## _cr06337 ## Source details **Canonical URL:** [_cr06337](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06337.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06337.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06337.pdf.json) --- ### I. INTRODUCTION - The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) was approved by the Prime Minister of Vietnam on May 21, 2002 and was discussed by the Boards of the IMF and IDA in July 2002. - The CPRGS is linked to the ten-year Socioeconomic Development Strategy 2001-2010 (SEDS) and the five-year Socioeconomic Development Plan 2001-2005 (SEDP). - The Government produced progress reports in November 2003, November 2004 and November 2005. This JSAN comments on the “Vietnam Growth and Reduction of Poverty Annual Progress Report 2004-2005” (the “Report”), published November 2005. - The Report covers the last two years and looks forward to mainstreaming PRS principles into the SEDP 2006-2010. ### II. REVIEW OF PAST PERFORMANCE #### A. Macroeconomic Management — Key findings and statistics - Economic growth averaged 7.8 percent per year between 2001 and 2005. - GDP growth was 8.4 percent in 2005, led by strong consumption and investment. - Poverty declined to under 20 percent of the population in 2004, from 58 percent in 1993. - Gross official reserves rose to US$8.6 billion (9½ weeks of imports) at end-2005, up from US$6.3 billion at end-2004. - Inflation remained above 8 percent in 2005. - Narrowly-defined budget deficit rose from 0.8 percent of GDP to 1.5 percent of GDP. - Overall deficit widened from around 3.9 percent of GDP in 2004 to 6.4 percent of GDP in 2005 (including bond-financed investment and on-lending operations). - Credit growth moderated from a peak of 42 percent reached in 2004 to 31½ percent in 2005. - The exchange rate depreciated by 0.9 percent relative to the U.S. dollar in 2005. - Growth momentum recovered in the second half of 2005 as public investment projects were stepped up; non-oil export growth and higher oil export prices helped keep the trade deficit in check. - Staff recommendation: integrate a medium-term macroeconomic framework into the PRS/SEDP merge, including medium-term fiscal targets and assessment of debt sustainability; present PRS targets as indicative and maintain policy flexibility. #### B. The Transition to a Market Economy — Progress and policy priorities - Report candidly identifies remaining challenges: competitiveness weaknesses, pace of SOE reform, and move to market-based decision making. - Financial sector: - Banking sector remains weak and risks constraining sustainable growth. - Planned reforms articulated in Politburo Resolution 191 of August 2005 include fundamentally re-writing the law on credit institutions and the law on the State Bank of Vietnam (SBV). - These new laws, initially planned for 2010, might be brought forward to 2007 and could be effective from 2008. - Reforms aim to transform the SBV into a modern central bank executing monetary policy and supervising the banking system; separate supervision from SBV management of State-Owned Commercial Banks (SOCBs). - Laws will be influenced by WTO accession commitments. - Staff view: Report should more fully explain financial sector objectives, remaining challenges, and initiatives. - Enterprise and investment regime: - Unified Enterprise Law (UEL) approved in November 2005; effective from July 1, 2006 — will govern domestic and foreign enterprises under the same corporate legislation and broaden corporate form choices for foreign firms. - Common Investment Law (CIL) passed in November 2005 — introduces a common investment regime for domestic and foreign investors and opens foreign investment into a wider range of sectors. - Staff note: need for appropriate implementing regulations for UEL and CIL. #### C. Social Inclusion and Environmental Sustainability — Outcomes and policy measures - Poverty reduction continues but measurement issues persist: - Use of mixed household survey data and official poverty-line based data has confused analyses. - A recent shift in the official poverty line will bring official estimates closer to household expenditure survey estimates. - Staff recommendation: agree on one common method (preferably household surveys by GSO) for measuring poverty with clear responsibilities for administrative levels. - Labor market and jobs: - Report emphasizes job creation for inclusive growth. - Lack of basic labour market information constrains analysis; improving the quality of the Labour Force Survey is a priority. - Ethnic minority poverty: - Household survey data show ethnic minorities constitute nearly 40 percent of the poor while representing only 15 percent of the total population. - The proportion of ethnic minorities among the poor is increasing; current internal feedback mechanisms are insufficient. - Staff recommendation: rely on broader analytical work and high-quality research/data to inform policies for ethnic minorities. - Health and social protection: - Politburo Resolution 46 of February 2005 urged financing curative care for the poor, under-6 children and other beneficiaries to advance toward universal health insurance by 2010. - A new decree on health insurance came into effect from July 1, 2005, shifting toward demand-side financing and mandating compulsory health insurance for several groups (workers on fixed term contracts of 3-months and above, pensioners, children under-6, beneficiaries under Decision 139). - Decision 139 is being revised: - The new and higher poverty line will be used to define poor households entitled to compulsory health insurance with a premium of 60,000 dong provided by the state budget. - Near-poor households with an income level of up to 1.5 times the poverty line will be provided a subsidy to enroll in the voluntary health insurance scheme. - Education and disability: - Regulations for inclusive education for children with disabilities have been issued, applying to all public education institutions. - Individual education plans, tailored materials, and methodological designs will address special requirements; coordination involved MOET, MOH, MOLISA and child protection agencies. #### D. Building Modern Governance — Reforms and institutional measures - Budget planning and medium-term framework: - Circular guiding the 2006 budget linked the budget to a medium-term framework. - Line ministries and provincial governments were asked to prepare a budget framework for the period 2006–08, based on the SEDP. - Expectation: improved integration of capital and recurrent budgets and better prioritization of policies and expenditures. - Anti-corruption: - A law on corruption prevention and control was passed by the National Assembly to take effect in July 2006. - Law covers prevention, detection, handling, investigative and judicial mechanisms, role of civil society and media, international cooperation, and implementation provisions. - Prime Minister issued an action plan delineating roles of ministries and agencies for implementation; effectiveness will depend on monitoring of assets of civil servants and families. - Public service delivery: - New regulations strengthen monitoring of service quality, introduce user feedback, and limit use of proceeds from service fees for salary expenditure. - Under the new regulation: service delivery units must set aside 25 percent of their net revenues to improve service quality; salary caps are inversely related to the amount of financial support received from the government budget. - Performance standards and more rigorous monitoring with user feedback mechanisms (beyond simple “mailboxes”) are introduced. - Administrative simplification: - Prime Minister’s Directive 09 instructed reviews to simplify administrative procedures. - By end-2005, 17 ministries, 5 government agencies and 26 provincial peoples committees had submitted action plans. - Progress noted in birth/death/marriage records; notary services; residential registration permits; business registration and related licenses; land use rights certificates; customs and tax procedures. ### Mainstreaming PRS Principles in the SEDP - Processing times for business registration, investment licenses, and construction permits have come down to 7–10 days in most cases and even 3–5 days in some cases. - The Progress Report sets out the process for preparing the next SEDP 2006–10 and explains how the new SEDP will incorporate PRS principles. - The Report: - Describes the consultation process. - Describes the shifts in emphasis the new SEDP will require. - Commits to integrating a stronger poverty focus throughout the plan. - Commits to assessing implications in terms of budget resources. - Commits to including a monitoring framework that specifies how government actions and investments will lead to desired outcomes. - IMF and IDA staffs are supportive of government efforts and expect to submit SEDP 2006–10 to the Boards of IDA and the IMF for discussion as Vietnam’s next PRS once approved by the National Assembly. - Vietnam participated at a forum on National Plans as Poverty Reduction Strategies in Vientiane in April, where there was some consensus on which and how PRS principles could be mainstreamed. - Timeline and endorsements: - The National Assembly discussed the draft SEDP in its November session in 2005 and is expected to formally adopt it in its May-June 2006 session. - The SEDP received the endorsement of the Party Congress in April 2006. - Consultations and content: - The SEDP has been built on extensive consultations within government and with mass organizations, academics, the private sector, civil society and development partners. - The document represents progress toward an outcome-focused, medium-term plan combining growth and social inclusion and describes reforms for a robust economy. - The document explicitly recognizes institutional and regulatory challenges associated with completing the transition to a market economy and describes a large number of planned legislative actions, which together with the reform agenda implied in accession to WTO, should strongly support this transition. - Risks and tensions: - The SEDP still relies to a large extent on state sector-led investment, creating a tension with the objective of transition to a more efficient market system. - This reliance could pose risks for medium-term fiscal sustainability. - The SEDP could usefully recognize these risks and articulate a strategy to address them in a timely manner so they do not jeopardize the achievement of poverty reduction objectives. - Budget linkage: - The SEDP is expected to serve as a framework to allocate public resources over the medium term. - A weak linkage between planning objectives and budget allocations has been a limitation of the CPRGS during its implementation. - The draft circular for the 2007 budget includes instructions to line ministries and provinces to align budget submissions to the SEDP over the 2007–10 period, indicating tighter linkage between planning and budgeting. - Monitoring framework: - At present, the SEDP lacks a clear policy matrix and a satisfactory monitoring framework. - Despite significant efforts to develop the results framework, the Government believes more work and consultation with line ministries is necessary to produce a strong framework for measuring results. - The May-June 2006 session of the National Assembly is expected to discuss the SEDP without the monitoring framework. - MPI plans to continue developing the monitoring framework over the coming months. - Progress on the monitoring framework is important to focus the SEDP and facilitate alignment of donor support to national priorities. ### Concluding remarks - The staffs believe the Report provides a reasonable update on progress over the past year. - While there are instances of inaccurate or questionable data used in describing progress, there is enough information and analysis from other sources to state with confidence that economic performance has been strong and that poverty is continuing to decline. - The staffs expect many of the shortfalls experienced in CPRGS implementation will be addressed by the new SEDP, based on: - Intense interaction with government during SEDP preparation. - Assessments of the draft SEDP that have become available. - The new SEDP is nearing completion and the staffs urge the government to close remaining gaps, including: - Remaining policy challenges. - Risks associated with the funding of a sustained pick-up in public sector investment. - The need for a strong results framework. *Prepared by the Staff of the International Development Association (IDA) and the International Monetary Fund (IMF), Joint Staff Advisory Note on the Vietnam Poverty Reduction Strategy Paper Annual Progress Report (June 1, 2006).* ### Section 1 ### _cr06337 - Section 1 ### I. INTRODUCTION - The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) was approved by the Prime Minister of Vietnam on May 21, 2002 and was discussed by the Boards of the IMF and IDA in July 2002. - The CPRGS is linked to the ten-year Socioeconomic Development Strategy 2001-2010 (SEDS) and the five-year Socioeconomic Development Plan 2001-2005 (SEDP). - The Government produced progress reports in November 2003, November 2004 and November 2005. This JSAN comments on the “Vietnam Growth and Reduction of Poverty Annual Progress Report 2004-2005” (the “Report”), published November 2005. - The Report covers the last two years and looks forward to mainstreaming PRS principles into the SEDP 2006-2010. ### II. REVIEW OF PAST PERFORMANCE #### A. Macroeconomic Management — Key findings and statistics - Economic growth averaged 7.8 percent per year between 2001 and 2005. - GDP growth was 8.4 percent in 2005, led by strong consumption and investment. - Poverty declined to under 20 percent of the population in 2004, from 58 percent in 1993. - Gross official reserves rose to US$8.6 billion (9½ weeks of imports) at end-2005, up from US$6.3 billion at end-2004. - Inflation remained above 8 percent in 2005. - Narrowly-defined budget deficit rose from 0.8 percent of GDP to 1.5 percent of GDP. - Overall deficit widened from around 3.9 percent of GDP in 2004 to 6.4 percent of GDP in 2005 (including bond-financed investment and on-lending operations). - Credit growth moderated from a peak of 42 percent reached in 2004 to 31½ percent in 2005. - The exchange rate depreciated by 0.9 percent relative to the U.S. dollar in 2005. - Growth momentum recovered in the second half of 2005 as public investment projects were stepped up; non-oil export growth and higher oil export prices helped keep the trade deficit in check. - Staff recommendation: integrate a medium-term macroeconomic framework into the PRS/SEDP merge, including medium-term fiscal targets and assessment of debt sustainability; present PRS targets as indicative and maintain policy flexibility. #### B. The Transition to a Market Economy — Progress and policy priorities - Report candidly identifies remaining challenges: competitiveness weaknesses, pace of SOE reform, and move to market-based decision making. - Financial sector: - Banking sector remains weak and risks constraining sustainable growth. - Planned reforms articulated in Politburo Resolution 191 of August 2005 include fundamentally re-writing the law on credit institutions and the law on the State Bank of Vietnam (SBV). - These new laws, initially planned for 2010, might be brought forward to 2007 and could be effective from 2008. - Reforms aim to transform the SBV into a modern central bank executing monetary policy and supervising the banking system; separate supervision from SBV management of State-Owned Commercial Banks (SOCBs). - Laws will be influenced by WTO accession commitments. - Staff view: Report should more fully explain financial sector objectives, remaining challenges, and initiatives. - Enterprise and investment regime: - Unified Enterprise Law (UEL) approved in November 2005; effective from July 1, 2006 — will govern domestic and foreign enterprises under the same corporate legislation and broaden corporate form choices for foreign firms. - Common Investment Law (CIL) passed in November 2005 — introduces a common investment regime for domestic and foreign investors and opens foreign investment into a wider range of sectors. - Staff note: need for appropriate implementing regulations for UEL and CIL. #### C. Social Inclusion and Environmental Sustainability — Outcomes and policy measures - Poverty reduction continues but measurement issues persist: - Use of mixed household survey data and official poverty-line based data has confused analyses. - A recent shift in the official poverty line will bring official estimates closer to household expenditure survey estimates. - Staff recommendation: agree on one common method (preferably household surveys by GSO) for measuring poverty with clear responsibilities for administrative levels. - Labor market and jobs: - Report emphasizes job creation for inclusive growth. - Lack of basic labour market information constrains analysis; improving the quality of the Labour Force Survey is a priority. - Ethnic minority poverty: - Household survey data show ethnic minorities constitute nearly 40 percent of the poor while representing only 15 percent of the total population. - The proportion of ethnic minorities among the poor is increasing; current internal feedback mechanisms are insufficient. - Staff recommendation: rely on broader analytical work and high-quality research/data to inform policies for ethnic minorities. - Health and social protection: - Politburo Resolution 46 of February 2005 urged financing curative care for the poor, under-6 children and other beneficiaries to advance toward universal health insurance by 2010. - A new decree on health insurance came into effect from July 1, 2005, shifting toward demand-side financing and mandating compulsory health insurance for several groups (workers on fixed term contracts of 3-months and above, pensioners, children under-6, beneficiaries under Decision 139). - Decision 139 is being revised: - The new and higher poverty line will be used to define poor households entitled to compulsory health insurance with a premium of 60,000 dong provided by the state budget. - Near-poor households with an income level of up to 1.5 times the poverty line will be provided a subsidy to enroll in the voluntary health insurance scheme. - Education and disability: - Regulations for inclusive education for children with disabilities have been issued, applying to all public education institutions. - Individual education plans, tailored materials, and methodological designs will address special requirements; coordination involved MOET, MOH, MOLISA and child protection agencies. #### D. Building Modern Governance — Reforms and institutional measures - Budget planning and medium-term framework: - Circular guiding the 2006 budget linked the budget to a medium-term framework. - Line ministries and provincial governments were asked to prepare a budget framework for the period 2006–08, based on the SEDP. - Expectation: improved integration of capital and recurrent budgets and better prioritization of policies and expenditures. - Anti-corruption: - A law on corruption prevention and control was passed by the National Assembly to take effect in July 2006. - Law covers prevention, detection, handling, investigative and judicial mechanisms, role of civil society and media, international cooperation, and implementation provisions. - Prime Minister issued an action plan delineating roles of ministries and agencies for implementation; effectiveness will depend on monitoring of assets of civil servants and families. - Public service delivery: - New regulations strengthen monitoring of service quality, introduce user feedback, and limit use of proceeds from service fees for salary expenditure. - Under the new regulation: service delivery units must set aside 25 percent of their net revenues to improve service quality; salary caps are inversely related to the amount of financial support received from the government budget. - Performance standards and more rigorous monitoring with user feedback mechanisms (beyond simple “mailboxes”) are introduced. - Administrative simplification: - Prime Minister’s Directive 09 instructed reviews to simplify administrative procedures. - By end-2005, 17 ministries, 5 government agencies and 26 provincial peoples committees had submitted action plans. - Progress noted in birth/death/marriage records; notary services; residential registration permits; business registration and related licenses; land use rights certificates; customs and tax procedures. *Prepared by the Staff of the International Development Association (IDA) and the International Monetary Fund (IMF), Joint Staff Advisory Note on the Vietnam Poverty Reduction Strategy Paper Annual Progress Report (June 1, 2006).* ### Section 2 ### _cr06337 - Section 2 ### Mainstreaming PRS Principles in the SEDP - Processing times for business registration, investment licenses, and construction permits have come down to 7–10 days in most cases and even 3–5 days in some cases. - The Progress Report sets out the process for preparing the next SEDP 2006–10 and explains how the new SEDP will incorporate PRS principles. - The Report: - Describes the consultation process. - Describes the shifts in emphasis the new SEDP will require. - Commits to integrating a stronger poverty focus throughout the plan. - Commits to assessing implications in terms of budget resources. - Commits to including a monitoring framework that specifies how government actions and investments will lead to desired outcomes. - IMF and IDA staffs are supportive of government efforts and expect to submit SEDP 2006–10 to the Boards of IDA and the IMF for discussion as Vietnam’s next PRS once approved by the National Assembly. - Vietnam participated at a forum on National Plans as Poverty Reduction Strategies in Vientiane in April, where there was some consensus on which and how PRS principles could be mainstreamed. - Timeline and endorsements: - The National Assembly discussed the draft SEDP in its November session in 2005 and is expected to formally adopt it in its May-June 2006 session. - The SEDP received the endorsement of the Party Congress in April 2006. - Consultations and content: - The SEDP has been built on extensive consultations within government and with mass organizations, academics, the private sector, civil society and development partners. - The document represents progress toward an outcome-focused, medium-term plan combining growth and social inclusion and describes reforms for a robust economy. - The document explicitly recognizes institutional and regulatory challenges associated with completing the transition to a market economy and describes a large number of planned legislative actions, which together with the reform agenda implied in accession to WTO, should strongly support this transition. - Risks and tensions: - The SEDP still relies to a large extent on state sector-led investment, creating a tension with the objective of transition to a more efficient market system. - This reliance could pose risks for medium-term fiscal sustainability. - The SEDP could usefully recognize these risks and articulate a strategy to address them in a timely manner so they do not jeopardize the achievement of poverty reduction objectives. - Budget linkage: - The SEDP is expected to serve as a framework to allocate public resources over the medium term. - A weak linkage between planning objectives and budget allocations has been a limitation of the CPRGS during its implementation. - The draft circular for the 2007 budget includes instructions to line ministries and provinces to align budget submissions to the SEDP over the 2007–10 period, indicating tighter linkage between planning and budgeting. - Monitoring framework: - At present, the SEDP lacks a clear policy matrix and a satisfactory monitoring framework. - Despite significant efforts to develop the results framework, the Government believes more work and consultation with line ministries is necessary to produce a strong framework for measuring results. - The May-June 2006 session of the National Assembly is expected to discuss the SEDP without the monitoring framework. - MPI plans to continue developing the monitoring framework over the coming months. - Progress on the monitoring framework is important to focus the SEDP and facilitate alignment of donor support to national priorities. ### Concluding remarks - The staffs believe the Report provides a reasonable update on progress over the past year. - While there are instances of inaccurate or questionable data used in describing progress, there is enough information and analysis from other sources to state with confidence that economic performance has been strong and that poverty is continuing to decline. - The staffs expect many of the shortfalls experienced in CPRGS implementation will be addressed by the new SEDP, based on: - Intense interaction with government during SEDP preparation. - Assessments of the draft SEDP that have become available. - The new SEDP is nearing completion and the staffs urge the government to close remaining gaps, including: - Remaining policy challenges. - Risks associated with the funding of a sustained pick-up in public sector investment. - The need for a strong results framework. *Source: _cr06337 - Section 2* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06337.pdf_