Viet Nam enjoyed robust economic growth, averaging 7% per year, during 2000–2007; but the global financial crisis of 2008 exposed important gaps in its economic and institutional framework. Specifically, the country confronted significant macroeconomic stresses, including high inflation, volatility in the foreign exchange market, deceleration of real gross domestic product (GDP) growth, and vulnerabilities in the banking sector. Various factors contributed to these stresses including weaknesses in existing rules and regulations, inefficient public investments, declines in the marginal productivity of capital, and rapid credit growth that led to more nonperforming loans (NPLs).
Recognizing that reforms were needed to strengthen and sustain growth, the government identified the breakthrough area of improved market institutions and business environment as one of three strategic priorities under its Socioeconomic Development Strategy 2011–2020. In line with this priority, the Asian Development Bank (ADB) approved two policy-based loans aggregating $230 million for the Improving Competitiveness Program in November 2014. The program design was based on a joint development collaborative framework and common policy matrix adopted by development partners, including ADB, the Japan International Cooperation Agency, and the World Bank, to support the government’s structural reform program. It had increased private investment as expected impact, and improved competitiveness of Viet Nam’s economy as expected outcome.
Six outputs in six reform areas, supported by 11 policy actions, were planned for delivery: (i) enhanced banking sector stability, (ii) maintained fiscal discipline, (iii) improved public administration and accountability, (iv) strengthened state enterprise management; (v) enhanced public investment management, and (vi) an improved business environment. All policy actions and reform areas remained unchanged and were completed by this program’s approval date. Eight of nine output indicators were fully achieved.
Banking sector stability was enhanced, as reflected in the reduction of NPLs to 2.55% of total loans, based on Vietnamese accounting standards, compared to the 5% target. The primary fiscal deficit average during 2013–2015 remained less than 4% of GDP as targeted, demonstrating that Viet Nam maintained sound fiscal discipline during the program. Public administration and accountability improved, with 98.3% of officials disclosing income and asset declarations rising by the end of 2015. Less than 10% of businesses reported having to negotiate with tax authorities as part of doing business.
Management of state enterprises and public investments was enhanced. Investments by large state economic groups (SEGs) in high-risk noncore areas fell to 0% in 2017. Transparency of SEG financial reporting also improved. In parallel, SEG capital expenditure arrears from the central budget were reduced from Vietnamese dong (D)43 trillion (about $2 billion) to D30 trillion (about $1.37 billion). Time spent by businesses to comply with tax payment requirements was reduced by at least a third, and the country’s overall ranking in the World Bank’s (ease of) Doing Business report rose to 69th in 2019 compared to 99th in 2013.
Overall, the program’s policy actions contributed to greater macroeconomic stability, as evidenced by a consistent rise in GDP growth, moderate inflation, consistent decline in the government’s budget deficit, and containment of the country’s external debt. Improvements in macroeconomic stability and the business environment enabled the program to achieve both its expected outcome and impact.
The State Bank of Viet Nam was the executing agency and lead implementing agency. The Government Inspectorate, Ministry of Finance, Ministry of Justice, and Ministry of Planning and Investment were also implementing agencies.
