Circular No. 18/TC-TCĐN guiding the management and use of foreign loans by the Government

CIRCULAR

Guidelines for the management and use of foreign loans by the Government

Foreign loans of the Government are loans borrowed and committed to fulfill debt repayment obligations to foreign countries or loans authorized by the Government for enterprises to borrow on its behalf, guaranteed by the Ministry of Finance or the State Bank.

The Ministry of Finance guides the implementation of the mechanism for managing and using foreign loans of the Government according to the provisions of Chapter II of Decree No. 58/CP dated August 30, 1993 as follows:

I. PROCEDURES TO BE IMPLEMENTED FOR WITHDRAWING AND USING FOREIGN LOAN FUNDS

AND THE USE OF LOAN CAPITAL

1. Signing loan agreements and contracts of the Government:

The signing of loan agreements and contracts of the Government is carried out based on annual total borrowing limit plans approved by the Government. The Prime Minister authorizes the Minister of Finance to sign loan agreements and contracts on behalf of the Government.

If the loan agreement or contract is negotiated with foreign countries by another government agency, that agency must reach consensus with the Ministry of Finance regarding the loan conditions, repayment terms, and the content of the loan agreement to be officially approved by the Prime Minister before signing the agreement or contract with the lender.

Original copies of loan agreements and contracts must be sent to the Ministry of Finance within no more than thirty days from the date of formal signing. For ODA loans, the Ministry of Foreign Affairs must send a copy of the original agreement to the Ministry of Finance within no more than fifteen days from the date the borrowing agency submits the original to the Ministry of Foreign Affairs for safekeeping.

Enterprises may not independently contact or negotiate with foreign parties regarding Government loans currently under negotiation.

2. Procurement procedures using loan funds (hereinafter referred to as procurement procedures):

According to international practice and depending on the scale of the loan project, procurement can be carried out through one of the following main methods:

2.1. International Competitive Bidding (ICB) is the most commonly used method for procurement from the loan funds of international financial institutions (IMF, WB, ADB...) and official development assistance agencies of governments.

Lending organizations often apply preferential conditions for contractors and suppliers from the borrowing country if the borrower applies the ICB method.

2.2. Limited International Bidding (LIB): Organized similarly to the above method but the bidding invitation is limited directly to a number of contractors (both domestic and foreign) without wide public advertisement. This method is mainly applied in small procurements or where the number of suppliers or goods and services is restricted. Using this method usually does not provide preferential treatment for domestic contractors and suppliers.

2.3. International Shopping (IS) does not involve bidding but relies on price lists submitted by suppliers (both domestic and foreign) to select at least three suppliers to ensure competitive pricing.

This method is typically used for supplementary procurement of certain equipment or components already bid on, or when there is only one supplier for a particular good, or when a special type of good needs to be supplied quickly...

2.4. Direct Contracting.

This method is primarily used for small purchases, urgent cases, or supplementary procurement of goods and equipment...

The organization of bidding or direct procurement is directed by the project management agency (hereinafter referred to as the project owner) in accordance with international practices, the terms of the loan agreement, and current domestic bidding and procurement regulations.

In addition to implementing the agreed procurement methods and conditions with the lender, ministries, sectors, localities, and enterprises responsible for implementing the loan projects need to pay attention to:

Import trade contracts for machinery and equipment funded by loans must comply with the contract approval procedures stipulated in Decision No. 91-TTg dated November 13, 1992 of the Prime Minister and Circular No. 4-TM/DT dated July 30, 1993 of the Ministry of Trade.

Before bidding or negotiating trade contracts, coordination with the National Planning Commission, the Ministry of Finance, the Ministry of Trade, and relevant agencies is required to establish a bidding committee, determine bidding principles, total estimates, or standard prices for each project (if it is a construction bidding project) or prices and procurement conditions for goods and equipment purchased with loan funds in accordance with the provisions of the International Bidding Regulations approved by the Government.

Performance bonds and advance payment guarantees must be implemented for all turnkey contracts and equipment contracts.

3. Procedures and responsibilities of agencies in withdrawing loan funds.

Withdrawing loan funds is carried out in accordance with the terms of the loan agreements and contracts, the provisions in the bank agreements signed by authorized banks, and the provisions in this Circular.

3.1. Procedures for withdrawing foreign currency loan funds: Withdrawal of foreign currency loan funds will be handled by the Ministry of Finance or entrusted to selected commercial banks or enterprises borrowing on behalf of the Government through the banking system. The foreign currency is transferred into the centralized foreign exchange fund of the State.

3.2. Procedures for withdrawing payment funds.

According to international practice, there are generally four basic forms of payment withdrawal for loans, which the borrower can apply individually or in combination within a loan project, in accordance with the provisions of the loan agreement signed with foreign countries (see specific guidance in Appendices 1, 2, 3, and 4 attached).

Project sponsors wishing to withdraw loan funds for payment to suppliers or contractors must submit a payment request and accompanying documents (as specified in Section 3.3 below) to the Ministry of Finance and obtain confirmation from the Ministry of Finance before withdrawing funds. Within the latest period of ten days from the date of receipt of the project sponsor's request, the Ministry of Finance will issue an official opinion for the project sponsor to timely complete the procedures for withdrawing funds and send them to the lender.

In cases where the project sponsor directly withdraws funds, they must have a power of attorney from the Ministry of Finance.

a) Direct Payment.

According to this method, the borrower may request the lender to make direct payments to the supplier. The borrower must specify in the loan withdrawal application the due date for payment to the supplier. This method is generally suitable for progress payments on large construction projects, consulting fees, and small import expenses that do not require the issuance of a letter of credit. The implementing agency of the loan project (hereinafter referred to as the project sponsor) is authorized by the Ministry of Finance to prepare loan withdrawal applications and payment documents to be transferred to the lender.

Upon receiving the payment notification from the lender, it must be checked, confirmed, and sent to the Ministry of Finance (a copy) for monitoring the withdrawal process and foreign debt collection.

b) Reimbursement Procedure.

The borrower pays the incurred costs to the contractor and supplier with their own funds first, then requests the lender to reimburse the amounts paid using loan funds. This method is typically applied to reimburse expenditures made in domestic currency to contractors and suppliers, or for small procurement and construction expenses that the borrower has advanced.

The project sponsor, authorized by the Ministry of Finance, is responsible for preparing reimbursement applications and supporting documents proving payments to contractors and suppliers to be submitted to the lender. Payment and reimbursement procedures are carried out through a commercial bank designated and notified to the lender by the Ministry of Finance and the State Bank.

The project sponsor must open a separate account to track pre-paid expenses, and based on the lender's notice (reimbursement completed), prepare expenditure and reimbursement reports to be submitted to the Ministry of Finance and the selected commercial bank.

c) Commitment Procedure.

The commitment procedure is widely used in the payment of imported goods via commercial letters of credit (L/C). Letters of credit opened by the borrower at banks in the supplying country must be guaranteed for payment by the lender through a commitment letter.

To implement this method, the project sponsor, authorized by the Ministry of Finance, collaborates with the serving commercial bank to open letters of credit according to signed trade contracts, while requesting the lender to provide a commitment letter for the payment of these letters of credit.

d) Imprest Fund or Special Account.

The lender will advance a certain amount of money to the borrower and may replenish it to cover payments for small construction invoices or supply invoices, or related foreign currency expenses such as training, air tickets, scholarships, other expenses, etc.

The Ministry of Finance or the project sponsor, authorized by the Ministry of Finance, must handle the procedures to request the lender to establish an imprest fund (including initial advances, payment procedures, and subsequent account replenishment) and open a special account at a bank for accounting purposes (called an imprest account or special account) to manage advances, expenditures, and settle this account separately with the lender.

If the project sponsor, authorized by the Ministry of Finance, is named as the account holder, they must regularly report on withdrawals and expenditures from this account to the Ministry of Finance.

3.3. Procedures and Documents for Loan Withdrawal.

In addition to submitting a loan withdrawal application, the project sponsor must also attach relevant documents related to loan payments, consistent with the terms of the signed loan agreement.

Common documents attached with the loan withdrawal application to the lender include:

Trade Contract.

Invoice for goods or consulting services, or a comprehensive report on completed work volumes issued by an authorized inspection body.

Transport documents or delivery receipts.

Proof of payment (in the case of the reimbursement method) may be an invoice for received goods or a payment report from the serving bank.

Performance Security, bank guarantee (in the case of advance payment).

At the latest within ten days after the actual withdrawal of funds, the project sponsor or the authorized bank must provide detailed reports on the withdrawn funds to the Ministry of Finance for tracking government foreign borrowing and repayment.

II. USE AND MANAGEMENT OF LOAN FUNDS

Government foreign borrowing and use of loan funds must be reflected in the state budget.

Depending on the nature and purpose of the loan funds and the ability to recover funds, management and use of loan funds are implemented through the following methods:

1. Loan funds for investment in basic construction projects.

The use and settlement of foreign loan funds are regulated as follows:

a) For basic construction projects funded by the state budget: The Ministry of Finance will allocate basic construction funds according to the current management system for construction funds.

In cases where the Ministry of Finance borrows foreign currency to allocate to projects based on government decisions (with a need for foreign currency expenditures), the allocation and settlement procedures shall be carried out according to the regulations stipulated by the Ministry of Finance for allocating foreign currency to projects.

If these projects include loans for importing construction machinery and equipment, such loans shall be implemented through a re-lending method for construction units.

b) For projects that can recover capital (which may include infrastructure projects), the Ministry of Finance will coordinate with the State Bank to select a suitable Commercial Bank to implement refinancing for enterprises (hereinafter referred to as the selected Commercial Bank). Depending on the specific conditions of each loan, the Ministry of Finance will entrust the selected Commercial Banks to carry out one of the following two forms:

The Ministry of Finance will only entrust the selected Commercial Bank to handle capital withdrawal procedures, foreign exchange settlement, refinancing, and monitor the use and repayment of loans according to the conditions agreed upon with the Ministry of Finance. This form is mainly applied in cases where foreign loans have relatively high interest rates (approximately market rates) or for projects with low repayment capacity, where the project implementers are designated by the Government.

In this case, the Commercial Banks only provide services and act according to the agreed content of work with the Ministry of Finance and charge service fees as stipulated by the Ministry of Finance for each specific case based on the actual withdrawn loan amount. Project sponsors who refinance will pay interest rates including any fees charged by foreign lenders plus the aforementioned bank's service fee. The Ministry of Finance will handle the transfer of funds to the selected Commercial Bank to refinance project sponsors. If the project sponsor cannot repay the debt, the Commercial Bank must immediately report to the Ministry of Finance and the State Bank to promptly report to the Government for handling.

The Ministry of Finance lends to Commercial Banks to refinance enterprises.

The selected Commercial Banks must sign a loan contract with the Ministry of Finance and have the right to decide on refinancing enterprises with government loans. Under this form, the Commercial Bank guarantees the recovery of principal and interest to repay the Ministry of Finance, even in cases where it cannot recover the loan from enterprises.

The selected Commercial Banks will enjoy the lending fee rate as prescribed by the Ministry of Finance depending on the specific enterprise. Based on the terms of the loan contract, the nature of the projects using refinanced loans, the Ministry of Finance and the Commercial Bank will agree to set interest rates and loan terms for each specific project on the principle of not being lower than foreign loan conditions and necessary costs to implement domestic refinancing. The selected Bank is responsible for recovering the full principal and interest as agreed with the Ministry of Finance. The selected Commercial Bank is responsible for recovering the difference (if any) between the interest rate charged to enterprises and the foreign loan interest rate plus the refinancing fee of the Bank as prescribed above (mainly arising in cases where foreign countries lend to the Government at preferential rates).

c) The transfer of funds or refinancing between the Ministry of Finance and the selected Commercial Bank shall be carried out in accordance with the progress of withdrawing and using loan funds by project sponsors. Specifically:

If the Ministry of Finance borrows abroad in foreign currency, the basis for transferring funds to the selected Commercial Bank for refinancing is:

The application for withdrawing loan funds from the project sponsor.

Economic-technical justification, technical design, and total budget approved by the competent authority.

A plan to transfer funds to the selected Commercial Bank established in line with the schedule of foreign currency payments using loan funds.

In this case, the time when the Commercial Bank receives debt from the Ministry of Finance is the time when the Commercial Bank receives foreign currency transferred by the Ministry of Finance for refinancing.

If the withdrawal of loan funds is carried out according to the loan projects signed in the credit agreement with foreign countries, then the Ministry of Finance and the selected Commercial Bank will sign a basic contract on fund transfer in accordance with the loan contract. Immediately after withdrawing the loan funds, the selected Commercial Bank must send a copy of the withdrawal statement to the Ministry of Finance to complete the debt receipt agreement with the Ministry of Finance.

In this case, the time when the Commercial Bank receives debt from the Ministry of Finance is consistent with the time of receiving debt from foreign countries.

Based on the loan agreement, the Ministry of Finance will record the foreign borrowing source and record the expenditure for the borrowing Bank. The exchange rate for recording income and expenditure is the selling rate prescribed by the State Bank at the time recorded on the debt receipt agreement of the Bank. Annually, the selected Commercial Bank has the responsibility to settle accounts with the Ministry of Finance regarding the received funds, lent funds, and repaid funds for each refinancing loan project until the completion of the repayment of the loan to the Ministry of Finance.

In cases where the selected Commercial Banks are authorized by the Ministry of Finance to handle foreign debt repayment, the Ministry of Finance will handle the necessary procedures to transfer money to the Bank to repay foreign debt on time (including both principal and interest) if the loan project belongs to state budget funds; or the Commercial Banks will recover the loan funds from enterprises refinanced through the Bank to directly repay foreign debt, while reporting to the Ministry of Finance to deduct from the foreign loan amount already recorded in the debt receipt agreement with the Ministry of Finance if it is a refinancing project from government loan sources.

2. Foreign currency or goods loans.

a) Foreign currency loans (not tied to construction projects).

The Ministry of Finance will directly sign the loan or authorize enterprises to borrow on behalf of the State. In cases where enterprises borrow on behalf of the State, the Ministry of Finance will stand as guarantor if required by foreign countries. All borrowed foreign currency will be transferred into the centralized foreign currency fund account of the State for use according to the State budget needs in compliance with current foreign currency management regulations.

Foreign loans in foreign currency can be used for:

Repaying old foreign debts (for government loans).

Selling to banks to convert into domestic currency for the State budget.

Transferring to the selected Commercial Bank to refinance enterprises (for basic construction investment or as business capital).

To be used for other State budget purposes approved by the Government.

The Minister of Finance shall submit to the Prime Minister for approval specific decisions regarding the use of foreign currency loans.

b) Borrowing in kind.

The management and utilization of loans borrowed in kind shall be regulated as follows:

If they are individual goods or equipment imported for deep investment projects, they will be transferred to borrowing enterprises through banks as stipulated in point 1.b of Part II above.

If they are goods or materials and equipment permitted by the Government to be resold domestically to collect Vietnamese currency for the State budget, they shall be implemented as follows:

The Ministry of Trade shall coordinate with the State Planning Commission and the Ministry of Finance to present to the Government a list of goods with domestic demand for borrowing.

The Ministry of Trade and the Ministry of Finance shall examine and designate reputable companies to implement borrowing and repaying debts in kind, organize guidance on importation and sales to the State budget.

Depending on the nature of use and the imported goods, the selling price of imported goods shall be determined based on the domestic formation price at the time of sale or the foreign currency CIF import price plus current import tax converted to Vietnamese currency according to the selling exchange rate specified by the State Bank at the time recorded on the delivery note.

For certain materials and goods that need to be reserved for gradual allocation to meet usage needs or machinery and equipment used for multiple projects, based on the proposal of the main managing ministry and the specific situation when borrowing, the Ministry of Finance may allow the designated unit importing and selling goods to delay payment to the State budget. In this case, units must develop a plan for delayed repayment, obtain comments from the main managing ministry for approval by the Ministry of Finance, and have the responsibility to report regularly and settle each delayed payment with the Ministry of Finance.

III. REPAYING LOAN PRINCIPAL

Enterprises borrowing from government loans must have production and business plans and utilize loans effectively, ensuring sources to repay debts upon maturity. When officially allowed by the State to use government loan funds, enterprises must establish repayment plans for commercial banks selected to provide relending in accordance with contracts signed with the bank. These plans must clearly specify the time for principal repayment, interest, and other borrowing fees (if any), and be submitted to the higher-level supervisory authority for coordination and management.

In cases where debt cannot be repaid to the bank, the enterprise must promptly report to the banking and finance authorities to take appropriate measures. If an enterprise misuses loan funds leading to inability to repay the bank, the banks may take necessary measures such as fines, suspension of lending, or freezing accounts to recover the debt. In necessary cases, the selected commercial banks may require enterprises to open a special account at the bank to gradually deduct and recover the debt from the enterprise's operating capital. Commercial banks that have signed loan contracts must repay according to the contract to the Ministry of Finance. If due to objective reasons the contract cannot be fulfilled, they must promptly report to the Prime Minister and the Ministry of Finance for instructions. If due to subjective reasons, commercial banks must use their own operating capital to repay the debt. Whether it is an enterprise or a commercial bank, if there is a delay in repayment of government loans beyond the contractual period, penalties will be imposed based on the amount overdue. The Ministry of Finance and the State Bank will jointly specify the specific penalty rates.

In cases where the Government borrows abroad in kind and repays in kind, when recovering loan funds from enterprises, the selected commercial bank still has to transfer repayment to the Ministry of Finance in cash so that the Ministry of Finance can coordinate with the State Planning Commission and the Ministry of Trade to arrange export goods to repay the debt upon maturity.

IV. MONITORING WORK ON

THE USE OF LOANS AND DEBT REPAYMENT

1. Management and use of government loans for basic construction projects under the form of state budget capital disbursement shall be carried out in accordance with current regulations on the management and use of basic construction investment capital by the State.

2. The selected commercial bank and the supervising agency of the enterprise have the responsibility to regularly check the use of loan funds and the implementation of loan projects according to purpose and plan. The Ministry of Finance and relevant management agencies have the right to periodically and spot-check the use of loan funds by selected commercial banks and enterprises. In cases where the selected commercial bank or enterprises use funds not in accordance with the loan agreement and debt acceptance contract, the funds already transferred may be recovered or temporarily suspended until a report is submitted to the Prime Minister for handling.

V. IMPLEMENTATION PROVISIONS.

1. This Circular takes effect from the date of signature and serves as general guiding principles applicable to all government foreign loans. For foreign loans with specific characteristics, the Ministry of Finance will coordinate with relevant agencies to provide specific guidelines.

2. Ministries, sectors, People's Committees of provinces and cities are responsible for guiding subordinate units to implement the contents as directed.

During implementation, if there are any difficulties, please report immediately for the Ministry of Finance, the State Bank, and related ministries to handle promptly.

ANNEX 1

DIRECT PAYMENT

(Direct Payment Procedure)

ANNEX 2

REIMBURSEMENT PROCEDURE

(Reimbursement Procedure)

ANNEX 3

COMMITMENT PROCEDURE

(Commitment Procedure)

1. Provide commitment

certificate and payment

ANNEX 4.

(Imprest Fund)

Project implementing agency

Request for use

Application for withdrawal and cost estimate

(Continued)

(Imprest Fund)

Project implementing agency (Borrower)

Payment order

(Subsequent procedures as in Part 2)