Regions and Countries

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p. 4 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program 2004-2006: Socialist Republic of Viet Nam

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IV. Country Performance and Assistance Levels

A. Lending Level Proposed

60. 19. Starting in 2002, lending from the Asian Development Fund (ADF) has followed a performance-based allocation (PBA) system. As a result of the ADB-wide PBA exercise, Viet Nam was allocated $198.9 million for 2003. At the end of 2002, Viet Nam was assessed as performing at the base-case level, with reference to country-specific indicators covering macroeconomic, structural, and portfolio implementation issues agreed upon between the Government and ADB in 2001. Out of six triggers, the high-case criteria were met for revenue growth (macroeconomic management) and establishment of project implementation offices (portfolio performance). The base-case criteria were met for the structural and/or sectoral triggers: deposit insurance, registry for secured transactions, and water resource management. Contract awards fell into the low-case
category. A new set of PBA country-specific triggers, to be reviewed during 2003 and at end-2004 to determine the 2005 lending level, were agreed upon between ADB and the Government. They are shown in Appendix 1, Table A1.12.

20. The proposed program is tentatively based on average annual base-case commitments of $225 million for ADF and up to $100 million of OCR during 2004–2006. The program is subject to adjustments, depending on future PBA outcomes and the availability of resources. Depending on ADF resource availability in 2004, the ADF lending program will need to be reviewed. The issue will be revisited and confirmed during the country program confirmation mission. The 2005 and 2006 ADF lending program will depend on the outcome of the discussions regarding ADF replenishment. Subregional projects totaling $150 million have been included in the confirmed program for 2004– 2006, subject to resource availability and confirmation based on GMS prioritization. A mix of loan and grant cofinancing from development partners agencies will be sought to support the identified thematic priorities. As appropriate, opportunities for commercial cofinancing and guarantees will be explored for viable projects.

21. The proposed OCR lending level should be considered as preliminary, and OCR allocations for the program loan may be reduced or eliminated depending on Government's assessment during processing. During preparation of the CSPU, the Government requested that ADB consider expanding the level of OCR lending to Viet Nam for suitable income generating sectors and projects, without affecting Viet Nam’s ADF allocation, which is based on PBA. Preliminary analysis shows that the debt service impact of additional amounts of OCR borrowing is manageable. In 2002, external debt was estimated at about 42% of GDP, and the debt service ratio was approximately 10% of exports of goods and services. Initial consultations highlighted potential for OCR lending in transport (particularly airports), energy, telecommunications, private sector development and environment (industrial waste management). A joint ADB-Government working group chaired by the Ministry of Planning and Investment will prepare an assessment of the issue during 2003, and the findings will be incorporated in the 2004 CSPU.

22. The lending and TA program have been designed to reflect the three pillars and the geographic focus identified in the CSP. The proposed lending program is in Appendix 1, Table A1.10. According to ADB’s project classification guidelines, approximately 12% of national projects (9% of lending) will be core poverty operations and 47% of national projects will be poverty interventions (54% of lending). During 2003–2005, six national projects for $360 million (more than one third of the portfolio) will be focused essentially on the central region.

B. Nonlending Program

23. The TA pipeline and proposed economic, thematic, and sector work program (Appendix 1, Table A1.11) have been designed to support the lending program’s main areas of emphasis. A base-case scenario of about $5 million from ADB TA grant sources was used for the TA indicative planning figure (IPF) for 2004–2006. Some of the TA IPFs for 2005 and 2006 have not been programmed to allow for flexibility. Given Viet Nam’s large needs for capacity building, sector analysis, and institutional development, cofinacing will be actively sought to ease the constraint of the reduced TA IPF.

C. Summary of Changes to Lending and Nonlending Programs

24. Many of the loans and TAs proposed for 2004–2006 had already been identified and included in the 2003–2005 CSPU. The most relevant adjustments to the lending and nonlending program from 2004 onward (with references to the 2003 program when relevant) are briefly discussed below, and classified under their respective strategic priorities.

1. Sustainable growth. The investment project in support of agriculture science and technology and a related ADTA have been postponed to allow thorough preparation. An ADTA to support implementation of the financial sector program loan has been advanced to 2002 and will be supplemented in 2004. It will be followed further by a small-scale TA to implement a legal framework for microfinance in 2004, if funds are available. The size and name of the northern power transmission loan (previously called the power transmission and distribution loan) had been adjusted, as a result of a precise assessment of project scope and cost. Finally, a PPTA for economic infrastructure development has been added to the 2004 program. The PPTA will allow prompt response to the project preparation requirements that are likely to emerge after assessing the potential for expanding OCR operations. The timing and other details of the private sector pipeline are still being defined.
2. Inclusive social development. The Government and ADB decided to divide a PPTA for communicable disease control so as to process two separate projects after discussions during the processing phase. One project will comprise a loan for health care for the poor in the central highlands, for approval in 2003. The other will be a larger project to strengthen preventive health services nationwide, and it is confirmed for 2005. A new loan for secondary teacher training and professional education development in 2006 will precede the secondary education expansion and quality improvement project, which is now postponed to 2008. TA will also be provided to strengthen capacity of secondary teachers and institutions for professional education. These projects will take into account the sector framework provided by the Secondary Education Sector Master Plan and the Education for All initiative.
3. Good governance. Significant technical assistance needs were identified during processing of the program loan to support implementation of the public administration master plan. A cluster approach was deemed appropriate—with second and third subprograms envisaged in 2006 and 2008 and PPTAs in 2005 and 2006, respectively —subject to successful implementation of the first subprogram. For these reasons, the size of the 2003 ADTA cluster was increased, incorporating the ADTA previously planned for 2004.
4. Geographic focus on the central region. Delays in government approval of some TAs have caused slippage in loan schedules. Due to IPF constraints, the two livelihood projects linked to forests and coastal resources management have been postponed to 2005 and 2006, respectively. This also affected two related ADTAs scheduled for 2003 and 2004. Two PPTAs were removed—central region rural water supply and sanitation, as well as central region rural economic advancement—because much of their scope would fall under the 2004 TA and 2006 loan for sustainable livelihood and rural infrastructure in the central region. The district town urban development in the central region project, originally scheduled for 2005, has been postponed to 2006 and renamed central region urban development project. The change in name reflects the possibility that the project will include some larger urban centers in the region, while continuing to emphasize provincial and district towns.
5. Regional cooperation in the Greater Mekong Subregion. ADB will prepare a regional cooperation strategy and program (RCSP) for GMS for the first time in 2003. Operations related to a possible Cambodia–Lao People's Democratic Republic (Lao PDR)–Viet Nam Development Triangle initiative have been postponed due to delays in the preparation of a master plan for the project area. The need to make a detailed assessment of the preferred modal option will also postpone the GMS Kunming-Haiphong corridor project to 2005. A PPTA for flood management in GMS has been postponed to 2005 to allow adequate background analysis. Three GMS projects provisionally added to the pipeline—communicable disease prevention in border areas, trade and investment facilitation and customs harmonization, as well as power interconnection—phase 2— are subject to further confirmation of scope, timing, and feasibility.