Management of Public Debt and Budget Spending

According to Mr Do Trong Khanh, Finance and Monetary Department Director, Ministry of Planning and Investment, Public Investment Law 49/2014/QH13 was approved by the National Assembly on June 18, 2014 and took effect on January 1, 2015. This is a big step in the financial planning of Vietnam in order to create a consistent legal system and improve the efficiency of public investment with new features applying international regulations encouraging ministries, sectors and localities to be proactive in arranging the total investment amount for the period of 5 years, checking the list of investment projects including forward projects and new projects, and planning public investment capital allocation plan in medium term of 5 years from 2016 to 2020.

 

In addition, Mr Khanh also said there were bright spots in this new law, such as the core change in extension of investment plans form annual medium term to 5-year plan. This major change is aimed to promote a proactive approach among ministries, sectors and localities in the process of implementing the plan in accordance with international regulations. Specifically, previously, the local annual public investment plan was too short which was only about 2 months from the time receiving direction from the Prime Minister (the time for plans for commune, district and province was only 15 days for each level. Excluding the time submitting to the higher level, the time planning at every level was less than 10 days); funding for mid-term and annual public investment had no basis, leading to difficulty in the forecast of investment category and scale. Currently, with the time lengthened to 5 years, localities will have more time to consider and make right decisions in approving the investment portfolio and mid-term and long-term investment plans to submit to the central government for approval, Mr Khanh said.

 

Sharing more international experience for a medium-term financial forecast (MTFF), international expert Paul Beckerman said that when preparing the annual budget for the following year, it would be useful if the government analysts have prediction for the progression possibility of budget accounts in the years following that budget. When approving the annual budget of the following year, it would be useful if the government and parliament refer to the forecast for progression possibility of the treasury accounts in the following years after that budget. It would be helpful if the annual implementing agencies get updated about the latest medium-term budget. These are considered significant factors of different leaders in different countries with distinctive financial structure. For the budget approval process, the competent authorities and the legislative agencies will often refer to the consequences in the following years before making the final decision. For the budget implementation process, the authorities will be faced with unexpected situations in managing revenues, expenditures and funding lines.

 

Mr Paul Beckerman also recommended that adding that the main purpose of a MTFF is to help the government manage the process of developing an annual budget. In addition, it will also help the government dialogue with international organisations such as the IMF and the World Bank to build financial programme draft issuing government bonds and solve some particular problems. Moreover, MTFFs also help improve policy transparency by making public medium term macroeconomic programs. In addition, according to international experts, MTFFs are specifically designed for issues based on the reference to the basic structure of the budget of the state, including recurrent expenditure without interest, paid interest (domestic and foreign loans), capital expenditures, taxes and external tax revenue, and total net financial flows (domestic and overseas).

 

Dr Vu Sy Cuong from the Institute of Finance shared his view that Australia and the UK are the first countries to apply financial policy under the medium-term framework in the early years of the 80s. Following are Denmark, New Zealand, the Netherlands, Norway which also applied this policy in the late 1980s and early 1990s. By the end of 2008, about 132 countries had adopted a specific form of the medium-term financial framework (MTF) including medium term budget framework (MTBF), medium-term expenditure framework (MTEF). Particularly, Vietnam had adopted the pilot of 4 medium-term financial plans and medium-term expenditure plans for 6 ministries and 4 provinces in the 2006-2011 period. This brought positive results: improving budget management towards greater transparency, creating opportunities for staff to get acquainted with MTEF, designing form for MTEF and process of coordination between ministries, sectors and localities. Reviewing of the application of MTFF in Vietnam in recent years, Dr Vu Sy Cuong said that the ministries and sectors will have greater autonomy in ceiling budget. However, MTFF will also pose many challenges such as the whole interests of the industries and localities, fluctuating macroeconomic situation, limited legal framework and institutions, poor analysis and forecast capacity, etc.

According to Mr Do Trong Khanh, in the process of implementation as well as practical application of the provisions of the new Law on Public Investment this time, the Ministry of Planning and Investment will seriously consider the suggestions of the localities on each substantive issue. In principle, correct capital allocation for right purposes and objectives and socio-economic development orientation ensuring fairness among regions in the whole country are equally important.