The US$500 million loan was the first to the fast-growing communist country from the bank's low-interest lending arm, the International Bank for Reconstruction and Development (IBRD), which provides credit to mainly middle income nations.

Vietnam has set itself a 2010 target of embracing middle-income status. Until now, World Bank support to Vietnam had come from the International Development Association (IDA), which provides interest free loans to the world's poorest countries.

The newly approved loan is aimed at supporting a program of public investment reforms in Vietnam, the Washington-based bank said in a statement. “This is a significant milestone for Vietnam, a country which will have moved from the category of highly indebted country to middle income status in less than seven years,” said World Bank Vice President for the East Asia and Pacific region Jim Adams.

The World Bank declared Vietnam IBRD-eligible in late 2007 but the Vietnamese government has requested a gradual transition to borrowing from the bank on IBRD-only terms.

It will continue to access IDA funds indefinitely.

The World Bank begins to provide IBRD lending when countries hit a per capita income of US$1,025 for two consecutive years, virtually endorsing them as middle income level economies.

International donors at a meeting in Hanoi earlier this month pledged a 33-percent increase in aid to Vietnam for next year of more than eight billion dollars.

Officials said the gathering may have been the last in its current form before the country of about 86 million people officially attains middle-income status.

The World Bank said its loan “is aimed at addressing” weaknesses in public investment processes highlighted during recent “macroeconomic turbulence.”

It is the first of two single-tranche operations that will support the country's stimulus program in response to the economic crisis, the bank said.