Efficient Use of ODA for Human Resources and Rural Development

Like most developing countries, saving per GDP in Vietnam remains low. Domestic investment depends much on foreign resources. As a result, FDI and ODA play an important role in socio-economic development. However, in recent years, ODA has not been used satisfactorily at the time Vietnam is at the threshold of average income countries and ODA will be reduced and almost ended by 2015.

 

According to Minister of Planning and Investment Vo Hong Phuc, though Vietnamese economy is still “hungry” of capital, ODA will be certainly reduced in 2010-2015 and ended by 2015. Domestic saving per GDP in 2005 was 29.4 per cent and expected to be 32-32.5 per cent in 2010. Some 85 per cent of domestic saving will be mobilized for investment and the remaining 25 per cent will count on foreign resources.

 

Answering to the question of efficient use of ODA, Mr. Phuc said that there are already several studies and recommendations on the use of ODA. The question is how to allocate ODA to various sectors and levels. The advantages of ODA are long-term and low interest rates. ODA must be invested in projects of low profit but ensuring stable growth rates. Therefore, in face of diminishing ODA, Vietnam must concentrate it for the development of agriculture and rural economy including such infrastructure as hospitals, schools, poverty reduction in remote areas so as to ensure an equal development nationwide.

 

So far, over 50 per cent o ODA resources have been invested in communication and transport and energy, while over 10 per cent are for agriculture, health, education, environment, science and technology, and 4.5 per cent for other areas in 2006. According to recent commitments, ODA for agriculture in the coming years will increase to 18 per cent and 36 per cent of the total will be for health, education and training.

 

With fast urbanization and transformation of social resources for industry and services, the rural development is most urgent to cope with the rising unemployment in rural areas and serious lack skilled labour. He pointed out that the concentration of ODA for human resources development and narrowing the gap between rural and urban areas is a good sign to ensure sustainable growth.

 

Learning the experiences of other countries, beside the current efficient use of ODA, it is necessary now to find other sources of capital for future development objectives.

 

Speaking at the Consultative Group 2007 (CG 2007), Mr. Donald Brown, Chief Representative of British Development Institute (DFID), said that ODA is not the only resource for growth. However, getting out the list of poor countries, to maintain high growth rates, Vietnam still need foreign resources. While US representative believed that the pressing issue in the transformation period is the reform of financial sector. He said :”In a developed market economy, it is vital to increase investments both at home and abroad. We hope that the government will take measures to promote investments in the private sector to obtain its development goals.”

 

In addition to attracting foreign investments to the financial market, Vietnam must also increase domestic savings and attract more foreign direct investments. To this end, Vietnam must improve the infrastructure, develop supporting industries and upgrade human resources. For the same purpose, at CG 2007, Prime Minister Nguyen Tan Dung called on donors to open new ODA channels on infrastructure development, training high skilled workforce, strengthening institutions and management capacity and poverty reduction.

 

Associate Professor Nguyen Khac Minh, Director of Vietnam-Netherlands Programme for MA in Development Economics, National Economic University said that :”Development of infrastructure, human resources and supporting industries are preconditions for local and foreign businesses to reduce production cost. It will promote socio-economic development and attract more FDI. It will also make local investment less dependable on ODA”.