Growing pains: Middle-income Vietnam set to lose cheap World Bank loans

Thanh Nien News

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A worker arranges steel structures at a construction site of an office building in Hanoi. Photo: Reuters A worker arranges steel structures at a construction site of an office building in Hanoi. Photo: Reuters


The Ministry of Planning and Investment has identified 19 World Bank-funded projects that will have to find new financing sources as Vietnam is set to be cut off from cheap loans from the lender in just two years. 
News website Bao Dau Tu reported on Thursday that the projects, including major highways and educational reform initiatives, are now funded by International Development Association (IDA), a lending arm of the World Bank that lends money at very low or zero interest rates to poor countries. 
Vietnam has received concessional IDA loans, also known as credits, since 1994. But now that it has become a lower-middle income country, it will no longer be eligible for the credits at the end of the financial year 2017, Deputy Minister Nguyen Chi Dung was quoted in the report as saying.
The 19 projects have been singled out due to very low disbursement rates. It is unlikely that they will have their IDA loans disbursed in time, the report said, without saying what caused the delays. 
Some projects, in their second year, have received less than 10 percent of the approved loans. Some others that are already half way have a disbursement rate of less than 40 percent. 
The largest of all the listed projects, a highway connecting the central city of Da Nang and Quang Ngai Province, for instance, was approved in May 2011 with loans worth US$613.5 million from the World Bank.
It is slated to be finished in December 2018 and has so far received around 14 percent of the funding.
As of August 31, IDA has approved loans worth $17.21 billion for Vietnam, more than 71.6 percent of which has been disbursed. It has also pledged and disbursed $35 million in grants. 
It is among the top 10 IDA borrowers this year. 
Delayed graduation
An overview of the International Development Assistance's credits to Vietnam as of August 31, 2015. Source: World Bank
One of the main recipients of IDA loans, Vietnam first exceeded the lender's operation cut-off in 2013 when its gross national income per capita hit $1,260.
However, the country was still given access to concessional loans, mainly because its gross national income per capita was still low, the association said in a statement issued that same year.
Vietnam was also deemed vulnerable to external shocks, despite its economic fast growth.
Even though the country achieved remarkable progress in reducing poverty over the past two decades, regional disparities and vulnerabilities persisted, according to the statement, citing that nearly 13 million Vietnamese were near-poor and at risks of slipping back to extreme poverty.
Another reason for Vietnam's delayed graduation from IDA's preferential treatment was its recent access to loans from the International Bank for Reconstruction and Development (IBRD), a lending arm aimed to assist middle-income countries.
Vietnam has been offered over $2.81 billion of loans from IBRD, and about half of the amount has been disbursed.

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