Download Overview of public expenditure management in Vietnam

Overview of public expenditure management in Vietnam
(Paper presented at Workshop on Public Expenditure
Reform co-organized by Ministry of Finance of
Vietnam and Fiscal and Planning Ministry of
Republic of Korea and World Bank - October 9-10,
2003)
Hand in hand with broader reform of the
economy, public expenditure management and fiscal
policy in Vietnam has experienced important changes
in order to support overall national economic
development goals. In this workshop, allow me to
share with your distinguished guests some aspects
of the reform in the field:
I. Reform in Budget management in Vietnam
1. Major
Vietnam
features
of
budget
management
in
- State budget in Vietnam is uniformly managed
based on principles of centralized democracy,
disclosure, transparency featuring designation and
decentralization of power and responsibility and
accountability binding. National Assembly decides
on annual budget plan proposal, appropriation bill
at central level as well as endorses final account
of implemented budget. People Council at different
levels decides on budget plan, appropriation bill
and
endorses
final
budget
accout
at
their
corresponding level.
- Central budget plays fundamental role,
namely, to be responsible for performance of
national strategic and important tasks and to
assist lower-level budget at localities where
imbalances between expenditure needs and revenue
capacity exist. Local budget is delegated with the
right to certain revenue sources in order to be
active and dynamic in implementing planned economic
and social development targets.
- State budget is to balance on a principle
that total revenue from taxes, fees and charges be
higher than total current expenditure to accumulate
more resources for
investment and development
expenditure; in case of deficit, the deficit be
lower than investment and development expenditure,
so
that
a
more
balanced
budget
should
be
attainable.
Local
budget
is
to
have
total
expenditure lower or equal to total revenue (no
budget deficit).
- Budget deficit is financed by domestic and
external borrowings. Deficit financing abides by
principle that fund mobilized should not direct at
consumption but only at investment and development
and budget should be provisioned to cover interest
and principal payments when due.
- Revenues and expenditures are controlled
uniformly by central regulation or framework, for
certain area, local budget is allowed to set
concrete parameters to fit in the context at its
locality.
2. Important changes in budget
according
to
Budget
Law
(amended)
effective from fiscal year 2004
management
2002
and
2.1 More power and accountability given to
National Assembly and People Councils in approval
of budget plan and approriation and endorsement of
final budget account
In comparison with current Budget Law, National
Assembly is to decide on not only budget overall as
aggregates or structures or certain areas, but also
specific expenditure plan of ministerial level
agencies,
government
agencies,
other
central
agencies
and
central
transfer
to
budget
of
provinces or cities directly belonged to central
level (this task is the responsibility of Standing
Committee of National Assembly according to current
Budget Law).
For People Councils, in addition to power to
decide local budget plan; appropriation for local
budget; expenditure plan for each departments on
certain expenditure items; transfers to lower-level
budget; endorsement of final budget account, the
Budget Law (as amended) assigns to People Councils
of provinces or cities directly belonged to central
level following rights to decide:
- the extent to which revenue or expenditure
tasks are decentralized to lower-level budget;
- sharing ratio (a percentage) for revenue to
be distributed among budget of different levels
with regard to revenue source which could be
retained at local budget according to provisions of
Budget Law;
fees
and
charges
and
other
financial
contributions by people in accordance with relevant
laws and regulations;
- appropriation norms and criteria applicable
at local budget; decide on regulation, set of
expenditure
norms
and
criteria
according
to
Government requirements;
- fund to be mobilized for the purpose of
investment into infrastructural projects which are
responsible for by local budget provided that
balance of outstanding obligations should not be
higher than 30% of the annual capital expenditure
budget of the province.
2.2.Adjusted decetralization with regard to
financial and budget management in order to promote
the national financial system’s integrity and
central budget fundamental role, on the one hand,
and to encourage autonomy and creativity as well as
dynamism of local budget, to improve the likelihood
of a balanced budget at local level in the
implementation of social and economic tasks, on the
other.
- Revenue decentralization aims at maximum
revenue retained at local budget either through
100% local retained or central-local shared revenue
while revenue sources of which 100% centrally
acquired constrain only to those sources that are
not directly linked to localities such as import
and export duties, crude oil … In comparison with
current Budget Law, there are 2 revenue sources
which are currently 100% centrally acquired,
changed to central-local shared revenue include
special consumption tax and petrol and gas fees.
- Budget Law stipulates expenditure tasks at
central and local budget level; while specific
designation of expenditure tasks at lower budget
level (province, district and commune) is decided
by provincial People Council.
According
to
above-mentioned
sharing
arrangement, number of localities which are capable
of self-balanced budget and making contributions to
central budget would increase in the fiscal year
2004.
2.3 Promotion of creativity and dynamism among
ministries, localities and spending agencies in
management and use of budget and assigned assets
along side with strengthening of disciplines and
rules on financial prudence against wasteful
practices.
State Budget Law widens the scope of powers as
well as responsibilities delegated to ministries,
localities
and
spending
agencies
specifically
showed through regulations on preparation and
consolidation of budget plan; Government and People
Committee decide on specfic budget plan for each of
their belonging spending agencies and adjust budget
plans if necessary.
Head of state budget spending agency is fully
responsible for management and use of assigned
budget and assets in legal term.
2.4 Promotion of administrative reform in
budget management in order to encourage activeness
and dynamism from local and grass-root levels
State Budget Law brings about important changes
in
term
of
budget
procedures
ranging
from
implementation, final account, inspection and audit
stage of budget, particularly budget expenditure
process is no longer subject to quarterly limits
but rather bases on annual expenditure plan.
2.5 Disclosure
information
and
transparency
of
budget
- Budget plan, final account and audit opinion
thereof of state budget, budget at all levels,
budget of spending agencies and organization
receiving support from state budget are always
published.
Procedures,
administrative
rules
collection, submission, exemption, reduction
reimbursement of budget revenue, transfer
settlement are all listed clearly at offices
question.
on
or
or
in
Those
regulations
aim
to
improve
budget
transparency to promote democracy as well as
strengthened supervision of relevant agencies or
people over the whole process of state budget
operation and management and use of state assets.
3. Prospects
management
for
further
changes
to
budget
Though significant changes have been achieved
with regard to budget management, in order to
improve efficiency in the use of national financial
resources, there is clearly a critical need for
further reform to budget management which would
focus on following aspects:
3.1 In order to ensure better coherence between
Government policies and budget plan and to improve
efficiency of budget implementation, in the coming
time, establishment of a more comprehensive legal
framework to set ground for output-based budgeting
and medium-term budget framework to enhance annual
budgeting would be very important.
3.2 Completion of set of sectoral expenditure
norms and criteria would provide a better ground
for strict control over state financial resourse
utilization.
II.Fiscal policy reform in Vietnam
Financial policy of the Government of Vietnam
has experienced significant changes to better
progress toward two important goals of economic
development at high sustainable growth rate while
ensuring social equity. More specifically:
1. Fiscal policy in Vietnam
- Budget revenue policy: Since 1990, Vietnam
has seen two stages in its tax system and is now
carrying out further reform with such objectives
as:
+ Taxes featuring equity and non-discrimination
among different economic sectors.
+ Tax policy in accordance with overall economy
orientation toward a socialist market-based system
conducive to healthy competition; moving toward a
system with lower rates and broadened tax bases and
higher proportion of direct taxes in total tax
revenue.
+ Tax policy in accordance with economic
integration roadmap that Vietnam has committed
under international and regional frameworks.
- Budget expenditure policy: State budget
expenditure should
be viewed as one financial
resource that is to complement and supplement other
available sources in meeting aggregate expenditure
needs. More specifically, state budget should focus
on priorities such as:
+ Economic infrastructural projects which are
critically
important
but
non-profitable
or
incapable of cost recovery, particularly those in
disadvantageous or poor areas (roads, irrigation …)
+ Promotion of education, vocational training
and science and technology through both prioritized
budget grant and renewed budget management scheme
for
the
field;
combining
state
budget
with
financial resources from business and household
sector in exercises of public services provision
such as education, healthcare, cultural services ….
+
Poverty
reduction
which
emphasizes
on
construction
of
critically
important
infrastructures in poor areas and education on
business doing as a way for poverty reduction;
direct
budget
transfer
to
cover
healthcare
insurance for poor people nationwide or textbook
for poor school-aged children. …
+
Financial
assistance
for
economic
restructuring or technology renewal to improve
product quality, especially in agriculture area
such as quality of agricultural export, renewal of
plant and animal species, plantation and animal
farming pattern.
- Budget deficit policy: featuring imposition
of strict control on budget deficit, neither cash
issuance nor commercial borrowing could be used as
a means to finance the deficit, if any. Deficit
could only incurred in case of necessary capital
and development investment. Sovereign debt and
national debt level should be always kept at
sustainable
and
secured
level
for
economic
development.
2.
years
Achievements
of
fiscal
policy
over
past
Firstly, national financial potential and state
budget
strength
has
been
consolidated
significantly. After a period of quite high
economic growth in 1991-1996 (annualized average at
8.5%), in the context of the aftermath of regional
financial
crises
(1997-1999)
and
the
global
economic downturn and incidence of a number of
severe
natural
disasters,
foreign
investment
decreased from annualized average level of 4,200USD
million during period 1991-1996 to roughly 2,900USD
million for the period 1997-2001 (31% reduction),
fundametal weaknesses left unaddressed for a while
and economic growth rate stayed at only 6.4% per
annum. In that situation, a radical and active
budget policy and budget management scheme was
adopted
to
successfully
maintain
fiscal
and
financial stability in Vietnam; budget revenue
showed positive growth to ensure adequacy of
financial resource to meet social and economic
development needs, on the one hand, and to increase
capital and development investment with annual
growth of 19.5%, on the other, so as to promote
aggregate domestic investment as an important
factor compensating the reduced foreign investment.
Budget revenue in 2002 was 1.9 times higher than
that of 1996, marked an annualized growth rate of
10%; revenue structure also experienced positive
development with high proportion of fees and taxes
in total budget revenue grew from 92.8% in period
1991-1996 to 94.9% in period 1997-2001, which did
not only sufficiently meet current expenditure need
but also accumulate for capital and development
investment and debt repayment. This was important
factor that revive economic development momentum
for the year 2002 and 2003 (2002 accounted growth
rate of 6.9% and 2003 estimated to grow at 7.3%)
Secondly,
budget
structure
has
positively
shifted to a development budget which is in support
of production, conducive and facilitative to
productivity
promotion;
the
function
of
macroeconomic management by state budget proved to
be more coherent and more effective, contributing
to avoidance of economic downturn and promotion of
performance in a number of industries.
- With expenditure strategy of prioritized
capital
and
development
investment,
capital
expenditure has always been the most important item
in the budget over the past years with growth rate
of more than 19% per annum, almost as twice as that
of current expenditure, equivalent to 7% of GDP or
20.9% of aggregate investment capital of the
economy. Investment capital from the budget has
contributed to rapid increase in the economy’s
aggregate investment (averaged at 3.7% per annum)
which helped the economy to undergo significant
decrease in foreign investment (31%) resulted from
regional and global economic downturn over past
years. State budget has focused on development of
critically important transportation and irrigation
system, particularly regional, provincial and rural
transportation networks which would enhance goods
and services circulation; investments in other
social
and
economic
infrastructure
such
as:
schools, hospitals, cultural and sport facilities;
investments to promote economic restructuring and
infrastructural development in moutaineous areas,
Tay Nguyen, disagvantegeous and flooding areas in
Cuu Long river delta, the central part of Vietnam
and
particularly
disadvantageous
villages;
investments in project to renew plant and animal
species to target high productivity species; …
State budget has developed a number of large
economic
projects
and
social
and
economic
infrastruture
system
has
been
improved
significantly.
- With regard to development of education,
healthcare and other social services, state budget
has emphasized on human resources development and
earmarked sustainable budget for education of 12.8%
in total budget expenditure in 1997 to increase to
17.2% in 2003 (according to GFS the index in 2003
roughly estimated 19%); expenditure for science and
technology and enviromental studies increased from
1.3% to 2.0%; healthcare and children healthcare
and protection also received appropriate budget
increase…..
- State budget has focused more on poverty
reduction particularly in areas where ethnic
minorities and disadvantageous villages reside.
Over 4 years (1999-2002), state budget invested
3,500VND billion in a program in support of
specially disadvantageous villages in remote and
mountainous areas (Program 135); completed and put
into use thousands of infrastructure projects such
as:
roads,
small
irrigation,
water
supply,
electricity,
schools,
healthcare
clinics
and
markets in mountainous areas and disadvagtageous
villages; extended financial assistance through Job
Creation Fund to 2 million people to help them
either find a job or do business on themselves;
increased
budget
allocated
to
agricultural,
fishing, forestry promotion programs or staff
training programs …. Outcomes have been highly
substantive and practical in improving quality of
life
among
ethnic
minority
groups,
equiping
officers at villages, communes with knowledge on
economic management so as to improve physical and
spiritual life for people and help reduce the ratio
of poor household from 53% in 1991 to 28.9% in 2002
(according to WB standard) and gradually develop
moutainous economy.
Thirdly, state budget reserves and contingency
has been consolidated in order to actively cope
with
macroeconomic
development
and
natural
disasters. Empirically, over past years, Vietnam
has suffered frequent natural disasters (drought,
typhoon, flood… ) on a large scale and severity;
there have been many new tasks for the budget
arised during the course of budget implementation.
Thanks to good reserves and contingency policy,
state budget balance at both central and local
level
has
been
maitained
or
recovered
more
actively; capable of implementing primary tasks
according to plan while actively remedy natural
disasters implications as well as being capable of
implementing newly arised tasks or new urgent
tasks.
Fourthly, state budget balance maintained at
sustainable level; Sovereign debt and national debt
kept at reasonable level that did not have adverse
implications
on
macroeconomic
position;
debt
obligations have been honored on due course
according to commitments. For the past years,
budget deficit has always been kept at below 5% of
GDP (equivalent to 3% deficit if the calculation
bases on international standards), lower than
capital and development investment contributing to
macroeconomic
stability.
Debt
management
has
advanced
significantly
that
ensured
timely
repayment according to commitments while progressed
sucesfully with regard to debt renegotiation and
restructuring
which
has
contributed
to
good
relationships
with
international
monetary
organizations and bilateral creditor countries.
3. Existing problems and prospects for further
fiscal policy reform
- Existing problems in fiscal policy:
+ Though preliminary achievements have been
accomplished, macroeconomic policy by the State
still inadequately mobilize resources from all
economic sectors to direct at productive use for
higher
economic
development
of
the
country.
Domestic investment to total domestic savings has
roughly estimated 80%, unused resources has been
huge while much of economic development investment
need left unmet. Foreign investment has tended to
decrease
over
past
years.
Business
sector’s
efficiency and performance has been limited.
Investment
policy
targeting
poor
and
disadvantageous areas has promoted living standard
in those areas significantly, however, number of
poor households is still high and income gaps among
provinces and regions are also extensive.
+ Use of state budget has been limited in term
of effectiveness, unfocused…
+
Adoption
of
participatory
approach
to
mobilize financial resources for development of
education and healthcare services has still been
limited.
- Prospects for further fiscal policy reform in
order to achieve sustainable economic growth and
poverty reduction.
+ Continuation of tax reform, implementation of
financial
policy
based
on
principles
of
effectiveness, equity, trasnparency and disclosure
in
accordance
with
international
economic
integration requirements and standards.
+ Assurance of a balanced expenditure structure
between capital and current expenditure in which
public expenditure reform would be conducted in
parallel with bolder adoption of participatory
approach to public services provision in suitable
areas so as to be capable of better support
extended to poorer or disadvantageous regions.
Assurance of a good balance between investment in
growth engine areas and support extended to poorer
and disadvantageous regions.
+ Strict control and monitoring of expenditure
in favor of state-owned enterprises sector which
may have subsidy nature in order to gradually phase
out this sort of assistance. Review of off-budget
funds to either phase out their existence or reduce
state budget assistance extended to them.
+
Continuation
of
support
and
financing
programs on infrastructure, education, healthcare,
clean water supply, environmental protection, plant
and animal species subsidization, prices support,
transportation cost assistance, poverty reduction
and job creation …. in order to promote economic
dvelopment
in
agricultural,
rural,
remote,
disadvantageous and mountainous areas./.