Public investment serves as an important engine for economic growth, yet the realization of plans is essential for this engine to fully harness its potential.
According to the Ministry of Planning and Investment, a 1% increase in public investment raises GDP by 0.058%, and each VND1 disbursed stimulates an extra VND1.61 from the non-state sector. However, plan implementation often falls short at around 80% annually, despite government efforts.
According to the Asian Development Bank (ADB), currently, approved projects with allocated budgets are sometimes not ready for implementation, causing long delays. Therefore, a systematic approach is needed to improve project readiness that can significantly increase implementation efficiency. Many projects require basic preparatory activities, such as feasibility studies, site clearance arrangements and procurement preparation in parallel with project approval procedures. Projects with high readiness to accelerate implementation will help minimize capital overruns.
Besides, projects sometimes need design or budget changes even after approval and budget allocation. This may cause prolonged disruption before project activities can begin. A major obstacle to the timely and quality preparation of projects is the complexity of regulations, especially land use planning, land acquisition and site clearance. This rigidity is an important challenge in volatile market situations. Rising prices due to lack of raw materials and production inputs – which occur due to legal restrictions – lead to higher costs, forcing contract renegotiations or requiring additional funding and additional approvals. Therefore, according to ADB, there is a need to amend the regulations to allow for principles-based and fit-for-purpose flexibility, as part of improving project cycle procedures.
Notably, poor coordination between public investment and the budget process leading to slow and insufficient budget allocation is still occurring. In recent years, reports have shown that central agencies received higher allocations than recommended, while provinces received too little compared to their needs. The urgent challenge of discrepancies between allocated budgets and investment mandates often leads to budget shortfalls and project implementation delays budgets may not be optimally allocated to the identified priority areas, leading to not making the most effective use of resources. This limits project progress and capital use efficiency.
The Government has applied measures to improve transparency, efficiency and accountability in budget allocation and disbursement. This promotes better coordination between central and local governments, prioritizing projects based on impact and readiness, and implementing rigorous monitoring mechanisms to ensure utilization of capital with high performance. However, the effectiveness of these measures appears to be limited. The disparity between implementation capacity at different levels of government highlights the need to strengthen capital allocation processes and build local government capacity. The ongoing decentralization of public investment and fiscal responsibilities has exposed weaknesses in addressing inter-provincial or inter-regional challenges. According to ADB experts, the budget process should be flexibly adjusted, and it will be more effective at any level (central or provincial) to contribute resources to a regionally coordinated project.
In 2024, public investment will continue to play an important role in supporting the economy. After the National Assembly approved the budget, the Prime Minister approved a plan to allocate VND688.5 trillion to continue building infrastructure and promote economic development. The government has implemented various policy measures to accelerate disbursement of public investment and improve implementation efficiency. These measures include a series of resolutions and directives focusing on different aspects of public investment disbursement. However, to maintain progress, ADB believes that more systematic measures are needed to improve legal and regulatory processes for successful implementation. By proactively overcoming these obstacles in a comprehensive manner throughout the project cycle, Vietnam can maximize the potential of public investment initiatives, promoting economic growth and sustainable development.
By Quynh Anh, Vietnam Business Forum
Vietnamese
October 2024
Hanoi