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Dinh Vu

Economic Sector

Last updated: Monday, September 24, 2018


Fiscal Policies toward Sustainability, Efficiency and Equity

Posted: Wednesday, October 11, 2017

The Government of Vietnam and World Bank have jointly launched the Vietnam Public Expenditure Review (PER): Fiscal Policies towards Sustainability, Efficiency, and Equity”. The review is designed to provide the Government with more ground for developing better policies and action plans that will bring about greater efficiency, especially targeting economic growth and poverty reduction, and international integration.

On the basis of a comprehensive analysis of revenue, expenditure and borrowing policies in Vietnam during the 2011-2015 period, the PER identifies State budget revenue and expenditure trends over the past years, highlights achievements and points to areas for potential improvement, key fiscal challenges, and strategic directions on fiscal consolidation, and fiscal policy and governance reforms, in the short, medium and long term in Vietnam.

Vietnam is faced with a shrinking fiscal balance, high budget deficit that has a large impact on fiscal sustainability in the medium term. The mobilisation of state budget against GDP is tending to decrease, especially the proportion of tax and fee income, while the demand for budget spending has increased rapidly.

In addition, with the rapid opening up of the economy, coupled with the decentralisation of management has made the economic – financial management more complex. The review aims to provide empirical evidence to answer three main questions: (i) how to create the fiscal space whilst ensuring fiscal sustainability; (ii) how to best align public spending with national priorities; (iii) how to strengthen accountability for results so that public spending has the greatest impact. Being the first joint review in 10 years, the PER comprehensively covers 15 specific chapters, including 5 cross-cutting topics, 5 heavy-spending sectors (which account for almost 50 per cent of total state budget spending), and 5 provincial chapters; and an Overview that consolidates key messages across the chapters.
According to Do Hoang Anh Tuan, Deputy Minister of Finance, in order to ensure fiscal sustainability, the National Assembly of Vietnam has issued a resolution requesting to reduce the budget deficit and bring the budget deficit for 2016- 2020 no more than 3.9 percent GDP, strive to 2020 no more than 3.5 percent of GDP.

Achieving these targets will require concerted efforts to boost revenue mobilisation, restructure and enhance efficiency in spending, and strengthen the management of public assets and liabilities, and of fiscal risks – at both central and local levels.

“This report comes at a critical juncture when Vietnam faces important fiscal choices. We hope that the report has been providing a useful analytical foundation for the Government and relevant stakeholders including the National Assembly, in further developing its medium-term development, fiscal and budget plans and priorities.” said Ousmane Dione, Country Director of the World Bank in Vietnam.

“This process of joint review is in many ways as important as the report itself. Because it is only through our dialogue that analysis and ideas can be transformed into action, policies and real results. Going forward, it will be important to ensure that the knowledge gained is spread to a wider audience, through effective dissemination activities starting with today’s launch, and follow-up engagements be taken on the implementation of the recommendations," he said.

The report recommends 68 specific policy measures that Vietnam can implement to achieve a gradual fiscal consolidation, while ensuring adequate fiscal space for investment and social spending; and to improve efficiency of spending through restructuring budget allocations between central and local government, capital and recurrent spending, and reallocation within sectors.

At the same time, the report recommends measures to ensure that the results of Vietnam's positive development are distributed, appropriate measures to ensure support for the poor and near-poor; a roadmap and appropriate motivational measures for complex public financial management reforms, as well as improvements in the legal and policy framework and capacity building manage.

It is reported that the report has been submitted and approved by the Prime Minister. In Official Letter 8038 / VPCP-KTTH dated August 2, 2017 of the Office of the Government, the Prime Minister also requested ministries, central agencies and localities concerned to implement the recommendations in the report and submit reports once in every month to the Ministry of Finance and then to the Prime Minister on the results of the implementation of the recommendations.

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