The Official Development Assistance (ODA) in the thesis includes the grant aid, concessional loans, the less concessional loans from the governments and international financial institutions.
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Congress’s forum and national citizens are concerned about the safety of the public debt, specially the high proportion of ODA debt. The total foreign debts of Vietnam by 31 December 2013, was more than $US 36 billion and accounted by 37,3% GDP2.
In order to realize the Government's guidelines on ODA funds and to maintain the needs of deverloping investments as well as to ensure national public debt sustainability in the context of Vietnam becoming MIC, it needs to be changed not only the macro vision and strategy but also the solutions in management and utilization ODA effectively in all levels. These are the new challenges posed to those working in economic research, policy makers and those who implement practices in mobilizing and utilizing ODA in Vietnam. However, so far, no in-depth studies mentioned about this urgent issue above. That’s why this thesis named “The Official Development Aid (ODA) in the context of Vietnam becoming middle-income country (MIC)” has contributed to resolve part of the requirements which set out for the use of these funds in the new stage of the development of country.
2. Research questions 1. The necessary of the study After 30 years of the Renovation, Vietnam has made great achievements in economic development and social progress. Besides its efforts, Vietnam has enlisted the support of international community to promote internal strength along with taking the advantage of all opportunities and overcoming the national difficulties as well as negative impacts of the global economic crisis in order to maintain stability the macroeconomic as well as ensure social security. In the period 1993-2015, with approximately $US 85 billion of the committed capital, $US 72 billion of the signed capital and $US 53 billion of the disbursed capital, Official Development Assistance (ODA) has become a significant source of additional capital with many comparative advantages. Compared to commercial loans on international capital markets, the financial conditions of ODA brings more preferential treatments. Hence, Vietnam can implement a huge of programs and projects of social infrastructure in the areas of health, education, poverty reduction, as well as institutional development and human capacity building.
The thesis identified four (04) following research questions: (cid:1) What social and economic achievements does ODA contribute to when
Vietnam has become the MIC?
(cid:1) What is the nature, the characteristics, the conditions and the
methodolities of providing ODA when Vietnam became a MIC?
(cid:1) Which factors affect to ODA in Vietnam when becoming the MIC? (cid:1) What are the recommendations for improving the policy framework for
ODA in Vietnam when switching to MIC?
3. Research objectives
In 2010, the average of Gross Domestic Product (GDP) per capita of Vietnam was $1.168/person1 - higher than the starting level of middle-income countries (as classified by the World Bank). Consistent with the practice of international development assistance, the donors apply the different policies to support the low-income least developed countries group and the middle- income countries group. Becoming a middle-income country has made all the aid policies for Vietnam change. It means the nature, the scope, the structure, the conditions and the method of providing ODA for Vietnam will be different from the last period of Vietnam. With the aim of maximizing the effectiveness of these funds, serving the economic and social development, this apprently leads the needs of the new policy and insitution for ODA in Vietnam. This study has the following targets: (cid:1) Assessing the impact of ODA to the economic and social areas of
Vietnam in general and in the new conditions;
1 Reports of the 10th Party Central Committee, Jan 2011
2 No.3 Newsletter of Public Debt, Ministry of Finance, 2014
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In fact, there was still some limitations and weaknesses in mobilizing and utilizing ODA in recent years presenting in low disbursement ratio has affected the investment performance of some programs and projects. The
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Firsly, to contribute to knowledge about development aid in developing (cid:1) Identifying the factors that influenced to ODA in the context of
Vietnam that became a MIC; countries based on the experience of Vietnam, including:
(cid:1) Proposing the policy recommendations for ODA in Vietnam as a
member of MIC;
(cid:1) The thesis describes that the new features in the mobilization and utilization of ODA, in terms of middle-income countries MIC, are moving from “aid” relationship to become “development partners” relationshio. It requires proactive efforts of Vietnam in order to use effectively and then will “deny” ODA in the future.
(cid:1) Contributing to some aspects of ODA when Vietnam is a MIC through a review of experiences and practices in Vietnam in order to get various, new and updated approaches from the concept, characteristics, trends and academic perspectives.
4. Research Object and Scope
4.1. Research obect (cid:1) The thesis has constructed the concept of the Official Development Assistance in middle-income conditions MIC in Vietnam, including the grant ODA, concessional loans and less-concessional loans (preference than commercial loans).
The Official Development Assistance (ODA) in the thesis includes the the less concessional loans from loans, the
grant aid, concessional governments and international financial institutions.
4.2. Research scope
(cid:1) The thesis has identified the rule of ODA along with the development of a country, specificially Vietnam. From there, the thesis develop a roadmap for ODA in Vietnam in parallel with the development process in the middle-income countries. At the same time, the thesis also provides the analysis of: the middle-income country with a “graduation” schedule for ODA, should set up the own strategy for supplying ODA as a “diplomatic tool” and extend cooperation relationship in economic, trade and investment with other the least-developed low income countries. Since the target set out in, the thesis focuses on the 1993-2015 period of ODA, analysing of the emerging issues in the period 2010-2015 (the period when Vietnam began to become middle-income country MIC). The ODA metioned in the thesis has analysised in general, do not go into a in- depth way.
In terms of space, the thesis has been researched in the territory of Vietnam; the lessons of international experiences are analyzed based on the reports and available data sources from the regional and international contries having context, economic and social conditions similar to Vietnam. Thus, there can be detected some general aspects which identify ODA in a good way for MIC.
5. New contributions of the thesis
(cid:1) The thesis has identified the properties of the new factors affecting the ODA in Vietnam with the context of MIC (the economic - political relation as well as the relation of strategic partners and the ownership). The thesis has been interpreted two factor groups affected ODA in Vietnam: (1) factors derived from aid provider (aid strategies and policies of donors, the economy and the political situations as well as the fluctuations that may occur in the donor countries, the international atmosphere and the development of economic-politic relations, between the donors and aid recipients); (2) the internal factor from Vietnam (the economic- political enviroment in Vietnam; the ODA policies; and the ODA absorption capacity of Vietnam).
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The thesis “The Official Development Aid (ODA) in the context of Vietnam becoming middle-income country (MIC)” has some new meaningful contributions in terms of theory and practice. Apart from that, it helps to raise the efficiency of ODA and concessional loans in the new context of Vietnam. Specific:
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1.1. The Official Development Assisstance ODA
Secondly, base on the factors affecting ODA, analysis the effectiveness in LIC, put in a new context in Vietnam (MIC), the thesis proposed recommendation on ODA policies. 6. Research methodologies
In this thesis, both of qualitative and quantitative methods are applied. The quantitative methods is used for assessing the impact of ODA to the development of the economy, the sociaty and the state management. The qualitative method is applied in assessing the factors affecting the ODA in Vietnam. Specifically, the two main methodologies in this thesis are: (1) Desk-study; (2) Interview/Expert consultation.
7. Structure of the thesis
The Official Development Assisstance includes the ODA capital and the concessional loans from the foreign donors for Vietnam government, which was determined in the Law on Public Investment, is public investment capital, so that becomes the impacted objective of this law. Budget capital for public investment stipulated in this Law includes funds derived from the State budget, government bonds, local government bonds, official development assistance (ODA), overseas concessional loans, government credits for investment and development purposes, retained revenues of the state budget that have not been recorded in the state budget balance and other loans secured by the local budget for public investment purposes3. Apart from the Introduction, Conclusion, Appendix, List of References
the thesis is presented in four chapters:
Chapter 1. Literature review
Chapter 2. The rationale and practical basis on ODA of a country when
becoming a MIC.
Chapter 3. Status of ODA in Vietnam in terms of MIC.
Chapter 4. The perspective and orientation of ODA in Vietnam in future ODA - a popular perpective in Vietnam - stands for Official Development Assistance. There are many different definitions of ODA from the international organizations and even in Vietnam, ODA is also definitioned in many different ways in some organizations such as the Organization for Economic Cooperation and Development OECD, World Bank, Decree on Management and Utilization of ODA in Vietnam, Law on Public Debt Management 2009. time.
The thesis defined the official development assistance includes the grant aids, concessional loans, less concessional loans from the goverments, the intergovernmental organizations, the organizations in UN (United Nations), the international financial institutions provided for the low-income or developing governments in order to contribute for economomic and social development.
1.2. The Aids in the middle-income countries MIC
There are a wide range of opinions on whether or not continuing the aids for MIC and which priority areas should be aided for MIC?
1.3. The factors affecting the aids
3 Law on Public Investment 2014.
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The researches focus on analyzing: the relationship between the politics and the aids, the relationship between the policy environment and
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development aid, the relationship between the sponsoring strategies, aid receiving strategies and development fundings.
1.4. Assending the efficiency of development aid “The Official Development Assisstance (ODA) in the context of Vietnam which became a middle-income country (MIC)” will contribute theoretical and practical significance for the policy making and management of ODA in Vietnam in the next time.
Many studies not only pointed out the relationship between the aid and the growth but also indicated the improvement of the aid’s effective. There are, however, still a lot of controversies about that relationship.
THE RATIONABLE AND PRACTICAL BASIS ON ODA OF A COUNTRY WHEN BECOMING A MIC
2.1. The regularity of ODA in the development process of a country
limited, mainly in
According to the theory of economic growth by Professor W.W Rostow launched in 1961, there are 5 stages of the development process of a country: Traditional society, Preconditions for take-off, Take-off, Drive to maturity and Age of mass consumption. Moving to the preconditions for take-off, and take-off are a turning point marking the beginning of the development process. In this time, the domestic savings is not much meanwhile the investment demands still climb gradually, especially in the infrastructure. The export capacity remains the agricultural and forest products with low added value, in parallel with the lack of foreign currency for import demand of machinery, equipment and technologies in order to support the process of industrialization. Therefore, a country begining development period has faced to the two deficiencies: the investment capital and the foreign currency. ODA helps to balance these deficiencies.
For sustainable development, the ODA recipient countries must be aware of the possibility of repayment in the future. As a result, ODA must be used effectively as well as aiming at increasing the competitiveness of the economy. Another key factor is that national leaders must always think of a time when the country will not need ODA (ODA graduation). To sustainable develop, a country needs to define ODA is only used in the transitional period. To be able to “graduate ODA” in a short time, increasing the domestic savings has to be paid more attention.
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In summary, the studies of development aid in the world and Vietnam have mentioned many aspects of theory and practice for mobilization and utilization of ODA in Vietnam. They are the most important input- information for the thesis. However, along with many basic changes of Vietnam (which has become a middle-income country, the change in the funding policy of the international community and the Party’s guidelines and policies in the new context), ODA mobilization and utilization activities require the fundamental changes. The present studies have not really pointed out this urgent issue. Therefore, the implementation of the research
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2.2. The characteristics of the MIC
According to World Bank’s classification of a country with the income per capita, there are 4 groups: low-income countries, lower-middle income, upper-middle income and high-income countries. As the classification in 2014, starting from 2015, the middle-income countries must have average GNI per capita from $US 1.045 to $US 12.745; in which, for the low middle-income countries, the average GNI per capita is from $US 1045 to $US 4125 and the high middle-income countries is approximately from $US 4126 to $US 12745. As classified by World Bank and Organisation for Economic Co-operation and Development, Vietnam is among of the countries with low middle-income with GNI per capita in 2010 was $1270 and in 2012 was $15604.
2.3. ODA in a middle-income country - the international experiences and lesson learnt
In terms of the middle-income country (MIC), the donors have changed the development policy for Vietnam. According that, ODA of Vietnam in MIC context has changed with the following characteristics: The scale of ODA for Vietnam decreased gradually in the period 2011- 2015 and then fell sharply after 2015. The structure of ODA has turned out, while the grant ODA and concessional ODA loans are declining, some donors have opened new channels to provide funding for the less concessional ODA loans. Method of the government cooperation has moved to the direct relationships between entities of the Parties. The government plays a catalytic role in policy and institutions to create a favorable environment for entities, There is a wide range of the aid approaches and modalities will be applied with the extension of the participation of the non-governmental organizations and the the private sectors in the development proces. The division of labor and synergy between all the donors for exploit the comparative advantage that has have an upward trend. The emerging economies and South-South cooperation will add significant resources for development cooperation.
2.4.2. Asseding ODA in Vietnam before and after becoming a MIC
An aid is confirmed as ODA if it three conditions: the resource, the aim and the Grant element. The concessional loans are forms provided loans with preferential terms than the commercial loans, but the Grant element is unqualified 25% of the total aid. ODA has many different types to classify: by aid modalities, ODA providers or ODA conditions.
technologies,
Overall, ODA of MICs is significantly lower than LICs. The proportion of ODA for LICs is 10% by ODA / GNI, for LMICs is 1% and for UMICs is nearly a zero. While MICs has risen spectacularly the needs in development, the international donors are planning to cut down the fianancial aids for MICs. In some cases, the donors are closing aid programs in several MIC. The transition, behaviors and strategies of the recipient countries play an extremely important role in this situation. It is true that the clearer the strategy, the higher ODA’s efficiency, for example Kenya, Thailand. In the contrast, with a unclear strategy, ODA will become a sharp knife and trap that country into a bad debt such as Brazil.
4 http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true
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2.4. The Analytical Framework of Thesis Within the thesis, some evaluation criterias chosen to use are: The contribution to GDP growth, the contribution to the total development investment capital of society and FDI attraction; ODA’s support for the acceptance of scientific achievements and modern the development of human resources, the support for the poverty reduction, the improvment of government management; ODA and the public debt. However, besides the obvious benefits on economic and social development which ODA gives to the developing countries, there are many problems in mobilization and utilization of ODA at both macro and micro level in a lot of the developing countries around the world, including Vietnam. On a macro level, ODA and public debt are “hot’” issues that should be considered carefully. On the micro side, Vietnam has some important issues in the management of ODA such as the limited efficiency of ODA; the low disbursement rate, the wates of some ODA projects. 2.4.1. The changes of ODA when Vietnam has become a MIC
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2.4.3. The factors impacting ODA in Vietnam in terms of MIC
There are two main groups that affect to ODA when Vietnam is a member of MIC: (1) the factors from the aid donors and (2) the internal factors of Vietnam.
3.1. The background
In terms of economy, ODA is considered a positive impact on the national social and economic development (such as gross domestic product, development investment). In recent years, ODA is present in almost all areas of economic and social infrastructure in Vietnam. The ODA-funded projects have contributed to the economic growth and improve people's lives. In overview, ODA is just one of the various funds supported social and economic development. That means to let ODA be able to contribute to social and economic growth, the institutional ODA environment is obviously suitable.
Although ODA is only occupied by about 3-4% of GDP, 10% of total development investment capital of society (in the period 1993-2015) but has a significant proportion of the total investment from the state budget (46% in the period 1993-2015). This is a huge significant because the budget for the development investment is still limited while the demand of the development of socio-economic infrastructure is increasing. Thus, as can be easily seen that ODA would help solve a part of “the thirst for capital” and bring new vitality to the developing countries, contribute to change for many economies if it is used effectively.
the Looking at the whole period 1993-2015, Vietnam has risen to overcome a poor and underdeveloped country with a GDP per capita $98 in 1990 to become the developing country – a MIC – with a GDP per capita reached $1,168 in 2010. However, in the current stage of development, Vietnam has faced to many complex difficulties and challenges. The political and regional security still remain a couple of potential complication; the world economy has recovered slowly; there is some difficulties to ensure macroeconomic stability and economic paradigm when shifting from the labor-intensive economy to the effitive and competitive capital and productivity; the unsustainable poverty reduction and the rich-poor gap tends to increase; the natural disasters, the diseases and the climate changes; the weakness of the institutional management system and the human capacity.
Because of the new developed economy stage, Vietnam is not one of the priority countries to provide ODA capital. The partners has agreed to move to a new stage, becoming development partnership, consultation policies. In addition, concessional loans and grant aid are only reducing but also are replaced by more difficult conditions loans (with short term and higher interest rates). The partners’ governments are aiming to the prospects that they are no longer to be a direct foreign loan receiver. Instead of that, they only play a role as catalysts in the region where the enterprises increasingly have chance to engage more directly.
In the new period when the requirements are different, Vietnam need a suitable policy in mobilization and utilization the foreign funds, especially ODA. total development investment capital of society ofVietnam is high, average by 35.2% of GDP and the average growth rate of 14% per year. In the MIC stage, the average growth rate of the total development investment capital of society decreased by about 6%. In particular, the proportion of development investment from the state budget, despite of the undeveloped trend since Vietnam into MIC, still stood at 23% of total development investment capital of society and 8% of GDP (the average in the period 1993-2015). With domestic savings and national savings in 2012 accounted for only about 30.7% and 31.6% of GDP respectively, the increase of the total development investment capital of society, including public investment, has created a large gap between savings and investment in the economy. Without a strategic direction of public investment, including foreign debt... this can partly caused a latent risk of economic instability in the country.
3.2. Assesding ODA in Vietnam before and after beocoming a MIC
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3.2.1. ODA contributes to develop the economy
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3.2.2. ODA contributes to develop the social development 3.2.3. ODA and the Public debt
ODA loans and public debt became a hot issue in parliamentary Vietnam National Assembly as well as in public opinions in recent time.
In the period 1993-2015, the grantaids accounted for 10% of total the signed ODA. These funds are intended for the projects of technical assistance, including training of human resources, improving the higher quality of preparation of planning projects. ODA has helped the poverty reduce in order to improve the disparity of people living in developing countries. ODA also has enhanced the institutional capacity of management for the developing countries through the supporting programs and projects as well as the legal or administrative reform and building the economic management policies which is consistent with the international practices.
3.2.3. ODA has low effeciencies due to receiving capacity of Vietnam
According to the Ministry of Finance, the total foreign debt (including borrowings and repayment of Government loans and government-guaranteed debt) on 31 December 2012 in Vietnam was more than $42 billion, by 55.7% of GDP. 80% of Vietnam's ODA loans was from the other countries and international financial institutions to which Vietnam’s government had committed to repay in accordance with the conditions in the specific international agreements on ODA signed. To receive grant aid, the Government of Vietnam must contribute counterpart funds in kind or value. Therefore, the use of ODA must always be considered, calculated between efficiency - cost to insure the ability to repay foreign debt and the maintenance of the national prestige. Indeed, ODA was not “gratuitous gift” and not as a loan can be used arbitrary as we want. In terms of the economic aspects, ODA is not accounted a hige proportion, about 3-4% of Vietnam's GDP. Therefore, this fund can not replace the internal resources. It’s just been an additional work and has catalyzed for the development process.
important reason the most time, is
Besides the positive aspects of ODA for Vietnam as presented above, in fact, ODA has revealed a few limitations and weaknesses in recent years, which was shown in low disbursement rate. It impacted on the investment performance of a number of programs and projects. Although ODA has many advantages, the disbursement is occupied close to 74% the already signed agreements for the period 1993-2015; it means that around $US 19 billion have not been disbursed. The objective reasons for the delay is partly due to the different provisions of the international donors, so the combination of these regulations has made some progress, but still very congested. At the same the weakness subjective organizational project management, especially the diffuculties of the site clearance, the implementation of resettlement and arranging couterpart funds for carrying out the project from Vietnam side. Since Vietnam became the MIC, the lending conditions are tighter and ODA is more expensive. Vietnam should actively and conscious control of debt at a safe level, decide to approve and implement the probably programs and the projects, with the inspection, the supervision and the participation of the authorities, the community and the scientists. These are also the leading principles that should be followed in the process of the general foreign debt and particularly ODA.
3.3. The factors affecting to ODA when Vienam becoming a MIC
3.3.1. The factors from the ODA providers
Besides, the development strategy and planning to mobilize and utilize ODA capital in the sector is still irrational. Other reasons such as the low level of management capacity, the lack of experiences in the process of receiving and processing project ... make the efficiency and the quality of the investments in these funds low. The more ODA received, the ultilization of ODA should be paid attention to be more effective. The ODA management authorities and ODA benefited units ODA should have policies and concrete actions to promote the strengths as well as minimum the disadvantages of ODA.
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From the donor side, the first factor dominates ODA is the strategy and policies of donor aid. In each period, the donors will identify which areas to focus on, which country and the way to provide ODA based on the strategies. If the strategic goal of providing ODA from the donor countries changes, this will affect the recipient country on both the structure and the management policy of ODA. In Vietnam, there are about 50 bilateral and multilateral donors activating with different accents in aid policy, the priority directions by
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most donors to terminate the program of ODA for Vietnam on a massive scale and to maintain these programs in the form of technical assistance. sector and geographical territory and various the procedures provide ODA. That’s why the role of recipient Government will be limited in the framework agreement reached through negotiations.
The second factor is the political and economic situation, as well as the fluctuations that may occur for the donors. When there are fluctuations, the policies and regulations on ODA management are changed based on the evaluation of ODA loans have been made in recent years by each donor.
Thirdly, the absorption capacity of ODA of Vietnam. In order to enhance the absorption capacity of ODA, Vietnam should take a series of measures such as improving the capacity of ODA management at all levels, raising the awareness as well as the knowledge of ODA in the new period. Besides that, the permission for the private sectors to approach the ODA is an effective way to diversify the type and improve the absorption capacity of ODA for Vietnam. On the other hand, Vietnam needs to learn experience in managing ODA from the countries which are similared about the socioeconomic conditions, especially the countries that has just moved from LICs to MICs.
IN FUTUTRE TIME
4.1. Some views on the ODA in Vietnam in the context of MIC
A third factor is the international atmosphere and the development of economic-political relations, between the donors and the recipients. If the atmosphere and relationships that are positive, facilitating in maintaining and scaling up ODA, even for the harmonization of procedures between the two sides. Recently, Vietnam has upgraded the relationship to the level of “the transnational strategic partnership” with a number of countries and organizations. The international integration in all fields of our country not only brings many opportunities but also open up for more effective advantages of the external resources. Currently, due to Vietnam has become a middle- income country, that makes ODA to Vietnam be decreased, not a signal that donors have lost confidence in Vietnam.
3.3.2. The internal factors of Vietnam
As analyzed in chapter theoretical basis, there are three main internal factors of Vietnam:
The first is the social and economic environment in Vietnam. Vietnam has started to stabilize macroeconomy, but still remain some risks from inflation, bad debts, forex reserves ... and Vietnam needs to paid more attentions on the loosening fiscal policy.
Views on development aid in the future: (cid:1) The developement assistance in general, first of all ODA fund (grant aid and ODA loan) will decline in the short term. Next, after an increasing period, the concessional loans will be reduced and stop when reaching a lower middle-income landmark. Therefore, in the short term, Vietnam needs to balance between the domestic and foreign capital with the trend that the domestic capital plays a decisive role whereas the foreign capital plays an important role. In parallel with the balance of capital, Vietnam needs more efforts to find the domestic sources, reducing the dependence on foreign loans.
(cid:1) The foreign loans have to secure the sustainable public debt. Therefore, Vietnam should choose the suitable debt portfolio; controlling strictly the less preferential interest rate loans; calculating reasonable of loans restructuring to avoid the risk of exchange rate and interest rates.
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Secondly, Vietnam’s ODA receiving policies. Vietnam continues to advocate mobilization and utilization ODA as well as concessional loans from donors. In the period after 2015, ODA and concessional loans may tend to decrease due to two basic reasons: (1) the domestic saving for development investments will be improved, at the same time, the policies will be issued to encourage private sectors participate in public investment, especially in economic and social infrastructure; (2) GDP per capita of Vietnam is forecast genarally to reach over $US 3000 in 2020. That makes (cid:1) The external debts has almost reached the safe-level, around 64% of GDP in 2015. The most important requirement now is how to mobilize and utilize ODA and concessional loans in a effectivel way, focusing on
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prioritized sectors and priority areas, avoiding the spread, and need to be associated with the repayment liability by all the branches, the localities and benefited units. Currently, the internal accumulation of Vietnam reaches over 30% of GDP. Vietnam, therefore, can be much more autonomous in the development investment capital. Vietnam should begin its ODA graduation roadmap.
4.2. Basis for proposed solutions Recommending the ODA graduation roudmap for Vietnam:
(cid:2) In the period from now to 2020: Vietnam is a low-middle income country, the development funds structure is shifting towards that ODA will plummet whereas less-concessional loans will increase. Vietnam needs to develop a new strategy for the mobilization and ultilization of the ODA based on the following principles:
To study and propose solutions to mobilize, manage and utilize effectively the development assistance in the context of the MIC, the thesis based on:
(cid:1) The Government guidelines and policies of the socio-economic development and insitutional management such as the Strategy of socio- economic development 2011-2010, Decision No. 958/QD-TTg dated July 27, 2012 of the Prime Minister approving the public debt and national foreign debt strategy in the period 2011 – 2020 and the vision to 2030, Decision No. 432/QD-TTg dated 12/4/2012 approving the Sustainable Development Strategy for Vietnam during the period 2011-2020... (cid:1) ODA has contributed significantly to the development of the investment, the socio-economic development, but merely still a catalytical additional funds. Vietnam should be mostly based on the internal sources (the budget revenues, the investment capital from the domestic and foreign sectors).
(cid:1) Mobilizing and usingutilizing the development funds to ensure socio- economic efficiency and to secure the foreign debt as well as the public debt;
(cid:1) The managment and ultilization of the development funds must be the subjects to the supreme supervision of the National Assembly, the Government and the citizens. (cid:1) The requirements of the development when Vietnam has entered a new phase – the middle-income country. Becoming a middle-income country, the aid policy for Vietnam has changed (reducing the preferential terms; the conditions and the repayment of loans is becoming tougher with higher interest rates, the shorter grace period, the shorter repayment period), Vietnam's status has changed from “aid provider-receiver” relations into “development partner” relations.
(cid:1) The strategy for ODA and less-concessional loans have to put in the overall demand of the national investment capital, in particular that type of foreign capital (ODA, the concessional loans from the foreign donors, FDI ...), especially the collaboration between the development funds and FDI. (cid:1) The ability and the practical conditions of Vietnam, the shortcomings and emerging issue relating ODA in recent years. The issues related to the public debt, actual implementation of ODA projects and the concessional loans that are referenced to propose appropriate solutions.
(cid:1) The international experiences and lesssons from the countries having similar contexts like Vietnam. (cid:1) Establishing the catalogs of all the priority programs and projects using ODA and projects which is calling the FDI investors (by industry and economic region). 4.3. The orientation and solution for the development assistance in Vietnam in the context of MIC
4.3.1. Developing a “ODA graduation” roadmap to step into a new development period (cid:1) Ensuring the ownership, highlighting the responsibility of the ODA recipients and the effectiveness as well as the broad effects should be the first criteria in determining the policy of using ODA and less-concessional loans.
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Although ODA is an important fund with many advantages, Vietnam needs to rely on its internal resources for sustainable development. (cid:1) Enhancing the ability of ultilization other financial funds without affecting the debt sustainability and macroeconomic stability. Strengthening
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the domestic financial systems, including the development of domestic financial markets and improving the access availability of the international financial resources. (cid:1) Do not use the concessional loans for the programs and projects under the duties of the government expenditure or not generating the direct revenues.
The prioritized list of using the development funds for this phase must adhere to the following principles: (cid:1) Focusing on using the concessional loans for the programs and projects having direct revenues and increasing the application of on-lending mechanism for the entire concessional loans.
(cid:1) The annual and mid-term (5 years) list of ODA programs and projects must be within the framework of the 5-year and annual Public Investment Plan. Those plans must be subject to regulate with the debt secure ceiling.
(cid:1) Reserve grant aid and concessional loans for unaffordable direct payback projects; some projects which can recover the capital but serving the national and social benefits; the projects for strengthening the institutional capacity; used for project preparation, human resources, technology transfer, innovation and creativity. (cid:1) The government should closely cooperate with donors to encourage and support the direct development – partner relations between entities of both partie. This will help to take advantages in the science and technology, advanced management experience and the development of human resources. (cid:1) Strengthening the comprehensive development partnership: Vietnam respects and complies with the international standards of the development cooperation to strengthen its global partnerships and needs the further contribution plan for the world’s development. (cid:1) The concessional loans using for the sectors with directly generate revenues and being able to repay the loans.
(cid:1) Strengthening the development cooperation to learn about how to provide the development assistance to prepare for the period that Vietnam begin providing ODA for some least developed low income countries.
4.3.2. Ensuring the sustainable secure of public debts (cid:1) The ministries and local governments must build-up the programs for mobilize the development funds, instead of the distributed and isolated projects.
(cid:1) Expanding the on-lending mechanisms; Local
partnerships building (PPP), the
infrastructure investment projects applied on-lending mechanisms from the central budget; the field may consider to use the state fund to participate in the public-private socio-economic infrastructure. Selection criterias should consider both of the socio- economic value added indicators and the internal rate of return (IRR). As becoming a MIC, the mainly loans are from less-concessional loans with the harder financial conditions and more expensive than concessional loans (the interest rate, the repayment period and the grace period is close to the capital market conditions), the ensure for public debt must be reflected fully in the attraction and ultilization of ODA capital and the other concessional as well as less-concessional loans.
(cid:1) With the special cases (the insufficiency of the concessional loan that leads to use two sources in a project or to use absolutely less concessional loans for the non-recover projects) should have the specific explanations about the reasonable volumme of loans in order to ensure safe debt limitation.
(cid:2) In the period after 2020: Basically ODA almost has stopped, except for some ODA programs and projects being implemented during transition period, instead of the less-concessional loan and ODA striving to 0 by 2030. The funding principles applied for this period are:
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Besides, not only more expensive, the other thing needs to be paid attention is ODA’s repayment period. Vietnam should implement a series of measures to ensure the safety of the public debt. Firstly, the determination of priorities and the investment criteria to decide ODA projects are the most important mission. ODA planning should be linked closely with the national development planning. Secondly, Vietnam needs to combine the policies on mobilization and utilization for using loans with monitoring indicators on safety debts at the macro level as well as building the effective loans monitoring mechanisms. The construction of the mechanisms for the private sector
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accessing ODA and the on-lending mechanism should be significantly paid attention to define. Thirdly, Vietnam needs to consider a long-term strategy toward decreasing ODA, then graduate ODA.
(cid:1) Actively participate in developing the strategic partnership with each developed country partner as the group of six development banks, the European Union, the countries providing aid to Vietnam. Each strategy should clearly be identified the priority support/investment, the investment list of program or project.
Another important issue is to establish a repay fund. The debt repayment obligation of Vietnam is increasing. That means more attention on the efficiency and the proactively repayment of foreign loans plan should be paid.
4.3.3. New thinking about partnerships
(cid:1) In the context of decreasing grant aid and concessional loans while the less concessional loans tend to increase, Vietnam should lead the development partners to provide technical assistance in order to support the economic and social development and to promote the economic cooperation for both of parties’ benefits.
4.3.4. Developing mechanisms to enhance participation of the citizens
In the new context, strengthening development partnerships with the donors and the role of government have changed, becoming a “catalysts” side, enabling the direct cooperation subjects to change from the “provider- receiver” relations into the development partnership relations. That new context is continuing to require the policy coordination of the Government, because the donors’ mechanism and procedure is still very different, in order to make cooperation into essential and effective ways. In the context that Vietnam are considered as a strategic partnership with many countries, it should has more specific policies to take advantage of the comparative advantages from each partner, then go to the substantive and effective partnership relations.
When Vietnam became the MIC, the ODA approach has changed, the concessional ODA scale got a reduction, the most important thing needs to do is to improve the efficiency of ODA. One of the measures is to improve the sustainability of the ODA projects’ results after project completion, at the same time reducing the lost in the process of project implementation. On the other hand, we need to conduct a series of steps right from designing project, evaluating project, make decisions, implemention and handovering the results for beneficiaries. The stakeholders should be involved from the start and fully at all stages in the project cycle. When transfering the project’s results, the managers and beneficiaries together handover the project and be responsible and observe carefully. In addition, we also need to design M&E activities for ODA projects from the central to local levels along with the participation of the citizens. the participations’s scope the content, widen in
Specifically: (cid:1) To need to identify the development partners is not only a donor to provide aid, but also a policy dialogue partners; sharing experiences and knowledge on the development issues. The requirements for the policy dialogues between the Government of Vietnam and the development partners should deepen the development process, and then the results of dialogues should be monitored and implemented in practice.
(cid:1) Proactively building national ODA strategy, outlining the priority Specifically: (cid:1) The transparent information mechanism to all stakeholders: the government authorities, the civil society organizations, the professional associations, the people community. directions and the criteria used for ODA.
(cid:1) Developing the mechanisms to monitor and evaluate the public investment projects, including ODA and to clarify the roles involved in monitoring of local communities.
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(cid:1) Developing the mechanisms for all beneficiaries to understand their roles, rights and responsibilities of taking over the ODA projects. (cid:1) Some experiences show that ODA partner relationships will need to be deeper and even should focus more on the ideas, knowledge and the developing solutions. To satisfy this change, ODA needs to involve more and becoming an overall package of ideas, knowledge and financial resources. ODA should be used more strategically and more prudent to mobilize the private capital participate into the public resources.
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(cid:1) Developing a comprehensive partnership with the private sectors from
sharing information to jointly implementing the projects.
Besides, the private sectors should be equally with the public sectors based on sharing the responsibilities and benefits as well as the risks along with the government in using the funds.
The forward step for the position of Vietnam was established in 2010. Vietnam officially transformed from a low-income country to a middle- income country. Vietnam is entering a decade with aim of implementing the fundamental objectives to become a modern industrialized in 2020. The transfer of two decades is also the transition into a new period of ODA in Vietnam
Proposed policy framework for the private sectors accessing to ODA (cid:1) Identifying the principles “ODA beneficiaries are responsible for paying the debt and as well as sharing risk with the Government”. To secure the loan, we need to design the strictly financial mechanisms such as the regulations on the mortgage for using ODA loans and less concessional loans. It is very important to ensure to share maximum of all risks and responsibilities between the public sectors and the private sectors.
Vietnam needs to change the perception, the vision, the macro strategic principles as well as the solution to organize, manage and implement ODA effectively at all levels in order to some aims: to realize the policy of the Party and the Government related to ODA and the need of development investment in the context of Vietnam becoming MIC; to be consistent with the aid policies to Vietnam as well as ensuring sustainable public debt of countries. Therefore, the study of ODA in the new context of Vietnam, is pretty necessary and makes sense.
(cid:1) PPP approach is a form which be able to take advantage from the huge resources of the private sectors. This model not only reduces the pressure on the government’s budget, but also creates an additional space for the growth of the private enterprise. Therefore, the combination in PPP, including the ODA utilization, is considered as an effective solution to help boost economic growth.
(cid:1) Researching the alternatives for the private sectors to access directly to the funds, such as the model of tripartite “funding agencies - banks – investors” projects. The bank or the government can play a mediating role in funding, even though the project investor is a private enterprise.
(cid:1) Researching the models of the Development Fund that acts as a lending entity for ODA funds. The thesis “The Official Development Aid (ODA) in the context of Vietnam becoming middle-income country (MIC)” has focused on the official development assistance when a country reaches the middle-income levels, particularly when Vietnam began to enter the transition period. Based on the analysis and evaluation of ODA in Vietnam in two stages (LIC & MIC), defined characteristics, nature of development aid as well as the factors affecting aid in the context of Vietnam is a MIC, this thesis has proposed some new viewpoints, orientations and policy recommendations to ODA of Vietnam in the coming time.
less-concessional indirectly through loans
(cid:1) Continue to encourage and support the private enterprise to approach the on-lending ODA and mechanism or participating in the implementation of ODA programs and projects, or the implementation of the projects in the credit line framework of the donors.
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(cid:1) Enhancing the capacity for the private enterprise, especially the capacity of project management, investment and innovation…
