Directive 18/CT-TTg official development assistance loans, foreign concessional loans instead of regular expenses

DIRECTIVE

On enhancing the management and increasing the efficiency of use of official development assistance loans and foreign concessional loans for development investment in the new situation instead of
regular expenses^[1]

Over the recent years, the mobilization, management and use of official development assistance (ODA) loans and foreign concessional loans have focused on investment in socio-economic projects and infrastructure facilities and made positive contributions to the national development, particularly in the development of traffic infrastructure, electricity generation, wastewater treatment, agriculture and rural development, climate change adaptation and construction of schools and hospitals at the central and grassroots levels. The implementation of programs and projects funded by ODA loans and foreign concessional loans has contributed to the improvement of policy institutions, application of modern technologies and human resources training. The policy mechanisms and regulations on the mobilization, management and use of ODA loans and foreign concessional loans have been further improved.

Beside recorded achievements, there remain a number of limitations and problems in the mobilization, management and use of ODA loans and foreign concessional loans, such as many negotiated and concluded projects have not yet been summed up by ministries and sectors for reporting to competent agencies for inclusion in medium-term public investment plans, thus affecting the implementation and capital disbursement progress as agreed with donors; the project preparation quality fails to meet the set requirements while slow project implementation leads to an increase in total investment and expenditures for ground clearance; the allocation of counterpart funds has not yet been performed in a sufficient and timely manner; a number of on-lending projects have met with difficulties in loan repayment and forced to be restructured or requiring the Government to advance capital from the Accumulation Fund for Loan Repayment; a number of programs and projects have not yet been allocated sufficient estimates while the disbursement progress remains slow, etc.

The above limitations and problems are attributable to objective and subjective causes, namely dependence of the mobilization and allocation of capital on policies and conditions of donors, each of whom is interested in investing in a number of specific sectors and fields, while the order and procedures for capital disbursement and withdrawal by donors remain slightly different; the planning work, investment plans, compilation of project documents and organization of implementation in a number of ministries, sectors and localities have not yet been well performed; project owners are entitled to allocations by the state budget and therefore fail to pay due attention to loan repayment or lack resolution in addressing difficulties and problems in the project implementation, thus prolonging the project implementation and requiring payment of interest rates and commitment charges; there are no explicit regulations on capital management and allocation mechanisms for umbrella programs and projects.

In order to soon address the above limitations and problems and further utilize foreign concessional loans for socio-economic development in the context that Vietnam has become a middle-income country, ODA loans are diminishing and the Government’s foreign loans are mostly concessional loans with interest rate close to that of the market, the enhancement of management and improvement of efficiency of use of ODA loans and foreign concessional loans in the new context are extremely necessary. In implementation of the Political Bureau’s Resolution No. 07-NQ/TW of November 18, 2016, on policies and solutions for restructuring the state budget and managing public debts to ensure a secure and sustainable national financial system, the 2017 Law on Public Debt Management, and the National Assembly Standing Committee’s Resolution No. 582/NQ-UBTVQH14 of October 5, 2018, on a number of tasks and solutions to further step up the implementation of policies and regulations on management and use of foreign loans, the Prime Minister directs ministries, sectors, localities, project owners and related organizations and individuals to implement the following guidelines and measures:

I. MAIN GUIDELINES AND POLICIES ON THE MOBILIZATION, MANAGEMENT AND USE OF ODA LOANS AND FOREIGN CONCESSIONAL LOANS FOR DEVELOPMENT INVESTMENT INSTEAD OF REGULAR EXPENSES

1. The mobilization, management and use of ODA loans and foreign concessional loans shall be associated with the public investment restructuring and orientations for mobilization and use of these loans in each period, especially the implementation of the scheme on public investment restructuring during 2017-2020, with orientations toward 2025, which was approved under the Prime Minister’s Decision No. 63/QD-TTg of January 12, 2018.

Programs and projects funded by ODA loans and foreign concessional loans shall be synchronized with medium-term public investment plans and five-year plans on borrowing of loans and payment of public debts for submission to competent authorities for approval. When submitting a program or project proposal to the Prime Minister for approval, ministries, sectors and localities shall clarify a financial mechanism applicable to such program or project (allocation or on-lending or both) and necessity to invest in the project, investment scale, socio-economic efficiency and loan repayment responsibility; and eliminate programs and projects with low or unpredictable socio-economic efficiency.

2. The negotiation and conclusion of loan treaties and agreements must satisfy the conditions and criteria on socio-economic efficiency and repayment capacity, refraining from borrowing loans for projects with conditions and regulations that are unfavorable for Vietnam or those that are less efficient than domestic loans.

3. ODA loans and foreign concessional loans shall only be spent for development investment, not for regular expenses. To increase the responsibility of managing agencies, investors, project owners and fund users. Ministries, sectors and localities shall review concluded and effective programs and projects that are being implemented, reduce expenses for administrative management such as purchase of automobiles, office equipment, overseas study tours, refresher training and project management, thereby ensuring effectiveness and thrift as agreed with donors. The time limit for implementing the regular expense component in on-going ODA-funded programs and projects may not be extended.

For concluded and effective treaties and agreements on ODA loans and concessional loans, to continue complying with such treaties and agreements in accordance with the National Assembly’s Resolution No. 49/2017/QH14 of November 13, 2017, on the 2018 state budget estimates. Pursuant to the regulations on costs of investment projects, ministries, sectors and localities shall proactively review, identify projects’ nature and report to competent authorities for revising investment project decisions (when necessary) to serve as a basis for allocating funds for project implementation.

For new loan projects and projects in the stage of loan agreement negotiation and conclusion preparation, ministries, sectors and localities may not use loans for regular expenses and only propose the use of loans according to the following criteria: (i) to prioritize loan use for paying foreign-currency expenses (expenses for importing/purchasing foreign goods, services and for foreign consultancy); (ii) construction expenses included in the total investment; (iii) expenses related to technology transfer; clearly explaining the need for loans with donors’ requirements on origin of goods and contractors. To refrain from using loans for purchase of automobiles, office equipment, spare parts and equipment for operation following the project completion, and expenses for training and seminars. Counterpart funds shall be used for the investment project preparation, tax payment, payment of charges and loan interests, ground clearance and project management expenses as prescribed by law.

4. The management of loan use shall be carried out in two forms: The central budget allocates loans to programs and projects covered by the central budget or on-lends programs and projects with capital recovery capacity. To gradually reduce the proportion of allocations and increase the proportion of loans for on-lending for programs and projects in localities in order to implement the mechanism whereby part of total investment shall be allocated by the state budget while the rest shall be covered by loans on-lent to local budgets in the proportions prescribed by the Government. Localities shall ensure that the on-lent ODA loans and foreign concessional loans are within the permitted debt balance limits prescribed by the Law on the State Budget and annual borrowing/repayment limits approved by the National Assembly.

The borrowing of loans to make up for the budget deficit is the prime priority; the borrowing of loans for on-lending shall be assessed and appraised to ensure efficiency and may only be carried out when there remains a room for public debts. The sectors and fields that have access to commercial loans shall apply the self-borrowing and self-repayment method, while the Government shall not borrow loans for on-lending.

5. Programs and projects with concluded loan agreements shall be summarized and reported to competent authorities for inclusion in medium-term public investment plans. To assign annual budget estimates for capital disbursement according to the committed schedule. The expenditure control agency shall control expenses and ensure capital disbursement within the budget estimates.

6. Ministries, sectors, localities and project owners shall be given priority in receiving sufficient counterpart funds for project implementation. To well prepare for the ground clearance work and coordinate with donors to address difficulties and problems during the implementation and report them to the Prime Minister for consideration and decision in case these problems fall beyond their competence.

7. Ministries, sectors and localities shall valuate costs of loans, thereby prioritizing the use of low-cost ODA loans and concessional loans for state budget allocation; for concessional loans with interest rates similar to those on the market, to consider only the demand for on-lending for effective projects that have loan repayment capacity. To restrict the use of concessional loans for central budget spending on the principle that only urgent projects already included in medium-term public investment plans approved by competent authorities may enjoy these loans.

8. Authorized  on-lending agencies shall appraise on-lending programs and projects in a strict manner and take responsibility for appraisal results. For projects that are financially inefficient and incapable of repaying loans, to arrange other capital sources for their implementation instead of using foreign loans for on-lending.

9. Ministries, sectors and localities shall enhance the management, supervision and implementation of the regime of regular evaluation reports on all activities of managing and using ODA loans and foreign concessional loans for reporting to competent authorities and the Prime Minister, and disclose public debts, government debts and municipal debts as prescribed by law. To intensify the examination and surveillance by inspection and audit agencies.

10. To step up the modernization of the information system on management of ODA loans and foreign concessional loans by upgrading the information technology system, ensuring regular and timely update of negotiations, conclusion and implementation of loan agreements and capital disbursement; to early detect shortcomings for timely settlement.

II. ASSIGNMENT OF RESPONSIBILITIES FOR IMPLEMENTATION ORGANIZATION

1. The Ministry of Finance

a/ To organize the dissemination and implementation of the Law on Public Debt Management and the Decrees guiding the Law on Public Debt Management;

b/ To publicize information on donors’ conditional frameworks on ODA and concessional loans to serve as a calculation basis for ministries, sectors, localities, project owners, organizations, agencies and enterprises before deciding to register their projects expected to be funded with ODA or foreign concessional loans in accordance with the Law on Public Debt Management;

c/ To work out five-year plans on borrowing and repayment of public debts, three-year medium-term public debt management programs and annual loan borrowing and repayment plans, and report them to competent authorities for approval and implementation organization and supervision;

d/ To assume the prime responsibility for, and coordinate with the Ministry of Planning and Investment and relevant agencies in, formulating and submitting to competent authorities an orientation framework for mobilizing, or a framework agreement on, ODA loans and concessional loans from foreign donors in each period, which must suit the new conditions and situation and ensure that their commitments are compliant with Vietnam’s law; to gradually reduce the proportion and improve the efficiency of foreign concessional loans in public debts, focusing on borrowing ODA loans and concessional loans for key projects with spillover effects, boosting socio-economic development and limiting the thinned-out allocation of capital to projects and areas eligible for ODA and concessional loans;

dd/ To assume the prime responsibility for evaluating preferential components, determining domestic financial mechanisms and evaluating impacts of public debts on loan proposals;

e/ To coordinate with the Ministry of Planning and Investment in synthesizing medium-term public investment programs and annual state budget estimates;

g/ To coordinate with the Ministry of Planning and Investment in allocating foreign capital for programs and projects on the basis of ensuring conformity with domestic financial mechanisms applicable to such programs and projects (to sufficiently allocate capital from the central budget and on-lending limits); to create favorable conditions for managing agencies and project owners to carry out capital disbursement in line with directions of the Government and Prime Minister and commitments with foreign donors;

h/ To provide guidance on the method of determining the state budget’s development investment spending items in programs and projects funded with ODA or foreign concessional loans;

i/ To carry out capital disbursement, capital withdrawal and spending control within approved estimates. To discuss and agree with donors on the mechanism of applying exchange rates for payment with ODA and foreign concessional loans;

k/ To coordinate with authorized on-lending ministries, sectors, localities and agencies in appraising, disbursing and withdrawing capital and recovering principals and interests for repayment of foreign loans;

l/ To periodically report and evaluate the situation of mobilizing, managing and disbursing ODA and foreign concessional loans in public debts, propose and implement measures to remove difficulties and obstacles, step up the implementation and disbursement progress and increase loan use efficiency;

m/ To develop and complete the database on ODA and foreign concessional loans in public debts to serve the management work in the new situation.

2. The Ministry of Planning and Investment

a/ To assume the prime responsibility for, and coordinate with the Ministry of Finance and relevant agencies in, studying and formulating for submission to the Government for promulgation a decree replacing the Government’s Decree No. 16/2016/ND-CP of March 16, 2016, on management and use of official development assistance and concessional loans of foreign donors, and the Government’s Decree No. 132/2018/ND-CP of October 1, 2018, amending and supplementing a number of articles of Decree No. 16/2016/ND-CP in accordance with the revised Law on Public Investment;

b/ To assume the prime responsibility for, and coordinate with the Ministry of Finance and ministries, sectors and localities in, selecting programs and projects in conformity with the principles and orientations for attracting ODA and foreign concessional loans during the 2018-2020 period, with a vision toward 2021-2025, which were approved by the Prime Minister in Decision No. 1489/QD-TTg of November 6, 2018, for submission to the Prime Minister for approval of program and project proposals;

c/ To draw up a list of projects aimed at boosting the socio-economic development in an order of priority to serve as a basis for the selection of projects funded by ODA and foreign concessional loans. To strictly appraise projects and refrain from using loans for investment purposes and projects with low or non-measurable socio-economic efficiency;

d/ To assume the prime responsibility for, and coordinate with the Ministry of Finance and related agencies in, formulating a five-year medium-term public investment plan; to promptly synthesize programs and projects approved with the investment policy of using ODA and foreign concessional loans and report to competent authorities for inclusion in medium-term public investment plans in accordance with the Law on Public Investment; to review and report to the Prime Minister for amendment Decision No. 40/2015/QD-TTg of September 14, 2015, with a view to completely synthesizing and reporting to competent authorities on programs and projects that have been approved with the investment policy of using ODA and foreign concessional loans for inclusion in the medium-term public investment plans in accordance with the schedule committed with donors;

dd/ To assume the prime responsibility for, and coordinate with the Ministry of Finance, ministries, sectors and localities in, allocating development investment funds, covering projects funded with ODA or foreign concessional loans, ensuring the balance of plans meeting the committed disbursement progress and within the approved foreign loan limit;

e/ To assume the prime responsibility for, and coordinate with ministries and sectors in, allocating sufficient counterpart funds within the central budget;

g/ To coordinate with the Ministry of Finance in addressing difficulties and problems arising in the course of disbursement and withdrawal of capital of programs and projects funded by ODA or foreign concessional loans;

h/ To assume the prime responsibility for, and coordinate with the Ministry of Construction and related agencies in, reviewing current regulations on development investment projects, clarifying items of development investment expenses under projects with or without construction investment components, and reporting to competent authorities for provision of guidance. For a number of specific spending items in development investment projects (expenses for international and domestic consultancy, project management, foreign study tours, medical and educational training and indirect expenses in construction projects), there should be regulations on norms or limits of expenses in total investment, ensuring thrift and efficiency;

i/ To organize the evaluation of implementation and effectiveness of projects funded with foreign loans as assigned in the Prime Minister’s Directive No. 03/CT-TTg of January 30, 2019, on implementation of the National Assembly Standing Committee’s Resolution No. 582/NQ-UBTVQH14. To study, develop and report to competent authorities for promulgation a system of criteria for evaluation of investment projects and programs according to the priority, necessity, urgency, effectiveness and risks of each type of socio-economic development projects in general and programs and projects funded with foreign loans in particular to serve as a basis for selecting projects funded by ODA or foreign concessional loans in the most effective manner. To study and submit to competent authorities for promulgation regulations on criteria for evaluation of post-investment efficiency of programs and projects, including projects funded with ODA or foreign concessional loans.

3. Ministries, sectors and localities

a/ To draw up a list of prioritized investment development projects, focusing on investment in infrastructure and taking into consideration the effectiveness and scale of projects when proposing the use of concessional loans. To borrow loans only by the method of designation of suppliers and contractors of foreign donors in case their goods and equipment are proven to have technological superiority. To review programs and projects funded with ODA or foreign concessional loans, evaluate the ability to allocate capital sources for loan repayment and counterpart funds, socio-economic efficiency of projects, loan repayment ability of localities and project owners, and refrain from proposing projects that are concluded as ineffective through appraisal; to prioritize the concentration of ODA loans for key works and projects with spillover effects and the settlement of development issues of the country, regions and inter-regions.

To refrain from using foreign loans to pay taxes, charges and loan interest rates, purchase automobiles, supplies and equipment for operation after projects are completed. Expenses for ground clearance and project management, payment of taxes, loan interests and foreign charges during the project construction shall be covered by counterpart funds as prescribed by law without using loans.

For ongoing programs and projects, to review and propose the removal of parts that are not really urgent, and promptly send documents to the Ministry of Finance and Ministry of Planning and Investment for carrying out procedures for modification of projects and reduction of loans with donors.

To continue reviewing regular spending activities of programs and projects funded with ODA or foreign concessional loans and promptly propose the transfer of such projects to be funded with development investment capital or reduction of foreign loans (if any), then submit them to the Ministry of Finance for summarization and reporting to the Prime Minister.

b/ To coordinate with the Ministry of Planning and Investment in allocating sufficient capital for programs and projects funded with ODA or foreign concessional loans in medium-term public investment plans and annual budget estimates.

c/ To coordinate with the Ministry of Planning and Investment in allocating sufficient counterpart funds for programs and projects funded with ODA or foreign concessional loans (including counterpart funds from the central budget for targeted support; local budget balance and other lawful capital sources).

d/ To direct the ground clearance work and instruct project owners in implementing programs and projects on schedule and ensure their quality and efficiency.

dd/ Regarding expenses covered by ODA and foreign concessional loans under negotiated or concluded programs and projects, managing agencies shall promptly classify and evaluate spending items of programs and projects, discuss and reach agreement with donors on plans on spending reduction and then report them to the Ministry of Finance, enclosed with the assessment of impacts of the reduction, on the following principles:

- For equipment procurement: to review it on the principle of ensuring thrift and efficiency, and refraining from using loans for purchase of automobiles and office equipment.

- For training activities under programs and projects approved by the Government and Prime Minister, to continue implementing them until projects are completed. Project managing agencies shall review training programs and cut down unnecessary contents.

- For expenses for research, survey, formulation of regimes and policies, capacity building and operation of project management units: Ministries, sectors and localities shall proactively review and cut down expenses; calculate remaining essential activities for project operation  to be included in regular funds from the state budget, and refrain from using loans for these activities.

e/ To annually sum up results of the implementation of guidelines, solutions and tasks assigned under this Directive and report them under the provisions on the regime of reporting on public debt information in the Government’s Decree No. 94/2018/ND-CP of June 30, 2018, on public debt management, to the Ministry of Finance.

III. ORGANIZATION OF IMPLEMENTATION

Ministers, heads of ministerial-level agencies, heads of government-attached agencies, chairpersons of provincial-level People’s Committees and related agencies and organizations shall implement this Directive. The Ministry of Finance shall urge and monitor, and report to the Prime Minister on a periodical or unscheduled basis on, the implementation of this Directive, and propose to the Prime Minister solutions for arising problems.-

Prime Minister
NGUYEN XUAN PHUC