Vietnam

Key development challenges

Vietnam is a lower middle-income country, with its $408 billion GDP (2022) accounting for 11.3% of the regional GDP of Southeast Asia. With a population of more than 98 million, Vietnam’s GDP per capita is $4,164, the sixth-highest in the region.

Despite remarkable progress in reducing poverty and achieving significant economic growth since the Doi Moi reforms initiated in 1986, Vietnam still faces development challenges. Corruption and governance are considerable constraints on progress. The World Bank has identified institutional reform as critical to preventing Vietnam from being caught in a middle-income trap.

Over the 2015–22 period, more than 20,000 aid and development projects were implemented by 74 development partners in Vietnam, for a total of $45 billion.

Overview of development finance trends

In constant US-dollar terms, official development finance (ODF) flows — including grants, loans, and other forms of assistance — to Vietnam halved between 2015 and 2022, although the country is still the second-largest recipient of ODF in the region. ODF to Vietnam averaged $5.6 billion per year, accounting for 18% of the region’s ODF during this period.

Most of the decline came from a significant reduction in development loans signed by the government of Vietnam, notably with South Korea and Japan. Annual grant financing provided by international development partners remained stable, hovering at around $884 million.

Over the period analysed, the role and significance of ODF relative to Vietnam’s GDP decreased considerably, falling from 2.7% of GDP in 2015 to 0.8% in 2021. This decline can be explained by two factors: a 64% reduction in development support provided to Vietnam; and a rapid increase in the country’s GDP as its economy grew.

In Vietnam, commitments were relatively equal to disbursements over the 2015–22 period. Among the top five development partners in the country, four — South Korea, Japan, the World Bank, and the Asian Development Bank (ADB) — spent more than they committed. The ADB disbursed the equivalent of 105% of the funds it committed, while China disbursed 65% of its commitments. Nonetheless, with 97% of projects committed during the 2015–22 period resulting in disbursements, Vietnam sits well above the regional average of 67%.

Main development partners

Vietnam’s major development partners were South Korea, Japan, and the World Bank, each averaging just over $1 billion disbursed annually. Its second tier of development partners comprised the ADB, China, Germany, and France, which combined accounted for a third of the total development finance flowing to the country.

South Korea’s disbursements in Vietnam were mainly focused in the industry, mining and construction sector, as well as in the infrastructure sector, and were primarily non-concessional loans. In 2015, South Korea was Vietnam’s leading development partner, but its financing has subsequently declined by 88%, causing Seoul to fall to 7th place. Among the most notable projects were the Lo Te–Rach Soi Highway Construction Project and the Vàm Cống Bridge Construction Project.

Japan’s involvement in Vietnam’s development can be traced back to the 1990s, when it provided significant assistance to help the country rebuild and modernise its infrastructure after years of conflict. Japanese-supported development in Vietnam, mostly financed by the Japan International Cooperation Agency, peaked in 2016 and has declined steadily since then. Concessional loans accounted for most of the spending, primarily in the transport and storage sector. The largest project funded by Japan was the Thái Bình power plant and transmission lines.

Development finance from the World Bank to Vietnam over the 2015–22 period was mostly directed towards infrastructure projects, such as in transport and storage (20% of total World Bank ODF to Vietnam), water and sanitation (18%), and energy (16%). Among the largest projects were the Local Road Asset Management Program and the Transmission Efficiency Project. Concessional loans were the dominant form of World Bank financing.

Overall, 74% of ODF provided to Vietnam was concessional, higher than the regional average, reflecting Vietnam’s status as a middle-income country.

Sectors

ODF to Vietnam was broadly consistent with regional trends in terms of sector distribution. The transport and storage and energy sectors featured prominently. However, disbursements in the government and civil society sector were much lower than the regional average. Where average disbursement in government projects was 18% of total ODF in Southeast Asia, it was only 5% in Vietnam.

Within the transport and storage sector, road transport accounted for more than 60% of disbursements, while rail transport accounted for 20%. Japan’s Ho Chi Minh City Urban Railway Construction Project, funded by an $830 million concessional loan from the Japan International Cooperation Agency, was the largest project in the sector.

In terms of energy, coal-fired electric power plants and electric power transmission and distribution represented 68% of sector ODF, with the Chinese Vinh Tan 1 Coal-Fired Power Plant being the most significant energy project in the country ($2 billion).

Climate

Although climate development finance constituted a growing proportion of Vietnam’s overall ODF, this essentially reflected the decrease in other ODF disbursed in Vietnam while climate-related ODF remained stable.

Most climate development finance in Vietnam was invested in the energy sector, notably in electricity grid improvements and hydro-electric power plants, such as the World Bank’s $367 million Transmission Efficiency Project. The vast majority of projects were funded through concessional loans rather than grants, and the biggest donor was Japan. Levels of climate development finance stayed largely steady from 2015 through to 2022, averaging $1.2 billion annually.

Gender

As with climate finance, gender equality finance has grown as a proportion of Vietnam’s total ODF, but this reflects a decrease in overall ODF levels rather than any increase in gender equality finance, which has remained remarkably static, averaging $753 million annually. The ADB and Japan are the biggest providers of gender equality finance in Vietnam, responsible for 38% and 29% respectively. Gender equality finance generally takes the form of grants.

Vietnam as an ODF provider

Vietnam is the second-largest intra-regional provider of ODF to Southeast Asia. Hanoi contributed development assistance to its neighbours through various channels, including bilateral aid programs, multilateral initiatives, and regional organisations such as the Association of Southeast Asian Nations (ASEAN).

Between 2015 and 2022, Hanoi disbursed $7 million for school construction, notably in Laos —Dakcheung School and Bounea School — and humanitarian relief, most notably to help the Philippines address Typhoon Rai’s aftermath.

During the pandemic, Hanoi provided foreign aid to Myanmar, Laos, and Cambodia to bolster their efforts in combating Covid-19.