A fundamental challenge for Vietnam is to improve its financing of infrastructure investment, according to a recent study by the World Bank on urban infrastructure.
Due to its ongoing transition into a market economy, which is accompanied by rapid urbanization, the country annually needs 10-11 percent of its gross domestic product, projected to reach US$300 billion in 2020, for developing infrastructure.
But the study found that the government's revenues, money from bond issues, and official development assistance only makes up 50-60 percent of this.
Vietnam has begun to raise money from the private sector, but these resources are still inadequate, it said.
Jennifer Sara, the bank’s sustainable development sector manager, said in a press release March 11 that Vietnam has to seek “greater involvement of capital markets and the private sector” along with public resources to finance development of urban infrastructure.
The situation calls for stronger use of market-based mechanisms since this would not only help Vietnam attract greater interest from non-government participants but also improve efficiency in infrastructure investment, she said.
Victoria Kwakwa, the bank’s director for Vietnam, concurred, saying that the success of any initiative to improve the financing of infrastructure in Vietnam hinges on policy reforms.
The financial challenge is also an opportunity for the country to make more efficient use of available resources, she added.
The study, done by the bank and Vietnam’s Ministry of Finance, proffers various suggestions to improve the financing of infrastructure development.
They include the creation of a municipal development fund for secondary cities that will act as a second-tier lender strengthening the enabling environment for municipal bonds.
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