About 1 billion U.S. dollars from Vietnam's state budget is spent on foreign loan and interest repayments every year, according to a Vietnamese finance official on Wednesday.

Hoang Hai, deputy director of the Ministry of Finance's Department of Debt Management and External Finance, told the state-run news agency VNA that Vietnam will no longer benefit from official development assistance (ODA) loans from July 2017.

After Vietnam became a lower-middle-income country in 2010, preferential loans from development partners have reduced considerably, Hai elaborated.

According to the official, before 2010, the average repayment period was about 30 years to 40 years with borrowing costs between 0.7 and 0.8 percent per year, including a grace period.

Meanwhile, from 2011 to 2015, the repayment period averaged 10-25 years with borrowing costs of about 2 percent.

From July 2017, the country will be provided with preferential loans and loans on market-based conditions while repayment period of existing ODA loans will be reduced by half or interest rates will be increased to 2-3.5 percent a year, said Hai.

In order to solve the problem, the Vietnamese government has issued a directive on using foreign loans more effectively.