Viet Nam: Improving Public Expenditure Quality Program, Subprogram 1

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Lessons

Successful reform programs require thorough background analysis and research, extensive consultations, and strong national ownership and championship.

This subprogram’s design, as with the whole program, was well informed by the comprehensive findings of the 2013 Public Expenditure and Fiscal Accountability assessment. The program’s formulation was anchored on close and extensive consultations with the government and development partners thus fostering strong national ownership and championship. It was fully aligned with the government’s strategies and priorities as well as the ADB country partnership strategy for Viet Nam, 2016–2020. As a result, subprogram 1 targeted appropriate interventions that effectively helped address key constraints on public expenditure and investment quality in the country, including the inefficient allocation of public resources, poor identification and management of fiscal risks, and weak oversight and evaluation of expenditure. coordination and engagement, stakeholder engagement)

Project Cycle Stage:

Preparation

Implementation

A sequential, long-term approach to reforms facilitates ADB deeper engagement in country reform processes and develops greater synergy in ADB country operations.

This program built on ADB’s long engagement with Viet Nam to reform public expenditure and financial management (PEFM) through policy dialogue, lending programs, technical assistance (TA), and knowledge support. It addressed PEFM weaknesses previously dealt with ad hoc by developing a sequenced long-term plan for policy reforms and institutional changes, focusing on expenditure and investment quality. The approach facilitated deeper ADB engagement in policy reforms to enhance public debt and official development assistance management and strengthen project evaluation. It also generated synergies across the ADB portfolio, particularly in infrastructure investments directly linked to road, rail, and metro asset management systems, as well as secondary education reform. While complementing state-owned enterprise reforms, it also contributed to financial sector deepening by accelerating reforms that enabled commercial banks to lend directly to provincial governments. (Preparation: reform programs/projects, PEFM reforms, PEFM reforms Viet Nam)

Project Cycle Stage:

Preparation

Adequate technical assistance (TA) is essential to enhancing reform design and implementation and accelerating the reform process.

Knowledge and capacity constraints often challenge the design and implementation of reforms. ADB has helped the government address these constraints through two TA grants. The first TA, approved in December 2016, aimed to help the government design and implement PEFM reforms targeted under subprogram 2 and boost the capacity of the implementing agencies in carrying out the proposed reforms. The second, approved in August 2017, has targeted critical public debt management knowledge and capacity gaps among provincial governments, which the reforms have granted a range of new responsibilities. While enhancing the design and implementation of reforms, improved capacities of key stakeholders have also been proven by experience to accelerate and foster the sustainability of the reform process.

Project Cycle Stage:

Preparation

Implementation

Close coordination enhances the outcome and value-addition of each donor’s contribution to the reform process in developing countries.

Close coordination enhances the outcome and value-addition of each donor’s contribution to the reform process in developing countries. The PEFM reform process in Viet Nam was supported by many development partners, including the European Union, International Monetary Fund, Japan International Cooperation Agency, United Nations agencies, World Bank, and various bilateral agencies. Their active participation in policy dialogue helped align policy messages and build consensus around reform measures. Close collaboration during program preparation led to the establishment of a development partner PEFM working group in 2015 to provide support for reform programs in a coordinated manner. Each development partner was consequently able to provide cutting-edge and value-adding contributions to the various reform areas in the country. Adequate coordination and timely consultation resulted in good synergy and complementary support to the government. (Preparation, Implementation: reform programs/projects, coordination and engagement, donor coordination, donor coordination Viet Nam)

Project Cycle Stage:

Preparation

Implementation

Background

Viet Nam has some of the highest levels of public expenditure on infrastructure and services in Southeast Asia. Yet, higher government expenditure was not always directly associated with improved outcomes. The disconnect between high levels of investment and quality of infrastructure and public services highlighted the challenges faced by the government in efficiently allocating and implementing scarce budgetary resources. Key constraints were weak public expenditure and fiscal management (PEFM) systems. With Viet Nam’s fiscal space declining and public debt levels approaching their legislated limit of 65% of gross national product, enhancing PEFM was vital to improve infrastructure and service delivery and sustain long-term poverty reduction

The Improving Public Expenditure Quality Program was designed and implemented to support enhanced public financial management systems in Viet Nam. The programmatic approach represented a medium- to long-term partnership between the Asian Development Bank (ADB) and the government. Comprising two subprograms, its envisaged impact was improved provision of infrastructure and service delivery. Its expected outcome was enhanced public financial management systems. Its planned outputs were (i) public financial resources allocated more productively, (ii) identification and management of fiscal risks strengthened, and (iii) oversight and monitoring and evaluation (M&E) of budget implementation improved.

Subprogram 1, the focus of this report, was supported by a final loan of $117.88 million from ADB’s concessional ordinary capital resources, approved in December 2016. At completion, it substantially achieved all its output targets.

Under output 1, the subprogram helped introduce (i) medium-term expenditure frameworks through the 2015 revised State Budget Law, allowing for more strategic and disciplined expenditure planning, and establishing gender equality and performance-based budgeting as principles of state budget management; and (ii) reforms in rail asset management allowing private entities to participate in railway operations and requiring operators to report real asset values and their physical status annually.

Under output 2, it assisted (ii) the completion of a detailed risk assessment of the subnational/provincial capital mobilization from commercial banks, (ii) public disclosure of the number and value and performance of social policy banks on government-guaranteed bonds, and (iii) improvement of the government transparency rating as measured by the Public Administration Performance Index, although because of changes in indicators, the index has become no longer as relevant since 2018.

Systems for evaluating public investment and the legal framework for preventing the misuse of public funds were enhanced under output 3. Initiatives supported included (i) the approval and conduct by the Ministry of Finance of a capacity building program on the implementation of the 2015 State Budget Law in all 63 cities and provinces, and (ii) the publication of a training manual on the State Budget Law.

Having substantially delivered on its planned outputs, subprogram 1 also achieved its outcome targets in improving policy-based fiscal strategy and budgeting, budget reliability, and transparency and management of public assets and liabilities. For example, the spending units as of subprogram completion are already making timely submissions of their budget estimates; 3-year rolling national financial and budget plans are in place; a much smaller difference between the expenditure turnout and the original approved budget and a smaller variance in expenditure composition by functional classification has been noted; budget documentation already includes more comprehensive information; public access to key fiscal information has improved; and better quality debt data and reporting have been observed.

Subprogram 1 had the Ministry of Finance as executing agency and lead implementing agency. The Ministry of Planning and Investment, National Assembly Committee for Financial and Budgetary Affairs, and State Audit of Viet Nam were the implementing agencies.

Project Information

Project Name:

Improving Public Expenditure Quality Program, Subprogram 1

Report Date:

October, 2020

Main Sector:

Public Sector Management

Country:

Viet Nam

Project Number:

50051-001

Report Type: