foreign donors.

- Effectiveness of a project: assurance of the feasibility of the project.

- Efficiency of a project: evaluation of the socio-economic efficiency of the project and its impacts on the environment.

- Impact of a project: impacts of a project in: (i) socio-economic aspect; (ii) medium-term public investment plan (for public investment projects); (iii) impact of ODA and concessional loans of foreign donors on public debt safety indicators (for ODA and concessional loans of foreign donors).

- Sustainability of a project: preliminary evaluation of the sustainability of the project, which shall be partly based on the result of preliminary evaluation of the project’s feasibility, and partly based on the socio-economic efficiency and impacts on the environment to be brought about by the project.

- It is necessary to refer to methods of project selection based on the criteria which have been/are applied by a number of donors and countries.^[6]

- For to-be-loaned new projects and projects in the stage of preparation for negotiation and signing of loan agreements, ministries, sectors and localities may not use such loans for their recurrent expenditures, and may only propose the use of such loans based on the following criteria: (i) use of loans for foreign-currency expenditures (expenditures for import/procurement of foreign goods, services and consultancy); (ii) use of loans to cover expenditures for project components of construction and installation in the total investment amount; (iii) use of loans to cover expenditures related to technology transfer; it is required to clarify the necessity of borrowing loans with donors’ binding requirements on origin and contractor. It is not permitted to use loans for procurement of cars, office equipment, supplies, and standby equipment for the operation process after the projects are completed, and for organization of training courses and seminars. Counterpart funds may be used for preparation of investment projects, and payment of taxes, charges, loan interests, ground clearance expenses, and project management expenses under regulations.

III. SOLUTIONS FOR IMPLEMENTATION OF THE SCHEME

To meet major requirements, objectives and tasks set forth in the Scheme, it is necessary to implement the following major groups of solutions:

1. Group of solutions on improvement of mechanisms, policies and institutions:

a/ To continue to review mechanisms, policies and regulations related to the processes and procedures in order to revise them according to the competence, or report them to competent authorities under regulations for revision. To intensify the decentralization and delegation of powers, ensuring the uniform management, effect, operation efficiency and lawfulness.

b/ To improve the legal framework for mobilization of foreign loans, ensuring the effect, efficiency and compliance with domestic law, taking into account its harmony with donors’ policies and international practice in the capital market.

c/ The Ministry of Planning and Investment shall study and submit to the Government the amendment and supplementation of a number of articles of the Law on Public Investment and Bidding Law concerning the use of ODA and concessional loans of foreign donors so as to facilitate the preparation of investment and implementation of programs and projects.

d/ With a view to intensifying the decentralization to reduce procedures, simplify provisions of Vietnam’s law and ensure their harmony with donors’ policies and regulations, the Ministry of Justice, Ministry of Finance, Ministry of Planning and Investment, Ministry of Foreign Affairs, and State Bank of Vietnam shall perform their assigned tasks according to the instructions of the Permanent Deputy Prime Minister Pham Binh Minh in the Government Office’s Document No. 8304/VPCP-QHQT of November 11, 2021, on procedures for receipt, conclusion of agreements on, management and use of, ODA and concessional loans at the request of the President.

2. Group of solutions on raising the effectiveness of attracting and using ODA and concessional loans of foreign donors:

a/ To mobilize and effectively use ODA and concessional loans of foreign donors; to make focused investment, avoiding scattered, thinned-out and fragmented investment; to ensure compliance with socio-economic development objectives, orientations and tasks, and public investment plans approved by the National Assembly, allocating more resources for accelerating the implementation progress; to bring into play the leading role of this funding source with spillover effects in public investment, which is regarded as a “lure” and a “catalyst” for mobilizing investment from the non-state sector, and creating a new space and driving force for promotion of sustainable socio-economic development.

b/ To further step up the coordination and information exchange with foreign donors in order to intensify the mobilization and attraction of, and effectively use ODA and concessional loans, attaching special importance to large-scale projects on socio-economic development, inter-regional infrastructure connectivity projects with spillover effects, projects on response to and control of climate change, and aid amounts for COVID-19 prevention and control.

c/ Ministries, sectors and localities need to select projects which will bring about efficiency and be within the general balancing of medium-term public investment and medium-term public debts, and suit the on-lending capacity of localities. d/ To review ongoing programs and projects and those for which agreements have been signed, ensuring that they are allocated with sufficient funds.

d/ To review programs and projects currently implemented and for which agreements have been concluded, ensuring allocation of sufficient funds for them.

dd/ For ODA and concessional loans of foreign donors:

- To optimize the remaining ODA loans and reasonably mobilize the concessional loans committed during 2016-2020 as well as in the subsequent years; to prioritize the mobilization of funding sources with long loan terms, low interest rates, and the high grant element. To focus on disbursement of ODA and foreign concessional loans for signed agreements through the end of 2020, to be carried forward to the 2021-2025 period.

- Mobilized foreign loans shall be used for a number of key sectors to optimize the scale-based economic efficiency; and for projects that will directly promote growth in association with sustainable development, projects that may generate foreign-currency revenues, projects with the spillover effect (such as projects on adaptation to climate change, improvement of environmental quality, education, healthcare, technology, and skill improvement), and projects on essential economic infrastructure that are incapable of directly recovering invested funds. To prioritize borrowing loans for on-lending for projects which are capable of directly recovering invested funds.

- To renew the mechanism on mobilization of ODA and foreign concessional loans toward formulating a number of public investment programs to implement important projects that have spillover effects nationwide or in a number of regions based on prioritized targets instead of approaching separate, scattered and inefficient projects. To incrementally shift from borrowing loans for programs and projects to borrowing loans for budget support in order to increase the initiative and use efficiency of the Government’s loans.

3. Group of solutions on organization, administration and acceleration of the implementation progress of programs and projects:

a/ To enhance the effect and effectiveness of the National Steering Committee on ODA and Concessional Loans in the removal of difficulties for each project, which falls beyond the competence of a ministry, sector or locality and requires the interdisciplinary coordination; to organize periodical meetings between the National Steering Committee on ODA and Concessional Loans and the Group of 6 Development Banks in order to identify problems from both sides to jointly seek appropriate solutions and plans.

b/ Ministries, central agencies, and localities:

- To enhance their implementation capacity on par with the uniform direction and administration from the central to local levels, clearly identifying and intensifying the role and responsibilities of Party Committees, administrations, agencies and organizations, especially the responsibilities of their heads, in different stages of the investment process from formulation, assignment, and allocation of plans , to plan implementation, especially in the work of compensation, support and resettlement; to step up the inspection, examination, supervision; to carry out commendation and  disciplining in a prompt and strict manner.

- To immediately establish special working groups for promoting the disbursement of investment capital in every ministry, agency and locality, which are led by ministers, heads of agencies or units, or chairpersons of People’s Committees at all levels to regularly lead, urge, examine, supervise, and settle bottlenecks in the disbursement of public investment funds. To formulate a detailed disbursement plan for each project, especially key projects, and projects which are invested with large capital amounts; to assign heads of agencies, units and localities to take charge of every project; to organize regular meetings with relevant agencies and units to promptly grasp the situation and remove difficulties and obstacles in the disbursement process.

- To ensure that the allocation of ODA and foreign concessional loans fully adheres to the principles and meets the criteria specified in the National Assembly’s Resolution No. 973/2020/UBTVQH14 of July 8, 2020, and the Prime Minister’s Decision No. 26/2020/QD-TTg of September 14, 2020, detailing a number of articles of Resolution No. 973/2020/UBTVQH14.

- To accelerate the completion of investment procedures (technical designs, cost estimates, etc.); to carry out pre-acceptance tests, payment, and account-finalization for completed works/works items, not transferring these jobs to the year-end; to allocate sufficient counterpart funds, and speed up the completion of procedures for signing and handing over contracts for bidding packages.

4. Group of solutions on promotion of disbursement for programs and projects:

a/ Ministries, central agencies and localities shall accelerate the completion of investment procedures (technical designs, estimates, etc.); carry out pre-acceptance tests, payment, and account-finalization for completed works/works items, not transferring these jobs to the year-end; allocate sufficient counterpart funds, and speed up the completion of procedures for signing and handing over contracts for bidding packages.

b/ The Ministry of Finance shall accelerate the application of information technology in the disbursement of ODA and concessional loans.

5. Group of solutions on organization of implementation of programs and projects:

Managing agencies and project owners shall implement the following solutions:

a/ To improve the quality of preparation and organization of implementation of public investment projects, ensuring their practicality so as to minimize adjustments in the implementation process; not to propose project components that apply quickly outdated technologies and fall within the capacity of domestic enterprises; to closely control the scope, scale and total investment amount of each investment project according to their objectives and sectors in accordance with law.

b/ To build the capacity of organizing the implementation of ODA projects for managing agencies, project owners and project management units, ensuring that the contingent of project management officers possess high qualifications. To apply sanctions for strictly handling project owners, project management units, and organizations and individuals that deliberately obstruct or delay the progress of allocation, implementation and disbursement of public investment funds.

c/ To seriously carry out the monitoring and evaluation, especially of the regime of periodical reporting on the attraction and use of ODA and foreign concessional loans.

IV. ORGANIZATION OF IMPLEMENTATION

1. Public communication about and implementation of the Scheme

The Ministry of Planning and Investment shall implement public communication on the Scheme’s contents to Vietnamese agencies, donors, and the media.

Ministries, central agencies and localities shall grasp the spirit and directing principles of, and formulate orientations on priorities in the attraction , management and use of ODA and concessional loans of foreign donors to support the implementation of their socio-economic development plans, implement solutions for enhancing the efficiency of use of ODA and concessional loans of foreign donors, and promptly settle arising problems in the course of implementation and disbursement of these loans.

2. Monitoring and evaluation of the situation and results of implementation of the Scheme

Ministries, central agencies and localities shall include information on the situation and results of implementation of the Scheme in their annual reports on management and use of ODA and concessional loans of foreign donors, including proposals and recommendations for adopting solutions to promptly settle arising problems in the course of implementation of the Scheme.

The Ministry of Planning and Investment shall annually report to the Government and the National Steering Committee on ODA and Concessional Loans of Foreign Donors on the updated situation and results of implementation of the Scheme.-