Viet Nam: Support for the Implementation of the Poverty Reduction Program V - Subprogram 3

Public sector management / Economic affairs management

The Asian Development Bank (ADB) approved SIPRP V, a program cluster consisting of three subprograms, and a loan for its subprogram 1 in December 2008. SIPRP V is intended to help the Government of Viet Nam carry out policy reforms that are needed to successfully implement its Socioeconomic Development Plan (SEDP), 2006-2010. To this end, SIPRP V is to provide parallel financing with the World Bank's poverty reduction support credits (PRSCs) 7-9 within the framework of the PRSC process. The PRSC provides direct budget support to the government subject to satisfactory progress being made on a set of policy actions. Subprogram 1 provided parallel financing with PRSC 7 and subprogram 2 with PRSC 8. The government's development policy letter is in Appendix 3.

Subprogram 3 will provide parallel financing with PRSC 9, covering a subset of actions included in the policy matrix for PRSC 9. Like the policy actions covered by subprograms 1 and 2, the actions under subprogram 3 fall into the four broad reform areas: business development, social inclusion, natural resource management, and governance. They complement actions supported by ADB's other program loans to Viet Nam or are otherwise important to ADB's operations in the country.

Strong support from development partners, through the PRSC process, has helped the government carry out difficult reforms. The PRSC is a general budget support operation supported by a large number of development partners. The instrument helps Viet Nam to promote growth and reduce poverty by incentivizing institutional reforms. It is a result-oriented development instrument with flexible conditionality and an emphasis on strategic and comprehensive dialogue. The PRSC process has been a driving force of policy reforms in Viet Nam in recent years. The government has used the involvement of a large number of development agencies to overcome domestic resistance to policy reforms. To deal with such resistance, government agencies advocating certain reforms have often proposed the inclusion of these measures in the policy matrixes for the PRSCs. PRSC triggers contributed to critical public finance management improvements such as the institutional and operational enhancement of public external audit, the introduction of internal audit, and the modernization of the regulatory framework for public debt management.

ADB support so far to poverty reduction support credits. ADB joined the PRSC process in 2003 and has taken part in most PRSC activities since then. In 2004, ADB approved SIPRP I, a single-tranche standard program loan of $6.4 million. SIPRP I provided parallel financing with the World Bank's PRSC 3 to support the implementation of the government's Comprehensive Poverty Reduction and Growth Strategy, 2002-2006. SIPRP II ($15 million) was approved in 2005 and provided parallel financing with PRSC 4. SIPRP III ($15 million) was approved in 2006 and provided parallel financing with PRSC 5. Like SIPRP I, both SIPRP II and SIPRP III were single-tranche standard program loans that supported the implementation of Comprehensive Poverty Reduction and Growth Strategy, 2002-2006. Most of the strategy goals were achieved. SIPRP IV ($15 million) was approved in 2007 and provided parallel financing with PRSC 6. SIPRP IV was a single-tranche standard program loan, which supported implementation of the SEDP, 2006-2010. ADB approved SIPRP V, a program cluster consisting of three subprograms in December 2008. SIPRP V is intended to help the government carry out policy reforms that are needed for the successful implementation of its SEDP, 2006-2010. The policy matrix in Appendix 4 lists the SIPRP V policy actions under subprograms 1, 2, and 3; and shows how they map to the PRSC policy areas.

The government, World Bank, and other development partners view ADB as an important partner within the PRSC framework. ADB is in a unique position to support the PRSC through two channels, contributing directly through the PRSC framework and indirectly through closely linked ADB interventions. The PRSC evaluation report assessed ADB's SIPRP interventions as closely aligned with the overall PRSC process. A special evaluation study by ADB's Independent Evaluation Department pointed out that the SIPRP series provided a consistent platform for policy dialogue and helped smooth the preparation of ADB's Viet Nam Countercyclical Support. The policy and institutional reform process is ongoing, and ADB, in collaboration with other development partners, is already planning and designing a post-PRSC program to support SEDP, 2011-2015.

Mitigating vulnerability to external shocks will require structural reforms that constitute the fundamental pillars of PRSC 9. The SIPRP addresses in a balanced way four such pillars aligned to the SEDP: business development, social inclusion, natural resource management, and modern governance. The proposed operations for subprogram 3 comprise six policy actions in areas such as SOE reform, finance sector reform, the social sectors, natural resource management, and public administration. In particular, the root causes of macroeconomic stability can be addressed only by safeguarding the finance sector and imposing market discipline on SOEs.

Businesses developed

Economic growth becomes more socially inclusive

Management of natural resources strengthened

Governance improved