The decree, which takes effect on June 15, 2017, specifies the conditions for provincial People’s Committee’s to re-borrow Government foreign capital loans including Official Development Assistance (ODA) loans and other preferential loans.
Nguyễn Xuân Thảo, deputy head of the Debt Management and External Finance Department under the Ministry of Finance (MoF), said the amount and level of committed foreign preferential loans to Việt Nam had decreased significantly since 2010 when Việt Nam was upgraded to a middle-income economy.
From July 2017, Việt Nam no longer has access to World Bank ODA loans, and then other development partners, so the country will have to switch to other preferential loans and finally commercial loans in accordance with market conditions, Thảo said.
On the other hand, the allocation mechanism has revealed shortcomings which preclude equal support of the Government to localities and effective use of Government foreign capital loans, Thảo added.
Lent capital to provincial People’s Committees accounted for 35 per cent, equivalent to US$15.5 billion, of the total $45 billion worth of committed ODA and preferential loans during 2004-15. Of this number, the proportion of allocated funds was 92.2 per cent while the re-lending rate was only 7.8 per cent.
This situation was attributable to the socio-economic features of the past when provinces had great capital demand for development and poverty reduction projects.
Average lending interest rate during this period was low at about 1 per cent for a 40-year term.
The 2015 Law on State Budget, effective from the 2017 budget year, stipulates borrowing conditions for local administrations with regulations on overspending and debt limits.
Decree 52 was designed to increase local authorities’ shares of the Government’s financial burden and promote management of local administrations and effective use of Government foreign loans.
Thảo said this is an instrument to allocate capital resources, prioritising the use of ODA loans to localities having difficulties and improving debt management of local authorities to prepare for the future when Việt Nam no longer has access to ODA and has to borrow commercially.
The decree will mainly affect the budgeting levels among agencies but have no impact on the public debt level, Thảo said.
The re-lending of Government foreign capital loans to local administrations must comply with regulations of Decree 52 and relevant laws. Re-lent capital must be fully repaid on time.
When applying for projects using ODA and preferential funds, provincial People’s Committees must specify their financial mechanism, re-lending ratio, project efficiency and debt repayment capability. The re-lending must be transparent and suitable with local financial capacity.
The re-lending ratio of ODA for socio-economic development projects will be determined on the condition of lending condition of capital sources (ODA and preferential loans). — VNS
