Vietnam report on Japanese ODA projects inaccurate: JICA

In a recent report to the Vietnamese government, the Ministry of Finance noted that the monthly salary for Japanese consultants working on projects funded by Japanese official development assistance (ODA) loans was above $30,000 per person.

The ministry said this was 20-25 percent higher than the average foreign consultant’s salary for projects funded by ODA loans and other preferential loans.

In response, JICA said that the figure of $30,000 per month was inaccurate, as a consultant's monthly salary is based on the result of the contractor selection process through competitive bidding.

"We offer guidelines on the price to help with cost estimation, but this price cannot be outside the permitted range. Additionally, both the Vietnamese side and JICA always carefully review the price during assessments," a JICA representative said.

In JICA's guidelines, the salary of a consultant should be determined based on the person's level of expertise and global experience, and is therefore not a set figure. Moreover, during the consultations, JICA also has “thorough” discussions with the Vietnamese side on the appropriateness of the salaries compared to Vietnam's cost norms.

"The prices we use are mostly comparable to those for similar projects carried out by other donors in Vietnam," the representative asserted.

JICA also said that the consultancy component in projects using Japanese ODA loans was not high, so the finance ministry's claim that high consultancy expenses are causing the total loan amount to escalate is inaccurate.

However, the agency agrees with Vietnam's plan to push for more local consultants to take part in the ODA projects.

In response to claims that JICA demanded the hiring of Japanese contractors for ODA projects funded by Japan, the agency came up with a graph showing that the majority of contractors working in JICA-approved projects in recent years were Vietnamese companies.

Regarding claims that the preferential rate of Japanese loans has been decreasing, compared to previous years, JICA said that the terms and conditions of Japanese ODA loans are established based on the recipient country's income.

The preferential rate has therefore been adjusted due to Vietnam being reclassified as a lower-middle income economy.

The agency however stressed that the increase in the loan's interest rates was still a very small one, from 1.4-1.5 percent for non-binding ones.

The non-refundable elements in Japanese ODA loans are also still high, based on evaluations by the Organization for Economic Co-operation and Development's Development Assistance Committee (OECD-DAC), JICA noted.

It argued further that Japanese ODA loans' preferential level should be seen in comparison with other multilateral and bilateral donors.

Vietnam moved out of the list of benificiaries from the World Bank's International Development Association in July 2017, and would, in January 2019, do likewise from the Asian Development Bank's ODA, mixed loans and Ordinary Capital Resources (OCR) preferential loans.

Japan, on the other hand, would continue providing ODA loans to Vietnam until the country’s per capita income exceeds $12,235. Vietnam could therefore continue receiving Japanese ODA loans for several decades to come, JICA said.

The agency also stressed that the terms and conditions of Japanese ODA loans are generally preferential with low interest rates and long repayment terms of 30-40 years, which cannot be matched by the private financial market.

According to JICA, the loans' interest rates and repayment terms are divided into four types with various options for borrowers to choose from.

"Most borrowers often choose fixed interest rates with the longest repayment terms, and we respect their choices," the JICA representative said, adding that the agency does not impose floating interest rates on Vietnam.

As Vietnam is currently a lower-middle income economy, its loans have interest rates of 0.1-1.5 percent per year with repayment terms of 30-40 years and grace periods of 10-12 years, which are very favorable conditions. The applicable interest rate for consultancy services is also only 0.01 percent.

"In Vietnam, the long-term capital market is not yet mature, with the majority of the Vietnamese government's bonds maturing after just 3 to 5 or 10 years. Therefore, how else can you raise capital with low interest rates and long repayment and grace periods?" the JICA representative asked.

Furthermore, Japanese ODA loans are often provided in combination with non-refundable aid in the form of feasibility studies or technical assistance during project implementation, which is an advantage that cannot be matched by domestic capital, JICA said.