The decree aims to force localities to use ODA finance far more efficiently.
The North Channel system was once the most polluted area in Nghe An Province. With more than 100 billion of ODA loans, the North Channel turned into streets. However, these funds will no longer available for Nghe An Province from July 2017, so that the province will have to find other solutions to secure investment.
Nguyen Xuan Duong, Chairman of Nghe An People’s Committee said: "I think we should have stricter controls in order to use the money more effectively, we can curb waste and concentrate on getting value for money. We’ll also have to turn to other sources of investment to ease some pressure on the demand for investment".
Truong Hung Long, Head of Department of Debt Management and External Finance and Ministry of Finance said: "From now on the localities should start reassessing how they go about managing their finances and the central authorities should also have guidelines on the policies so localities are able to understand the new system. However, the most important thing is that localities should know how to control their debts to optimise their loans".
ODA loans will switch to repayment terms after July 2017, doubling the time limits and raising interest rates from 2% to 3%. The government will also source foreign credit sources then lend these funds to localities.
Dr. Nguyen Minh Phong, Economist said: "By implementing this mechanism, the repayment of ODA loans would better minimise the possibility of large ODA debts being incurred. However, ministries have continued to borrow ODA then re-lent it which eventually increased the ODA loan from the beginning."
According to the Ministry of Finance, although local mechanisms for taking foreign loans do not reduce public debt, localities still have to share their debt obligations with central government. Therefore before borrowing to invest in projects, localities must carefully consider the necessity of the projects, as well as improved management in order to avoid potential waste.
