Role by Public expenditure in economic development
(Report at the Seminar on public expenditure management
On 9-10, October, 2003 in Halong)
In recent years, Vietnam economic growth rate has been maintained at relatively high. Together with economic achievements, encouraging progress has been made in the area of poverty reduction, which is recognized from central to local level a bright example countries should consider in their initial stages. In addition, economic restructuring has been initiated and become a precondition for industrialization and modernization process.
Achievements in economic growth and hunger eradication and poverty reduction has been proving the comprehensive and deep reform policy led by the Party is in the right track; policies and mechanisms are suitable, and public expenditure norms and management has become more effective.
However, the economic growth of Vietnam is still not sustainable, economic competitiveness and effectiveness is low. This requires that in the coming time expenditure policies needs to be more appropriate and effective.
Public expenditures are State expenditures including on investment and development expenditures and regular expenditures. This report is going to touch on the role played by investment and development expenditures from the State Budget in socio-economic development process.
Investment expenditure is an important component of public expenditure and having huge influence on regular expenditure.Though investment expenditures from the source of the State Budget annually account for only 20-21 % of gross social investment expenditure, it has to meet a number of general expenditure responsibilities: expenditure on State additional reserve; expenditure on subsidies for production and business in some areas; expenditures on hunger eradication and poverty reduction and social equity; reduction geographical disparities, especially in the remote and disadvantaged areas. The remaining that can be freely allocated for rational composition of investment in order to generate dynamics for the overall economic development is limited. However, the contribution by the investment capitals from the State Budget in recent years has been substantial. The structure of gross social investment capitals has been rearranged in the right way; capitals from domestic and foreign economic sectors have been growing; more focusing on production and business.
In the recent years, investment capitals from the State Budget have been more toward to projects on socio-economic infrastructure; balancing between economic development and social equality. In areas of agriculture, forestry and fishery, investment capitals have been allocated to develop systems of plant and animal breeds, fishery infrastructure, upgrading irrigation systems, building water reservoir together with prevention of floods in the Central part.…
With regard to transportation, attention has been paid to newly build and upgrade national highway, blood-vessel roads, specially the Ho Chi Minh highway; restoring and expanding bridges on Thong Nhat railway line; widening and gradually modernizing important seaports; upgrading and widening numbers of airports and air-stations; strengthening and developing inter-provincial roads nationwide, specially in Me kong delta, Central highland and Northern Mountainous areas…
Systems of leading research institutes have been restructured and capitals have been invested into research equipments to build-up systems of national targeted laboratories; all economic sectors, especially general corporations have been called for invested in science and technology development.
In the field of education and training, the lower education infrastructure has been upgraded, due attention has also been paid to the vocational education system; regarding the higher education system, investment has been to more focusedin accordance to approved plans.
In respect of public health care, the systems of communal clinic stations, district hospitals, provincial hospitals, and leading central hospital and specialized medical centers have been uniformly invested. Social evils prevention centers have been strengthened by capitals from the State and from the people communities. ….
I. Recent achievement in socio-economic development and hunger eradication and poverty reduction.
After 15 years of implementing the reform policy, Vietnamese economy has transformed fundamentally, reaching the unprecedented stage of economic development and hunger eradication and poverty reduction for 4decades of wars and economic rehabilitation. Economic growth rate in the period of 1991-2000 was 7.5% per annum, export volume has increased significantly, inflation has been gradually kept under control, and prices have been stable. Together with economic growth, Viet Nam has made remarkable progress in hunger eradication and poverty reduction. The hunger and poverty rate (according to international standards) has reduced from above 70% in 1990 to around 32% in 2000 (reduce by nearly half of poor households as compared to the year 1990) …
In the late 2 years, economy has continued to grow at the relatively high rate, higher in the following year as compared to the previous year. Social and hunger eradication and poverty reduction targets have been successfully reached, In particular:
* Economicdevelopment targets in 2002:
1. GDP growth rate was7,04%, (forecasted rates for 2003 is 7,3-7,5%).
2. Total outputs of agriculture, forestry, and fishery rose by 5.4%; and ….
3. Industry rose by 14,5%
4. Services increased by 7%
5. Export volume rose by 11.2%
6. Total budget revenue rose by 6.5% as compared the plan.
7. Total expenditure increased by 5,4% compared with the plan
8. Gross social investment reached 34% GDP
9. The price index rose by 4%.
* Social and hunger eradication and poverty reduction targets in 2002:
1. Job generation and supplementation were 1,4 millions,
2. Vocational training was provided for 982.000 people increased by …..% as compared to the year 2001.
3. Birth rate reduced by 0,042%, population growth rate was 1,31%
4. Unemployment rate in the urban areas was 6,01% (reduced by 0,27% as compared to that of 2001)
5. The rate of working time by people within the labour age was 75,3%
6. The rate of fresh water supply in the rural area was 50%
7. Malnutrition rate of children under 5 year old was 29,5%
* Economic development in 2003:
1. GDP growth rate is expected to reach 7,2-7,3%
2. Total outputs of agriculture, forestry, and fishery is forecasted to rise by 4,5-5,0%, the target is 5%
3. Industry growth rate is forecasted to reach15% as compared to the target rate of 14-14,5%
4. Service is expected to increase by 7%, the target rate is 7-7,2%
5. Export volume is estimated to rise by 16,7%, the target rate is 8-8,5%
6. Gross social investment is likely to reach 35,6%GDP, the target is 35%
7. The price index is forecasted to rise by 3-4%; the target is set under 5%.
* Social and hunger eradication and poverty reduction targets in 2003:
1. Job generation and supplementation is 1.5 millions,
2. Vocational training is provided for above 1 million people.
3. The rate of poor households reduce to 12% (according to the new standards)
4. Malnutrition rate of children reduce to 28%
5. Birth rate reduce by 0,04%.
6. The rate of commune with auto road is 97.2% (approximate 300 communes without auto roads)
7. The rate of commune enjoying electricity is 98%
4. Unemployment rate in the urban areas was 6,01% (reduced by 0,27% as compared to that of 2001)
5. The rate of working time by people within the labour age was 75,3%
6. The rate of fresh water supply in the rural area was 50%
Investment capitals from the State Budget have been focused on social issues and hunger eradication and poverty reduction:
State Budget allocated for social issues accounted for 36.9% in 2003 (31.6% in 2002).
In which:
+ Education and training accounted for 8% (7% in 2002), if regular expenditure on education and training is included, the figure would be 16% of total State budget.
+ Expenditure on health care and social issues accounted for 6.3% (6% in 2002)
+ Science and technology expenditure accounted for 3.2% (2.6% in 2002); it would be 2% of total budget if regular expenditure in this area is taken into account.
+ Culture and information expenditure is 3.2% (2.5% in 2002)
+ Sport and physical training is 1.4% (1.2% in 2002)
* National targeted programs focused on disadvantaged and mountainous areas:
Total capitals planed for 6 national targeted programs increased by 15.8% as compared to that of 2002, in which:
+ Capitals for mountainous province program rose by 27%;
+ Capitals for the program for coastal provinces in the central part were up by 21%;
+ Capitals for the program on delta provinces rose by 16%;
+ Capitals for provinces and cities with rich revenue sources reduced from 3-10%;
* Investment in the poor areas was improved
+ The Eastern North areas increased by 29%
+ The Western North areas: 56%
+ Red River Delta: 27%
+ Northern central part: 22%
+ Coastal areas in the Central part: 26%
+ Central Highland: 43%
+ Mekong Delta: 22%
The above achievement is the result of the implementation of appropriate investment policies especially that applied to investment capitals from the State Budget. The 5 years public investment has reflected the orientation and focused on major investment projects. In particular, the public investment program in the period of 5 years from 1996-2000 was formulated on the basis of the direction of the Plan for socio-economic development for the period of 1996-2000 that was ratified by the National Assembly. Sub-programs and projects under the program were in line with socio-economic development targets, and in accordance with construction procedures, selection criteria, especially effectiveness criterion.
The program provided for overall estimated public investment of the Government in the medium, especially major projects, and taking the first step to formulate the Golich approach to formulation of investment program of the public sector.
The implemented capitals under the Public investment program for 5 years 1996-2000 classified by sector and economic areas are as follows:
Unit: billion ®ång
1996 / 1997 / 1998 / 1999 / 2000 / 96-2000 / Annual average growth rateTotal / 43.080 / 53.740 / 57.470 / 68.620 / 72.420 / 295.330 / 13,87
- Central
- Province / 25.850
17.230 / 32.240
21.500 / 34.480
22.990 / 41.170
27.450 / 43.450
28.970 / 177.200
118.130 / 8,32
5,55
In which:
1.Agri, Forestry and Fishery / 8.190 / 10.310 / 10.490 / 11.970 / 13.620 / 54.570 / 12,10
% of total / 18,48
2. Industry and construction / 13.890 / 17.650 / 18.110 / 20.520 / 21.070 / 91.640 / 13,03
% of total / 31,00
3. Transportation, telecommunication / 11.770 / 14.870 / 15.820 / 18.110 / 18.550 / 79.130 / 14,25
% of total / 25,97
4. Science and technology / 270 / 320 / 440 / 520 / 620 / 2.180 / 19,91
% of total / 0,80
5. Education and training / 1.220 / 1.440 / 1.570 / 1.680 / 1.860 / 7.780 / 18,1
% of total / 2,63
6. Health care and social affairs / 970 / 1.140 / 1.270 / 1.720 / 2.000 / 7.100 / 19,91
% of total / 2,40
7. Culture and information / 730 / 980 / 1.260 / 1.760 / 2.010 / 6.740 / 25,60
% of total / 2,28
8. Urban infrastructure and water supply / 2.260 / 2.840 / 3.230 / 4.880 / 5.050 / 18.270 / 22,26
% of total / 6,19
9. Other / 3.780 / 4.190 / 4.880 / 7.460 / 7.640 / 29.920 / 19,20
% of total / 9,46
Source: Ministry of Planning and Investment, calculated at 2000 prices
Capital under public investment program by economic areas
(At2000 contant price)
UnitÞ: billion ®ång
1996 – 2000 / Percentage (%)Total
/ 295.330 / 100- Central / 177.199 / 60
- Local / 118.131 / 40
In which:
1. Northern mountainous areas / 22.859 / 7,7
2. Red River Delta / 74.626 / 25,3
3. Northern central part / 22.569 / 7,6
4. Coastal areas in the central part / 32.928 / 11,2
5. Central highland / 14.378 / 4,9
6. Eastern south areas / 84.149 / 28,5
7. Mekong delta / 43.821 / 14,8
II. Shortcomings in implementation of the Public investment program 1996-2000
Beside the fore-mentioned achievements, the public investment program for the period of 1996-2000 also had shortcomings:
- The plan of investment allocation did not fully reflect the Government priority given to the social issues and hunger eradication and poverty reduction. As a matter of fact, agricultural and rural development would directly affect living standards of the poor by the way of enhancing life quality and job creation. However, total investment capitals that were injected to agriculture, forestry and fishery under the public investment program 1996-2000 rose annually only 12% as compared to that of 13-14% in industry and transportation…
- Another major shortcoming relating to the work of forecasting the financing sources under the overall program of the public investment program was that potential capitals in enterprise communities and the people were not paid due attention for mobilization given the fact that saving capitals in the people are abundant. Hence, there is a need to mobilize capitals from these sources.
- Since the public investment program has not taken in to consideration capitals for maintenance and repair, capitals’ utilization did not meet expectation in terms of effectiveness.
- Capital mobilization for the public investment 1996-2000 was not effective and stable and at some extent being effected by the financial crisis in 1997.
III. Public investment in the period of 2001-2005.
1. Rationales for formulating the PIP for the period of 2001-2005
- Based on targets provided for under the Strategy for 10 years socio-economic development from 2001-2010 and vision in 2020.
- based on targets and responsibilities set forth under the 5 years plan for socio-economic development 2001-2005.
* Economic targets:
°GDP in 2005 double that of 1995 with the annual growth rate of 7.5%/year.
°Output of agricultural production rises by 4.8% per annum; industrial output rises by 13.1% per annum; and 7.5% is the annual growth rate for service.
°Export volume increases by 14-16% per annum.
* Social targets:
°30 cities and provinces complete the universalization of secondary education in 2005
°Job creation for 1.5 millions people/year.
°Children malnutrition rate reduces to 22-25% in 2005.
°The rate of the poor reduces to 10% (according to new standards) in 2005.
- Strengthening capital mobilization for investment and development and the Program for public investment; especially the mobilization of capitals from domestic source (account for 65% total investment capitals) and ODA and FDI capitals …
Possibility of capital mobilization for the 5 years period 2001-2005
Unit: trillion ®ång (at 2000price)
1996 - 2000 / 2001 - 2005 / Change (%)Total investment capitals
/ 555,0 / 840,0 / 153Capital mobilization to GDP (%) / 28-29 / 31-32
- Domestic capitals (%) / 61 / 66
-Foreign capitals (%) / 39 / 34
1. Sate budget capitals / 125,6 / 216,5 / 179
2. State credit for investment and development / 72,4 / 119,2 / 165
3. State enterprises’ capitals / 97,4 / 132,3 / 166
4. Private and people’s capitals / 121,6 / 188,8 / 155
5. FDI capitals / 138,0 / 153,0 / 111
2. Planned allocation of capitals under the Public investment program 2001-2005
a) The targets under the Public investment for 5 years 2001-2005
- Investment to restructure agricultural production and rural development; as planned capitals put into agriculture would account for 25-26% of total State investment capitals, focusing on social issues. Hunger eradication and poverty reduction, and irrigation systems.
- Strengthening deep investment, modernizing industrial technologies, especially for leading industries.
- Investment for perfecting infrastructure, developing services industries supplementing production and living
- Investment for human development, cultural, social and science and technological, and environmentalareas: majority of capitals invested in social issues would come from State budget (84%in health care, culture: 72%, education: 70 %...). Around half of state budget would come to social issues, directly pursuing social targets and through agricultural and rural economic development.
- Implementing effectively the Program on hunger eradication and poverty reduction, enhancing capitals for national targeted programs such as: the program 135, the program on loans for job creation, fresh water and rural sanitation, the project of reforesting 5 millions ha of forestry. ….
b) Capitals of the public investment program 2001-2005 are planned to be allocated to economic industries and localities as follows:
Capitals of the public investment for 5 years 2001-2005
(By economic industries)
Unit: billion ®ång
Total / State Budget / Investment credit / SOE / Structure (%)Total
/ 543,1 / 1001. Agriculture, forestry and fishery / 97,60 / 61,20 / 14,40 / 21,00 / 18
2. Industry and Construction / 197,50 / 18,8 / 70,00 / 108,70 / 36
3. Transportation and telecommunication / 111,00 / 71,00 / 15,60 / 24,40 / 20,5
4. Science and technology / 7,20 / 4,40 / 2,70 / 0,10 / 1,3
5. Education and training / 37,00 / 35,50 / 1,20 / 0,30 / 6,7
6. Health care and social affairs / 26,40 / 24,70 / 1,40 / 0,30 / 4,8
7. Culture and sports / 9,20 / 8,00 / 1,10 / 0,10 / 1,7
8. Urban infrastructure and water supply / 55,40 / 42,70 / 12,00 / 0,70 / 10
9. Other industries / 4,00 / 4,00 / 0,7
Capitals of the public investment for 5 years 2001-2005
(By localities)
Unit: trillion ®ång, at 2000price
1996 - 2000 / 2001 - 2005 / % ChangeTotal
/ 295,60 / 550,00 / 1861.Nothern mountainous areas / 22,8 / 48,3 / 211
In which:
- State capitals / 23,7
- Credit investment capitals / 12,4
2. Red River Delta areas / 74,6 / 128,6 / 171
In which:
- State capitals / 42,3
- Credit investment capitals / 30,0
3. Northern and Coastal Central areas / 55,5 / 121,5 / 218
In which:
- State capitals / 42,1
- Credit investment capitals / 24,8
4. Central Highland / 14,4 / 28,3 / 196
In which:
- State capitals / 8,0
- Credit investment capitals / 6,0
5. Eastern South areas / 84,0 / 131,5 / 156
In which:
- State capitals / 37,3
- Credit investment capitals / 27,0
6. Mekong Delta / 43,7 / 91,8 / 210
In which:
- State capitals / 33,1
- Credit investment capitals / 17,0
Under the Public investment program for 5 years 2001-2005, capital allocation is planned to focus on rural development, hunger eradication and poverty reduction, and pursuing social targets:
- Investing in the poor areas and communes through 6 national targeted programs: the program 135 and the project of reforesting 5 ha of forest.
- Other programs and targets pursuant to Primer Minister’ Decisions.
- Support for tourisminfrastructure development in localities with tourism advantages;
- Support to localities in building infrastructure for wide-scale fishery’ plants.
- Investing in projects in national flood attended areas;
- Investing in economic infrastructure at border ports;
- Programs for environmental protection in urban and rural areas.
- Programs for building people’s settlements in food areas and Mekong delta.
- The program on support for building houses for minority ethnic groups.
- The program on soliding schools, hospitals, especially in the flood and natural disaster affected areas.
With regard to localities, capitals would be directed more to the poor areas and communes:
Northern mountainous areas: rise by 111% as compared to that of 5 years 1995-2000;
Northern and Coastal Central areas: up by 118%;
Mekong Delta: rise by110%…
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