However, in a new phase of development, changing sources and forms of ODA require the Government, ministries and agencies to adapt their operations to allow this valuable source of capital to be utilised effectively.
Over the past 20 years, development co-operation between Vietnam and international donors has been continuously reinforced and developed. There are currently over 50 bilateral and multilateral donors contributing to Vietnam. After 20 annual Consultative Group (CG) meetings, ODA pledges have totalled US$78.195 billion.
This huge support demonstrates the international community’s strong approval of Vietnam’s sound reforms and development policies. It is evidence of donors’ confidence in Vietnam’s ability to receive and use ODA effectively. But alongside positive results, there remain shortcomings in the management and use of ODA. They include weak aid absorption capacity, slow progress in ODA disbursement and discrepancies between domestic procedures and international practices.
Well aware of the importance of ODA projects, ministries, agencies and localities have made great efforts to expedite ODA disbursement under close and authoritative instructions from the Government. In the past two years, disbursement of ODA from large donors such as Japan and the World Bank has seen impressive growth. Globally, the disbursement rate of Japan’s ODA in Vietnam ranked second in 2011 and first in 2012. The disbursement rate of WB assistance to Vietnam rose from 13% in 2011 to 19% in 2012.
In a new context where Vietnam has become a lower middle income country, broader content is required in policy dialogues between the Vietnamese Government and development partners, as well as the increased participation of different parties in overseeing the implementation of ODA projects. In order to meet new requirements, the Vietnamese Government and development partners agreed to change the way CG meetings would be held in late 2012. Accordingly, for 2013 the CG meeting has evolved into the Vietnam Development Partnership Forum (VDPF), intensifying the focus on development policy dialogue. Donors will not give their pledges of ODA and concessional loans as in previous years, because in a new phase of development they pay more attention to the efficiency rather than the amount of aid. Donors can also announce their pledges at any time of the year, improving development co-operation between Vietnam and international donors.
At a recent conference marking 20 years of development co-operation between Vietnam and international donors, Prime Minister Nguyen Tan Dung affirmed that in the new phase of development, the Government has considered arranging sufficient counterpart funds for ODA projects as evidence of Vietnam’s strong sense of responsibility in the development co-operation partnership. The prime minister also made a strong vow to manage and utilise ODA effectively. During regular Government meetings, the prime minister consistently asks relevant ministries – such as the Ministries of Finance, Planning and Investment and Transport – to prioritise providing counterpart funds for ODA projects, particularly those in transport and power infrastructure.
World Bank Country Director for Vietnam Victoria Kwakwa said that as Vietnam becomes a middle income country, it is natural that partnerships and financing sources are changing. Experience from other middle income countries shows that ODA partnerships will need to deepen still further their focus on ideas, knowledge and solutions. To respond to this, ODA must be more than before; a package of ideas, knowledge and financing. ODA will need to be used more strategically and deliberately to leverage private financing to complement public resources.
After a meeting in September with Prime Minister Nguyen Tan Dung at the World Bank headquarters in Washington, WB Managing Director Sri Mulyani Indrawati said that in order to utilise assistance from the World Bank Group effectively, Vietnam should focus on expediting aid disbursement in the near future. The World Bank is discussing measures to support Vietnam in the 2014-2017 period under an assistance programme of the International Development Association known as IDA17. If Vietnam can improve the quality and progress of ODA disbursement, it will have a positive impact on this discussion.
WB Country Director for Vietnam Victoria Kwakwa said that Vietnam still has considerable amounts of undisbursed ODA, and that if US$3-4 billion is disbursed annually, ODA flows will be covered for another 4-6 years. In addition, Vietnam will have continued access to IDA in the coming IDA17 cycle. This gives adequate time for the country to transition smoothly to a greater share of newer forms of financing beyond the traditional ODA. She recommended that Vietnam build capacities to make maximum use of other financing sources in a way that does not threaten debt sustainability and broader macroeconomic stability. Strengthening the domestic financial system – including developing domestic capital markets and improving the country’s readiness to access international financing at affordable rates – is a central part of this agenda.
From the reality of co-operation between Vietnam and development partners, many valuable lessons have been drawn for the next phase of development. They include the full awareness of the nature of ODA capital, as well as the need for counterpart funds and high-quality human resources. Vietnam is determined to use ODA resources more effectively to improve its infrastructure for socio-economic development and to create impetus for important projects that have difficulty attracting funding from the private sector or commercial lenders. ODA and concessional loans will be used as supplements to encourage the private sector to invest in infrastructure projects through different models, including the public-private partnership (PPP) model.
