Vietnam Loses Huge Amount of Aid, Foreign Capital Withdraws, Exchange Rate Depreciates

Financials Author: EqualOcean News, ChenZhiheng May 20, 2024 01:38 PM (GMT+8)

On May 17, Reuters reported that the United Nations, the World Bank and Western donors told the Vietnamese government in a letter that the country has lost at least $2.5 billion in foreign aid over the past three years and could lose another $1 billion due to administrative paralysis. The potential loss is equivalent to nearly 1 percent of the country's gross domestic product (GDP).

In addition, data showed that despite the good performance of Vietnam's stock market, foreign investors have cut their holdings in the country's stock market by nearly US$2 billion since the beginning of 2023, a record high for several weeks. Half of these outflows occurred this year and may be related to important domestic events in Vietnam.

Last week, the dollar reached an all-time high of 25,452 against the Vietnamese dong and now remains near 25,449, with Vietnam's problems to be solved. And over the past week, the dollar index fell 0.79%, and non-US currencies rose significantly. It can be seen that the matter of Vietnam is still far from being resolved.

Reuters reports that Vietnam's ongoing anti-corruption campaign may have had an impact on foreign capital inflows. According to this letter to Vietnam's Prime Minister Pham Minh Thanh revealed that of the impact of Vietnam's administrative paralysis, about $1 billion in development funds are awaiting government approval, while another $2.5 billion in funds were returned due to expiration. These funds could have been used for projects such as much-needed infrastructure upgrades, but are now at risk of being lost due to delays in the approval process. The potential loss is equivalent to nearly one percent of the country's gross domestic product (GDP).

The letter emphasizes that due to the bureaucracy's concerns about regulations, they have become unusually slow to approve or move initiatives forward. This affects the inflow of foreign capital and makes it difficult to spend Vietnam's own public funds effectively. According to Vietnam's Ministry of Finance, from 2021 to 2023, Vietnam has failed to invest about $19 billion due to these restrictions, a quarter less than originally planned.

The letter was sent jointly by the heads of the United Nations and the World Bank in Vietnam and co-signed by 18 ambassadors, including those from the US, EU and Japan, as well as the head of the Asian Development Bank in Vietnam. They emphasized that Vietnam is facing challenges in the use of the funds and called on the government to speed up the approval process to ensure that these funds can be used effectively.

However, Vietnam's Prime Minister's Office and Ministry of Investment have not yet been able to confirm the news. Nonetheless, both the United Nations and the World Bank have indicated that they have been working closely with the Government of Vietnam and have acknowledged some challenges in using the funds.