On 10 September 2025, the Government of Vietnam (“Government”) issued Decree No. 242/2025/ND-CP (“Decree 242”) establishing comprehensive regulations for the management and utilization of official development assistance (“ODA”) and preferential foreign loans.

Decree 242 establishes a comprehensive and modernized regulatory framework governing the scope, principles, procedures, financial mechanisms, and oversight of Vietnam’s ODA and preferential loan programs. This new framework aims to enhance operational efficiency, ensure debt sustainability, promote transparency, and strengthen alignment between external financing and national development priorities.

1. Strategic Priorities for ODA and Preferential Loans

Article 5 of Decree 242 prioritizes non-reimbursable ODA for programs and projects in economic and social infrastructure development, institutional capacity building, climate resilience initiatives, green growth programs, scientific and technological innovation, digital transformation, and social welfare enhancement.

ODA loans are allocated to healthcare systems, education programs, vocational training initiatives, environmental protection projects, and essential infrastructure developments that do not generate direct revenue streams.

Preferential loans are reserved for relending programs and infrastructure projects classified as state budget expenditure responsibilities, ensuring alignment with sustainable development objectives and Vietnam’s debt servicing capacity.

2. Domestic Financial Mechanisms

Article 7 of Decree 242 establishes the principles for the financial mechanisms governing ODA and preferential loans:

• Projects classified as central budget expenditure receive full funding allocation from the central budget.
• Projects under local budget authority or public-private partnership arrangements may receive partial or full relending support in accordance with applicable regulations.
• Projects with revenue-generating potential operate under relending mechanisms, while non-reimbursable ODA—encompassing technical assistance and investment projects—receives full budget allocation.

These provisions ensure fiscal discipline, optimize resource allocation, and maintain consistency between financing mechanisms and project implementation objectives.

3. Expanding Private Sector Participation

Article 11 of Decree 242 establishes enhanced mechanisms for private sector participation in ODA and preferential loan programs.

Private enterprises and organizations may participate in such projects through public-private partnership models or relending arrangements, subject to compliance with approval procedures, transparency requirements, and applicable relending regulations.

This provision is set to mobilize private sector investment for infrastructure and socio-economic development projects aligned with national priorities, contingent upon demonstrated financial capacity and proven implementation expertise.

4. Financial Management and Serving Banks

Articles 59 to 61 of Decree 242 define the rules governing payment accounts and serving bank selection:

• Article 59: Project payment accounts must be opened at the State Treasury or designated serving banks.
• Article 60: Competent authorities may select serving banks, ensuring compliance with domestic and donor requirements.
• Article 61: Selection criteria include financial soundness, operational capacity, foreign loan experience, and project management expertise, reinforcing efficient and transparent fund flows.

5. Reporting and Disbursement Oversight

To strengthen accountability, Articles 80 and 81 impose rigorous reporting standards:

• Article 80: Mandates regular submission of detailed reports on loan agreements, project progress, and financial performance.
• Article 81: Requires comprehensive reporting on disbursement progress, fund allocation, and state budget reconciliation.

These provisions ensure transparency, continuous monitoring, and alignment with Vietnam’s public finance management standards.

6. Key Takeaways

Taking effect immediately upon promulgation, Decree 242 constitutes a milestone in Vietnam’s initiative to modernize and enhance the governance framework for ODA and preferential foreign loan management.

Through the clarification of strategic priorities, refinement of financial mechanisms, facilitation of private sector engagement, and strengthening of accountability frameworks, Decree 242 positions Vietnam to optimize the developmental impact of external financing through enhanced governance and more effective utilization of borrowed resources.

Should you require any assistance navigating the financial mechanisms for ODA projects or related tax implications, please feel free to contact DFDL.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.

Key Contacts

Phong Anh Hoang, Partner, Vietnam

Patrick Keil, Senior Legal Adviser