A draft PPP law is expected to reinforce the inflow of private capital.
Vietnam's infrastructure sector stands to benefit from a draft law on Public-Private Partnerships (PPP) that aims to deepen the role of the private sector in plugging the country's infrastructure gap, according to Fitch Solutions.
In previous years, government funding of projects has been strong, but the rise in the country’s economy translates that a greater amount of investment is required. Data from Fitch Solutions shows that Vietnam has a large pipeline of infrastructure projects with 253 projects still in the planning stages in the transport and energy sectors with an estimated value of US$233b.
Data from the World Bank as cited by Fitch Solutions notes that the country require investments of up to US$25b a year, of which only two-thirds is funded by a cash-short government.
“With the government running a budget deficit since 2014, and a self-imposed debt-to-GDP ceiling of 65%, it is likely that some projects will have to be funded by the private sector,” Fitch Solutions said in a report.
The new PPP law is placed to encourage investment from the private sector. Several important regulations are placed - a set minimum investment, planned government guarantees in reducing investment risk, and placed restrictions from outside business endeavours – to ensure ease in PPP transactions.
Amidst efforts of improving the PPP legal structure, several factors are seen to hinder foreign investment.
The research firm says,“Despite the potential improvement in PPP related legislature, persistent risks, including financing, corruption and delay risks, will continue to be barriers to the inflow of foreign investment.”
A Project Risk Index by Fitch Solutions ranks Vietnam behind other emerging markets like Malaysia and Thailand, with an index score of 62.1 out of 100. In particular, the country performed poorly in the financial barriers subcategory. This suggests limited access to domestic and international financial services which could put foreign companies in a bind when it comes to financing much needed infrastructure projects.
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