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Wide view of Public expenditure now clear after five years of recommendations

13:26 | 08/12/2021

VCN – The recommendations from the 2014 Public Expenditure Review have been fully realised, achieving positive results and meeting the demands of public budget management.

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Public expenditure recommendations have led to positive results, contributed to economic growth and created fiscal space for new policies. Photo: S.T
Public expenditure recommendations have led to positive results, contributed to economic growth and created fiscal space for new policies. Photo: S.T

Positive outcomes

The 2014 Public Expenditure Review (PER) was jointly conducted and published by the Government of Vietnam and the World Bank, with the support of the Department of Foreign Affairs and Trade, the Swiss State Secretariat for Economic Affairs and Global Affairs Canada. The Review has assisted the Government in creating a fiscal space for major expenditure needs, while ensuring fiscal sustainability. After five years of implementing recommendations, Vietnam has achieved positive outcomes in public expenditure management. The State budget has been used in a more proactive and effective manner, therefore contributing well to socio-economic development.

According to the Vice Minister of Finance, Vo Thanh Hung, the 2014 PER made 68 recommendations to the Government, ministries, sectors and subnational governments regarding their priorities in public finance reforms, amid the difficulties and challenges that Vietnam has been facing.

“Since 2017, many PER recommendations have been institutionalized and have proven to have had major impacts on the development of the five-year national financial plan, the medium-term investment plan, the rolling three-year budget plan, the new Public Debt Management Law and guiding documents which also drew from international best practices. They have helped to improve legal frameworks and created more favorable conditions for foreign investment. This has allowed for more focus on transport corridors, primary road networks, expressways and the elimination of bottlenecks” – said Vice Minister, Vo Thanh Hung.

96% of recommendations have been implemented and more than 60% have been fully realized. The Vice Minister stated that the PER has shown the effectiveness of the advisory assistance to the Government in recent policy-making and reform.

Mr. Nguyen Minh Tan, Vice Director of the State Budget Department of the Ministry of Finance, also emphasized that the implementation of recommendations has assisted Vietnam in improving its investment and business environment, allocation and use of resources, social security assurance, anti-corruption and waste. In the meantime, Vietnam has applied international best practices in public expenditure management, enhanced transparency and accountability in sync with the increased autonomy of subnational governments and spending units and strengthened international cooperation in budget and public investment management.

Enhanced budget transparency

Recommendations of the 2014 PER focused on three areas, namely fiscal sustainability, results-based accountability and linkages between public expenditure and national priorities.

As for statistics, Mr. Nguyen Minh Tan said that the tax-to-GDP ratio increased to 25.2% on average during the 2016 - 2020 period. Domestic revenue as a percentage of total revenue increased from 59.5% during the 2006 - 2010 period, to 68.7% during the 2011 - 2015 period, and to 85.6% in 2020. Average spending as a percentage of GDP decreased from 29.5% during the 2011 - 2015 period, to around 28% during the following five-year period. Recurrent spending estimates went down from 65.1% in 2017 to 63.1% in 2020. The average deficit-to-GDP ratio during the 2016 - 2020 was 3.45%, still within the ceiling of 3.9% stated in Resolution no. 25/2016/QH14 of the National Assembly. The debt-to-GPD ratio drastically decreased from 63.7% at the end of 2016, to 55.2% by end of 2020. Outstanding Government debt and outstanding external debt are on the safe side.

“This plan has contributed to ensuring national financial security, promoted economic growth and created a fiscal space to cope with disasters, pandemics and climate change. This has ensured social security and successfully balanced the ‘twin’ objectives of pandemic control and economic recovery in 2020. As a result, the Vietnamese economy expanded by 2.91%, one of the highest growth rates in the world. Its credit rating was maintained and its outlook changed to positive”, Mr. Nguyen Minh Tan assessed.

He said in order to improve the effectiveness of public investment, Vietnam has to link its financial plan with its national socio-economic plan, as well as national and sectoral economic priorities. The country has restructured sectoral investment and linked capital spending and recurrent spending. Ministries and subnational governments have also been proactive in allocating and using capital investment, thus improving the effectiveness of resource allocation.

In addition, the implementation of PER recommendations has helped to increase budget comprehensiveness and transparency. The State Budget Law has supplemented a range of regulations, in which revenue and spending have been clearly defined, with budget deficits brought closer to international best practices. Budget information is now adequately disclosed in a timely manner. The Ministry of Finance has developed and maintained the Open Budget Portal, which contributes to improving fiscal discipline and the Open Budget Index, and as a result, the National credit rating. In the meantime, the ministry has developed whole-Government financial statements in order to assist the National Assembly in assessing public expenditure effectiveness and credit rating, whilst examining and monitoring fiscal activities.

However, the implementation of PER recommendations has its own limitations. With regard to the late implementation of several recommendations, the Ministry of Finance revealed that several regulations have not been revised, and performance-based budgeting has been hard to bring to life. Moreover, the supplementation of several revenue policies for more comprehensive revenue sources and broadened tax bases has faced delays and difficulties from the public. Regulations on the mobilization of extra-budgetary resources for capital investment have not been synchronized. In particular, policy stability has not been ensured.

Ms. Steffi Stallmeister, the World Bank’s Operations Manager for Vietnam, East Asia and Pacific:

Vietnam’s economy has been quite resilient. However, it has been affected by the distancing measures taken to contain the fourth wave of the COVID-19 outbreak. The economic recovery is and will continue to be a priority. However, fiscal policy has been contractionary with a sharp decrease of both recurrent and capital spending, which hampers demand and economic recovery.

The Government has initiated fiscal stimulus tools. But they have not always been implemented efficiently. It is therefore important to introduce bolder fiscal support packages. For these to be successful, the public financial management needs to be streamlined. The good news is that there is sufficient fiscal space to do so. The Government can spend more and in more efficient ways. Before spending more though, Vietnam will need to improve the quality and efficiency of public investment so that fiscal policies have a positive impact on economic recovery. More flexibility in the use of funds should be given and approval processes be streamlined and synchronized. This will help to accelerate work planning, budget (re)allocation, procurement and disbursement of public investment.

Mr. Vu Ngoc Hung, Vice Director of the Financial - Monetary Department, the Ministry of Planning and Investment:

Outstanding results in public investment management reform are reflected in three areas, namely application of the project appraisal methodology that follows international best practices, increased decentralization of capital spending to subnational governments, which encourages the linkages between key infrastructure projects, and improvement of the legal framework for public procurement in line with international best practices. Among them, increased decentralization of capital spending to subnational governments has encouraged the linkages between key infrastructure projects. The legal framework for public investment has been established and improved towards a unified and synchronized public investment management. Reform in planning leads to a prioritized investment framework, which focuses on national target programs and national important projects. Public investment in different regions has become more harmonized.

The effectiveness of public investment has witnessed gradual improvements. More specifically, the number of public investment projects dropped by half to 11,000. The number of newly-started projects in each year was reduced in favor of carried-over projects. Total investment from all sources in Vietnam during the 2016 - 2020 period was 33.7% of GDP, which met the planned target of 32 – 34% in five years, and higher than the 2011 - 2015 period (31.7%). The share of public investment saw a decline from the average of 39.11% during the 2011 - 2015 period to an average of 34%.

By Hoai Anh/ Thu Huong