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Country Partnership Strategy Document
Country Strategy and Program Update 2007-2010: Viet Nam, Socialist Republic of
V. ADB's Assistance ProgramA. Overall Assistance Level110. The country-specific ADF allocations have been derived on
the basis of the results of the 2005 country performance assessment
(CPA) (Appendix 4), using the performance-based allocation formula.
The preliminary ADF allocation for Viet Nam for 2007–2008, based
on the 2005 CPA, has been set at $599 million. The ADF assistance
program for 2009 is tentative, with actual ADF assistance levels
subject to the 2007 CPA and the outcome of the discussions on the
next ADF replenishments.
B. ADB Assistance for the Strategic Priorities115. The public sector lending program for 2007-2009 consists of 18 ADF- and 9 OCRfinanced national projects, 2 blend (ADF and OCR) projects amounting to about $3 billion, plus 7 GMS projects involving Viet Nam, for about $970 million. Private sector operations will finance additional projects where feasible. The TA program for the same period comprises advisory and project preparatory TA, amounting to about $24.4 million including $5.3 million of cofinancing. The TA program will be augmented, where possible, through ADB-administered trust funds and cofinancing from other ODA partners (Appendix 1, Table A1.10). ADB’s economic and sector work program will address policy reform, capacity building, and institutional strengthening issues related to CSP implementation, including private sector development and social and economic issues related to the rural–urban transition.1. Business-Led, Pro-Poor Economic Growth a. Infrastructure Development 116. The SEDP emphasizes the role of infrastructure in increasing national competitiveness and attracting the business investment needed to sustain strong economic growth and poverty reduction. It also recognizes the benefits of international and regional integration, and the need to develop infrastructure to increase access.55 Regional trade, and movements of goods and people, will increase rapidly with the development of regional infrastructure linked to national infrastructure development. Viet Nam is expected to play an increasing role in providing:
117. Transport. For an expanding economy like Viet Nam with fast regional integration, it has a relatively inefficient and expensive transport system. ADB aims to help the Government improve the transport investment program and sector efficiency and reduce transport costs. This will include developing sections of priority GMS transport corridors. Potential opportunities for ADB’s private sector operations will include the development of urban mass-transit system using a public–private partnership framework. As the Ministry of Transport and the Viet Nam Road Administration require substantial investments and institutional support over the next 10 years, ADB aims to help strengthen institutional capacity. Transport projects will include measures to help the Government address governance, environment, social, and road safety issues as appropriate. 118. In line with the SEDP, ADB will pursue a three-pronged investment program in the sector. The program will take into account institutional capacity enhancement aspects as necessary. The first prong supports investment projects to reduce critical transport bottlenecks hampering economic growth in the main development centers. Projects will include investments in urban transport and priority expressway and railway facilities to facilitate the safe and efficient movement of goods and people around, through, and between national centers of major economic activity. These revenue-generating projects could be funded through a blend of ADF and OCR, or straight OCR loans. Private sector participation will be encouraged as an important option to help overcome resource constraints. The second prong addresses social equity, using ADF funds to help develop provincial and district roads. This supports the SEDP objective of developing a regionally integrated infrastructure system. The third prong complements the first two by bringing regional dimensions to the development of the transport network in terms of connectivity, including multimodal transport modes and competitiveness (e.g., the Kunming–Hai Phong transport corridor). 119. Energy. Viet Nam needs to double its existing power generation capacity from 12,932 MW to 26,209 MW during SEDP period. ADB aims to support the Government’s energy sector development strategy to efficiently and rationally supply affordable, reliable, and quality electricity to meet rapidly growing demand.56 In particular, ADB will support efforts to:
120. ADB plans to help finance environmentally sustainable and energy-efficient power generation and high-voltage transmission lines linking Viet Nam with other GMS countries. Several power generation projects are under preparation.57 Support will be provided to develop regional power trading, especially imports from neighboring countries, to meet expected power shortages to 2010. GMS transmission interconnections (with the Lao PDR and Guangxi province, PRC) are being prepared with ADB support to help meet growing electricity demand. The close coordination needed with power utilities in neighboring countries will be achieved through the GMS Power Trade Operating Agreement and the Regional Power Trade Coordinating Committee. 121. ADB aims to play a catalytic role in mobilizing private sector investments to thermal power generation, and to play a stronger role in leveraging investments from other financers. This will include providing (i) political risk and partial credit guarantees to private sector– financed projects; and (ii) export credit and other commercial financing guarantees to make financing terms more viable (e.g., extending tenures, mitigating risks) for private and public sector projects. ADB will also help public sector entities access international capital markets by providing advisory and risk-sharing instruments. Policy dialogue will be an integral part of the CSP to improve the social and environmental sustainability of Viet Nam’s power development program. The CSP includes support for sector-wide environment/social assessments of the power sector investment program. In line with the SEDP priority and ADB’s energy-efficiency initiatives, ADB plans to work with other partners (including CSOs) to develop the policy framework for renewable energy, increased energy efficiency, and access to the emerging CDM market. 122. Public–Private Partnerships in Infrastructure Development. The CSP includes measures to better integrate private sector considerations, to improve the policy and regulatory environment for private investment in infrastructure, and to maximize private capital in all relevant operational activities. Opportunities will be sought to deepen private sector participation in supplying physical and social infrastructure. The aim will be to increase employment and to free up scarce government capacity to focus on functions and services that cannot be provided by the private sector. ADB will support private sector operations in areas such as:
b. Improving the Business Enabling Environment 123. Private Sector and SME Development. The CSP envisages sustained policy dialogue and financial support to ensure effective implementation of the UEL and the CIL and related implementing regulations. Such support will help:
125. Corporate Governance and SOE Reform. A strategy focused on business development, economic integration, and private sector–led employment growth risks being undermined by high transaction costs caused by bureaucratic red tape and/or an unresponsive administrative system, which stifles national competitiveness. Reforms and institutional strengthening to ensure more efficient delivery of business-related public services are, therefore, an essential element of the CSP. 126. Public administration reforms are important to ensure that delivery of public services and infrastructure is cost-effective, and that social and environmental safeguards are effectively enforced. Given its wide range of implications at this stage of rapid growth and socioeconomic achievement, ADB’s support will be continued for the Government’s second cycle of the PAR (2007–2010)59 to improve accountability, participation, predictability, and transparency in public finance, administration, policy and planning in key counterpart agencies. Taking into account demand, support will be provided to improve the quality of civil service through training and retraining, policy coordination, and e-government; enhancing local governance and anticorruption initiatives; and establishing systems and developing capacity to monitor and evaluate the impact of public policies. 127. Further SOE reforms are needed to:
129. The next phase of the M4P activities will be closely aligned with the strategic pillars of this CSP, and will directly contribute to relevant projects by providing upstream support. The JFPPTP aims to build capacities in public policy formulation and implementation, including:
130. Poor access to finance (debt and equity) is often cited as among the key obstacles to private sector and SME development. While much of the basic financial sector legal and institutional framework has been established, implementation is still limited and financial intermediation remains low. Factors that inhibit private sector access to finance include:
131. Nonbank Financial Sector Development. ADB is committed to long-term support to help develop the securities, insurance, and leasing subsectors. It will focus on:
d. Meeting the Growing Demand for Skilled Human Resources 132. The SEDP recognizes that education is fundamental to social and economic development, and aims to proactively invest in human development to equip the labor market with the skills and attitudes needed to compete economically and for civic success in a rapidly changing society. Quality education increases the earnings of people and the economic health of their communities. The country’s labor force will need to use new skills and technologies to compete in an increasingly integrated, competitive, industrialized, and urbanized world. With many other funding agencies active in primary education, the CSP envisages a continuing role for ADB in supporting secondary and vocational education. In addition to direct social benefits, such support is expected to have a positive impact on the investment climate and business development by helping meet the rapidly growing demand for skilled labor. 133. Secondary Education. ADB remains the principal ODA partner supporting secondary education, and will continue to help the Government achieve universal education and gender parity in secondary education. Past ADB support has been effective in fulfilling specific needs such as better-qualified teachers and improved school facilities, effective and equitable delivery to disadvantaged groups, and improving financial sustainability, but important gaps and challenges remain. ADB will continue to support secondary education via a range of modalities, including the sector development approach (e.g., the Secondary Education Sector Development Program). The focus of efforts will be on meeting the skills needed to sustain rapid growth, and promoting socially inclusive development to meet MDGs and VDGs. 134. Vocational Training. The quality and level of vocational training is an increasing bottleneck, with rising demand for skilled and semiskilled workers as the country industrializes. Increasing private sector participation in the development and practice of vocational training is important to increasing its relevance and quality. Thus, ADB will continue to work with the Government to remove barriers and actively encourage private sector participation in vocational and tertiary education. Where opportunities arise, ADB will use its private sector operations to support the business sector initiatives. 2. Social Equity and Balanced Development a. Targeted Social Development and Poverty Reduction Programs 135. Socially inclusive development will be crucial to achieving poverty reduction goals and other VDGs. Significant pockets of entrenched poverty remain. Specifically targeted poverty reduction programs are therefore needed to reach these areas and address their particular development constraints. ADB has played a significant role in rural infrastructure and rural social service investments in Viet Nam. The CSP envisages continuing cooperation with the Government and other ODA partners to explore options for directly helping provinces improve their capacity for strategic socioeconomic planning, and to implement the new SEDP effectively at the provincial level. Two ongoing advisory TA projects (for three provinces in the Central Region, approved in 2005) have started this process. ADB will continue to support the Government’s targeted poverty reduction programs through poverty reduction support credit. b. Health Systems for Disease Control 136. In addition to being important for social development and equity reasons, improvements in health outcomes will increase worker productivity. The Government plans to develop and strengthen provincial and district health care facilities, especially for preventive health and communicable disease control, over the next 5 years. Based on the Government’s Master Plan for Health System Development (2006–2010), ADB will coordinate with other development partners to support a phased program of health system development. At the subnational level, ADB and World Bank will support a health services improvement program, targeting populations and regions that are lagging in health indicators (women and children, and ethnic minority populations) and that have persistently poor access to and use of health services. 137. ADB will focus its support on addressing health issues in the following core areas:
3. Environmental Management 139. There are three broad areas for ADB to help improve environmental management. First, ADB will support improved natural resource management. Links between resource depletion and poverty will be addressed through rural livelihood improvement, biodiversity conservation, watershed management, and coastal resource management. Second, ADB will remain engaged in attempts to improve the urban environment, including financing, water supply, wastewater treatment, drainage, solid waste management, road safety, and mass transit. Third, ADB will support improvements in environmental standards through various measures, including carbon market initiatives. a. Natural Resource Management 140. Resource Management Issues. As resource depletion and poverty are linked, management of natural resources (land, water, and coastal resources) and livelihood improvement programs will be improved. Support for integrated coastal zone management and improvement of rural infrastructure will reduce poverty, natural resource depletion, environmental degradation, and disaster risk. The CSP envisages a stronger focus on social inclusiveness (particularly in relation to ethnic minorities and to women’s needs). Assistance in these areas could be channeled through sector approaches that support national programs jointly with major development partners. Efforts will also be made to increase regional cooperation (under the GMS) to better manage shared resources, such as water (especially in the Red and Mekong river basins) and trans-boundary bio-conservation areas. 141. ADB aims to maximize the economic growth and poverty reduction potential where possible through private sector financing support for water sector infrastructure investments by targeting poor regions and incorporating institutional support and policy reforms in line with its water policy.60 ADB will help MONRE build its capacity for water management, river basin and land-use planning, and environmental management. Emphasis will be given to improving water service delivery, increasing the autonomy and accountability of service providers to meet the needs of the poor, and establishing sustainable operation and maintenance through appropriate levels of cost recovery and user participation. In accordance with ADB's disaster and emergency assistance policy,61 ADB operations will take into account disaster risk reduction measures to prepare for and avoid the worst impacts of natural disasters. 142. Rural Livelihoods. Efforts to improve rural livelihoods are directly linked to reducing pressure to exploit natural resources. Continued support will be provided for community-based livelihood projects and rural infrastructure expansion in poor districts, with an emphasis on identifying and addressing key constraints and on building links with more economically developed or resource-rich areas that could attract private investors. The primary aim will be to create and expand the range of farm and nonfarm income-generating activities. Investments will seek to reduce the vulnerability of rural communities to natural and other shocks, and to build small-scale infrastructure that has been selected and planned through participatory approaches to meet basic needs. NGOs play an active role in rural development, and the CSP anticipates close cooperation between NGOs and ADB in delivering support. 143. Rural Water Supply and Sanitation (RWSS). This is a particularly important concern as some 38% of the rural population still lacks access to piped drinking water. Available piped water often does not meet safety standards. Pollution from salinity intrusion, livestock waste, commercial waste, and agricultural chemicals is an increasing concern in some areas, and endangers people’s health. Estimates suggest that up to half the cases of infectious diseases in Viet Nam are related to poor water supply and sanitation problems. ADB plans to work with other development partners to improve RWSS using sector approaches, and to strengthen institutional capacity to improve RWSS.62 ADB will use its water financing program where appropriate. 144. Increase Agriculture Productivity. ADB will continue to support Government efforts to increase agriculture productivity and ensure more sustainable use of rural resources by:
b. Urban Development and Environment 145. The CSP will focus on targeted infrastructure investments in small and medium-sized towns in the central region and along GMS economic corridors, decentralized urban governance and capacity building, reforms for improved urban management and cost recovery of urban services, and environmental improvements. ADB’s support will include the comprehensive socioeconomic development of selected small and medium-sized cities such as Thanh Hoa to strengthen development links with their rural hinterlands, and to reduce environmental pressures on the large cities. Urban infrastructure also needs to be developed in Hanoi and Ho Chi Minh City, especially in urban transport, where the Government is developing plans for rapid mass-transit systems. 146. ADB’s strategy for urban water supply and sanitation sector seeks to use the water financing program, which aims to:
4. Private Sector Operations 147. ADB’s Private Sector Operation Department, through its infrastructure and financial sector divisions, is committed to use its investment products (equity, debt, guarantees, and TA) to help Viet Nam improve, expand, and develop the private sector. In the infrastructure and financial sectors, ADB aims to balance its long-term strategy for market engagement and its ability to address and service market demands as they arise. ADB’s private sector operations investments must be commercially feasible, have development impacts, and be aligned with Viet Nam’s priorities as articulated in the SEDP. 148. ADB private sector operations will seek opportunities to work with private and public sector partners in power generation and transmission, transport, including urban mass-transit systems and ports. Potential investments are expected to comprise fully private projects and public–private partnerships, combining the value of private sector operations investments and other private sector partners with policy and institutional support from the Government and ADB’s public sector operations. 149. Options to support the equitization (i.e., partial privatization) and restructuring of stateowned commercial banks will be considered under the CSP. ADB’s private sector operations may make targeted investments and other interventions:
C. External Funding Coordination and Partnership Arrangements150. The Government and development partners (including NGOs) meet twice a year in the consultative group to review progress and issues related to socioeconomic development and ODA use. The 6-monthly meetings help coordinate overall ODA. More frequent partnership group meetings (on 22 key themes and sectors) help coordinate funding agencies and make government priorities and policies consistent. The effectiveness of the partnership groups is variable: strong government leadership of working groups has been important in developing effective partnerships. ADB plays a leading donor role in several working groups and will continue to actively participate in relevant groups and the consultative group process. The Government and its development partners have been working together to harmonize procedures, reduce administrative burdens, and enhance aid effectiveness. ADB actively participates in the five-banks initiative (with AFD, JBIC, KfW, and World Bank) to help resolve implementation issues, among others.151. ADB carried out intensive consultations with major stakeholders, including government agencies, ODA partners, CSOs, and private sector representatives during CSP formulation. ADB aims to mobilize cofinancing from bilateral ODA partners, including AFD, KfW, Australia, Canada, Norway, the Netherlands, Sweden, and the United Kingdom. Parallel efforts will be made to mobilize resources from other ODA partners, including JBIC, the European Community and the World Bank. Opportunities for commercial cofinancing will be explored during the preparation of financially viable projects from the SEDP priority list. D. Borrowing Capacity and Debt Sustainability Assessment152. Viet Nam’s public sector financing requirements are large. Concessional ODA inflows will not be sufficient to cover the gap between public sector savings and expected investment needs. The Government will need to explore all possible financial resources, including tapping into foreign borrowing on commercial terms. A gradual increase in less-concessional borrowing is a natural progression for a country that is expected to soon join the ranks of lower middleincome countries. ADB’s OCR represents an attractive option to meet some financing requirements and also acts as a catalyst in attracting additional commercial financing. A recent joint OCR borrowing assessment64 of the Government and ADB indicated that the medium- to long-term investment gap would be about 3% to 6% of GDP.153. International Monetary Fund (IMF)/World Bank debt sustainability analysis suggests that the country’s external debt is manageable.65 External debt will be sustainable provided the terms of external financing or export growth do not deteriorate sharply. Public debt will be sustainable with further progress in banking and fiscal reforms. Contingent liabilities related to state-owned commercial banks reforms and uncertainties about revenues will require continued vigilance. The Government has indicated that its priority is to maximize use of concessional ODA resources where available, and to use OCR for important projects that are well prepared and generate sufficient financial returns to finance repayments. E. Indicative Internal Resource Requirements154. Effective and timely delivery and monitoring of this results-based CSP over the next 4 years will require some additional human resources. Some reallocation of human resources within ADB may be necessary, as Viet Nam operations expand to at least double the current volume of lending and non-lending over the next 4 years. Additional international and national staff will be needed in the VRM to closely coordinate the programming and the specific sector intervention and to oversee effective implementation of the expanding operations.
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