Public Financial Management:

Towards Evidence-Based Public Administration Reform in Viet Nam, 1 April, 2009

Dr. Clay G. Wescott, Director, Asia-Pacific Governance Institute, Washington DC

Nguyen Huu Hieu, Chief Operating Officer/Chief Technology Officer in StoxPlus, Ha Noi

Vu Quynh Huong Deputy Chief, Public Finance Research Division, Institute of Financial Science, Ministry of Finance, Ha Noi.

Overview Size and cost of PAS since early 1990s, in

comparison with other countries Size and sources of government revenue since 2001 Evidence of PFM improvements and impact on

improved services, showing that considerable progress has been made in PFM and related components of the PAR MP;

Suggested measures to improve PFM system, showing how Viet Nam should work to consolidate the progress made in each area, and make improvements as possible.

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Vietnam ‘01

Philippines ‘01

Indonesia ‘01

Trends in size and cost of government employment in Viet Nam, Philippines and Indonesia, early 1990s and 2001

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Trends in size and cost of government employment in Viet Nam, Philippines and Indonesia, 2001-2006.

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International Comparison:1/ Vietnam’s spending is not high relative to EU countries

TotalSub-total

Wage and salaries

Interest payments Subsidies

Social benefits Other

Germany (2005) 24.1 22.5 3.8 1.4 0.6 13.6 3.0 1.6

Sweden (2005) 55.0 52.2 16.1 1.9 1.5 20.4 12.2 2.9

UK (2005) 43.3 41.3 11.2 2.1 0.5 13.1 14.4 2.0

Vietnam (2006) 27.4 18.6 7.8 0.9 10.8 8.8

Source: IMF, Government Finance Statistics

International Comparison: Expenditure

(In percent of GDP)

Current expenditureCapital

expenditure

1/ EU countries’ spending needs to be adjusted for social benefits in order to compare with that of Vietnam.

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Revenue: Very low PIT, heavy reliance on oil; successful reduction of reliance on trade

Revenue Share (as percent of total)

18.6% 19.0%

40.1%

23.8%

29.5%

32.9%

10.0%

20.7%

1.4%4.0%

1997 2006

Other

Non-tax

Trade (incl.VAT, Exciseon import)Goods andservices

Income

10.4%

0.5%

8.0%

2.7%

5.2%

0.4%

CIT P IT Taxes ongoods

andservices

Trade Non-tax Other

Revenue Composition 2006 (In percent of GDP)

Sources: MOF, and Fund Staff estimates

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International comparison1/: Vietnam’s tax revenue is on the high side among Asian economies; strong VAT collection

1/ In Vietnam, 61 percent of the CIT is from crude oil exports.

Total Other

(year) Sub-total PIT CIT Sub-total VAT/ Sales Excise

Cambodia ('03) 7.2 0.9 0.2 0.7 3.6 2.3 1.3 2.4 0.2

Indonesia ('03) 11.8 6.0 3.2 2.8 5.0 3.8 1.3 0.5 0.2

Philippines ('04) 12.4 5.7 2.1 3.6 3.7 1.9 1.8 2.5 0.5

Singapore ('04) 12.6 6.5 1.9 4.6 4.5 3.4 1.1 0.0 1.5

Malaysia ('04) 16.0 10.8 2.9 8.0 3.5 2.0 1.4 1.2 0.5

Thailand ('04) 18.0 6.2 2.1 4.1 9.3 5.0 4.2 1.6 1.0

Average 13.0 6.0 2.1 4.0 4.9 3.1 1.8 1.4 0.7

Vietnam ('06) 22.0 10.9 0.5 10.4 8.0 6.2 1.8 2.7 0.4

Sources: MOF, and Fund staff estimates

Taxes on Income and Profit Taxed on Goods and ServicesInt'l

Trade

In percent of GDP

PFM improvements: tax Budget law led to streamlined tax

administration, more tax officials Fewer firms have to negotiate with local tax

administrators: 45% in 2007, down from 75% in 2005 (source: PCI 2007).

Should continue to improve due to Tax Administration Law in effect from July 1, 2007, where self assessment was expanded to all taxes, and due to administrative procedure reform (Decision 30 of 2007)

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PFM improvements: expenditure-1 Budget Law, Accounting Law, State Audit Law, and

Procurement Law provide good legal basis for PFMP MTEF pilots in 4 ministries (MOET, MOH, MOT and MARD)

and 4 provinces (Ha Noi, Ha Tay, Binh Duong and Vinh Long); BUT would be facilitated by proposed merger of revenue and capital budgeting in MOF.

Salary reform: norms, compression ratio increased; payment by bank transfer, BUT overly complex scales/grades/steps, and neither salary nor benefits systematically linked with performance, nor with market comparators

More, better trained PFM staff , BUT more analytical capacity needed, severe skill constraints at subnational level.

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PFM improvements: expenditure-2 After 4 years of successful pilots, block grants expanded to 60

provinces, over 1200 local level agencies (over ½ of total) and to MOL, MOT and MOF, BUT norms not adjusted enough for different conditions, benefits uneven across jurisdictions.

Financial autonomy leads to improved services, efficiency, and salaries for service delivery staff, BUT output-oriented budgeting has not been researched and piloted

July, 2007 decision mandates disclosure of SAV audit findings, BUT limited internal audit, limited sample of sub national SAV audits every two years

Plans for unified COA, BUT until rolled out, difficult to understand accounting picture because of different systems in different spending units

TABMIS implementation proceeding, BUTslower than expected

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Proposed measures on PFM-1 PER, CFAA and RESOLUTION No. 53/2007/NQ-CP

recommendations provide good basis for PFMP improvement to support Viet Nam’s middle-income status; PEFAs expected in 2010 and 2012

MPI Household and Living Survey will provide useful citizen feedback on administrative and budgetary procedures that should be used to develop PAR performance indicators

Improve quality of provincial planning to include more focused, better costed priorities

Explore shifting subsidies for service delivery from providers to beneficiaries.

Respond to inflation and budget shortfalls by closer scrutiny of off-budget items, e.g. by including all health and education sector revenue in consolidated state budget estimates.

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Proposed measures on PFM-2 Increase research capacity at ISOS, IFR, other bodies to

monitor PAR results. People’s Councils and NA need better capacity to defend

taxpayer interests. More demands from taxpayers themselves could also help;

Access to Information Law being considered NA 2009 would help process

Implement Master Plan for Simplification of Administrative Procedures in the Fields of State Governance for the period 2007-2010 (Decision No.30/QD-TTg dated January 10, 2007, Decision No. 07/QD-TTg dated January 4, 2008)

Improve PFM skills through improved recruitment, performance management, compensation and training

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Sources IMF, 2007. Vietnam: 2006 Article IV Consultation—Staff Report IMF, 2003. Vietnam: 2003 Article IV Consultation—Staff Report Lee, Il Houng, 2007. “Vietnam’s Budget Structure: Status and Outlook”. IMF Presentation at the Institute of

Financial Research, MOF Hanoi, August. Schiavo-Campo, S. and Sundaram, P. 2001. To Serve and To Preserve: Improving Public Administration in

the Competitive World . Manila: ADB Schiavo-Campo, Salvatore, Giulio de Tommaso, and Amitabha Mukherjee, 1997. Government Employment

And Pay In Global Perspective: A Selective Synthesis Of International Facts, Policies And Experience . Working Paper 1771. Washington, DC: World Bank.

Socialist Republic of Vietnam, 2007. Support the Implementation of the Master Plan for Simplification of Administrative Procedures in the Fields of State Governance. Office of the Government. Ha Noi.

______________2006. Report on review of the implementation of the first phase (2001-2005) of the PAR master programme (2001-2010). PAR steering committee of the Government. Ha Noi, April 27th.

UNDP, 2008. Human Development Report 2007/2008: Fighting Climate Change: Human Solidarity in a Divided World. NY: UNDP.

Van de Walle, S. “International comparisons of public sector performance: how to move ahead?” Public Management Review, in press.

VNCI, 2007. The Vietnam Provincial Competitiveness Index, 2007. VNCI Policy Paper #12. Hanoi. World Bank, in press. Country Financial Accountability Assessment. _____________2008. Seventh Poverty Reduction Support Operation. Project document. _____________ 2005. Vietnam Managing Public Expenditure for Poverty Reduction and Growth Public

Expenditure Review and Integrated Fiduciary Assessment (2 Vols.) _____________ 2002. Vietnam Country Procurement Assessment Report

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