Vietnam facing pressure on loan repayments

By Bui Hong Nhung, Thanh Thanh LanMarch 22, 2016 | 11:33 pm PT
The World Bank is going to terminate Vietnam's Official Development Assistance (ODA) incentives in 2017, posing challenges for the country in meeting its debt obligations.  

Director General of the Ministry of Finance’s Debt Management and External Finance Department, Truong Hung Long, said the preferential rate of loans from international partners has decreased since Vietnam became a middle-income country in 2010.

The World Bank, one of Vietnam’s top ODA providers, is going to cut off loans made under ODA conditions in July 2017, switching to preferential loans and then loans under market conditions. The Asian Development Bank and other international organizations may follow the same path, Long predicted.

In addition, added incentives for ODA projects are being undermined, he said.

The interest rate on these loans has more than doubled from under one percent to over two percent, and pressure on repaying ODA loans is growing because of the shortening terms.

“In the past, we were allowed to access loans that required repayment over 30 to 40 years. Now, the time has been reduced to 20 to 25 years, even 15 years,” Long said.

“Vietnam is working with the World Bank on a plan to limit the impact of shorter repayment periods on the state budget and project investors.”

Long said most of Vietnam’s loans would be due for repayment between 2022 and 2025.

The Ministry of Finance estimates the Vietnamese government has so far allocated about $15 billion of ODA for local provinces, of which 92.2 percent is granted without repayment and a mere 7.8 percent is loans. The ministry is planning to divide provinces into five groups and adjust the specific ratio of grants to loans that will apply for each group.

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