Cheap foreign loans starting to dry up for Vietnam

By Minh Son October 25, 2016 | 07:25 pm PT

An employee stacks bundles of Vietnamese dong banknotes at a bank in Hanoi April 21, 2010. Photo by Reuters/Kham

Loan repayments currently cost the country about $1 billion a year.

Official development assistance (ODA) loans have become more costly since Vietnam was declared a middle income country in 2010, forcing the government to negotiate more preferential terms.

The ODA the country is currently able to secure has a duration of 10-25 years and an interest rate of 2 percent on average. This is less attractive than loans with a duration of 30-40 years and interest rates of 0.7-0.8 percent that were offered before 2010, a representative from the Ministry of Finance said on Tuesday.

The World Bank will decide in July next year if Vietnam is still among the countries eligible for ODA. It is highly possible that the country will no longer be on that list, Hoang Hai, deputy director of the Finance Ministry’s Department of Debt Management and External Finance, told a conference on Tuesday.

“If so, Vietnam will have to take out loans with less preferential terms. Interest rates may be raised to market-based levels, and durations will likely be cut by half. This would mean interest rates will rise to 2-3.5 percent,” said Hai.

The government will try to persuade donors to keep Vietnam in the World Bank's International Development Association, a list of countries considered the world’s poorest and eligible for ODA.

It is hard to build large infrastructure projects without ODA loans, he said.

“Nevertheless, Vietnam will not enjoy ODA forever. There will be a time when the country will have to ‘graduate’ from borrowing ODA,” Hai added.

ODA pledged to Vietnam from 2010-2015 was about $45 billion, and the country currently spends about $1 billion a year on paying back ODA loans, according to Hai.

> Japan provides $106 million in ODA for Vietnam