THE MINISTRY OF FINANCE
SOCIALIST REPUBLIC OF VIET NAM
Independence  - Freedom - Happiness
No. 108/2007/TT-BTC
Hanoi, September 7, 2007
 
CIRCULAR
GUIDING THE FINANCIAL MANAGEMENT MECHANISM APPLICABLE TO ODA PROGRAMS AND PROJECTS
Pursuant to the Governments Decree No. 131/2006/ND-CP of November 9, 2006, promulgating the Regulation on management and use of official development assistance (ODA) sources;
Pursuant to the Governments Decree No. 134/2005/ND-CP of November 1, 2005, promulgating the Regulation on management of foreign loans and debt payment;
Pursuant to the Governments Decree No. 60/2003/ND-CP of June 6, 2003, detailing and guiding the implementation of the State Budget Law;
Pursuant to the Governments Decree No. 77/ 2003/ND-CP of July 1, 2003, defining the function, tasks and powers of the Ministry of Finance.
The Ministry of Finance guides the financial management applicable to ODA programs and projects as follows:
Part 1
GENERAL PROVISIONS
I. SCOPE OF APPLICATION
1. This Circular applies to the preparation and implementation of programs and projects (below referred to as projects for short) financed with concessional ODA loans; non-refundable ODA (non-refundable aid) and mixed ODA loans.
2. For a number of particular ODA projects, depending on the management requirements and at the request of project-managing agencies, the Ministry of Finance may issue specific guidance applicable separately to these projects.
3. Non-refundable ODA projects implemented independently (not jointly financed with concessional ODA loan projects) subject to the application of the circular guiding the state financial management regime applicable to foreign non-refundable aid sources belonging to the state budget comply with the guidance of the Ministry of Finance.
II. MANAGEMENT PRINCIPLES:
1. ODA capital sources invested in projects are state budget capital sources, which must be fully accounted into the budget, managed and used under the provisions of the State Budget Law and the existing documents guiding the implementation of the Law.
2. The Ministry of Finance shall perform the function of state financial management of ODA projects according to current regulations.
3. Project managers and project owners shall take responsibility before law for the implementation of projects in strict accordance with the commitments in international treaties, state regulations on implementation of programs and projects, financial management, and regimes of financial plan formulation, accounting, auditing, final settlement, project asset management and reporting according to current state regulations and the provisions of this Circular.
III. DOMESTIC FINANCIAL MECHANISMS APPLICABLE TO ODA-FUNDED PROJECTS
1. Project owners and managing agencies, when making ODA-calling lists, must propose domestic financial mechanisms (allocation from the state budget, re-lending from the state budget or partial allocation and partial re-lending from the state budget) to the Ministry of Planning and Investment which shall, together with the Ministry of Finance, submit them to the Prime Minister for approval in strict accordance with the provisions of Decree No. 131/2006/ND-CP.
2. After the Ministry of Planning and Investment informs the official financing list, competent agencies, managing agencies and project owners shall elaborate and approve documents on ODA programs and projects. In relation to financial issues, project documents and project approval decisions should clearly state:
a/ Domestic financial mechanisms applicable to the use of ODA capital sources invested in projects (allocation from the state budget, re-lending from the state budget, or partial allocation or partial re-lending from the state budget with regard to ODA capital sources).
b/ The nature of project capital use (capital construction projects, non-business administrative projects; re-lent loan/credit projects; or mixed projects).
c/ Responsibilities to arrange domestic contributed capital (of various budget levels and project participants such as enterprises, credit institutions and project beneficiaries).
3. For projects subject to the mechanism of re-lending from the state budget, project documents and project approval decisions should clearly identify the re-lending conditions according to the Governments Regulation on re-lending of foreign loans. Otherwise, project- managing agencies shall obtain written agreement from the Ministry of Finance before approving the projects.
4. For projects with specific designing contents somewhat inconsistent with contents of the detailed outlines already submitted together with the proposed lists of projects, before approving the projects, project-managing agencies shall report to the Ministry of Planning and Investment and the Ministry of Finance for further submission to the Prime Minister on domestic financial mechanisms applicable to the projects.
5. Domestic financial mechanisms on the use of ODA capital sources for projects are as follows:
a/ ODA projects entitled to budget allocation are investment projects on public infrastructure, social welfare and projects in other domains which are incapable of directly recovering capital and entitled to state budget funds under the provisions of the State Budget Law, including cases in which local budgets are re-lent foreign loans from the central budget for allocation to projects. They are allocated ODA capital under the state budget capital allocation mechanism.
Contributed domestic capital for projects entitled to budget allocation is provided from the state budget (central or local) and included in annual slate budget estimates according to capital construction or non-business and administrative capital sources corresponding to spending contents of projects.
b/ ODA projects entitled to full or partial re-lending are those which can fully or partially recover capital, including credit projects. They comply with the mechanism of full re-lending, partial re-lending or partial allocation of ODA capital, depending on the projects capability to refund the capital.
The specific conditions on re-lending of ODA capital sources (full re-lending or partial re-lending, recipients of re-lent loans, re-lent loan currency, re-lent loan value, re-lending duration, re-lending interest rates, charges under regulations of donors, domestic sub-lending charges, etc.) shall be identified in the course of preparing, appraising and approving the projects according to the Governments Regulation on re-lending foreign loans and/or agreements with donors.
Owners of ODA projects entitled to full re-lending and owners of ODA projects entitled to partial allocation or partial re-lending shall themselves fully arrange contributed domestic capital amounts and, at the same time, explain the capability and plans to ensure adequate contributed domestic capital before signing re-lending contracts.
Re-lent ODA loan project owners shall prepare and send to concerned agencies (the Ministry of Finance and sub-lending agencies) project dossiers including the projects financial plans in accordance with current regulations on re-lending of the Governments foreign loans.
6. The nature of project capital use is identified based on the following types of project:
a/ Capital construction projects, which are investment projects related to the construction, expansion or renovation of construction works for the purposes of development, maintenance and quality improvement of works or their accompanied services and equipment;
b/ Non-business administrative projects, which are investment projects with spending contents being of non-business administrative nature as specified in the state budget classification;
c/ Mixed projects involving capital construction, non-business administrative and re-lending contents, which are combined projects with at least two of three spending contents, namely, capital construction, non-business administrative and re-lending nature (including re-lent loan to credit projects or credit components).
For mixed projects, project owners should clearly identify their components or spending contents belonging to the sources of capital construction capital and non-business administrative capital. In special cases, if the projects spending contents are of mixed nature but the project owners wish to apply one spending nature only, either capital construction or non-business administrative, they shall give explicit explanations in the course of project preparation and submission for approval.
7. Responsibilities to arrange domestic contributed capital are clearly determined in both content and level according to the following principles:
a/ The central budget shall arrange domestic capital contributed to projects or project components falling under the spending tasks of the central budget (according to Article 31 of the 2002 State Budget Law), which is directly managed and implemented by central agencies that are owners of projects/project components.
b/ Local budgets shall arrange domestic capital contributed to projects or project components falling under the spending tasks of local budgets (according to Article 33 of the 2002 State Budget Law), which is directly managed and implemented by local agencies that are owners of projects/project components;
c/ Enterprises and banks/credit organizations shall arrange domestic capital contributed to projects or project components with owners being enterprises, banks or credit institutions;
d/ Beneficiaries shall contribute domestic capital portions (in cash, kind or labor) as designed by the projects.
8. Financial management applicable to programs and projects accompanied with policy frameworks and budget supports (general budget supports or target budget supports):
a/ ODA capital sources of programs and projects accompanied with policy frameworks and budgetary supports constitute sources of capital directly supported for the state budget, which are used for common national socio-economic development goals or specific objectives of the state budget as agreed with donors. The use of these ODA capital sources must fully comply with the State Budget Laws provisions on expenditure management, without being subject to donors regulations on spending procedures (unless it is so provided for in the financing agreement).
b/ For target programs or budget supports, program owners shall consult the Ministry of Planning and Investment, the Ministry of Finance and concerned agencies on specific mechanisms for the use of ODA capital sources of the programs or budget supports and submit them to the Prime Minister for decision.
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