Putting Brake on Public Investment

Mr Bui Quang Vinh - the Minister of Planning and Investment (MPI) stated that the Government will drastically cut down public investment, included “accidentally” planed projects.

 

The “accidental” situation has happened for many years, when local governments have together submitted to central Government their projects into implementation plan. Province pays in advance first and then proposes central budget to finance, provinces do not need to precisely arrange their finances to implement projects and ability to balance resources in their budget local levels.

 

The disease of spread and inefficient public investment started with implementation method. The decentralisation in investment decisions with huge infrastructure development demands has caused that many projects are submitted to the Government. The power transference to provincial and city authorities in public investment has led to the danger of local interests, for example every province desires to possess airports, seaports, universities. The number of projects and total amount of investments has not considered to the ability of State budget. According to Minister Bui Quang Vinh, “The ability of central government budget can not satisfy needs of provinces, so requirement time of implementation has been extended from not over two years to three years and from four years to five years for group investment of B and C respectively”. Over the last time, spreading investments have caused cases, in which projects are extended for decades. As the result, low quality and under diligence investment projects have brought many disastrous results as in the case of Vinashin or sugar program...

 

As the consequences, the ratio of investment to Gross Domestic Products (GDP) and the ratio of capital investment to total social investment capital of Vietnam are too high; the efficiency of capital use is very low. The ratio of investment to GDP increased from 29.6 percent in 2000 to 43.1 percent in 2007, and 38.1 percent in 2009. It became the highest increase rate in Association of Southeast Nations (ASEAN). In comparison with the proportion of investment in social capital investment, Vietnam spent nearly 30 percent of State budget for investment, accounting for 9.8 percent of GDP (in 2007), whereas ASEAN countries possessed very low rate, such as: Indonesia 1.6 percent , Malaysia 5.8 percent, Thailand 3.2 percent (in 2004) and Philippines 1.8 percent (in 2000).

 

Currently, the Government has been reforming by cutting down public investment, increasing public investment quality, reorganising operations of Central and localities, accepting enterprises to engage in the decision making process of public investment. The Prime Minister has authorised MPI to coordinate with the Ministry of Finance (MOF) to appraise resources and ability to balance fund for new and ongoing implementation projects, which were adjusted in total capital investment as well as project plan. Basically, projects, which are financed by central budget, will have to be evaluated. Without evaluation of MPI as well as opinion of MOF, projects will not be disbursed from budget and government bonds.

 

In order to thoroughly understand this hot issue, MPI held a conference in mid-November to explain and convey the meaning of the Instruction number 1792/CT-TTg of Prime Minister to strengthen the management of capital investment from State budget and government bonds. Provinces are responsible for reporting the list of projects using state budget funds and government bonds in 20^th November, and only government bonds in 31^st January 2012.This is a thin timeline for a large workload and for an issue easily causing interest conflicts. Minister Bui Quang Vinh agreed that local authorities will be subject that are most affected by new regulations, it is hard to avoid anger and disagreements, but he said: There is no other way!

 

The determination to cut down the number of public investment projects and increase their quality is evidently shown in the Resolution on allocating the state budget in 2012 approved by the National Assembly in 14^th November. The National Assembly required to review and sort projects under priority order; mobilize and arrange resources for basic construction investments; prioritize recollections of advances; pay off debts for basic construction investments; arrange capital for nearly-completed projects which are launched in 2012 and 2013. The resolution of the National Assembly affirmed that state budget focused on supporting an amount of capital for purpose of investing in agriculture and rural development in provinces of poor and excessively poor socio-economic conditions who can balance their local budgets only from 50% or less, prioritized preferably provinces of North West, Central Highlands, South West.

 

The government has also affirmed their determination to restructure the economy, firmly handle with issues of public investments and budget deficit. Implementing this policy of the Government will reduce the burden on the budget deficit, the pressure of currency devaluation, the growth rate of public debt, a problem that is distressing excessively the world.

 

However, according to economic experts, reducing public investment does not mean a cutdown in social investment, but to create a mechanism for socializing public investments. Earlier, Vietnam had programs for this purpose such as exchanging lands for infrastructures, auctions for real estate rights. Currently Vietnam should institutionalize the relationship between public organizations with private service providers, overcome quite common monopoly, ensure people the rights to access information of projects, as well as openness and transparency of information by Government’s regulations.