Key source for investment

Disbursement of ODA funds by ministries and sectors had reached 8.58 per cent of the total as of mid-May, while the rate for localities stood at 5.7 per cent. A number of ministries, sectors, and localities have yet to begin disbursing their 2024 capital plans due to a host of issues.

Tardy disbursement

Hanoi’s Metro Line No. 3 between Hanoi Train Station and Nhon is one of six ODA projects in Vietnam’s capital continuing to receive ODA funding in 2024. Despite construction having been underway for 14 years, progress on tunnels and underground stations has only reached 42.22 per cent of plans due to prolonged delays in site clearance. Consequently, the foreign contractor halted construction in August 2021, demanding compensation and an extension of the loan agreement with foreign donors.

During a recent online conference on the disbursement of public investment from foreign capital, Mr. Le Sinh Tien, Deputy Head of the Planning and Investment Division at the Hanoi Department of Planning and Investment, reported that, in 2024, Hanoi has six ODA projects allocated funds of nearly VND3.896 trillion ($152.2 million). However, estimated disbursement from the city’s 2024 plan is quite low, reaching just VND856 billion ($33.5 million), or 21.98 per cent, due to issues relating to adjusting investment policies and extending loan agreements.

Mr. Tien indicated that while issues with the Metro Line No. 3 project have been largely resolved, adjustments to investment policies and extensions of loan agreements have fallen behind schedule. The Hanoi People’s Committee is now actively directing investors to address their difficulties and promptly report to the government and relevant ministries to seek solutions. Construction of Hanoi’s Metro Line No. 2 project, between Nam Thang Long and Tran Hung Dao, which has total revised investment of VND35.588 trillion ($1.39 billion) from Japanese ODA, is yet to commence due to issues surrounding procedures in adjusting investment policies.

Urban railway projects in Vietnam face significant constraints due to a reliance on foreign ODA funds. According to leaders from the Hanoi Metropolitan Railway Management Board (the project investor of all metro lines), the preparation process for these nationally-important projects involves numerous steps, including 64 for ODA-funded projects and 52 for State or local budget-funded projects. This process requires multiple rounds of consultations and clarifications at various government levels, from local to central governments and the National Assembly.

When a project is in need of adjustment, procedures for modifying investment policies and the project itself are almost identical to those for initial approval.

In the Mekong Delta’s Ben Tre province, two projects now underway are using ODA funds: Ben Tre General Hospital, and another developing a smart technology chain adaptable to climate change, with total allocated ODA of VND190 billion ($7.43 million). However, as of May 15, disbursement at the two projects had reached only VND26.6 billion ($1.04 million), primarily due to unsuccessful tendering processes, and Ben Tre is currently revising the bidding documents so that implementation can continue.

Localities around Vietnam were allocated total ODA funds of VND24.172.86 trillion ($946 million) this year, including VND9.456 trillion ($370 million) for public investment, going to 53 of the country’s 63 cities and provinces, and VND14.716 trillion ($576 million) for re-lending, to 51 cities and provinces. According to the Ministry of Finance (MoF), as of May 15, disbursement of foreign funds by localities remained at a low 5.7 per cent, for both allocated and re-lending funds, though this actually represents an improvement over the same period of 2023, when the rate was 4.9 per cent. Five of the 53 localities had a disbursement rate above 15 per cent, while 28 had not yet disbursed additional budget allocations from the central government for the local budget.

Tackling challenges

Through collaboration with local authorities and the monitoring of project disbursement data, Ms. Pham Hong Van, Head of the Central Project Management Division at the MoF’s Department of Debt Management and External Finance, identified a handful of key factors behind the low disbursement of foreign-funded public investment. The primary issue is the absence of completed work necessary for disbursement.

Firstly, though funds have been allocated and investment procedures completed for many projects, delays in construction readiness have impacted disbursement. Such delays stem from a variety of causes, such as slow site clearance, challenges in resettlement, difficulties in changing the forest land use purpose, delays in bidding processes and contract signings, and slow progress in acceptance and payment procedures. These problems are the responsibility of provincial people’s committees and project management boards.

Another major issue is the lack of accurate capital planning, both in grants and re-lending. Some localities face difficulties with capital planning, failing to accurately predict project timelines and necessary disbursements, resulting in plans that do not align with actual needs. This mismatch leads to insufficient or unavailable capital planning for disbursement.

Secondly, projects that seek adjustments to investment policies, project modifications, or amendments to loan agreements have not yet received capital plans for 2024. The main reasons for extending implementation and disbursement timelines are project delays and the untimely resolution of issues that may arise. For example, Group B projects, after completing procedures for extending project disbursement, within the jurisdiction of the provincial people’s councils, must also satisfy procedures to extend capital allocation timelines and secure Prime Ministerial approval.

Thirdly, delays are also caused by slow responses or approvals from donors on bidding documents or amendments to loan agreements. These issues are the responsibility of project management boards, project owners, and donors.

Fourthly, in the initial months of 2024, ministries and local authorities concentrated on reporting expenditures and completing documentation for disbursements from special accounts under the 2023 capital plan.

According to Mr. Bui Viet Hung, Deputy Head of the Investment Department at the MoF, the utilization of ODA funds, particularly those borrowed by local authorities, remains poor. Despite regular monitoring over the years, actual disbursement stands at only 50 per cent of planned allocation. Leaders at the Investment Department have therefore advised localities to align their budgetary planning closely with disbursement timelines, to prevent cases where project registration does not translate into actual implementation. This precaution aims to mitigate challenges in effectively allocating funds for local disbursement.

Overcoming difficulties

To expedite the disbursement process, Mr. Hoang Hai, Deputy Director of the Debt and Foreign Finance Management Department at the MoF, said the Ministry will organize working delegations to address the difficulties and obstacles facing public investment. This effort will focus on major projects and regions assigned significant capital plans. Continual dialogue with donors will also be maintained to resolve issues such as shortening timelines and simplifying procedures on the donor side.

The MoF has also proposed that the Ministry of Planning and Investment (MPI) support localities in accelerating procedures for extending capital allocation timelines to avoid any impact on project disbursement schedules. Clearer guidance will also be provided to localities on the authority for approving project adjustments, especially concerning ODA projects implemented across multiple agencies.

Localities and project management boards, for their part, are urged to review and thoroughly assess the disbursement capacity of each project, especially those scheduled for disbursement in the final year. This aims to avoid the need for disbursement or implementation extensions, minimizing procedural complexities.

Mr. Hai underscored the necessity for projects facing scheduling challenges to submit proposals for budget cuts, reductions, or reallocations to the MPI and the MoF by June 30, for collaborative action.

To tackle the obstacles encountered in urban railway projects slated to utilize ODA funds, leaders at the Hanoi Metropolitan Railway Management Board have suggested the adoption of tailored policies that go beyond existing regulations, enabling smoother progress.

In regard to procedures for initiating investment approval and decisions, the Board recommends bypassing the usual steps outlined in Article No. 25 of the Law on Public Investment for drafting, reviewing, and endorsing project proposals. Concerning financial transactions, it proposed authorizing payments exceeding the city’s annual capital plan without necessitating adjustments to said plan. Furthermore, in cases where project timelines are extended without augmenting total investment, investors should be able to forego the typically-required procedures for amending investment proposals and seeking project adjustments.