Vietnam

Key development challenges

Vietnam is a lower middle-income country, with ambitions to reach upper middle-income status by 2035 and high-income status by 2045. Its $366 billion GDP (2021) accounts for 10.9% of the regional GDP of Southeast Asia. With a population of more than 97 million, Vietnam’s GDP per capita is $3,756, 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. Its Human Development Index score places it 115th out of 191 countries, and 6.7% of the population live below the national poverty line. Corruption and governance are considerable constraints on progress; Viet Nam was scored 87th out of 180 countries in Transparency International’s Corruption Perceptions Index. The World Bank has identified institutional reform as critical to preventing Vietnam from being caught in the middle-income trap.

Over the 2015–21 period, more than 17,000 projects were implemented by 71 development partners in Vietnam, for a total of more than $35.6 billion or $5 billion a year on average.

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 2021, although the country is still the second-largest recipient of ODF in the region. ODF to Vietnam averaged $5 billion per year, accounting for 18% of the regional ODF during this period.

Most of the decline came from a significant reduction in development loans signed by the government of Vietnam, notably with Korea and Japan. Annual grant financing provided by international development partners remained stable, hovering at around $775 million.

Over the period analysed, the role and significance of ODF relative to Viet Nam’s GDP decreased considerably, falling from 2.7% of GDP in 2015 to 0.9% in 2021. This decline can be explained by two factors: a 54% reduction in development support provided to Vietnam; and a rapid increase in the country’s GDP as its economy grew.

In Vietnam, commitments were generally higher than actual disbursements over the 2015–21 period. Among the top five development partners in the country, only three — South Korea, Japan, and the World Bank — spent more than they committed. The ratio of disbursements to commitments for the Asian Development Bank (ADB) was 86% of its commitments, while China had a ratio of 32%. Nonetheless, with an 86% overall ratio, Vietnam sits above the regional average of 64%.

Main development partners

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

Korea’s disbursements in Vietnam were mainly focused in the industry, mining, and construction sector, as well as in the infrastructure sector, which were primarily funded through non-concessional loans. In 2015, South Korea was Vietnam’s leading development partner, but its financing subsequently declined by 79%, causing Seoul to fall to fourth place among Vietnam’s development partners. The vast majority of Korea’s projects were financed by the Export–Import Bank of Korea. Among the most notable were the Lo Te–Rach Soi Highway Construction Project (2010024966 - VNM-034-2010c), a 51-kilometre road that connects the city of Can Tho with Kien Giang province in the Mekong Delta. Construction began in 2016 and the road opened on 13 January 2021. The Vàm Cống Bridge Construction Project 2010024966 - VNM-034-2010, completed in 2019, created one of the two largest bridges in Vietnam.

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 (JICA), 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 2016003050 - JICAVN15-P7, a 600-megawatt coal-fired power station in Thái Bình province. It entered commercial operation in 2018 after construction began in 2016.

Development finance from the World Bank to Vietnam over the 2015–21 period was mostly directed towards infrastructure projects, such as in transport and storage (21% of total World Bank ODF to Vietnam), water and sanitation (18%), and energy (17%). The International Development Association (IDA) accounted for 82% of the World Bank’s projects in Vietnam, while 18% were financed through the International Bank for Reconstruction and Development (IBRD). Among the largest projects were the Local Road Asset Management Program 2016027883 - P155086.IDA58100.crs1, which aimed to improve the road and bridge connectivity for the rural communities of the participating provinces in the country; and the Transmission Efficiency Project 2014020583 - P131558.IBRD84170.crs1, a seven-year project concluded in 2021 that sought to improve the technical and operational performance of National Power Transmission Corporation (NPT). Concessional loans were the dominant form of World Bank financing.

Overall, 64% of ODF provided to Vietnam was concessional, higher than the regional average, reflecting Vietnam’s status as a middle-income country.

In terms of implementing partners, the central government of Vietnam received the most development flows from the international community, followed by China Energy Engineering Corporation, the Ministry of Agriculture and Rural Development of Vietnam, and the State Bank of Vietnam.

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 Vietnam in the government and civil society sector were much lower than the regional average. Where average disbursement in governance projects was 19% of total ODF in Southeast Asia, it was only 5% in Vietnam.

Within the transport and storage sector, road transport accounted for more than half of disbursements, while rail transport was 19%. Japan’s Ho Chi Minh City Urban Railway Construction Project, funded by a $349 million concessional loan from the Japanese International Cooperation Agency 2012003054 - JICAVN11-P7, was the largest project in the sector. The project started in 2007 and is ongoing.

In terms of energy, coal-fired electric power plants and electric power transmission and distribution represented 60% of sector ODF, with the Thang Long Thermal Power Plant — implemented by China Energy Engineering Corporation over the 2014–18 period — being the most significant energy project in the country ($519 million).

Although Vietnam saw a decrease in its total ODF, this occurred mainly in the infrastructure category; that is, in the communications, energy, transport and storage and water and sanitation sectors. Investments in the health and education sectors, which compose human development, remained steady over the period.

Climate

The Southeast Asia Aid Map uses an adapted version of the Organisation for Economic Co-operation and Development’s (OECD’s) climate marking system to sort projects into three distinct categories: principal, where climate change mitigation or adaptation is explicitly stated as fundamental to the project; significant, where climate change mitigation or adaptation is explicitly stated but not fundamental; and not climate-related, where climate change is not targeted in any significant way.

Although climate development finance constituted a growing proportion of overall ODF, this essentially reflected the decrease in other ODF disbursed in Vietnam while climate-related ODF remained stable. The largest project, the Support Program to Respond to Climate Change 2015003027 - JICAVN-C20, was funded by a one-off loan in 2015 by Japan’s International Cooperation Agency.

Most climate development finance in Vietnam was invested in the energy sector, notably in electricity grid improvements and hydro-electric power plants. The vast majority of projects were funded through loans rather than grants, and the biggest donor by far was the ADB. Levels of climate development finance stayed largely steady from 2015 through to 2021, hovering between $1.2 billion and $1.7 billion.

Vietnam as an ODF provider

Like other countries in the region, Vietnam 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).

Over the period, Hanoi disbursed almost $7 million for school construction, notably in Laos —Dakcheung School Inter-SEA014 and Bounea School Inter-SEA015 — and humanitarian relief, most notably to help the Philippines address Typhoon Rai’s aftermath.

In the midst of the pandemic, Hanoi provided foreign aid to Laos and Cambodia to bolster their efforts in combating Covid-19. This aid was in the form of donations of $2.15 million and $500,000 to Laos and Cambodia, respectively.