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ODA of critical importance

Released at: 14:57, 23/04/2016

ODA of critical importance

Guaranteeing the effective use of ODA and concessional loans is now more pressing than ever, writes Mr. Mori Mutsuya, Chief Representative of the JICA Vietnam Office.

by Mr. Mori Mutsuya, Chief Representative of JICA Vietnam Office

To maintain growth of 6.5 to 7 per cent over the next five years, from 2016 to 2020, Vietnam needs to secure around $480 billion for national investment, about 25 per cent of which will be met by foreign capital, including overseas development assistance (ODA) and concessional loans, foreign direct investment, and other foreign indirect investment, according to information provided by the Ministry of Planning and Investment.

Vietnam is not dependent on ODA. In the five years from 2011 to 2015, total disbursement of ODA and concessional loans accounted for only around 3 per cent of GDP and just under 10 per cent of national investment. However, these funds accounted for a significant proportion of total investment from the State budget, at nearly 50 per cent in the same period.

Given the undeniable role of ODA in the development of the country over recent years and the large capital needs for the development of infrastructure as a foundation for sustainable development, ODA and concessional loans will certainly remain important sources of public investment. It is foreseen that at least in the next five to ten years Vietnam will not be ready to attract alternative sources of capital to entirely replace ODA for public investment, either from the domestic market or abroad. Moreover, with the rise of Vietnam’s economy preferential ODA and concessional loans will also decline and gradually be replaced by funds with higher commercial components. Improving the efficiency of ODA and concessional loans therefore becomes critical.

Projects using ODA in Vietnam must comply with both domestic regulations on public investment as well as the requirements of different donors, and as a result the delay in implementing ODA projects is the greatest obstacle hindering the effective use of these funds. For the 20 years ODA has been provided, development partners have worked closely with the Vietnamese Government in its efforts to harmonize the country’s regulations with donors’ guidelines and international best practice at each stage of the project cycle, aiming at having projects implemented smoothly, on schedule and with adequate quality and efficiency. Vietnam’s regulations on procurement have gradually improved to increase competitiveness, transparency and accountability in the selection process of consultants and contractors. The new Land Law reflects donors’ guidelines on resettlement and accepts the application of these guidelines when implementing projects using ODA and concessional loans. This helps to significantly accelerate the process of site handover for construction work, which has always been considered one of the most critical issues behind project delays and in some cases has even led to disputes between employers and contractors.

To mitigate scattered and overlapping investment and lack of coordination between localities, the Law on Public Investment was enacted in 2014. Once strictly enforced the law is expected to generate breakthroughs in increasing the efficiency of public investment by appropriate project selection that is in line with national priorities, contributing to curbing public debt growth to within the range set by the National Assembly.

The government has continued many other efforts to improve the efficiency of ODA and concessional loans, such as amending regulations on ODA management and utilization making it consistent with the Law on Public Investment in the project selection process, enhancing the accountability of local government in the use of ODA funds by applying on- lending instead of budget allocation.

However, the amendment or issuance of new regulations as mentioned above is not enough to improve the efficient use of ODA and concessional loans, for which the most obvious indicator is the completion of the project on schedule. It is necessary to strengthen the management capacity of government agencies and the project implementation capacity of executing agencies. In current regulations and practice, the strengthening of State management is primarily shown in consultations with concerned agencies while there is a lack of accountability and a clear demarcation of the rights and responsibilities of these management bodies. For instance, with regard to projects using ODA and concessional loans, almost all decisions at the project preparation stage must obtain opinions from related ministries but it is not yet defined who will be responsible and how responsible they will be if this consultation process is not done on time, which hinders the decision making process. This is also one of the main reasons slowing down implementation progress if there is a change in project documents, which is often the case. There exists a solution but it requires strong political commitment in public administration reform. The requirement of consultation with stakeholders should be minimal, only for a few key issues, but, more importantly, there should be rules setting a clear standard for the comment period along with measures ensuring compliance with the standard.

It is noted that in some cases the regulations issued by ministries provide guidance inclined towards increasing the authority of management bodies, even for matters under the jurisdiction of the implementing agencies. A further weakness in State management is the lack of close and effective coordination among relevant authorities, and an improvement to this would reduce the overlapping and inconsistencies in regulations for effective implementation. Obvious examples are seen in contract management, where two contract forms exist, issued by the Ministry of Planning and Investment and the Ministry of Construction, putting executing agencies into a difficult position regarding compliance, or inconsistent guidance on variations set by the Ministry of Finance and the Ministry of Construction cause delays in payments to contractors, etc.

Another matter is actual compliance with regulations. Taking site clearance as an example, land acquisition has been always a major barrier to project progress. Though the new Land Law has been issued and contains with many positive items, as mentioned above, strict monitoring to ensure transparency in making compensation plans as well as allocating sufficient funds for compensation remain challenges. Over the last few years a lack of counterpart funding for land acquisition has often been cited as a reason for delays in ODA projects.   

The project management capacity of executing agencies and project management units (PMUs) has always been an issue at any discussion on enhancing the efficiency of ODA and concessional loans. Given the specific nature of compliance with both national regulations and the requirements of donors, the benefit of using professional PMUs, whether they are in-house or outsourced, is clear. There is a need to strengthen overall regulations and the supervision of PMUs to make sure they possess sufficient capacity and their performance should be regularly evaluated so that only capable PMUs are eligible to continue performing the work and are assigned new projects.

Improving the effective use of ODA and concessional loans in Vietnam has become more critical than ever. Development partners, including JICA, have been working closely with the Vietnamese Government in this regard with the ultimate goal of making ODA fulfill its inherent mission of contributing to the development of a prosperous Vietnam.

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