WHAT IS ODA CAPITAL? THINGS YOU NEED TO KNOW ABOUT ODA CAPITAL

In Vietnam, ODA has played an important role in promoting economic growth; improving people's lives; contributing significantly to the cause of industrialization and modernization of the country… Having heard a lot about ODA, do you really understand what ODA capital is? How are they used? Let's find out with OTIS LAWYERS in the article below!

Legal basis

Decree 114/2021/ND-CP on management and use of official development assistance (ODA) and concessional loans provided by foreign donors.

What is ODA capital?

ODA - Official Development Assistance -It is a form of foreign investment. Through long-term loans with low or no interest rates; for the Government of an invested country. Aiming at economic development and improving social welfare.

According to Clause 19, Article 3 of Decree 114/2021/ND-CP, ODA capital is understood as capital of foreign donors; provided to the State or Government of the Socialist Republic of Vietnam. To support development, ensure welfare and social security.

Currently, the methods of providing ODA capital include:

- Program;

- Project;

– Non-project;

- Budget support.

Classification of ODA capital

Pursuant to Clause 19, Article 3 of Decree 114/2021/ND-CP, ODA capital includes the following types:

Non-refundable ODA aid

This is a source of capital that the ODA recipient country will not have to return to the ODA donor. This capital is normally used to carry out loan projects under the agreement of the two countries, provided that the project contractors will be undertaken by the lender.

Refundable ODA aid

This is an ODA loan with a preferential interest rate and an appropriate repayment period. Currently, the total ODA capital in the world, Preferential credit accounts for a large proportion. This capital is normally used for infrastructure projects. Belonging to the fields of transportation, agriculture, irrigation, energy... This type of ODA investment capital has the following preferential conditions:

- Low interest rates;

- Long repayment period;

- There is a period of no interest or debt repayment.

Mixed ODA capital

This is a source of ODA investment that combines both types above. Includes partial non-refundable and partial refundable credit. In particular, the "non-refundable" element will usually be no less than 25% of the total value of the ODA loan.

Advantages and disadvantages of ODA

Advantages

– Interest rates are much lower than other loans, usually at less than 2% or 3%;

– The ODA recipient country may not need to be reimbursed if it is a non-refundable source of ODA;

– ODA investment capital is a loan with a long loan period and grace period, usually from 25-40 years to be repaid and a grace period of 8-10 years;

– Most of the ODA capital source always has a part of non-refundable aid, at least 25% of the total ODA capital;

– ODA investment capital is a very important source of capital to help underdeveloped and developing countries to stabilize their social life and develop their economy;

– In addition to capital support, the ODA donor also has support activities to help the ODA recipient improve the level of science - technology as well as the level of labor force. Thereby promoting socio-economic development and improving people's living standards.

Disadvantages

– The ODA recipient country almost has to remove the protective tariff barriers for a number of industries and goods imported from the ODA donor country. In addition, the ODA recipient country will also have to gradually open up the protection market for the new list of goods of the ODA donor country, or may also allow to invest in limited areas, with high potential for investment. high profitability;

– The ODA donor often requires the ODA recipient to purchase equipment, hire services, human resources, etc. of the loan at a relatively high cost;

– The ODA recipient must comply with special trade terms such as maximum import of certain products of the ODA donor;

– The ODA donor will participate in projects using the ODA recipient in the form of expert or contractor support;

– The impact of the exchange rate factor can increase the value of repaid ODA. This is a disadvantage for the ODA recipient;

– The ODA recipient may face some dangers if using ODA capital inefficiently such as corruption, wastefulness, lack of experience in project management, etc.

The current situation of attracting and using ODA in Vietnam

On average, in the period 2011-2019, ODA and concessional loans contributed 6.9% of the total investment capital of the whole society. 34.09% of investment capital comes from the state budget and accounts for about 2.4% of Vietnam's GDP. As of 2019, Vietnam has received over $85 billion in ODA and concessional loans. Of which, 7 billion USD is non-refundable aid (accounting for 8% of total ODA and concessional loans). Over 70 billion USD is loans with interest rates below 2% (equivalent to 90% of total ODA and concessional loans). And 1.7 billion USD of less concessional loans but the interest rates are still lower than commercial loans (accounting for 2%). Disbursement reached nearly 65 billion USD.

In the period 2016-2020 alone, the mobilization of ODA and concessional loans reached 12,553 billion USD. Of which, loan capital is 12.04 billion USD (ODA loan: 9.169 billion USD, concessional loan: 2.871 billion USD). Non-refundable aid is 513 million USD. Vietnam has mobilized ODA and concessional loans from 51 donors. Includes 28 bilateral donors and 31 multilateral donors. In which, about 80% of Vietnam's ODA capital is mobilized from 6 banks. Including: World Bank (WB); Asian Development Bank (ADB); Japan International Cooperation Agency (JICA); Korea Export-Import Bank (KEXIM); French Development Agency (AFD); German Bank for Reconstruction (KfW).

ODA capital is mainly mobilized in the transport sector; environment and urban development; energy and industry; agriculture and rural development; poverty reduction. The results of ODA mobilization are considered to be relatively close to the targets; principles and priority areas. At Decision No. 251/QD-TTg dated February 17, 2016 of the Prime Minister; on approving the Project "Orientation to attract, manage and use ODA and concessional loans of foreign donors in the period 2016-2020".

And Decision No. 1489/QD-TTg dated November 6, 2018 of the Prime Minister; approving orientation for attracting, managing and using ODA and concessional loan of foreign sponsors in 2018 – 2020 and vision to 2021 - 2025". And ensure public debt indicators; government debt and state budget overspending within allowable safe limits…

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