Enhancing Development: Vietnam's ODA Predictability & Stability

1. Predictability and Stability of ODA Flows The Case of Vietnam Dr. Pham Hoang Mai Head of Japan and Northeast Asia Division Foreign Economic Relations Department Ministry of Planning and Investment - Vietnam

2. Background • Classical and Neo-classical Theories: ODA is provided to cover 3 gaps: • Savings – Investment Gap • Foreign Exchange Gap • Technological Gap • Dependency Theory: ODA is detrimental to development: • Substituting for Domestic Savings • Aid Fungibility • Unsustainable Development

3. Background • The Role of the Government Coordination • Allocating ODA for Priority Projects to create favourable conditions for socio-economic development • Directly tackle the poverty problems • Guarantee the results of economic growth will be equally distributed • Predictable and Stable ODA flows will help the government to minimise the detrimental impacts and maximise positive impacts of ODA flows

4. Description of Predictability and Stability • Volume • Conditionality • Financial terms and conditions • Policy reform conditions • Procurement conditions • Strategy • Priority areas → Play important role for long- term development plan of developing country

5. Glimpse of ODA in Vietnam

6. ODA Contribution over the Period of2001 – 2005 • ODA has contributed to 11% of Vietnam’s investment and 17% of government investment • Japanese ODA accounted for 28.8% of total committed ODA and 36.2% of disbursed ODA • Japanese ODA has contributed to 4% of Vietnam’s investment and 6.2% of government investment • Sectoral contribution: Transportation, Power generation, Education, Urban Infrastructure and hence helped to attract FDI

7. Sector Allocation of ODA 2001-2005(%)

8. Successful Strategy of Vietnam seeking support of the Donors in preparing • Five year Socio-economic development plan • Comprehensive Poverty Reduction and Growth Strategy • Sectoral and regional development plans • ODA Framework for the period 2006-2010 • Holding regular policy dialogues • Phasing-out for large scale projects • Applying and improving the ownership

9. Successful Strategy of Donors • Cooperation with Vietnam in developing • 5-year socio-economic development plan; • Comprehensive Poverty Reduction and Growth Strategy; • Sectoral and regional development plan • Having country cooperation strategy for Vietnam in line with the 5-year socio-economic development plan and hence providing multi-year pledges

10. Successful Strategy of Donors • Support the sectoral and regional development plan by financing priority projects • Applying Program-based approach by combining both development studies and financing a number of priority projects • Starting the harmonization in terms of feasibility study, procurement, reporting system (Hanoi core statement) • Coordinating among donors • Applying new aid modality (Budget support, program-based approach etc.)

11. Forecast ODA Commitment and Disbursement 2006-2010 Vietnam Debt limitation ODA provision capacity Vietnam disbursement capacity ODA commitment 2006 - 2010 ODA disbursement 2006 - 2010 ODA demand for development

12. Forecast ODA Commitment and Disbursement 2006-2010 • Demand for ODA • Development target: Annual GDP growth rate of 8% • Share of ODA in total investment (8%) • Donors’ Capacity • Donors’ cooperation strategy • Donors’ trend of ODA provision, past and future

13. Forecast ODA Commitment and Disbursement 2006-2010 • Disbursement Capacity • Problems of land clearance, procurement, counterpart fund • Target and solution • Debt Management • Debt management strategy • Borrowing limitation

14. Forecast ODA commitment and disbursement 2006-2010

15. Predictability and Stability of Japan ODA in Vietnam Japan decides ODA commitment to Vietnam based on: • Previous years commitment • Performance • Economic growth • Disbursement • Contributions of ODA funded projects • Policy reform • Macro-economic reforms (SOEs reform, financial reform etc) • FDI related policies reform etc • Road map for policy reform

16. Commitment and Disbursement of Japan’s ODA to Vietnam

17. Characteristics of Japan’s ODA in Vietnam • Advantages of Japan ODA • Cover a Wide Range of Activities • Can Finance a Large Scale Projects • Well-known for Technology Transfer • Less Policy-related Conditionality • Japan’s ODA for Vietnam focuses on construction of large-scale infrastructure and human resource development with a view of promoting economic growth and poverty reduction.

18. Northern Growth Triangle: Hanoi-Hai Phong-Quang Ninh • Central Growth Triangle: Da Nang areas • Southern Growth Triangle Ho Chi Minh City- Vung Tau areas

19. Challenges • Full cooperation and supports with Vietnam in realising the 5-year socio-economic development plan, Comprehensive Poverty Reduction and Growth Strategy, sectoral and regional development plans • Accepting Vietnam’s roadmap of policy reform • Easing the conditionality • Full harmonisation of the procedures, especially in terms of procurement

20. Lessons Learned • Strong Ownership • Developing good development strategy, in which ODA will directly tackle poverty problem and provide favourable environment to attract investment and hence to promote economic growth • Good understanding of Donors’ procedures and potential

21. Lessons Learned • Good coordination among donors, sector, regions • Towards full harmonisation in terms of procedures between donors and Vietnam and among donors