Economic Analysis - Well-Intended Policy Turns Bad - JUNE 2017


BMI View: Vietnam ' s new ODA policy was well-intended to cap the country ' s fiscal deficit and to prevent public debt levels as a share of GDP from exceeding the 65% limit. However, due to poor implementation, the new measure has led to complications regarding approval of ODA projects and delays in disbursement of loans. We note that this could weigh on investor confidence and act as a drag on economic growth going forward.

In an attempt to cap Vietnam's fiscal deficit and prevent the public debt level from overshooting the National Assembly's mandated ceiling of 65% of GDP, the government introduced Decree No.16/2016/ND-CP in May 2016 to address shortcomings in the management and use of official development assistance (ODA). Although the policy aimed at fiscal consolidation was well-intended, we note that the outcome so far has been disappointing as the measure has led to complications regarding the approval of ODA projects and resulted in delays to loan disbursements since its introduction. Given that ODA directly accounted for roughly 3.3% of Vietnam's GDP between 2005-2015 and its total contribution to the economy was likely even higher, we highlight that the failure to ease these regulatory obstacles could pose downside risks to our real GDP growth forecast of 6.1% in 2017 and beyond.

Details About The Decree Governing ODA

Reaching The Mandated Ceiling
Vietnam - Public Debt, % Of GDP
IMF

This article is part of our South East Asia Vol 1 coverage. To access this article subscribe now or sign up for free trial