Risk management for fiscal sustainability and public financial security

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This was confirmed by the Deputy Minister of Finance at the Workshop titled Managing of fiscal risk from public-private partnership projects (PPP) held by the Ministry of Finance and World Bank on 22nd March 2018 in Hanoi. According to Deputy Minister Huynh Quang Hai, over the past years, together with institution reform of business management, Vietnam has gained important achievements in reform of public financialmanagement. The law and policy system is becoming modern and consistent with international practices, contributing to mobilizing, using and managing effectively financial resources, enhancing publicity and transparency in all stages of budget process. The budget fund is prioritized for people, social security, hunger eradication and poverty reduction and for important infrastructure projects

At the same time, the management of public debts and foreign debts of the country has been constantly renovated, especially the promulgation and implementation of the Law on Public Debt Management, thereby developing a legal corridor for state management of government debts and foreign debts. The indexes for public debts and foreign debts continue to be maintained in the safety limits set by the National Assembly.

According to Deputy Minister Huynh Quang Hai, Vietnam is facing fiscal risks, especially from medium to long term fiscal sustainability. Therefore, in addition to the implementation of measures to restructure budget revenues and expenditures and public debt management set out in Politburo’s Resolution No. 07 / NQ-TW dated 18th November 2016 on the policy, there are solutions to restructure the state budget and public debt management in order to ensure a safe and sustainable national finance with the National Assembly’s Resolution No. 25/2016 / QH14 dated 9th November 2016 on national financial plan for 5 years 2016-2020. The monitoring and management of fiscal risks have significance in fiscal sustainability and public financial security.

This issue is also prioritized by the Ministry of Finance together with the support of the World Bank and donors through the Public Financial Management Analytical and Advisory Assistance Program (AAA program); In particular, "Overall Fiscal Risk Management" is one of 14 projects approved by the Government of Viet Nam for implementation in the period 2018-2020.

With the pressure of capital mobilization and the need for infrastructure development, in addition to improving the efficiency of using state budget resources, the Vietnam Government always attaches great importance to the capital mobilization through PPP models. In order to obtain successful PPP projects, the adequate identification and solutions for risk settlement, in particular the fiscal risks of the Government are inevitable. Thus, fiscal risk management in general and in PPP projects in particular is a relatively new issue for Vietnam.

According to Ha Huy Tuan, Deputy Chairman of the National Financial Supervisory Commission, fiscal risk in Vietnam is unique compared to other countries in the world. Therefore, the identification of fiscal risks in PPP projects will be implemented as soon as possible, right from the project planning stage. At the same time, it is necessary to appoint the management agency of capital resources in association with the project development agency. For risk management in PPP projects, it is necessary to compare the socio-economic efficiency with financial efficiency.

"It is necessary to set a priority order for projects, identify and share risk responsibility, improve publicity and transparency in projects and to classify and select projects to be guaranteed. It should not be rigid that all projects need to be guaranteed. That the government is responsible for guaranteeing all projects makes it difficult, but without the Government’ guarantee, both private and international donors hesitate about assistance. Therefore, it is necessary to have a solution to balance and classify each project, each public service and infrastructure, as well as to soon complete the legal basis, in which identifying responsibility for the risk when implementing projects, "Tuan said.

At the workshop, Mr. James A. Brumby also said that PPP is a form to implement public investment projects. Therefore, any proposals for investment project should be checked for compatibility and consistency line with national policies. Every investment project must be economically evaluated, technically and legally feasible, environmentally consistent and socially sustainable and economically feasible, as well as demonstrate cost and consistency with budget priorities.

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Many people argued that PPP is associated with the sharing of rights and responsibilities of the state and the private sector. Therefore, there must be harmonious coordination between the two sides for the success of PPP projects. Deputy Minister Huynh Quang Hai emphasized that risk management is identified as a key issue in financial security. Calling for private investment through PPP contracts is necessary in the context where state budget resources are facing difficulties and preferential loans are being cut. However, in order to manage fiscal risk for PPP projects, there should be close coordination among state agencies, as well as the State should have exact assessment and appropriate risk sharing to attract PPP projects.