17-5-2024 (HANOI) Vietnam has forfeited at least US$2.5 billion (approximately S$3.36 billion) in foreign aid over the past three years and may lose an additional US$1 billion due to administrative paralysis, according to a letter addressed to Prime Minister Pham Minh Chinh from the United Nations, the World Bank, and Western donors. The unpublished document, dated March 6, highlights the frustration among foreign investors over regulatory hurdles and lengthy approval procedures that have caused prolonged deadlock as the Communist-ruled country grapples with an escalating anti-corruption campaign and political turbulence.
The letter, seen by Reuters, states, “Approximately US$1 billion in development funding is awaiting approval, with an additional US$2.5 billion returned due to funding expirations.” This potential loss equates to nearly one percent of Vietnam’s gross domestic product and could delay much-needed projects, such as infrastructure upgrades. The donors stressed that even more funds may have been lost or deterred due to the protracted approval processes.
Two senior foreign officials interviewed by Reuters directly linked the administrative hurdles to the “blazing furnace” anti-graft drive, echoing similar comments from other diplomats and officials in recent months. The anti-corruption campaign has created a sort of paralysis, where bureaucrats are slow to approve or advance initiatives for fear of accidentally violating complex regulations.
Amid these constraints, Vietnam is struggling to spend even its own public funds, having failed to invest about US$19 billion from 2021 to 2023, a quarter less than planned, according to the finance ministry.
The letter was co-signed by 18 ambassadors, including representatives from the United States, the European Union, and Japan, as well as the head of the Asian Development Bank in Vietnam. Despite requests for comment, Vietnam’s prime minister’s office and the investment ministry did not respond.
The UN and the World Bank stated that they continue to work closely with the government on projects, with the UN acknowledging “challenges” in the use of funding in a statement to Reuters.
Vietnam has made significant commitments to reduce its use of coal in exchange for Western climate funding, but a year and a half after a deal with the Group of Seven (G7) nations was announced, no funds have been disbursed. Meanwhile, Vietnam is boosting its coal imports to avert power shortages in foreign-invested factories.
After multiple requests from donors, the government established a working group to review regulations that hamper access to funds, according to one foreign official involved in the discussions. However, no deadline has been set to complete the process.
The power grid, crucial infrastructure for the country, has been deemed in need of upgrades, but existing rules prevent the state-owned network operator from accessing available foreign funds until at least 2027 due to financial issues, the official cited as an example of the deadlock.
The donors’ frustration is leading to decisions that could reduce future assistance to Vietnam. The World Bank, for instance, plans to merge its Hanoi office from July with operations in Cambodia and Laos to improve “management efficiency,” a move that could lead to a shift in focus.
Vietnamese officials have urged foreign donors to reduce the costs of their funds, which come mostly in loans, often at market prices. However, the country has also forfeited large amounts of grants, according to Western officials.
