Vietnam approves public investment for US$67 billion North-South express rail
The country plans to rely on domestic funds but experts say it still needs foreign capital for technology or expertise-intensive aspects of the project
Published Sun, Dec 1, 2024 · 03:33 PM
[HO CHI MINH CITY] Vietnam’s parliament on Saturday (Nov 3 voted to approve a policy to use public investment for the country’s largest-ever high-speed railway project connecting the capital Hanoi with the southern metropolis of Ho Chi Minh City.
The South-east Asian country will allocate funds from the State budget for the US$67 billion project through its mid-term public investment planned for each five-year period.
Investment capital can also be mobilized from government bond issuance, official development assistance, concessional loans, and other eligible sources.
The bullet train will travel about 1,500 kilometers across 20 cities and provinces at a speed of 350 kilometers an hour. Construction is expected to start in 2027 and be completed in 2035.
Experts said that the decision to rely on domestic funds is likely made from the strategic fiscal considerations of Vietnam, which has a relatively strong financial position compared to other developing countries seeking to develop such a transformative infrastructure.
The country has a low public debt level of 37 per cent of GDP in 2023, a robust export sector, and ample room for the growth of the domestic government bond market to finance critical infrastructure projects.
“(The financing scheme) appears manageable unless there is a significant overrun,” noted Sayaka Shiba, senior country risk analyst at BMI, referring to the government’s previous proposal to allocate US$5.6 billion annually for 12 years to build the project.
Richard McClellan, country director for Vietnam at Tony Blair Institution for Global Change, said that these types of infrastructure could drive inclusive growth as they not only link economic hubs but also stimulate development in underserved regions in Vietnam.
“This project can serve as a cornerstone of Vietnam’s broader strategy to become a high-income economy by 2045,” he added.
Don’t depend on foreign countries: minister
At a media briefing in October, Deputy Transport Minister Nguyen Danh Huy said the Politburo, the most powerful decision-making body of the Communist Party, has decided not to depend on external funds for the high-speed railway, state media reported.
He also underlined that foreign loans under concessional conditions would be considered during the execution of the project if necessary, with technology transfer being the prerequisite for the decision.
Shiba believed that such a cautious approach might stem from Vietnam’s recognition of the past issues related to foreign-funded infrastructure projects in the region that have faced cost surges and prolonged delays.
Additionally, geopolitical factors could be the fundamental concern, she added, as reliance on funding from any specific nation could undermine Vietnam’s neutral political stance to support its export-driven growth model, which hinges on partnerships with competing global powerhouses.
“While the Vietnam government stated it would self-finance, this does not mean all development will be done by domestic players,” she noted.
McClellan echoed this viewpoint as he highlighted the necessity for foreign loans for technology or expertise-intensive aspects of the project.
“A hybrid model leveraging both domestic and international funding sources would be more realistic,” he said.
Business opportunities
According to estimates by a consultancy consortium of Vietnamese firms TEDI, TRICC, and TEDIS, the investment for the North-South express railway can create a US$33.5 billion construction market in Vietnam.
Experts say opportunities in the retail and hospitality industries could also arise as the railway shortens travel time between major cities and provinces, increasing domestic mobility for locals and tourists. Businesses also tend to invest extensively in services and commercial zones at stations along the railway line.
Moreover, the government has designed the project with the prospect of integrating it into the international railway system of Asia and Europe, eventually linking Vietnam’s major economic hubs to broader regional rail corridors and in turn facilitating trade, tourism, and investment across borders.
The challenges, however, lie in the possible delays seen in various large-scale infrastructure projects in Vietnam, including Vietnam’s previous metro lines in Hanoi and Ho Chi Minh City.
The continuation of a sweeping anti-graft campaign also fuels worries over prolonged regulatory caution among local bureaucrats, which could slow down project approvals and public spending.
