New Infastructure Needed to Sustain Vietnam’s Fast Economic Growth

Nhat Trung

19:01 02/08/2019

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Among the sectors, energy accounts for 44% of needed spending, followed by transportation (28%) and telecommunication (16%). In recent years, Vietnam’s government has announced many ambitious infrastructure projects in these areas.

New Infastructure Needed to Sustain Vietnam’s Fast Economic Growth
In addition to upgrading existing infrastructure, more investments into new infrastructure are required to sustain Vietnam’s fast economic growth and accommodate its rising urbanisation. According to the Global Infrastructure Hub’s estimates, Vietnam requires as much as USD25bn per year on average for infrastructure spending over the next 20 years, from HSBC latest report released on August 2nd. 
Among the sectors, energy accounts for 44% of needed spending, followed by transportation (28%) and telecommunication (16%). In recent years, Vietnam’s government has announced many ambitious infrastructure projects in these areas. 
Some of these, such as the North- South high-speed railway and Long Thanh international airport, are long-term projects that require significant funding. Therefore, the questions is, given the budget constraints and infrastructure priority, how are they going to be financed?
Currently, two thirds of Vietnam’s infrastructure spending comes from public sources (World Bank, 21 February). Additional infrastructure spending from the government’s budget would add a significant fiscal burden, given the limited fiscal space. 
After all, in recent years, Vietnam has been pursuing a contractionary fiscal policy (e.g., a 3.6% deficit target for 2019 vs 3.7% for 2018) due to a large amount of public debt, which is gradually moderating.
Meanwhile, Vietnam has become ineligible for concessional official development assistance and preferential loans from multilateral institutions, as it has transformed to lower-middle income status (World Bank GNI per capita of USD2,400 in 2018). It ‘graduated’ from the World Bank’s International Development Association (IDA) in June 2017 and Asian Development Fund (ADF) of the Asian Development Bank (ADB) in January 2019. 
Although official development assistance (ODA) with low interest and long repayment periods from bilateral donors is still available, Vietnam must, nonetheless, be cautious on increasing any type of public debt. 
Given the budget constraints and public debt limit, Vietnam’s government has, as such, been actively encouraging private sector investments in infrastructure projects through the PPP model. This is seen as a more ‘sustainable’ solution to support the increasing needs of infrastructure investment without imposing further fiscal and debt costs. 
Institutionally, the government has laid out several legal frameworks. This included Decree 15 (in 2015), which aimed at creating a unified legal framework for PPP, and the replacement of Decree 63 (in 2018), which introduced more simplified administrative procedures to implement PPP projects (Vietnam Law & Legal Forum Magazine, 8 June 2018). 
A project development fund (PDF) was set up in 2016 to support PPP project preparation (ADB, November 2017). According to Vietnam’s Ministry of Planning and Investment, 200 projects have been executed under PPP in the last 20 years, with the majority in transport infrastructure (The Saigon Times, 4 December 2018).

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