LOCAL FINANCE SURVEY REPORT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Background Report for the World Bank s Country Economic Memorandum Vietnam: Fiscal Decentralization and Delivery of Rural Services LOCAL FINANCE SURVEY REPORT (Nam Ha, Quang Tri, Ha Giang, Ben Tre and Quang Ninh provinces) April 1996 Country Department, Vietnam Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region Development Prospects Group Duc Minh Pham Minh Binh Pham, Consultant The World Bank

2 ACRONYMS AND ABBREVIATIONS CHC GCOP MOET MOF MOH MOLISA MPI NGO NPF PDE PDF PDH PDT PPIC SOE Commune Health Center Government Committee of Pricing Ministry of Education and Training Ministry of Finance Ministry of Health Ministry of Labor, Invalids and Social Affairs Ministry of Planning and Investment Non-Gevernmental Organization National Program Fund Provincial Department of Education Provincial Department of Finance Provincial Department of Health Provincial Department of Transport Provincial Planning and Investment Committee State-Owned Enterprise

3 TABLE OF CONTENTS I. OBJECTIVE...1 II. METHODOLOGY 1 III. BROAD FINDINGS 3 IV. RECOMMENDATIONS..17 ANNEX 18 Tables Table 1. Economic and Social Indicators of Surveyed Provinces in Table 2. Surveyed Provinces' Revenues in Table 3. Surveyed Provinces Revenues in Table 4. Per Capita Revenues, Transfer and Expenditures in 1994 in Surveyed Districts 8 Table 5. Per Capita revenue, transfer and expenditure in 1995 in surveyed districts...9 Table 6. Surveyed Provinces' Expenditures in Table 7. Surveyed Provinces Expenditures in Table 8. Education Expenditures in Surveyed provinces in Table 9. Surveyed Provinces Health Expenditures 15

4 I. OBJECTIVES 1. The local finance survey is conducted by a group of Resident Mission staffs and local consultants in 20 communes in 10 districts of five provinces throughout the North, Center and South of Vietnam. The survey is taking a bottom-up approach to examine sources of finance actually used to deliver basic services; local capacity; and quality of commune services. It also examines whether communities participation in local planning and to what extent the commune, district and province work together throughout planning, budgeting, financing and delivering these basic services. This local finance survey is aimed at using for the Bank s analysis of what changes in financial or administrative mechanisms could encourage better delivery of rural services. II. METHODOLOGY 2. Survey sites are selected to try to maximize variation. Thus, the provinces for the survey vary geographically and economically. Five have been so selected: Nam-Ha is a relatively better-off province in the Red River delta with a population of 2,697,000 persons. The economy registered at a growth rate of 7.7 percent in Net per capita transfer from the central government in 1994 was 62,662 dong. Ha-Giang is a poor province in the northern mountains with a scattered population and high concentration of ethnic minorities. This provinces receives one of the largest per capita transfers from the central government at 162,000 dong per person in Quang-Tri in the North Central coast is a poor province with dense population and very difficult living conditions due to frequent natural calamities. The average of GDP growth of the province is 6 percent. This province often receives emergency assistance from the central government and receives a per capita transfer of 74,113 dong in Ben-Tre in the Mekong delta is an average income province with a high concentration of the poor nevertheless. Ben Tre s population is 1,356,359 persons in The economy grew at 5.78 percent in It received 20,655 dong per capita in transfer from the central government in Quang-Ninh in the northern uplands is a wealthy province which receives 15,448 dong per capita transfer from the central government in See Table 1 for background information of all surveyed provinces. 1

5 Table 1: Economic and Social Indicators of Surveyed Provinces in 1995 Nam Ha Quang Tri Ben Tre Ha Giang Quang Ninh 1. Population 2,697, ,665 1,356, , , Number of districts and towns in province GDP growth structure 7.70% 6.20% 5.78% 7.00% 7.15% - Agriculture/Forestry 34.12% 4.99% 62.99% 16.80% - Industry/Construction 10.45% 7.35% 17.02% 38.60% - Service 55.43% 7.31% 19.99% 44.60% 4. GDP per capita US$162 US$106 US$161 US$61.5 US$ Number of schools Primary school Lower secondary school Higher secondary school Number of school pupils rate Male 56.10% 52.70% 55.15% Female 43.90% 47.30% 44.84% 7. Number of health facilities Provincial Hospital District hospitals CHCs Polyclinics Malnutrition rate 47.00% 36.70% 55.10% 52% 9. Vaccination coverage rate 95.11% 90.75% 85.90% 93.17% 10. Number of births delivered by a trained 85.00% 48.70% attendant 11. Contraceptive prevalence rate 55.00% 45.50% 48.70% 56.98% 12. Number of communes without 12 month car 7/136 18/157 46/168 8/175 roads to districts 13. Percent of population with access to safe 60.00% 34.80% 28.68% 4.00% 60.00% drinking water 14. Percent of population receiving social assistance 3.17% 12.30% 22.20% 3. The districts and communes are also to be selected purposefully to maximize variations among the following characteristics: economic activity, initiative of local leadership, presence of support from the central government, recipient of donor support, involvement of non-governmental organizations (NGOs) or active mass organizations, etc. 4. The following communes and districts in each province are selected: Nam-Ha Province: Xuan-Thuy District (better off), Xuan-Thuong and Giao Long Communes; Thanh-Liem District (poorer), Thanh-Hai and Thanh Binh Communes. Quang-Tri Province: Gio-Linh District (poorer), Gio-Thanh and Trung Hai communes; Trieu Phong District (better off), Trieu Thuan and Trieu Van communes. Ha-Giang Province: Quan Ba District (poor), Quan Ba and Thanh Van communes; Vi Xuyen District (better off), Ngoc Linh and Trung Thanh communes. 2

6 Ben-Tre Province: Binh Dai District (poorer), Tam-Hiep, Loc Thuan, Dinh Trung, Thanh Phuoc communes; Mo Cay District (better off), Minh Duc, An Dinh and Thanh Thoi communes. Quang-Ninh Province: Tien Yen District (poorer), Hai-Lang and Phong Du Communes. Dong Trieu District (better-off), Hung Dao and Tan Lap communes. 5. In all provinces, the survey teams met with the following groups: At provincial and district levels. People s Committee representatives responsible for provincial budget; Education and Training department representatives, Health Department representatives, Committee for Population and Family Planning representatives, Transportation, Labor, Invalids, and Social Affairs and rural water representatives, and mass organizations representatives. Commune Level. Chairman of the People s Committee and the person responsible for the commune budget, head teachers; and health staffs. In addition, 2 households with school age children in each surveyed commune were interviewed mainly on household expenditures on education and health care. 6. There are three main issues addressed in the survey: (a) local revenues and expenditures; (b) quality of services; and (c) local participation (and how local services respond to local needs). III. BROAD FINDINGS Local Services financed and delivered 7. General Budgetary procedures. The procedures for preparing the budget in all surveyed provinces seem to follow a common approach. Every year, expenditures and revenues for each fiscal level of government are drawn up using the norms (education, health, roads and transport, and social welfare), the tax rates in the guidelines issued by the Ministry of Finance (MOF) and the performance of the province s last year economic plan implementation. 8. Revenue projections are drawn by the province s Tax Department. Based on the revenue targets assigned by the center, the province s tasks of socio-economic development, the province s tax department after reviewing all potential sources of revenues in the area of its jurisdiction and in consultation with all concerned line departments projects the province revenue plan. The provincial Tax Department will submit the revenue projection to the provincial People s Committee and the People s Council for review and approval. The agricultural tax is most important revenue component at the district and commune level. The tax norm for agricultural lands (kg paddy/ha) set by the MOF based on land classification by quality and area made by the Commune People s Committee. The unit price is negotiable during the annual meetings between the MOF and provinces, and can be adjusted. Since the MOF s guidelines have a provision that if at the year end, the province s actual revenues 3

7 exceed the planned revenues, the province can retain the extra revenues for its expenditures, all surveyed provinces consistently tend to underestimate revenues and set targets which can be easily reached. Therefore, at the year end they can have more revenues for other expenditures. Data collected in the surveyed provinces have shown this experience. In Quang Tri, in 1995 the province recorded revenues of percent over planned revenues and in the same year they were 109 percent and percent in Ha Giang and Ben Tre respectively. 9. Capital expenditures are drawn up by the provincial Planning and Investment Committee (PPIC). Each year, the PPIC receives project proposals from all provincial sectors and works out a provincial plan of investment. Afterwards, the PPIC reaches agreement with the provincial Department of Finance (PDF) priority list of investment and records them in the line of capital expenditure of the provincial projected budget. Investment projects need to be reviewed and approved by the Ministry of Planning and Investment (MPI) (so that these fit in with the overall national investment strategy plan) and the MOF for disbursements before they are included in the capital budget of the year to be funded. Once the project are approved for funding and implementation, the provincial authorities have some power to determine the priority of expenditures among projects. This is so because the approved capital budget is not what was requested, usually a lower amount. In 1996, Ha Giang asks for 175 billion dong and receives only 64.5 billion dong accounting for 30 percent requested. In Quang Tri in 1995, the province asked for 60 billion dong but received about 30 billion dong, accounting for 50 percent. 10. Allocation of capital budget for districts is based on the some criteria: a) structure of sectors; b) scope of economic and social impact on people; c)effectiveness of investment; and d) feasible implementation. When proposing projects, districts have to prioritize their needs. When funding is not enough, top-down prioritized projects would be funded. No investment project is implemented at commune level due to the lack of funds. 11. Recurrent expenditures are projected by the PDF. On the basis of the detailed norms specified for each item of expenditure, the province makes projections of current expenditure. Recurrent budget is mainly to cover the administrative operation (salary, maintenance, small repair...). Salary for teachers and health workers at communal level is paid from provincial budget. The salary scale and social welfare level are set up by the Ministry of Education and Training (MOET), Ministry of Health (MOH), Ministry off Labor, Invalids and Social Affairs (MOLISA) and the Government Committee of Pricing (GCOP). 12. For economic activity-related expenditures (agriculture, forestry, irrigation, transportation), the PDF in consultation with provincial line departments works out expenditure targets for each line items based on the MOF s norms. For example, in the field of rural roads, based on the need of new construction and repairs proposed by districts and communes, the provincial Department of Transport (PDT) sums up project proposals and prioritizes them. If a construction of a new road or bridge is proposed, then the PDT has to work out with the PPIC. If project proposal is on repairing roads, the PDT works out with the PDF. Subject to the availability of funding and revenues assigned by the MOF, the PDF reaches an agreement with the PDT in cutting expenditure lines which exceed the financial capability. The principle 4

8 for cutting funding is based on the priorities of proposals by districts and communes, taking into account of poverty conditions and location of each district and commune. 13. There are many areas open for negotiation. Negotiations take place between provincial authorities and the MOF and MPI on revenue and expenditure targets, on putting the province in which types of areas. (If a province like Quang Tri is in the category of mountainous or remote area, Quang Tri would have higher assigned per capita expenditures on administration, education, health than the case if Quang Tri is considered as a plain area. In 1994 and 1995, Quang Tri was in the category of plain area. From 1996 onward, Quang Tri is in the category of midland and coastal areas. Quang Tri gets more revenues as a result of this. 14. District is a budget estimating level of the province s budget. Besides the revenues retained in accordance with the State regulations, in Ben Tre province districts are allowed to retain 3 percent of the total revenues collected in the area of their jurisdiction for the use of new rural development and regulating revenues among the poor communes. 15. Communal budget. The State ensures the payment for commune administrative staffs, teachers and health workers as well as minimum activities of the commune. If the revenues collected in the commune cannot meet the required expenditures, province will grant a transfer to that commune to balance the commune budget. The main revenues of commune are 10 percent of agricultural tax, commune trading tax, 100 percent slaughter tax and fees. In principle, budget preparation needs to be done from bottom-up. But in reality, the timetable for preparing budget shows that district levels does not take into consideration of commune s budget draft. All communes in Quang Tri province we visited, the People s Committees prepares their commune budgets at the same time when district People s Committees prepares its budget. For example, in December, all communes and district complete their process of budget preparation. There is no time for communes to submit budget draft to district for consideration. The same situation was seen in Ben Tre, Ha Giang and Quang Ninh. 16. Inter-governmental transfer. If the retained revenues of the province do not meet the assigned expenditures, the province receives transfer from the center. Intergovernmental transfer mainly fills the gap between revenues and expenditures and also to ensure minimum level of services in provinces, districts and communes. Besides the general purpose transfers, all surveyed provinces receive funding through national targeted programs (mainly health and education). 5

9 Surveyed provinces budget performance Table 2: Surveyed Provinces'Revenues in 1994 Quang Tri Ben Tre Ha Giang Quang Ninh Nam Ha Amount % Amount % Amount % Amount % Amount % Revenue Item Mil dong Mil dong Mil dong Mil dong Mil dong A. Total State Revenues 252, ,169 Total taxes collected in province 170, Total Province revenues 131, % 180, % 190, % 305, ,000 I. Provincial tax 50, ,694 18, ,00 1. State enterprises 17, % 36, % % Central SOEs 5, % - Local SOEs 12, % 2. Non-state sectors 18, % 43, % % Of which, slaughter % % 3. Agriculture 2, % 28, % % Lottery 1, % 38, % Transport fee % 5, % 7. Other revenues 3, % 7, % Land use and housing % % Income tax % 3, % Fees 3, % 2, % % Of which, from communes 0.00% 11. Aid % 0.00% II. export-import tax 119, % III. Revenue carried from last 8, % 4, % % year V. Transfer from center 74, % 28, % 171, % ,000 - Intergovernmental transfer 73, aid relief aid VI. Transfer to center 19, % Per capita revenues 249,465 dong 135,352 dong 350,740 dong 344,009 dong 17. The main revenue sources of all surveyed provinces are taxes from stateowned enterprises (SOEs), non-state enterprises and agricultural land (see Table 2 and 3). In 1994 and 1995, these taxes account for 80 percent of total retained revenues in Quang Tri and about 90 percent of total retained revenues in Ha Giang. But in Ben Tre province, although these taxes account for two third of the total collected revenues, lottery revenue is the forth revenue source and the second biggest single source in Ben Tre. Inter-governmental transfers play an important role in poor provinces. Transfers from the center accounts for 90 percent of Ha Giang s revenues and 57 percent of Quang Tri s revenues while in Ben Tre, a better-off province, the transfers accounts for only 16 percent of its revenues. Per capita transfer in the surveyed provinces shows that a poorer province gets higher transfer. (See Table 4 and 5). And poorer districts and communes also get higher per capita transfer. Per capita transfer for Gio Linh (poorer) district, Quang Tri province is 18,207 dong in 1994 and 27,880 dong in 1995 while per capita transfer for Trieu Phong district (better-off) in the same province is 16,416 dong and 12,992 dong respectively. In Ha Giang, per capita transfer for Quan Ba (poorer) is 173,250 dong in 1994 and 250,969 dong in 1995 and that for Vi Xuyen district (better-off) is 108,833 dong and 162,111 respectively. 6

10 Table 3: Surveyed Provinces Revenues in 1995 Quang Tri Ben Tre Ha Giang Quang Ninh Revenue Item Mil. dong Mil. dong Mil. dong Mil. dong A. Total State Revenues 251,478 Total taxes collected in province Total Province revenues 223, % 218, % 245, % 210, % I. Provincial tax 65, ,518 28, , State enterprises 22, % 45, % 8, % 55, % - Central SOEs 8, % - Local SOEs 14, % 2. Non-state sectors 19, % 59, % 10, % 46, % Of which, slaughter % 3. Agriculture 6, % 37, % 3, % 10, % 5. Lottery % 53, % 15, % 6. Transport fee 1, % 9, % 7. Other revenues 5, % 12, % % 9, % 8. Land use and housing 3, % 1, % 9. Income tax % 4, % 1, % 10. Fees 3, % 1, % 1, % 20, % Of which, from communes 1, Aid 3, % II. Export-Import tax 157, % 2, % 33, % III. Revenue carried over from 7, % 1, % 2, % last year IV. Intergovernmental Transfer 9, % 24, % 216, % % from center - Inter-governmental transfer - Aid - Relief aid 9,645 V. Transfer to center 33,389 Per capita revenues 420,233 dong 160,790 dong 451,963 dong 230,073 dong 18. Commune Budget. At commune level, formal budget is very small. The main official sources are retained portion of agricultural tax (i.e.10 percent), slaughter tax (100 percent), land and housing tax and transfer from district. In all surveyed communes, the retained revenues and transfer from district could only cover administrative expenditures. In Hai Lang commune of Quang Ninh (better off) province, retained revenues and transfer from district amounts to 149,898 thousand dong while recurrent expenditures amount to 162,299 thousand dong. In Trieu Thuan of Quang Tri (poorer) province, retained revenues and transfer from district amount to 68,000 thousand dong in 1994 covering enough recurrent expenditures of the commune. In six surveyed communes in Ben Tre, only Tam Hiep commune generates enough funding for its recurrent expenditures without having transfer from district. In Ben Tre, communes which could balance the revenues and recurrent expenditures are communes having a rather big and stable source of tax collection such as transport and port fees, market fees. Per capita revenue in all surveyed communes is very small, only several thousand dong per head. 19. Since retained revenues and transfer from district could cover only commune administrative costs, funding for commune-level services come from two main sources. Expenditures for commune schools and health centers incur at higher levels (i.e. teachers salaries are paid by the province budget. Commune health workers 7

11 salaries were paid half by province and half by commune before 1995). Provincial budget in surveyed communes covers from 70 percent to 90 percent of total cost of commune education. In Trung Hai commune, Gio Linh district, Quang Tri (poorer) province, province budget in 1995 covered 93 percent of commune education cost (mainly teachers salaries) and local contribution and fees covered 7 percent (building repairs). In Tan Viet commune, Dong Trieu district, Quang Ninh (better-off) province, in 1995 province budget covered 60.3 percent of commune education costs, district budget covered 28.1 percent, commune tax 8.1 percent and user fee 2.7 percent. Ha Giang province is special case since Ha Giang is a mountainous province. For example, in Thanh Van commune, Quan Ba district, Ha Giang province, government budget covered 37.7 percent of commune education cost through national targeted programs, province budget covered 46.6 percent, contribution 5.5 percent and donor 10.3 percent. (See Annex on commune-level expenditures by sector for further reference). 20. Capital constructions are hardly financed by the commune budget. School or health center construction are financed by special transfers from the center through national programs such as program for improving school facilities or resident contributions (labor or students compulsory contributions). Commune road construction or repairs are financed mainly by resident contributions in form of labor contribution or by outside donors. In Nam Ha, each resident has to contribute 5 kilograms of rice per year for road construction and maintenance. In Quang Tri, up to 70 percent of expenditures for repairing commune roads are from contribution and outside aids. Each commune resident has to contribute 10 labor days for these public service. In Ben Tre, resident contributions and user fees account for 40 percent to 50 percent of the total expenditures on road. And in Ha Giang, nearly 100 percent of commune road construction are from user fees and contribution. Contribution for repairing commune schools is a rather big portion of commune education expenditures ranging from 5 percent to 23 percent in the surveyed communes. Therefore, if all sources are taken into account including funding from higher levels for education and health, and user fees as well as voluntary contributions, the actual commune budgets are much bigger than the official commune budget. In 1995, for example, the Trieu Van (of Quang Tri province) expenditures in its official budget were only about 131 million dong, but the actual total expenditures amount to 1,109 billion dong. In Ben Tre, the situation is the same. (See Annex on commune expenditures by sector). In sum, commune households contribute a lot through user fees and voluntary contribution to the provision of commune-level services. 1. Per Capita revenues 2. Per Capita transfer from center 3. Per capita transfer to center 4. Per capita expenditures Table 4: Per Capita Revenues, Transfer and Expenditures in 1994 in Surveyed Districts Gio Linh (poorer) 35,287 18,871 33,110 Quang Tri Ben Tre Ha Giang Quang Ninh Trieu Binh Dai Mo Cay Quan Ba Vi Xuyen Tien Yen Phong (poorer) (richer) (poorer (richer) (poorer (richer) 32,198 16,264 30, , , , , , , , , ,858 Dong Trieu (richer 149,459 51, ,545 8

12 Table 5: Per Capita revenue, transfer and expenditure in 1995 in surveyed districts 1. Per Capita revenues 2. Per Capita transfer from center 3. Per capita transfer to center 4. Per capita expenditures Quang Tri Ben Tre Ha Giang Quang Ninh Trieu Mo Cay Binh Dai Quan Ba Vi Tien Phong (poorer) (richer) (poorer) Xuyen Yen (richer) (richer) (poorer) Gio Linh (poorer) 46,714 27,895 46,440 46,292 12,996 45,207 61,923 47,915 84,886 70, , , , , , , , , ,492 Dong Trieu (richer) 165,019 67, , See Table 6 and 7 for surveyed provinces expenditures. Generally, capital expenditures account for 20 percent to 30 percent of the local budget. It is not necessarily the case that richer provinces have higher ratio of capital expenditures than poorer provinces. Ha Giang (the poorest surveyed province) has the highest ratio of capital expenditures. In 1994, the Ha Giang s capital expenditures accounted for 33.7 percent of total expenditures. Quang Ninh (the richest surveyed province) is second to Ha Giang in having highest ratio of capital expenditures which accounted percent of total expenditures. The explanation for these experiences is that Ha Giang, a mountainous and multiethnic province is heavily financed by the center. The central government focuses on capital construction in Ha Giang. In the case of Quang Ninh, the province having ensured its recurrent expenditures, has available funding for capital construction. 22. In the recurrent items, salaries account for percent of the recurrent expenditure budget, education and health amount to percent of total recurrent expenditures. Table 6: Surveyed Provinces'Expenditures in 1994 Quang Tri Ben Tre Ha Giang Quang Ninh Nam Ha Total Province Expenditure 124, % 178, % 187, % 305, % 294, Capital Expenditures 29, % 30, % 63, % 89, % 41,000 - Industry 4, % 2, % 11, % 7, % - Agriculture 4, % 6, % 4, % 7, % - Transportation 4, % 12, % 22, % 17, % - Trade and material supply % 1, % 2, % - Other sectors 2, % 7, % 23, % 57, % 2. Expenditure for working 2, % 1, % capital 3. Economic Expenditure 15, % 14, % 28, % 4. Social and cultural expenditure 38, % 89, % 95, % Education and Training 26, % 54, % 34, % 53, % Health 7, % 17, % 20, % 16, % Scientific research % 0.00% 1, % Culture 1, % 5, % 7, % 7, % Broadcast % Sport % 2, % Price subsidies % % Other services 19, % Finance and Social insurance 1, % 3, % 7, % 14, % 5. Administrative expenditure 21, % 25, % 26, % 55, % 6. Other expenditures 5, % 5, % 9, % 22, % 7. Aid expenditure 1, % 8. Transfer to lower levels 7, % 18, % 14, % Per capita expenditures 227,107 dong 131,876 dong 345,856 dong 344,009 dong Per capita transfer from center 141,013 dong 20,655 dong 316,613 dong 28,198 dong 9

13 Table 7: Surveyed Provinces Expenditures in 1995 Expenditures Quang Tri Ben Tre Ha Giang Quang Ninh Total Province Expenditure 179, % 219, % 245, % 201, % 1. Capital Expenditures 47, % 44, % 79, , % - Industry 2, % 9, % 11, , % - Agriculture 5, % 5, % 9, , % - Transportation 9, % 15, % 25, , % - Trade and material supply % 3, % 9, Other sectors 3, % 10, % 24, , % 2. Expenditure for working 2, % 9, % capital 3. Economic Expenditure 16, % 15, % 22, % 4. Social and cultural 62, % 96, expenditure Education and Training 40, % 68, % 47, , % Health 9, % 20, % 21, , % Scientific research % 0.00% 1, % Culture 3, % 9, % 4, , % Broadcast 1, % Sport % 4, % Price subsidies 1, % Other services 16, Finance and Social insurance 4, % 3, % 6, , % 5. Administrative expenditure 24, % 24, % 35, , % 6. Other expenditures 15, % 5, % 33, , % 7. Aid expenditure 8. Transfer to lower levels 10, % 19, % 24, % Per capita expenditures 337,697 dong 162,130 dong 451,963 dong 220,757 dong Per capita transfer from center 18,175 dong 18,074 dong 398,926 dong 15,448 dong 23. Authorities in all surveyed provinces and districts do not have much flexibility in adjusting funds between capital and recurrent expenditures and in line items such as between education and health since the MOF norms are very detailed in each recurrent expenditure item. Local authorities we met indicated that they had to follow very strictly to the norms. However, they said to some extent, they could have some freedom of adjustments in the implementation of capital projects once projects are approved by the center. Especially when funding is short of request, surveyed provincial authorities have limited flexibility in allocating funds available for district. At district level, local authorities do not have much authority in adjusting funds within sector. But the flexibility varies differently across districts. In Ha Giang, surveyed district authorities indicated that they did not have much flexibility in budget implementation. In Nam Ha, Xuan Thuy district authorities said they have more freedom to adjust the current expenditures than capital expenditures. In Quang Tri, provincial and district authorities said they had some flexibility in adjusting spending items of economic activities (e.g. roads and irrigation, agriculture and forestry). Provincial authorities said that they could implement the project B first in case of shortage of funding if that project meets the very need of local people first. The main criteria for adjusting these items is based on the situation of that year, e.g. in a certain year, irrigation needs more funding, then they can allocate more funding for irrigation. Nearly in all surveyed communes, local authorities indicated that if they had more 10

14 discretion in utilizing funding, they could have responded more to local needs and conditions. 24. We found that in surveyed districts and communes, district authorities could not play any role in adjusting budget or revenues for communes, especially in transferring funding from richer commune to poorer commune, therefore poor commune in rich district cannot get any more funding and benefit from other rich communes or from district s budget. The school we visited in Trieu Van (poorer) commune of Trieu Phong (better off) district in Quang Tri is in the same situation as the school in Trung Hai (poorer) commune of Gio Linh (poorer) district. 25. At commune level, besides adequate local financial resources, provision of commune-level services is very much depending on the dynamic behavior of commune authorities. In surveyed communes, we found that some communes which lack resources and commune authorities are not dynamic, therefore local basic services suffers. For example, in Gio Linh (poorer) district of Quang Tri province or in Quan Ba (poorer) district of Ha Giang province, both communes of two districts are poor in financial resources and their local authorities are not strong, therefore communal roads are not good and schools are in bad condition. Some surveyed commune authorities are able to combine well funding from higher levels with mobilization of funding within commune. In two communes we visited in Xuan Thuy district of Nam Ha province, because of the different behaves of commune authorities, the quality of commune services is different. In Xuan Thuong, local authorities have an incentive policy in encouraging local households in mobilizing contributions for building and maintaining communal roads therefore Xuan Thuong s quality of intercommunal roads is better than that of Giao Long whose authorities seem not to have an adequate incentive policy. School and commune health center (CHC) in Xuan Thuong are also in better condition than school and health center in Giao Long. Since funding from higher levels are only enough for ensuring salaries of local authorities, teachers and health workers, quality of commune level services depend very much on the possible mobilization of contribution from resident households. 26. Education. In all surveyed provinces, education budgeting procedures seem to follow the same manner. The provincial Department of Education (PDE) oversees the education budget in the province. This budget is prepared by the PDE using the norms based on the MOF s guidelines. There are several factors in planning budget for education: Funding level on population. Each province depending on economic situation or location is given a coefficient. For example, coefficient for Hanoi, Ho Chi Minh city, Hai Phong...is 1 while Quang Tri s coefficient is 1.6 (1994). Number of schools, classes, students and teachers. 27. The PDE works out plans for education capital construction with the PPIC. The PDE works out budget for recurrent expenditures with the PDF. The PDE manages recurrent expenditures for higher secondary schools while district education section manages expenditures for primary and lower secondary schools. Projects are proposed by schools. In each surveyed commune, there is a commune education 11

15 council consisting of commune People s Committee, People s Council, school headteacher, commune mass organizations. If the school in commune in need of repair, the People s Committee with consent of the education council puts a repair proposal in the commune s list of annual capital construction proposals. We found in the surveyed communes that normally commune expect funding from national targeted program for upgrading schools or building new schools than district or province budget. In Trung Hai commune of Quang Tri province, the commune authorities for several years, have asked funding for repairing schools and until 1995 the commune got 16 million dong from national targeted programs to repair commune school. 28. Budget for national targeted programs is planned by the MOH and implemented by province. Before 1993, the PDE is authorized to plan and allocate the National Program Fund (NPF). Since 1994, this fund has been managed differently. The MOET informs province of funding estimation procedures. Based on these norms, the PDE makes proposals and submit them to the Provincial People s Committee. The National Programs Council (consist of Provincial People s Committee, PDF and PPIC) approves this proposal. From 1996 on, expenditures for national targeted programs will be recorded in provincial budget. 29. The central budget guidelines determine that the portion of teacher salaries is 60 percent and other education-related expenditure is 40 percent but implementation of these norms is different within the surveyed provinces. At the provincial level, Quang Tri allocated 64 percent of provincial education budget for salaries and the rest for education related expenditures but at district level, education section allocates only 20 percent for other expenditures while 80 percent for salaries. In Ha Giang, the province allocated 43 percent of education budget for other expenditures and 57 percent for teachers salaries; Quang Ninh allocates respectively 25 percent and 75 percent; and Ben Tre allocates respectively 29 percent and 71 percent. 30. In all surveyed provinces, actual per capita expenditure seems to be higher than the standardized norms for education, except Ben Tre. (See Table 8). The MOF s 1994 norms for per capita education expenditure as follows: Cities: 37,500 dong; Plains: 26,700 dong; Midland and Coastal areas: 29,400; Low mountainous and remote areas: 33,500 dong; High mountainous and Islands: 42,

16 Table 8: Education Expenditures in Surveyed provinces in 1994 Quang Tri Ha Giang Ben Tre Nam Ha Quang Ninh Amount (mil) % Amount (mil) % Amount (mil) % Amount (mil) % Amount (mil) % Total 32,617 40,726 63,728 56,947 Province Budget 23, % 30, % 47, % 94,300 52,480 92,16% Salaries 13, % 17, % 33, % 73,300 40, % Subsidies 1, % Other expenditures 8, % % 13, % 2, % Aid % National Targeted Programs 5, % 6, % 6, % 4, % Capital Construction % 3, % 9, % 9, % Tuition fees and contribution % 6,300 Population 525, ,000 1,331,000 2,697, ,046 Per capita education exp (1) 62,059 dong 75,002 dong 47,880 dong 64,054 dong Budget Per capita edu exp (2) 44,854 dong 56,225 dong 35,825 dong 34,965 dong 59,030 dong Note: 1. This per capita education expenditure includes all sources such as aid, national targeted programs This per capita education expenditure includes only provincial education budget. 31. Selection of commune teachers is made by district Education Section and submitted to the PDE for approval. Commune teachers salary scale is set by the center. The center also sets norms for number of teachers for each class. For example, 1.1 teacher for one primary school s class, 1.75 teachers for one lower secondary school s class and 2.3 teachers for one higher secondary school s class. This norm is followed rather strictly in surveyed provinces. For example, in Gio Linh district of Quang Tri province, one teacher for one primary school, 1.70 teacher for one lower secondary school s class. 32. School fee is set by MOET and school fee is waived for primary pupils. The school fee fund is used as a supplemental source of income for primary and secondary school teachers and also for other school-related expenses (school material). The ratio is followed: 35 percent of school fees for supporting teachers; 60 percent of school fees for school-related expenses; and 5 percent for school fee management. In the surveyed communes (applied with big differences), in addition to the salary as determined by MOET according to their grade, teachers get some supplement per month from the school-fee fund or on some occasions such as New Year a small amount of money contributed by parental associations. In two surveyed communes in Thanh Liem district of Nam Ha province, teachers get a supplement of 20,000 dong per month. Teachers in secondary schools get some additional payments for offschool sessions they conduct for students. Fees for these sessions are paid by students who attend these off-school tutoring sessions. 33. At the commune level, funds for education basically come from four sources including the NPF, provincial budget, voluntary contribution and tuition fees, and foreign aids. But not all communes can receive those above sources. The National Programs is a central assigned expenditure conducted by the PDE. In four visited communes of Ha Giang, there is only Thanh Van Commune receives the NPF. In Quang Tri, only two communes out of 4 surveyed communes received the NPF. The funds from provincial budget is largest part covering staff salary and supplies. Occasionally, provincial budget also provides fund for school new building and 13

17 expansion as shows in Ngoc Linh Commune of Ha Giang. A stable source of fund in commune is voluntary contribution. This fund which is in form of labor or in-kinds is voluntarily contributed by farmers to build, repair or maintain the schools and furniture. Amount of voluntary contribution is determined by district and commune People s Committees depending on the specific economic conditions of the local areas, therefore the amount of contribution is different across districts and communes in one province, let alone the surveyed provinces. In Trieu Phong district of Quang Tri, the amount of contribution by each pupil is 25,000 dong while in Gio Linh district of Quang Tri, the amount is 10,000-20,000 dong. In Ha Giang, in two surveyed districts, the amount of contribution by each pupil is set at 10,000 dong. In Hai Lan commune, Tien Yen district of Quang Ninh, primary pupils contribute 15,000 dong and lower secondary pupil contributes 20,000 dong. But in Hung Dao commune, Dong Trieu district of Quang Ninh, primary pupil and lower secondary pupil contribute respectively 20,000 dong and 25,000 dong. The voluntary contributions accounted for 8.0; 5.0; 4.2 and 26.8 percent of total expenditure for education in Quan Ba, Thanh Van, Ngoc Linh and Trung Thanh communes of Ha Giang respectively. They account for the same ratio in Quang Tri and Ben Tre. They are the main source for commune school maintenance. This fact proves that the surveyed commune households contribute a big portion to local service through the way of voluntary contributions. 34. Commune schools in some surveyed districts are in need of repair but funding is tight. The ratio for capital construction in education in all surveyed provinces is very low in comparison with other expenditures. In communes whose schools were just built (i.e. Thanh Binh commune school in Nam Ha; Ngoc Linh commune school in Ha Giang), funding came mainly from either national programs or province's budget together with commune resident contributions. Small repairs of schools are financed mainly by commune budget and resident contribution. Repairs of commune school as well as community interests in education depend very much on commune people's committee incentive and commune economic situation. In Xuan Thuong (richer) commune Xuan Thuy (richer) district of Nam Ha province whose school facilities are good in general, local authorities are very concerned with education and they have some incentives to encourage student to study hard. People in the commune also make contribution in form of labor to repair the school. In the same province, in two communes of Thanh Liem district (poorer than Xuan Thuy district), the education is not a top priority for the commune authorities. The commune does not have much incentive to upgrade, repair school. This demonstrates that strong commune leadership can ensure efficient use of money on items of local needs. 35. Health Care. Funding level for health in all surveyed provinces follows the norm that is determined on population, number of hospital beds. The provincial Department of Health (PDH) prepares annual budget based on the annual guidelines issued by the MOF in which it set out targets for expenditure in the budget year. 14

18 Table 9: Surveyed Provinces Health Expenditures Province budget National programs Aids Hospital fees Insurance Other revenues Total Per capita exp Per capita curative Per capita preventive Quang Tri (1994) 47.4% 25.8% 15.6% 3.1% 7..9% 0.25% 100% 24,753 VND 14,163 VND 7,982 VND Ben Tre (1994) 72.4% 20.5% 7.1% Ha Giang Quang Ninh Nam Ha (1995) 16,152 VND 16,166 VND 10,236 VND 3,263 VND 36. The normative per capita expenditures vary among the surveyed provinces. In Ha Giang, the norms are for hospital bed (8.5 million dong/ bed/year for a provincial hospital, and 6.5 million dong/bed/year for district hospital). In Quang Tri, the norms are 2.8 million dong for one provincial hospital bed; 2.5 million dong/bed for regional hospital; 1.2 to 1.5 million dong/bed for district hospital (1.5 million dong/bed for difficult and poor districts). This amount covers health worker salaries, medicines for poor people and cost of blanket and bed cloth. Districts are able to readjust the amount of funding assigned by the PDH for each bed in their own districts to meet the local need. In Ben Tre, the two norms of concern are for curative care (10,000 dong per capita) and preventive care (3,600 dong per capita). Together, these total 13,600 dong per capita. The province determines how to divide up this amount between the provincial and district levels. Ben Tre allocates it percent between the province and district. Each level thus receives an average of 6,800 dong per capita. In Nam Ha, the province was also allocated 13,600 dong per capita. In Quang Tri, the province was allocated 15,226 dong per capita. 37. All surveyed provinces health expenditures are supplemented by national targeted programs. National health program funding encompasses seven programs in Ben Tre, eight in Quang Ninh, and 12 in Quang Tri. The amount transferred to communes depends on per capita norms (as with immunization) as well as special needs of the province (as with malaria). Local authorities indicate that allocation of national health programs to commune is based on plan prepared by health sector at the beginning of the year. Then targets of national programs are assigned to districts and communes. National health programs for the surveyed provinces mainly go to communes in the in-kind form on the basis of requests from districts and communes and on the projection of the previous year s performance. The spending of the national health programs is not recorded in the commune s budget. In Quang Tri, health officials said that cash in the national health programs was used for paying health staffs when they implemented the programs in communes. In the surveyed provinces, national targeted programs are supplemented by about percent by the province (16 percent in Quang Tri and 20 percent in Ben Tre). Usually the surveyed districts manage the national health programs and the communes implement them in their area. 38. Sources for health expenditures vary from province to province (See Table 9). 39. Preparation of capital expenditure in surveyed provinces is straightforward with provinces role as prioritizing district proposals and submitting these for 15

19 consideration of the center. Amount of capital expenditures accounts for small portion of the total expenditures. In Nam Ha, these accounts for 6.2 percent of total expenditures in In Ben Tre, these accounts for 16 percent in Capital expenditures are used for financing provincial hospital and little is used for CHCs. In Ben Tre 700 million dong out of 5,013 billion dong is used to finance the rebuilding of 10 CHCs. In Quang Tri, each year the province tries to finance the rebuilding of 10 CHCs. In Ha Giang, the province was able to allocate funds for building 22 communes. Contributions from the people play an important role in repairing and building CHCs. In Nam Ha and Ha Giang, local authorities are able to mobilize people to contribute to the construction of CHCs while in Quang Tri and Ben Tre they are not. In general, facilities at CHCs are very poor. In Quang Tri, in some communes, there is no CHCs or CHCs do not possess any space. 40. In all surveyed communes, we noticed that at commune level, funds for health basically come from four sources including the NPF, provincial budget, voluntary contribution, and NGOs aids. Before 1995, the commune budget covered the salaries of commune health workers. According to a new government s degree, from 1995 onwards, commune health staffs will be paid by province s budget. But the implementation of this degree is very different across provinces, and even across districts in on province. In Quang Tri, in Gio Linh district this degree has been implemented at the beginning of 1995 but in Trieu Phong district this degree will be effected in In Nam Ha, health workers will be paid partly by the health center and partly by the commune. 41. Utilization of CHCs varies across the surveyed provinces. About five people visit the CHCs a day in Nam Ha while in Ha Giang the average number is 10. In all surveyed provinces, poor villagers come to the CHCs since they can buy medicine on credit and for treatment of simple illness. There is no fee at CHCs. In all communes, CHCs play a role of reselling drugs. CHCs buy drugs from province or district pharmacy companies and resell at a company s price plus a markup for transportation (from 1 percent to 10 percent). 42. Rural Roads. In all surveyed provinces, transportation plays a very important role. Transportation expenditures account for the biggest portion of the total capital construction expenditures. In Table 6 and 7, we can see that in Quang Tri, transportation expenditures account for 4.0 percent of the province s total expenditures in 1994 and 5.12 percent in Transportation expenditures in Ben Tre accounts for 6.88 percent in 1994 and 7.05 percent in In Ha Giang, these amount to 1.79 percent in 1994 and percent in Transportation expenditure is the biggest budget line in the capital construction expenditures. 43. However, transportation budget is mainly spent on provincial roads and to a limited extent on district roads. In the surveyed provinces, the provincial authorities indicate that they supervises and manages budget for provincial roads. District authorities are responsible for the district roads. In Nam Ha, province provides 70 percent for construction of roads which link districts to districts. 44. For communal roads, in all surveyed provinces, road maintenance and construction are financed mainly by household contribution either in kind or in cash, and outside donors. In Ben Tre, households contributions account for percent. In Quang Tri, in Gio Thanh commune, household contribution accounts for 76 percent. However, with households contribution, especially in the form of labor, 16