Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Table of Recommendations

Transcription

1 Executive Summary xv Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Table of Recommendations Issue/Sector (numbers correspond to chapters) 1: Public Expenditure Review 2. Fiscal sustainability Recommendations 1. Reflect the analysis and recommendations of the PER-IFA in the forthcoming SEDP and forthcoming budgets and monitor implementation closely. 2. Further enhance the capacity and status of public expenditure analysis teams within the Ministry of Finance, Ministry of Planning and Investment, sector ministries and provinces. 3. Lead a further PER-IFA within the next three years, again working in partnership with the World Bank and other donors; and conduct annual updates on a smaller scale. 1. Rapidly implement the plan to prepare a realistic and sustainable Medium-Term Fiscal Framework as part of every budget cycle. 2. Defend the share of revenues in GDP at its current target of percent, with ongoing efforts to strengthen tax policy and administration. 3. Clarify and rationalize assignment of responsibility for management of debt and strengthen arrangements for the monitoring and management of other fiscal risks. 4. Keep the budget deficit (measured net of amortization) below 3 percent of GDP. 5. Restrict further off-budget bond issuance, channeling all Government borrowing in future through the budget. 6. Take urgent action to resolve the current expenditure arrears (particularly in the transport and agriculture sectors) and prevent their further build up. 7. Align fiscal reporting with IMF GFS standards. Time Frame Completed by end 2007 Annually from 2005 From Composition of 1. Strike a better balance between capital and recurrent expenditure, with emphasis on composition, quality and

2 xvi Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Issue/Sector (numbers correspond to chapters) public expenditure 4. Public expenditure management Recommendations sustainability rather than quantity. (In the World Bank s view, the Government should end the policy of increasing capital expenditure faster than recurrent expenditure.) 2. Create an enabling environment for private investment, including choosing options for increasing private finance in the provision of public infrastructure where cost-effective; and reducing state transfers to SOEs. 3. Ensure recurrent expenditure takes an increased share of the budget; and ensure that increases in the level of wages and salaries do not end up squeezing out other operations and maintenance. 4. Strengthen and integrate planning of pay and employment reform. Wage increases need to be financed through implementation of a clearer strategy to shift non-core government employment to the private sector. 5. Bring the functional and economic allocation of expenditure closer into line with national and sector-level strategies. This effort should be based on the policy analysis in the aggregate MTFF and sector and province-level MTEFs, rather than on arbitrary and inflexible rules on budget shares for priority sectors. 6. Use new MOLISA and GSO poverty data to assess whether resources are allocated in line with targets to reduce poverty and promote growth; and further investigate how allocations are benefiting various sub-groups of the population. 1. Expand budget coverage to comply with internationally-accepted norms. In particular, budgets should include all fees and contributions, and all government debt, including on-lending and the currently off-budget bonds. Budgets should also include as detailed as possible an estimation of guaranteed debts and other contingent liabilities. 2. Encourage donors to accelerate their work on harmonization; and to channel aid through the State Treasury and ensure that all such aid is recorded on budget. 3. Give the recently established Inter-Ministerial Working Group on Medium-Term Expenditure Planning elevated status; and accelerate implementation of the pilot MTFF and pilot MTEFs in four sectors and four provinces. 4. In developing the new Treasury and Budget Management Information System, take steps to ensure this Time Frame As soon as data is available

3 Executive Summary xvii Issue/Sector (numbers correspond to chapters) Recommendations Time Frame provides timely, accurate and immediately accessible data to MPI and provincial planning departments on project financial execution. 5. Financial accountability and transparency 5. Continue to explore options for selected merger of planning and finance functions at subnational and sectoral level. 6. To strengthen MOF-MPI joint working, MPI should become an active partner with MOF, sector ministries and provinces in the preparation of MTEFs; and MOF should play a major role in the development of the new SEDP. 7. Strengthen the links between performance indicators and budgetary decision. 8. Strengthen the monitoring of service delivery, using the citizen report card approach; and encourage civil society organizations to become more actively involved in service delivery monitoring at the local level. 9. Consider options for further reform of the transfer norms used to determine public expenditure needs in the budget transfer/revenue sharing formula; and issue guidance making clearer that the remaining physical norms are indicative and not mandatory. 10. The new TABMIS system should be implemented so as to ensure that sector ministries are given direct access to State Treasury data on execution of sector spending at every level of government. 11. Monitor and evaluate the impact of single annual allocations and of greater budgetary flexibility to ensure that it results in an improvement and not deterioration in the composition of expenditure, outputs and services provided. 12. Refine and formally adopt the new Unified Chart of Accounts, and implement as part of TABMIS. 13. Continue to give sustained attention to change management, organizational readiness and training as TABMIS implementation moves forward. 1. Move progressively towards adopting International Public Sector Accounting Standards (IPSAS) and International Auditing Standards

4 xviii Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Issue/Sector (numbers correspond to chapters) 6. Decentralization to subnational government Recommendations 2. Establish an effective public accounts oversight function at the National Assembly, perhaps by strengthening the capacity of the Economic and Budgetary Committee. 3. Ensure independence for SAV by converting it into an independent organization established by the National Assembly. 4. Improve the transparency of the oversight process by making audit reports available to the public, and promote demand for accountability by encouraging media and public debate on public financial management issues. 5. Further rationalize the roles and responsibilities of the audit and inspection functions: for example, consider establishing internal audit functions, initially at ministerial level, to gradually replace the present inspection function at each ministry. 6. Ensure application of improved accounting and auditing standards to large SOEs (General Corporations). 7. Draft a combined law for SOEs and non-soe enterprises so that they are all subject to the same requirements; strengthen the internal audit function in SOEs; and establish a professional association of internal auditors. 8. Continue systematic monitoring of publicity of budgets and accounts at sub-national level, and also encourage provinces and districts to monitor how many schools, health providers and other spending units publish their budgets and accounts. 9. Publish an annual report with detailed and consistent data on public spending in each province. 10. Produce each year a Budget White Paper explaining in an accessible way the contents of the Budget and its links to national development goals and strategies. 11. Complete the corruption review as soon as possible and ensure appropriate follow-up action. 1. Monitor and evaluate the impacts on public service delivery of granting provincial discretion over the public finances of districts and communes; and consider in the longer term the case for specifying specific revenue and expenditure assignments for districts and communes. Time Frame Annually from 2005 Annually from 2006 budget

5 Executive Summary xix Issue/Sector (numbers correspond to chapters) Recommendations Time Frame 2. Enhance administrative capacity at the local level of government by implementing programs to upgrade and maintain critical levels of technical and administrative capacities at the district and commune levels. 3. Consider the need in the longer term to introduce explicit expenditure assignments for districts and communes, and the need to allow for asymmetric assignments below the province level. 4. Issue regulations to strengthen collaboration and coordination among agencies at different levels of government that share a particular expenditure responsibility; and to facilitate contracting with the private sector. 5. Study the feasibility of increasing revenue autonomy at the provincial level in the medium term. 6. Explore ways to improve the apportionment of shared taxes between central and provincial governments. 7. Monitor and evaluate how the flexible, unwritten approach to revenue assignments for districts and communes is performing. (In the World Bank s view, the Government might then mandate more explicit revenue assignment at local levels as part of any further revisions to the State Budget Law.) 8. Consider augmenting the existing system of transfers with clearer revenue norms, based on stronger revenue forecasting capacity; and by introducing explicit norms for capital expenditure. 9. Consider introduction of a full formula driven system of equalization grants. 10. Consider strengthening of the conditional grant system, both for recurrent and capital spending. 11. Consider developing a new inter-governmental fiscal system, whereby full autonomy to approve subnational budgets will rest with People s Councils of corresponding level. 12. Delegate more authority to subnational governments in determining their own expenditure norms within a range set by the center. 13. Strengthen the current borrowing rules for sub-national government in particular, the specification of debt limit rules; and ensure the inclusion of all bond issuance by provinces in the State Budget

6 xx Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Issue/Sector (numbers correspond to chapters) Recommendations Time Frame 7. Delegation to spending units 8. Public investment management 1. Use the citizens score card approach to help assess the impact on citizen satisfaction of block granting in administrative units under Decision Consider more tightly constraining the flexibility that managers have over salaries and remunerations under Decision 192, while still allowing sufficient flexibility to create an incentive for efficiency. 3. Consider whether block granting separately for wages and salaries may be preferable given the current inadequacies of public sector pay structures. 4. Develop further mechanisms to protect the access of the poor and near-poor to essential social services. (The World Bank recommends that the Government move forward cautiously with the implementation of Decree 10, allowing time for experience to accumulate, detailed evaluation to be conducted and measures developed and implemented to mitigate potential risks; whereas the Government team feels that such socialization should be pushed forward faster for those services that are affordable and acceptable to the public, with SDUs converted so as to operate under SOE law. This expansion of socialization should be conditional on having in place a mechanism to protect access of the poor to basic social services.) 5. Conduct continuous review and assessment of the impact of Decree 10, using the citizen score card approach to help assess the impact on citizen satisfaction of Decree 10 in service delivery units. 6. For service delivery units operating under Decree 10, tie State Budget resources to the purchase of specific public goods and specific services for the poor and develop mechanisms for monitoring and enforcing delivery against such contracts. 1. Build the analysis of recurrent costs into investment selection; and use the MTEF approach as a way of ensuring consistency between recurrent and capital costs. 2. Undertake a strategic review of the allocation of responsibilities for public investment between tiers of government, as part of implementation of Resolution Strengthen capacity to guide, train, support and supervise bodies with decentralized investment authority

7 Executive Summary xxi Issue/Sector (numbers correspond to chapters) Recommendations Time Frame 9. Public procurement management 10. Education sector expenditure 4. Develop and adopt an investment planning manual that deals both with techniques for individual project selection and with techniques for assessing appropriate balances between sectors/regions. 5. Systematize more explicit analysis of risks linked to investment, including contingent risks associated with state credit lending. 6. Require all investment-authorizing bodies to keep standard project registers in which planned, authorized and actual expenditures are kept systematically up-to-date to be integrated with TABMIS in due course. 1. Issue instructions and standard bidding documents to guide staff in executing agencies in implementing Decree Supplement the new paper-based Procurement Bulletin with a website version. 3. Establish a way to monitor the application of procurement rules and procurement outcomes. 4. Establish a mechanism for receiving and responding to complaints. 5. Finalize the procurement ordinance/law and submit it to the National Assembly. 6. Define a multi-year procurement capacity development strategy to ensure that managerial and technical staffs have the capacity required to perform their required procurement tasks and functions. 7. Develop a program to build enhanced capacity to manage contracts. 8. Establish guidelines and instructions to enhance the quality of design and contract supervision. 9. Strengthen enforcement of contractual provisions and respect for formal processes to resolve disputes over commercial contracts. 1. Rather than further improving Pupil-Teacher Ratios, prioritize introducing full day working more widely, reducing user charging for poor and disadvantaged children, and improving teacher qualifications and classroom infrastructure, particularly in the poorest localities onward

8 xxii Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Issue/Sector (numbers correspond to chapters) Recommendations Time Frame 11. Transport sector expenditure 2. Conduct an overall review of the role of charging in the education sector. This review should be integrated with the planning priorities being developed as part of the education sector MTEF. 3. Review the adequacy of differentials in the distribution norms for education to ensure the capability of more vulnerable areas to deliver to standards of service provision (e.g. Fundamental School Quality Level FSQL). 4. Develop mechanisms to ensure that at least a minimum level of budget funding reaches the point of service delivery for each student, sufficient to deliver standards of service provision (e.g. FSQL). 5. Increase budget allocation to enable the sector to achieve quality and access improvement objectives; and consider devoting a larger share of total education resources to a broadened range of target programs. 6. Consider linking improvements in teachers pay to changes in practice and performance. 7. The World Bank recommends that Decree 10 should not be implemented in the education sector, at least at primary and secondary levels; instead, consideration should be given to delegating flexibility to heads of schools under Decision 192 or other powers. 8. Give priority to the development of tests of attainment at key stages, to be applied systematically and objectively. 9. Treat as a priority the development of improved resource management skills and information systems at every level of the education sector. 1. Reassess estimates of future expenditure requirements for the transport sector, as part of MTEF development, and consider redirecting transport spending from roads to the rail and waterway sub-sectors. 2. Support the establishment of much stronger commitment controls in the transport sector; conduct an immediate retroactive assessment of all projects approved in the transport sector to determine that budgets exist for their implementation; implement urgent measures to clear arrears in the transport sector and accelerate equitization of transport SOEs

9 Executive Summary xxiii Issue/Sector (numbers correspond to chapters) Recommendations Time Frame 12. Health sector expenditure 3. Shift funds from new investment expenditure to operations and maintenance expenditure in the transport sector; the recently formed Advisory Group on Road Management and Finance should then make recommendations for longer-term solutions to road maintenance and management. 4. Address key issues inhibiting private sector investment in transport, including legal and regulatory frameworks, lack of implementation capacity, and insufficiently developed domestic funding and financing instruments. 5. Devise a strategy for gradually reducing the number of transport Project Management Units through merger into sub-sectoral administrations. 1. Develop tools and processes to plan the budget on the basis of a set of clearly defined and carefully prioritized outputs, instead of on the basis of the input-based norms that have been used in the past. 2. Develop a new set of budgeting norms that reflect not only population size but also local health needs and capacity to mobilize local health resources (e.g. through user fees and health insurance). 3. Encourage provinces in implementing Decision 139 on Health Care Funds for the Poor to purchase health insurance cards for the poor rather than reimburse healthcare providers directly; and consider case for increasing the funding per beneficiary. 4. Carefully monitor and evaluate implementation of Decision 139 (including the methods used to identify the poor), with appropriate steps taken to correct any problems encountered as implementation proceeds. 5. Proceed cautiously with implementation of Decree 10 in hospitals, with careful monitoring to ensure that public funds are not diverted to support the expansion of services for the rich. (The Government team felt that Decree 10 should continue to be implemented at the central and provincial-level hospitals and be piloted at the district level hospital and commune-level health facilities. The World Bank team recommended that Decree 10 implementation in the centrally managed hospitals be delayed until appropriate monitoring mechanisms are in place to ensure that the larger public missions of these hospitals will not be compromised; that an appropriate mechanism for Decree 10 implementation in district level hospitals should be developed and tested; and that Decree 10 should not be extended to commune-level health facilities.) 6. Give greater priority to health information dissemination

10 xxiv Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Issue/Sector (numbers correspond to chapters) 13. Agriculture and rural sector expenditure Recommendations 7. Develop strong and effective accreditation mechanism covering both public and private hospitals; and disqualify hospitals unable to achieve accreditation after a suitable period of time from providing services to the insured. 8. Make all accredited private hospitals eligible to provide services to the insured whilst gradually shifting to demand side financing for curative health care. 9. Conduct a review of the international experience in the area of health system purchasing. 10. Conduct a review of international experience in regulating hospital and pharmaceutical prices and propose effective mechanisms for regulating key health sector prices. 1. Re-prioritize and strengthen management of expenditure within the agriculture and rural development sector before considering a larger budget share for the sector. 2. Improve balance between capital and recurrent cost expenditures, particularly in irrigation, with more attention given to catching up with deferred maintenance, system completion, rehabilitation and adjusting irrigation systems to support diversified crops. 3. Increase budget share of agricultural research, and rationalize number of research institutions. 4. Increase budget share of extension services. 5. Maintain budget share of forestry. 6. Reduce the burden of agricultural SOEs on public expenditure. 7. Require stronger project appraisal; and establish outcome and impact analysis of sector public spending in the agricultural sector. 8. Establish much stronger commitment controls in the agricultural sector and implement a plan to clear the remaining stock of payment arrears and take measures to prevent them reoccurring. Time Frame

11 Executive Summary xxv Issue/Sector (numbers correspond to chapters) Recommendations Time Frame 14. National Target Program (NTP) expenditure 9. Adjust institutional roles and processes with central agencies paying less attention to setting of commodity targets. 1. Continue to use NTPs as a complement to bending mainstream funding towards the poor and consider growing them as a share of public spending. 2. Rationalize NTPs and strengthen coordination both with each other and with main programs. 3. Strengthen mechanisms to ensure that NTPs support national targets, including establishing clearer annual performance agreements based around specific outputs and outcomes. 4. Establish incentive mechanisms to improve the use of funding and sustainability of investment through NTPs unless sufficient O&M spending is being planned and allocated, allocations should be cut. 5. Improve the skills and capacities of commune level personnel. Commune staff should receive training in accounting, financial and project management skills. 6. Increase local consultation and participation in NTP management and planning. 7. Address weaknesses in procurement under NTPs. 8. Improving the financial monitoring and reporting of NTPs. The Government should undertake regular evaluation of the NTPs. An audit and inspection plan should be agreed with a clear remit and approach to sampling and reporting. A reporting body should be designated within Government to review and report to all stakeholders on progress in disbursing funds / tracking expenditure. 9. Undertake regular evaluation of NTPs. 10. Devise mechanisms to capture and disseminate lessons from local innovations in NTP delivery and ensure mechanisms exist to analyze and disseminate lessons at national level and across provinces

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13 1. BACKGROUND, APPROACH AND SCOPE BACKGROUND 1.1 In December 2003, the Prime Minister of Vietnam issued Official Letter No. 5932/VPCP-QHQT instructing the Ministry of Finance, the Ministry of Planning and Investment and other concerned agencies to conduct a Public Expenditure Review and Integrated Fiduciary Assessment (PER-IFA). 1.2 In a market economy, public expenditure is one of Government s most important instruments for supporting poverty reduction and growth. Periodic assessment of recent public expenditure and its management is a crucial part of a sound planning and budgeting process. Such assessments are part of the planning and budgeting cycle in most developed countries. Traditionally in the developing countries, such assessments have been conducted by donors: for example, as part of World Bank-led Public Expenditure Reviews (PERs), Country Financial Accountability Assessments (CFAAs) and Country Procurement Assessment Reports (CPARs). Increasingly, however, reform-minded developing countries are taking ownership and leading such exercises themselves, as an integrated part of their own planning and budgeting cycle. 1.3 In Vietnam, a series of public expenditure assessments has been conducted. These include the UNDP-World Bank PER of 1996; the IMF-World Bank study of 1999, "Towards Fiscal Transparency"; the joint Government-donor PER of 2000; the World Bank CFAA of 2001; and the World Bank CPAR of These assessments have made an important contribution to Vietnam s reforms, influencing the formulation of the State Budget and the Public Investment Program, helping to shape sector strategies and donor programs, and making an important contribution to the Comprehensive Poverty Reduction and Growth Strategy (CPRGS) and the Public Administration Reform (PAR) initiative. Progress in implementation of the 2000 PER is summarized in Appendix 1.1 and discussed further in the following chapters. 1.4 The PER-IFA launched by the Prime Minister would involve updating the previous PER, CFAA and CPAR, and for the first time conducting these exercises in a fully integrated manner. Like the 2000 PER, the work would be conducted jointly with donors and published as a joint Government-donor report. For the first time in Vietnam, however, Government officials as well as international experts would participate substantively in the analysis and would draft major written contributions. Objectives APPROACH 1.5 The objectives agreed for the 2004 PER-IFA were as follows: 1

14 2 Vietnam Public Expenditure Review and Integrated Fiduciary Assessment to undertake a review of public expenditure and its management in Vietnam, including strengths and weaknesses; to align development planning and budget planning across Government, as well as the country assistance strategies of financiers and donors, with the Government s Socio-Economic Development Plan and Comprehensive Poverty Reduction and Growth Strategy; to provide analytical inputs to the 2005 State Budget, the 5 year Socio-Economic Development Plan for , the Government s pilot Medium-Term Fiscal Framework and the Government s pilot Medium-Term Expenditure Frameworks at sectoral and provincial levels; to support the Government s ongoing program to strengthen budget planning, execution, reporting and accountability; to strengthen capacity to conduct public expenditure analysis in the Ministry of Finance, the Ministry of Planning and Investment, in sector ministries and provinces and in the Vietnamese research community; and to provide an assessment of fiduciary risks for the Government, its financiers and donors, and its citizens. Participation 1.6 Public expenditure management is a whole of government process. The PER- IFA included participation from across Government. Central ministries leading study teams and contributing major working papers to underpin each section of the PER-IFA included the Ministry of Finance (MOF), the Ministry of Planning and Investment (MPI), the Ministry of Agriculture and Rural Development (MARD), the Ministry of Education and Training (MOET), the Ministry of Health (MOH), the Ministry of Labor, Invalids and Social Affairs (MOLISA) and the Ministry of Transport (MOT). These ministries were also involved in editing the final report. A number of provinces, districts, communes and frontline spending units also made written submissions to the PER-IFA. 1.7 The Government was determined to play a more active role in conducting this PER-IFA. Nevertheless, the Government was keen that this PER-IFA should involve strong participation from donors; and that, like the 2000 PER, it should be a joint Government-donor assessment, with the final report endorsed by all parties. Donors helped conduct the PER-IFA, contributing working papers to underpin each study and assisting Government in preparing the final report. Donors providing major financial and technical contributions included the World Bank and the Like Minded Group of Donors (LMDG), which comprises donor agencies of the Governments of Canada (CIDA), Denmark (DANIDA), the Netherlands (NMDC), Norway (NORAD), Sweden (SIDA), Switzerland (SDC) and the United Kingdom (DFID). The PER-IFA also benefited from valuable interactions with representatives of the European Commission (EC), the International Monetary Fund (IMF), the Japan Bank for International Cooperation (JBIC) and the United Nations Development Program (UNDP). 1.8 The participatory approach extended beyond the Government policy makers and the donor community. A large number of Vietnamese and international academics,

15 Background Approach and Scope 3 researchers and consultants supported the Government and donor teams, including both private individuals and representatives from Bannock Consulting (UK), the Central Institute of Economic Management (CIEM, Vietnam), ECORYS Research and Consulting (the Netherlands), the Education Management Research Institute (Vietnam), Electricity of Vietnam (EVN, Vietnam), Georgia State University (USA), Hanoi Polytechnic University (Vietnam), the Institute for Market and Price Research (Vietnam), the Institute of Finance Research (Vietnam), the Institute of Health Strategy and Policy (Vietnam), the Institute of Training and Professional Development (Vietnam), Mediconsult (Vietnam), Mokoro Ltd (UK), the University of Washington (USA) and the Vietnam Economics Association (VEA, Vietnam). Process 1.9 Consultations on a concept note for the 2004 PER-IFA were conducted between Government, the World Bank and the LMDG in October Discussions were conducted between donors and officials in all participating ministries. Government officials, World Bank and LMDG staff also participated in a seminar jointly organized and sponsored by the Government of Vietnam, the Government of Korea, the World Bank and the LMDG in Halong Bay on October 9 and 10, 2003, which served a brainstorming and launch workshop for the PER-IFA The PER-IFA was built up from a series of cross-sectoral and sector-specific studies. A working paper for each study was produced by an inter-ministerial Government team, working with Vietnamese experts. Cross-sectoral study teams were typically led by the Ministry of Finance or the Ministry of Planning and Investment, whereas sector-specific study teams were led by the relevant sector ministry, with participation from the Ministry of Finance, the Ministry of Planning and Investment and, where appropriate, other relevant ministries and provinces For each cross-sectoral and sector-specific study, a working paper was also prepared by one or more international experts, including staff of the World Bank, consultants and academics. Typically, the Government s paper was prepared first and the international expert then drew upon and validated this material. In some cases, the Government s paper formed a later commentary on the international expert s input. In all cases, there was extensive interaction between Government teams, international experts and donors. The international experts fieldwork was mostly conducted during two missions: one in April and one in July The final PER-IFA report itself was drafted jointly by representatives of the Ministry of Finance and the World Bank. There was widespread consultation across Government and with international and Vietnamese development partners during a drafting mission in October 2004 and in the months following. In April 2005, the Prime Minister approved this draft of the PER-IFA for publication, following consultation with ministers. A workshop to disseminate the published PER-IFA is scheduled to be held in May 2005 in Danang.

16 4 Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Cross-sectoral studies SCOPE 1.13 The PER-IFA involved eight cross-sectoral studies. These studies are presented in Volume 1 and include: Fiscal Trends and Sustainability (Chapter 2); Trends in Composition of Public Expenditure (Chapter 3); Institutions for Public Expenditure Management (Chapter 4); Institutions for Financial Accountability and Transparency (Chapter 5); Decentralization to Subnational Government (Chapter 6); Delegation to Spending Units (Chapter 7); Public Investment Management (Chapter 8); and Public Procurement Management (Chapter 9). Sectoral scope 1.14 The PER-IFA involved five sector-specific studies. These sectoral studies are presented in Volume 2 and include: Education Sector Expenditure (Chapter 10); Transport Sector Expenditure (Chapter 11); Health Sector Expenditure (Chapter 12); Agriculture and Rural Development Sector Expenditure (Chapter 13); and National Target Program Expenditure (Chapter 14). RECOMMENDATIONS ON FUTURE PUBLIC EXPENDITURE ANALYSIS 1.15 Key recommendations from each study are presented in the relevant chapter and summarized in the table following the Executive Summary Regarding future public expenditure analysis, the PER-IFA makes the following recommendations: Reflect the analysis and recommendations of the PER-IFA in the forthcoming Socio-Economic Development Plan and forthcoming budgets and monitor implementation closely. Further enhance the capacity and status of public expenditure analysis teams within the Ministry of Finance, Ministry of Planning and Investment, sector ministries and provinces. Lead a further PER-IFA within the next three years, again working in partnership with the World Bank and other donors. In addition, annual update of the PER-IFA should be conducted by Government, though with much more limited scope covering perhaps one or two topics each year.

17 Appendix 1.1: Vietnam Public Expenditure Review 2000 Progress in Implementation of Recommendations Goals Steps Status of Implementation I: Adopt measures specified in public expenditure review I.1 To make budgetary data and information more comprehensive and consistent a. Make an inventory of all off-budget funds and accounts in existence b. Prepare and publish annual receipts-and-expenditure reports on all off-budget funds/accounts c. Develop a proper reporting and a management information system for SOEs 1. Issue regulations on financial reporting of enterprises including SOEs (Decision 167/2000- QD-BTC, 25/Oct. 2000) 2. Develop reporting and management-informationsystems for SOEs MOF made an inventory of off-budget funds in MOF has periodically provided information to donors on the financial position of these funds. Revised regulations on fiscal transparency (Prime Minister s Decision 192 dated November 16, 2004) now require disclosure of information on off-budget funds. MOF is currently preparing such information for disclosure. MOF issued Decision 167/2000-QD-BTC dated 25/10/2000 on financial reporting of enterprises including SOEs. Designed a system of enterprises performance tracking and evaluation, and developed software for this management information system with UNDP support. This system has been piloted in two localities (Ha Noi and Ha Tay) and in some SOEs with UNDP support. A system to monitor debt of the 200 most indebted SOE was established under the IMF s PRGF program. This system is no longer in operation after the termination of the PRGF. 3. Implement a reporting system and MIS for SOEs This system has yet to be established. d. Report and record aid disbursements according to budget classification e. Record disaggregated social transfer expenditures to permit assessment of benefits Financial agencies together with the Treasury have developed source of funding codes. Once these codes are operationalized, all aid disbursement will be recorded by budget line items as currently being done for expenditures from budget funds. Modification to the budget classification system has been made to allow for such disaggregating. 5

18 6 Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Goals Steps Status of Implementation f. Designate the Treasury as department responsible for maintaining comprehensive public accounts and implement a fully integrated MIS and an accounting system in treasury The Revised Budget Law 2002 has assigned this function to the State Treasury. MOF currently is implementing the Public Finance Management Reform Project (PFMRP) including establishing a Treasury and Budget Management Information System (TABMIS) and a procurement process for TABMIS is nearing completion. I.2. To improve transparency of budgetary information g. Adopt functional classification in line with international practice (e.g. GFS type) a. Adopt measures to enhance flow of budgetary information among Government agencies Within the PFMRP, a bridging table has been developed in 2003 to allow for reporting in a format consistent with GFS. MOF is planning to revise the Budget Classification to make it fully consistent with GFS. MOF Minister Issued Decision 130 dated August 18, 2003 to unify budgetary accounting and treasury accounting systems and mandated the State Treasury to provide on a regular basis budget execution data to central ministries and provinces. b. Publish annually detailed information on the budget for sectors and other categories covering more than 75 percent of total spending, as provided in the PER c. Publish annually provincial budgets by sectors and categories (by province) This has been done annually since The revised regulations on fiscal transparency (Decision 192 dated 16 November, 2004) make it possible for 100% of budget to be disclosed. Provincial budgets by broad categories (total revenue and total expenditure) have been published annually. Implementation guidelines of the revised fiscal transparency regulations for the Prime Minister s Decision 192/2004 will enable MOF to compile and publish sector allocation by province and by economic categories. d. Post commune budgets outside commune offices Commune budgets are required to be posted according to current transparency regulations. The extent of implementation, however, varies between provinces. The revised fiscal transparency regulations (Decision 192/2004) includes an additional requirement that budget documents have to be provided to Heads of villages/hamlets and local mass organizations to enable the former to inform local citizen and the latter to monitor and oversee budget execution. e. Submit a medium-term fiscal outlook in combination with the annual budget Officials of MOF, MPI and other ministries have developed a medium term macroeconomic and fiscal outlook which has been included in the CPRGS for the period of A task force to develop a more detailed and rigorous Medium Term Fiscal Framework has to been set up under the framework of the PFMRP. A template for the new MTFF submission has been developed. The task force will be working on developing the MTFF in the coming months.

19 Appendix Goals Steps Status of Implementation I.3 Prioritization a. Require sector ministries and provinces to submit integrated capital-recurrent spending requests during budget formulation b. Require sector ministries to assess annually the effectiveness of sector public spending in achieving sector objectives based on reports of all spending agencies, including provinces c. Require provinces and cities to assess (maybe every two or three years) the effectiveness of provincial public spending in achieving objectives of Provinces d. Identify one or two pilot sectors for developing medium-term sector expenditure programs In guidelines for annual budget preparation, the Government has requested ministries and localities to ensure an appropriate balance between current and capital expenditures, especially allocation for maintenance when planning their budget. Annually, MOF and MPI undertake an assessment by themselves and request provinces and line ministries to evaluate the results of their expenditures. However, such evaluations could be significantly strengthened. Three provinces Ho Chi Minh City, Quang Binh and Bac Ninh have completed provincial PERs with UNDP support. As part of this PER-IFA, provincial PER exercises were launched by four provinces: Binh Duong, Ha Noi, Phu Tho and Vinh Long. Four sectors have been selected to pilot sector MTEF development: education, health, transport and agriculture/rural development. In addition, four provinces will pilot MTEFs. e. Develop a medium-term sector expenditure program for the Education sector A pilot education sector MTEF has been developed and similar exercises have been launched in the three other sectors as part of the PFMRP. I. 4. Medium- Term Fiscal Sustainability a. Implement measures to raise revenue collections in the medium-term Tax revenue as share of GDP has been kept at around 21-22% of GDP. This is attributed to continuous strong economic growth in recent years, improved tax administration and better tax efforts. b Estimate cost of recent and future wage increases and assess impact on budget A review of salary policy from 1993 until now has been undertaken. It also includes analysis of impact of salary reform on future budget. c Estimate cost of planned banking and SOE reform MOF in collaboration with other government agencies has completed a cost estimate of planned banking and SOE reforms. The Prime Minister has approved these costings and their implementation plans. d Compile data on government guarantees and assess likely risk e. Prepare a medium-term fiscal outlook, making all assumptions explicit. An inventory of Government guarantees has been completed under the UNDP-funded TA on external debt management and an analysis of risks for on-lending to ODA projects has been conducted. MTFO was developed and included in the CPRGS. A more detailed and rigorous Medium- Term Fiscal Framework is now in preparation.

20 8 Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Goals Steps Status of Implementation I. 5. Enhancing pro-poor bias of public expenditure I. 6 Reallocating spending within Sectors a. Reallocate spending from certain type of curative care to preventive care The Government has given a considerable focus to disease prevention. The disease prevention objective is also highlighted in the Government s approved health development strategy. In budget allocations for 2001 and 2002, and estimated outturns for 2003, MOH and MOF have made a reallocation as per this recommendation. b. Ensure adequate expenditures on reproductive health A reproductive health program has been in operation and a budget allocation has been made annually to implement the program. a. Take steps to raise budget allocation for O & M expenses for irrigation, road and inland waterways maintenance, agricultural extension and research activities, rural road investment b. Adopt the principle of linking irrigation user charges to the volume of water-use and develop a plan to implement this principle c. Implement the principle of farmers irrigation-usercharges based on actual water-use in phases The budget allocations for these types of expenditure have been increased during the period of For example, the 2001 allocation for O&M increased by 8.5 percent compared with 2000 and the 2002 allocation increased by 28.2 percent compared with However, the imbalance between current and capital budget has if anything become more acute, especially in the transport sector. Decree 143/2003/N-CP issued on 28 November 2003 to guide implementation of the Ordinance on Irrigation and Management and Protection of Irrigation Schemes, has embodied this principle in setting the irrigation fee framework and will be implemented in phases. d. Implement measures to improve the performance of irrigation management companies (through, for example: cutting costs, water losses) e. Encourage the creation and growth in number of water user associations. f. Implement new measures to improve the exemption system of user fees for the poor and ensure its effective functioning. Once this has been done, increase user fees in hospitals so as to reduce budgetary subsidies to hospitals. g. Review the existing exemption systems in health (and education) and propose recommendations to improve the system and to ensure it functions effectively Being implemented through Decree 10/2002/ND-CP on financial mechanism for public service delivery agencies with revenue. MARD has piloted this approach in some provinces. In October 2002, Prime Minister issued Decision 139/2002/QD-TTg on establishment of Health Care Fund for the Poor throughout the country. This fund provides funding for health facilities to cover the costs of providing treatment to the poor. See above.

21 Appendix Goals Steps Status of Implementation h. Consider expansion of the health insurance program, especially the voluntary scheme, as a mean of reducing health costs to the budget, while minimizing adverse selection problem and ensuring its financial sustainability i. Review the existing systems of allocative norms for education and health expenditures and adopt the new ones with a view to reducing regional disparities in education and health spending j. Increase overall pupil teacher ratios as secondary school enrollment rates rise See above. This was done as part of developing a new system of recurrent expenditure norms. The new system of norms was issued by Prime Minister in the Decision 139/2003/QD-TTg dated July 11, Pupil teacher ratios have declined at primary level see Chapter 10. II. Undertake work for designing specific measures to address problem identified in public expenditure review II.1. Prioritization a. Develop an effective process for integrating capital and recurrent budget formulation and budget-execution, so as to minimize waste of existing public capital stock. b. Formulate new norms for recurrent spending (through a consensus process involving sector ministries and provinces) to ensure that Government s stated goals are achieved. c. Consider establishment of a road fund d. Assess design of a revolving fund for school infrastructure improvement Government agencies have started to engage in developing sectoral and provincial MTEFs. This process will help to better integrate capital and recurrent budget formulation. New recurrent budget allocation norms for provinces were developed through a consensus process involving sector ministries and provinces. The new norms were approved by Prime Minister decision 139/2003/QD-TTg dated July 11, MOT has developed a proposal to set up a road fund. It has been agreed to in principle by the Prime Minister but a final decision on establishment of such a fund is pending. Government issued Decision 159/2002/QD-TTg dated 15 November 2002 approving a school and classroom improvement program. State Bonds have been issued in 2003 to supplement funding for the program. II.2. To enhance pro-poor bias of public spending e. Assess the impact of agriculture SOEs on the economy, including their net contribution of the state budget a. Develop and adopt mechanisms to provide adequate funding to primary schools, clinics and certain types of hospitals for exempting fees for the poor To be done. A health care for the poor fund has been set up to provide funding to health facilities to serve the poor.

22 10 Vietnam Public Expenditure Review and Integrated Fiduciary Assessment Goals Steps Status of Implementation II. 3. Scope for shifting services to private sector b. Develop and adopt formula-based system for determining the size of cash transfers to poorer provinces c. Examine alternative mechanisms for protecting the poorest and increasing their incomes d. Implement measures to enhance gender balance (by enhancing female access to primary education in regions with poor access and raising female enrolment rates in secondary education) a. Initiate examination and assessment of the scope for gradually shifting the provision of some services to the private sector A new system of recurrent budget allocation norms (Decision 139) includes geographical coefficients to take into account difficult conditions of disadvantageous regions and provinces. At the end of 2001, the Government issued two decisions (168 and 186) on supporting the poor in the most difficult areas (6 Northern Mountain provinces and 4 Central High-land provinces). In 2002, it issued Decree 173 on supporting the poor in Mekong Delta river provinces to build houses, Decision 139 on the health care fund for the poor and Decision 159 on the school and classroom improvement program. To be done. In the Master Plan of public administration reform, a policy was adopted for transferring some of public services to private sector provision in the areas of health, education, culture and sports, and environmental cleaning services. Piloting of concessions for some ports is being implemented. Private sector participation in infrastructure has been increased considerably during the past few years. III. Examine issues not analyzed in public expenditure review a. Conduct overall benefit incidence analysis for taxation and expenditure system Not implemented. b. Undertake evaluation of national targeted programs In 2001, NTPs were reviewed by government agencies and consolidated. c. Develop an improved gender focus in the budget process MOLISA with assistance from UNDP conducted an evaluation of the NTP on Hunger Eradication and Poverty Reduction and Program 135 in An assessment of NTPs was undertaken as part of this PER-IFA. To be developed. d. Examine other issues in fiscal decentralization The regional ASEM TA on fiscal decentralization provided assistance for research and study of other countries experience in this area. Many best practices have been incorporated into