|1. Project Data:
ICR Review Date Posted:
|SIMPLIFIED - Poverty Reduction Support Credit III
Project Costs(US $M)
Loan/Credit (US $M)
Sector, Major Sect.:
|General agriculture fishing and forestry sector, General public administration sector, General education sector, General finance sector, Health,
Agriculture fishing and forestry; Law and justice and public administration; Education; Finance; Health and other social services
Cofinancing (US $M)
Board Approval (FY)
|Asian Development Bank, Canadian International Development Agency (CIDA), Denmark, European Commission, Japan Bank for International Cooperation, the Netherlands, UK Department for International Development (DFID)
|Yvonne M. Tsikata
||Christopher D. Gerrard
|2. Project Objectives and Components:|
a. ObjectivesThe credit (third in a series of five) supports Vietnam's Comprehensive Poverty Reduction and Growth Strategy (CPRGS) in the following areas:
(i) Promotion of greater internal and external competition, endorsement of an acceleration in the divestiture of state-owned enterprises (SOEs) and the restructuring of state-owned commercial banks (SOCBs), improved transparency and accountability in SOE operations and in the banking sector, and support for the establishment of a sound regulatory framework for policy lending by the government.
(ii) Promotion of human development through an expanded budget appropriation and higher quality standards for education, through resources to cover the health care costs of the poor and through mechanisms to complete the transfer of land-use rights to households, especially in upland and ethnic minority areas.
(iii) Increase in transparency and accountability of public finances, simplification of administrative procedures, and steps towards curbing corruption. Revamping planning processes, moving away from a command approach towards the alignment of policies and resources to the attainment of well-specified development goals.
b. Components (or Key Conditions in the case of Adjustment Loans):
TRANSITION TO A MARKET ECONOMY
(1) Trade Integration
(i) Detailed preparatory work for WTO accession.
(ii) Eliminate QRs on petroleum imports.
(iii) Adopt Early Harvest Program to reduce tariffs for agricultural products.
(iv) Use transaction value as basis for customs valuation.
(v) Apply the Harmonized Classification and Coding System to all trading partners.
(2) SOE Reform
(i) Accelerate the SOE ownership transformation process by following 104 SOE restructuring plans adopted in 2003.
(ii) Broaden the equitization process to include large SOEs and General Corporations.
(iii) Issue operational guidelines for the central Debt and Assets Trading Company.
(3) Financial Sector Reform
(i) Formulate a plan to strengthen supervisory capacity of the State Bank of Vietnam.
(ii) Adopt a new Chart of Accounts for banks to improve transparency of the banking sector.
(iii) Issue instructions to the SOCBs to put into effect new credit manuals to improve risk management in their operations.
(iv) Impose a sixty-day time limit for SOCBs to submit their IAS audits to State Bank of Vietnam.
(v) Issue a prime-ministerial Directive to equitize two SOCBs, namely Mekong Housing Bank and Bank for Foreign Trade of Vietnam; and initiate steps to identify a strategic investor for Mekong Housing Bank.
(vi) Issue regulations for the operation of the Development Assistance Fund restricting its mechanisms for policy lending.
(vii) Further develop the securities market by easing listing requirements and creating the legal framework for securities investment funds as a new investment channel.
(4) Private Sector Development
(i) Level the treatment of enterprises by unifying the corporate tax rate at 28% regardless of the nature of their ownership.
(ii) Strengthen the administration of intellectual NOIP as the central point for treatment of trademarks and intellectual property rights.
(iii) Issue a decree improving the legal framework for the organization, operation and management of business associations.
(i) Expand the Comprehensive Poverty Reduction and Growth Strategy to include a development policy for large-scale infrastructure.
(ii) Open internet and mobile telephone services to competition by licensing additional service providers.
(iii) Reduce prices for international and leased line services to regional levels.
INCLUSIVE DEVELOPMENT AND ENVIRONMENTAL SUSTAINABILITY
(i) Increase expenditure share of education to 17.1 of the national budget.
(ii) Adopt minimum quality standards for primary schools nationwide.
(i) Establish Health Care Funds for the Poor (HCFPs) in all provinces and full payment of the central government contribution to such Funds.
(ii) Adopt a multi-sector program to implement the HIV-AIDS Strategy, including destigmatization, information dissemination and provision of affordable health care and treatment.
Enact a new land law providing for a unified land administration system, and supporting access to land for all sectors and community land use practices.
(i) Issue a decree providing for the transfer to water user groups the management of small-scale stand-alone irrigation and drainage systems, and secondary and tertiary irrigation systems.
(ii) Issue a decree for the conservation and sustainable development of wetlands.
(i) Decentralize the responsibility for environmental impact assessments to local levels according to the value of investment projects.
(ii) Establish "polluter pays" principle and mechanism for industrial and municipal waste water discharges.
(iii) Issue regulations requiring the worst pollution offenders to upgrade their technology, move to authorized zones, or face closure.
(1) Planning Processes
(2) Public Financial Management
(i) Issue guidelines to roll-out the CPRGS approach in provincial planning and launch the process in twenty provinces, and to align policies, planning processes and allocation of resources with localized development targets.
(ii) Pilot a medium-term expenditure framework in the education sector to improve planning processes and service delivery capacity.
(i) Unify the accounting systems of the State Budget and the State Treasury to enable better monitoring of revenues and expenditures and allocation of resources.
(ii) Complete the overall design of an integrated Treasury and Budget Management Information System to support the integrity of fiscal data, transparency and control of public finances.
(3) Financial Accountability
(i) Enact a new Accounting Law and issue new accounting and auditing standards in line with international standards.
(4) Public Administration Reform
(ii) Issue a decree on Independent Audit Practice subjecting SOEs to independent audits, unless specifically exempted and subject to audit by the State Auditor of Vietnam instead.
(i) Promulgate the national policy of the "One-Stop Shop" mechanism to simplify administrative procedures.
(ii) Pilot the report card approach to public services delivery in four cities to measure performance and service delivery outcome.
(i) Strengthen public procurement by establishing a Department of Public Procurement (within the Ministry of Planning and Investment) to perform the functions of a public procurement agency, prepare standard bidding documents, issue implementation guidelines and oversee compliance; reinforce open competitive bidding as the main method of procurement; and mandate the establishment of a Procurement Bulletin.
(ii) Strengthen the requirement that government agencies adhere strictly to legal procedures, schedule and scope of businesses.
c. Comments on Project Cost, Financing, Borrower Contribution, and DatesThe credit of $100 million was appraised on May 19, 2004, approved on June 22, 2004 and became effective on October 6, 2004. The credit is the third in a series of programmatic loans designed to support Vietnam's Comprehensive Poverty Reduction and Growth Strategy (CPRGS).
|3. Relevance of Objectives & Design:|
The objectives of the 2002 CPRGS and the PRSC III that supported it were highly relevant and tailored to Vietnam's economy. A perceived gap in the original CPRGS -- the role of infrastructure in economic and social development -- was rectified in 2003 with the addition of a chapter on the issue.
|4. Achievement of Objectives (Efficacy) :|
Significant progress was made under PRSC III in the areas of trade integration, overall human development and public financial management. Less progress was made on reforming small and medium-sized SOEs and in the banking/financial sector with respect to state-owned commercial banks. Vietnam continues to grow above 7 percent annually and the growth rate of exports exceeds 20%, despite shocks from the avian flu and agricultural standards constraints.
TRANSITION TO A MARKET ECONOMY: Partially Achieved
(1) Trade Integration: fully achieved. The trade regime has been significantly liberalized with QRs remaining only on sugar. Vietnam moved closer towards WTO accession with a number of WTO Offers made by Vietnam that commit it to continued liberalization in goods and services. A project on customs modernization is being finalized for Board submission in November 2005.
(2) SOE Reform: partially achieved. This remains the weakest part of the reform program with a slow pace of reform. While the number of SOEs was further reduced from 4,361 in 2003 to 4,200 in 2004, there has been limited progress in restructuring small and medium-sized SOEs and information on their operations remains inadequate.
(3) Financial Sector Reform: partially achieved. While several actions have been taken to improve transparency and accountability in the banking and financial sectors, state-owned commercial banks remain a concern as they are significantly under-capitalized, and are poorly equipped to assess credit and risk.
(4) Private Sector Development: achieved. All covenants were met; in particular the enactment of a new Land Law has laid the ground for greater registration and available land for new enterprises. Private investment has grown steadily as a share of GDP, reaching 16% in 2004.
(5) Infrastructure: fully achieved. The CPRGS has been amended to include infrastructure, telecommunications is open to competition and prices are converging to regional levels.
INCLUSIVE DEVELOPMENT AND ENVIRONMENTAL SUSTAINABILITY: Achieved.
(1) Education: achieved. School standards have been introduced. Primary and secondary school enrollment have risen but at a decreasing rate, suggesting other constraints (e.g. teacher training and quality).
(2) Health: fully achieved. An HIV/AIDS strategy has been adopted and is under implementation. Both infant and child mortality are declining steadily.
(3) Land: fully achieved. See enactment of Land Law in (4) above under private sector development.
(4) Water: fully achieved. The percentage of the population with access to water and sanitation services has steadily increased from 41% and 17% respectively in 2001 to 53% and 25% in 2004.
(5) Environment: partially achieved. All covenants were met and a new forest law was passed, although implementation has been limited.
GOVERNANCE: Partially Achieved
(1) Planning Processes: fully achieved.
(2) Public Financial Management: fully achieved.
(3) Financial Accountability: fully achieved.
(4) Public Administration Reform: partially achieved. Implementation of the "One-Stop Shop" approach to simplify administrative mechanisms has been slow.
(5) Anti-Corruption: partially achieved. The Department of Public Procurement was not established. Anti-corruption initiatives have lacked an overall framework and diagnostic tools.
Not applicable for adjustment operations.
|6. M&E Design, Implementation, & Utilization:|
While a comprehensive set of indicators to monitor and evaluate economic outcomes was not available at the beginning of PRSC process, the CPRGS and other Government development strategies can be used to pull together a set of development outcomes that are spelt out clearly in the project documents. The ICR does a good job of linking progress and outcomes to these indicators.
|7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):|
Reason for Disagreement/Comments
|Satisfactory||Satisfactory||The progress across a broad range of social, structural and institutional reforms and the continued good performance in economic and social dimensions on balance merits this rating , despite continued difficulties with SOE reform.|
Quality of ICR:
- When insufficient information is provided by the Bank for OED to arrive at a clear rating, OED will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.
1. A strong macroeconomic framework, significant client ownership and strategic direction are critical to undertaking a wide range of comprehensive reforms.
2. Tying reforms to an "external anchor" such as trade liberalization in the context of WTO membership may help to "lock-in" reforms domestically and facilitate progress in other areas.
|10. Assessment Recommended? Yes|
Why? As is the practice, as one in a series of programmatic loans, this credit should be assessed together with the other programmatic loans in the series once they are closed. At that time OED will be better able to assess their full impact on development outcomes, their sustainability and institutional development impact.
|11. Comments on Quality of ICR:|
This a well-written and constructed ICR that moves beyond process indicators and attempts to discuss outcomes. The total project costs and financing requirement of the submitted ICR are incorrectly noted as US$422 million -- the correct amount is US$222 million.