Vietnam made good progress in reforming public financial management

overview of the conference

Seven pillars for evaluating public expenditures

The Public Expenditure and Financial Accountability (PEFA) framework serves as a performance measurement tool to evaluate the strengths and weaknesses of a country's public financial management (PFM) system. It plays a crucial role in supporting sustainable national development. Vietnam has demonstrated a strong commitment to PFM reform by conducting two PEFA assessments at the national level. The first PEFA assessment was carried out in 2011 and its findings were published in July 2013.

The recommendations outlined in the 2011 PEFA report have served as a guiding framework for Vietnam's PFM reform efforts over the past decade. These reforms have yielded significant achievements, particularly in the areas of institutional and procedural reforms within the PFM system.

According to Deputy Minister Bui Van Khanh, the upcoming 2024 PEFA assessment will be conducted based on seven pillars: budget credibility; public finance transparency; asset and liability management; policy-based budgeting and fiscal strategy; revenue administration; accounting and reporting; auditing and oversight. The assessment will utilize 31 indicators encompassing 94 detailed elements to evaluate Vietnam's current PFM system comprehensively.

Deputy Minister Bui Van Khanh made a speech at the conference

“Among 31 PEFA assessment indicators, Vietnam achieves 4 As, 8 Bs and B+, 8 Cs, and 11 Ds and D+s. Compared to other regional countries participating in the assessment under the PEFA Framework 2016, Vietnam has a high number of A and B+ scores (11 out of 31 indicators), ranking behind Mongolia (16 out of 31 indicators), Indonesia, and the Philippines (14 out of 31 indicators), and ahead of Myanmar, Cambodia, Timor-Leste, and Laos. These results demonstrate Vietnam's significant efforts in public financial management (PFM) reform over the past decade and its notable, comprehensive progress”, the Deputy Minister affirmed.

Despite these achievements, Deputy Minister Bui Van Khang highlights the report's identification of several areas for improvement in current PFM practices, including high levels of revenue and expenditure outside the State Treasury; weak fiscal risk monitoring in the public sector, particularly regarding contingent liabilities and public-private partnerships (PPPs); medium-term financial planning that fails to adequately link policies, plans, and budgets

At the conference, Mrs. Alma Kanani, Director of Governance for the East Asia and Pacific Region (World Bank - WB), emphasizes the PEFA report's recognition of Vietnam's substantial institutional and PFM system advancements, contributing to the government's achievement of sound fiscal discipline. Budget execution is tightly controlled, with most expenditures committed and audited before making payment.

Furthermore, a robust internal control system for payroll and non-payroll expenditures exists, aiding in reducing outstanding payment arrears and ensuring prudent public debt management, maintaining a very low debt-to-GDP ratio.

While acknowledging the Vietnamese government's gradual improvements, Mrs. Alma Kanani points out areas for further enhancement in financial reporting and transparency. For instance, the Open Budget Index (OBI) score increased by 6 points to 14 out of 100 in 2021, ranking Vietnam 68th out of 120 countries which was a positive outcome. The Treasury and budget management information system has generated more transparent and reliable financial data and financial reporting.

Researching and proposing appropriate solutions to overcome shortcomings

An effective and transparent financial management system is crucial for sustainable development, economic stability, and social equity. This was the key message delivered by representatives of the World Bank (WB) at a recent conference in Hanoi. The WB emphasized the importance of the government continuing to strengthen the legal and institutional framework for public financial management (PFM). This includes updating and refining existing resources and regulations to align with international best practices.

“The path to a robust PFM system presents both opportunities and challenges. By implementing reforms, leveraging technology, and enhancing transparency, Vietnam can build a PFM system that supports economic growth and improves the well-being of its citizens”, Alma Kanani stressed.

At the conference, Mr. Nguyen Minh Tan, Deputy Director of the State Budget Department (Ministry of Finance) said that the result showed discipline in fiscal management is well-ensured; the State Treasury budget is prepared in line with reality and implemented as planned, playing a useful role in policy implementation; treasury management has improved thanks to better information on commitment to expenditures, monthly budget forecasts, and daily consolidation of bank and treasury balances in the centralized treasury account system.

However, there are still limitations such as high levels of revenue and expenditure outside the State Treasury; weak monitoring of fiscal risks in the public sector, especially related to contingent liabilities and public-private partnerships (PPPs), and risk assessment in the debt management process.

Besides that, the three-year financial-state budget plan has not yet fully analyzed and assessed the fiscal implications of policy proposals to serve as a basis for setting ceilings and medium-term forecasts to ensure reliability; there is a medium-term public investment expenditure ceiling but not yet a detailed annual one, and the impact on current expenditure has not been analyzed, as well as the changes in mobilizable resources and the progress of implementation between years.

According to Ms. Nguyen Phuong Anh, a World Bank (WB) expert, the goal of PEFA is to provide a comprehensive overview of the effectiveness of a country's public financial management (PFM) systems including assessing various aspects such as revenue, expenditure, procurement, financial assets, and liabilities.

Ms. Nguyen Phuong Anh highlights the government's gradual improvements in public fiscal discipline, including tight control over expenditures and effective management of public debt.

Deputy Minister Bui Van Khanh emphasizes the importance of addressing the strengths and weaknesses in PFM identified in the PEFA report. In the future, the Ministry of Finance (MoF) will continue to study the issues raised in the report and propose solutions to overcome them during PFM reforms.

At the same time, the ministry also researches and proposes solutions to improve during the reform of public financial management. The goal is to enhance management efficiency, and resource utilization, ensure national financial security and safety, contribute to macroeconomic stability, improve the national credit rating, further improve the business and investment environment, and promote sustainable growth in Vietnam.