|Project Rationale and Linkage to Country/Regional Strategy
ODA has been an important catalyst for Viet Nam's rapid economic development, which has averaged 8% per year since 1997. From the resumption of development partner assistance to the country in 1993 until the end of 2010, the total ODA resource commitment amounted to over $46.3 billion, of which $29.7 billion has been disbursed. As Viet Nam has acquired middle-income country status in 2010, it is likely that ODA will be less available in the future, although in the short and medium term ODA will continue to play an important role. To ensure sustained economic growth, the government will therefore be required to effectively utilize ODA and better manage its public investments.
As one of Viet Nam's development partners, ADB has provided assistance since 1993 with annual lending averaging $200 million-$300 million up to 2007. However, with the introduction of less-concessional loans (i.e., ordinary capital resources), particularly since 2007, ADB's Viet Nam portfolio has expanded - with an average annual lending volume of $1.4 billion. As of the end of September 2011, the ongoing ADB Viet Nam portfolio comprised 55 loans totaling $6.42 billion, 9 grants totaling $93 million, and 42 TA projects totaling $95.2 million for a total of $6.61 billion in overall assistance.
The rapid expansion of the portfolio provided opportunities as well as challenges in terms of portfolio performance. Overall, portfolio performance -as reflected in indicators such as disbursements, project start-up compliance, average loan extension, and account turnover ratio -has deteriorated since 2004 and improved in 2009, but slid back again in 2010. Currently most projects may take up to 8 months from loan approval to loan effectiveness and another year for approval of the first contract, therefore totaling 2-3 years to establish procedures, recruit consultants, prepare detailed designs, and bid out procurement contracts. The disbursement ratio for ADB-funded projects in Viet Nam was only 12.3% compared with the ADB-wide figure of 20.2%. Comparing the portfolio performance of Viet Nam with other countries in the region gives a mixed result. The average time from loan approval to effectiveness of Viet Nam's portfolio in 2010 was 8.3 months compared with 6.0 months for the Philippines and 9.4 months for Indonesia. Viet Nam's disbursement ratio in 2010 (12.3%) was about at par with that of the Philippines (13.2%) but substantially lower than that of Indonesia (36.8%). Viet Nam's portfolio had 7.3% of projects at risk compared with 0% in the Philippines and 10% in Indonesia. The portfolio expansion has been a major challenge, which must be urgently addressed through performance improvements.
ADB's Viet Nam 2010 and 2011 portfolio reviews identified key constraints, which among others, include:
(i) Lack of harmonized procedures on project management-Government and donor procedures for project preparation and implementation and key outputs are not fully aligned, which cause additional workload for EAs and PMUs and implementation delays.
(ii) Implementation start-up delays-projects face procedural and capacity constraints during its initial phases, resulting in high costs of development and delayed benefits.
(iii) Limited effectiveness of portfolio performance monitoring mechanisms-coordination between government and ADB and enhanced government ownership of portfolio performance have improved during the past few years. However more effort will be required to effectively monitor the portfolio performance through increased dialogue with Government.
(iv) Capacity constraints-Government capacity on project management, particularly at the subnational levels is limited. Previous efforts to build capacity will need to be better structured and aligned with the needs of beneficiaries.
(v) Institutionalization of results of dialogues on ODA effectiveness-Government and donors have been engaged in previous and ongoing dialogue on ODA effectiveness. However the results need to be further refined and institutionalized.
ADB's country strategy and program, 2007-2010 clearly indicates the importance of a results-based approach. In order to reduce transaction costs and improve development impacts, ADB interventions should improve project preparation and design processes, and implementation performance. The forthcoming country partnership strategy, 2011-2015 will build on the results achieved, and refine the means and procedures to achieve these objectives.
An ADB TA to enhance ODA absorptive capacity and efficiency was implemented from October 2007 to August 2011 to assist the government in addressing some of the portfolio performance issues. Outcomes included capacity built for some executing agency and project management unit (PMU) staff to manage and implement projects, harmonized feasibility study guidelines, revised cost norms, improved payment procedures, and use of aligned monitoring tools through government-Six Banks dialogue. The TA also supported dialogue on advance actions, streamlining the project detailed outline, working group discussions on procurement and environmental and social safeguard compliance, and government-development partner dialogue on aid effectiveness, particularly in forums such as the semiannual Consultative Group meetings and the Aid Effectiveness Forum. In addition, it produced the Handbook on Processing and Implementation for ADB-Funded Projects in Viet Nam (blue book). Lessons learned include: (i) progress in building capacity has been uneven, particularly at the provincial and lower levels; (ii) targeting of training investments must be improved to ensure a balance among PMUs with disparate levels of capacity and varying degrees of strategic importance; (iii) harmonization with development partners (on procedures for procurement, social and environmental impact assessments, and resettlement) has attained progress, but some differences remain and results/agreements have yet to be institutionalized; and (iv) closer collaboration among the Six Banks and dialogue with the government will need to be continued to enable the revision and streamlining of the government's existing regulations and procedures on ODA.
The government currently has plans to amend various decrees and regulations. which will have significant impact on ODA project management, particularly Decree 131/2006 on managing ODA, the 2005 Procurement Law, and the Public Investment Law. It is therefore important that (i) outputs and outcomes of the previous TA will need to be better disseminated as knowledge products; (ii) dialogue will continue to provide critical inputs to the revision of key legal documents to facilitate the institutionalization of the outputs of the previous TA; (iii) the capacity of EAs and PMUs are improved to effectively implement the new harmonized procedures; and (iv) the government acquires greater ownership of activities to better monitor portfolio performance and ensure aid effectiveness.
The proposed TA will, therefore, not only build on the results achieved in the previous TA to enhance ODA absorptive capacity and efficiency, but will further institutionalize and mainstream the outcomes of the policy dialogues and develop knowledge products/tools for better implementation. The timing of the proposed TA is critical as revisions to Decree 131/2006 and the 2005 Procurement Law and Public Investment Law are expected to be finalized within 2012. The next opportunity to revise these important pieces of legislation may not occur until after 2017.