ODA re-lending and preferential loans: There will be not the situation "common father no one cries"

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Ms. Nguyen Xuan Thao - Deputy Director of Department of Debt Management and External Finance (Ministry of Finance)

Regarding ODA loans and preferential loans, the Government continues to strengthen management solutions, which reduce the mechanism of allocation and transfer to the mechanism of re-lending. So what is the regulation on re-lending of preferential loans, how will ODA loans be changed?

At present, the Ministry of Finance is tasked to host the drafting of Decrees guiding the revised Law on Public Debt Management, including a Decree guiding the re-lending, of foreign preferential loans of the Government.

In order to implement the principle of reform of the Law on Public Debt Management in the management of fiscal risks in re-lending activities, the draft Decree specifies the mechanism of re-lending in the direction of strictly managing the re-lending scale and develops the re-lending limit of 5 years and the annual re-lending plan in the direction of reducing the re-lending for the traditional areas and investment projects by enterprises and enhance the re-lending for projects by local authorities and public non-business units. The draft decree also focuses more on risk management for re-lending.

If these regulations are approved, they will contribute to enhancing fiscal security in the re-lending sector and ensuring public debt security and ensuring the sustainability of re-lending activity.

Re-lending will raise risks. How will the risk management and settlement be, ma'am?

As I said above, the draft Decree focuses on risk management in accordance with the principles stipulated in the Law on Public Debt Management. Specifically, regarding the appraising of re-lending, appraising agency; appraising dossiers; the appraisal process and regulations on the completion of appraisal, are the conditions for negotiation and signing of loans and are the conditions to apply risk reserve for re-lending, and extend the mechanism of re-lending in the re-lending agencies which shall be liable for credit risks for public investment projects.

The value of collateral assets for loans is also stipulated at up to 120% of the loan value compared to the current 100%. Project owners and sub-borrowers are required to buy insurance for collateral assets. The sub-borrowers are required report the use of loans and financial management as well as debt situation. If overdue debts with other borrowers are raised, the sub-borrowers must report this to the re-lending agencies so that they shall take the initiative in risk management.

We also recommend solutions to list of debts and list of re-lending such as debt classification, application of different measures and sanctions for different debt groups. For re-borrowers, if they let the overdue debts arise, depending on the level of debts, they will be sanctioned such as revenue management and stopping new loans.

The draft decree also recommends the conditions and procedures for dealing with bad debts, such as debt extension, freezing and debt writing-off, and clarifies the source of funds to deal with bad debts.

It is hoped that if this solution is approved, it will contribute to ensuring debt security and fiscal risk in the re-lending by the state budget, and enhancing the sustainability of re-lending activity.

So, what are the responsibilities of the re-lending party? What does the Ministry of Finance do to avoid the situation that "common father no one cries" for loans?

The responsibilities of the sub-borrowers as local authorities and public non-business units are clearly defined in the Law on Public Debt Management. That is: the sub-borrowers are responsible for using the loan for the right purpose, ensuring timely repayment, collateral assets and the reporting regime. These principles were specified in the draft Decree which supplements regulations on responsibility of persons who decide the investment, and responsibility of head of re-lending agencies in the appraising of the efficiency of invested projects and the repayment capability, as well as ensuring that assumptions about turnover and expenses must be grounded and feasible.

Sub-borrowers which are local authorities, enterprises and public-non-business units, must control the disbursement through the re-lending agencies, must periodically report and regularly check data with the re-lending agencies and comply with some sanctions in case of violations such as: not be permitted to propose new loans, be subject to management of money flow of the project and of turnover in case of letting overdue debt arisen; must buy insurance for collateral assets.

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We hope that the such regulations will clarify the responsibilities of the agencies and avoid the situation that “common father, no one cries” in the principle that the user of loans will be liable for full and timely repayment. Responsible for repayment in full and on time. The re-lending agency for local authorities is the Ministry of Finance, the evaluating agency. The appraising agencies for re-lending of enterprises and public non-business units are agencies authorized by the Ministry of Finance. Those agencies shall have to evaluate the debt dossiers and repayment capability of the projects; to evaluate the financial capacity of sub-borrowers in order to ensure the feasibility of the re-lending.