Graduation thesis 1 Banking Academy STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty -----*****----- GRADUATION THESIS CURRENT SITUATIONS OF PUBLIC INVESTMENT AND SOLUTIONS TO ENHANCE PUBLIC INVESTMENT EFFIECNCY IN VIETNAM Lecturer : M.A Nguyen Hong Mai Student : Kieu Ngoc Bich Class : ATCA_K12 Hanoi, 28th May 2013 Kieu Ngoc Bich ATCA_K12 Graduation thesis 2 Banking Academy STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty -----*****----- GRADUATION THESIS CURRENT SITUATIONS OF PUBLIC INVESTMENT AND SOLUTIONS TO ENHANCE PUBLIC INVESTMENT EFFIECNCY IN VIETNAM Lecturer : M.A Nguyen Hong Mai Student : Kieu Ngoc Bich Class : ATCA_K12 Hanoi, 28th May 2013 Kieu Ngoc Bich ATCA_K12 Graduation thesis 3 Banking Academy DECLARATION I hereby declare that this thesis is my own work and effort and that it has not been submitted anywhere before. Where other sources of information have been used, they have been acknowledged Signature: …………………………………. Date: 28th May 2013………………………. Kieu Ngoc Bich ATCA_K12 Graduation thesis 4 Banking Academy ACKNOWLEDGEMENTS re t u i et e re t e ee e t a re iati n t ya i r an e turer M.
guy n ng Mai r er ntinu u u ort of my graduation thesis as well as her patience, motivation, enthusiasm, and immense knowledge. Without her guidance and persistent help, this thesis would not have been possible. My sincere gratitude likewise extends to the managers and my colleagues at the working place, Bank of Vietnam for Industry and Development (BIDV) - Ha Tay Branch for their precious supports and cooperation throughout my internship. Under their guidance, I successfully overcame numerous difficulties and learned a lot.
To all the professors and teachers in Banking Academy, especially in Foreign Language Faculty, it is a pleasure to pay tribute to their meaningful and valuable lectures and their helpful feedback to my work. Above all, my family and best friends deserve special mention for standing by me, giving me words of encouragement, believing in me and supporting me financially, morally, and spiritually. Kieu Ngoc Bich ATCA_K12 Graduation thesis 5 Banking Academy DEDICATION To my grandfather who never lived to see the fruits of his advice and dedication. To my parents who offered me their endless love, support, and encouragement throughout the course of this thesis.
Kieu Ngoc Bich ATCA_K12 Graduation thesis 6 Banking Academy EXECUTIVE SUMMARY In Vietnam, public investment is widely understood as investments made from State’ a ita a in in u ing e e ent in e t ent r State budget, governmental bonds, state credit, development investment made by State owned enterprises (SOEs) and other capital sources of the State. The crucial roles of public investment in numerous areas of the society have long been globally recognized. One of the most fundamental contributions of public investment can be seen from the perspective of national infrastructure development, which partly simulates such important socio-economic targets as poverty reduction, economic growth and living standard improvement. Especially in times of economic recession, public investment is often resorted through the channel of stimulus packages to support aggregate demand, promote economic development and create jobs.
Moreover, public investment plays the superior role as means to manage and boost growth in a particular sector, industry or region. However, apart from successes and positive contributions to national development process, it is not overstatement to say that there remain some certain shortcomings regarding public investment in Vietnam. Of which, low efficiency of public investment is regarded as the most severe concern. Although scale of public investment has kept on rising over the last years, the results provided have not lived up to the big volume of public investment.
The low efficiency of public investment can be easily verified through some criteria including the extremely high ICOR of Vietnam, the low quality and slow progress of numerous state-funded projects, and the ineffective public investment management. Poor public investment efficiency has been due to various factors including the e ire r ra i e e ent t e eter inati n t ur ue “in u tria izati n” at a costs, the mechanism for allocating public money arbitrarily and evenly, the tenure- oriented mindset, the competition for gaining benefit for localities, industries, organizations, and individuals, the lack of competent civil servants, and the insufficiency of practical and consistent public investment legal framework. As a Kieu Ngoc Bich ATCA_K12 Graduation thesis 7 Banking Academy result, losses and waste is prevalent among state-funded projects, which jeopardizes the ub i ’ n i en e in t e tate. Enhancing public investment efficiency is no smooth path as no single measure can completely tackle the problem.
The appropriate solution demands the cooperation of about 124 sectors, industries, localities, state-owned economic groups and state- owned enterprises, and the combination of practical measures including the enhancement of legal framework, the strengthen of public investment management cycle, the improvement of human resources in charge of public investment, and the creation of impartial regulators for key infrastructure sectors. Kieu Ngoc Bich ATCA_K12 Graduation thesis 8 Banking Academy LISTS OF ABBREVIATIONS CIEM Central Institute of Economic Management EVN Vietnam Electricity GDP Gross Domestic Product GFCF Gross Fixed Capital Formation ICOR Incremental Capital Output Ratio IPs Industrial parks M&E Monitoring and Evaluation MOF Ministry of Finance MPI Ministry of Planning and Investment NCSEIF National Centre for Socio-Economy Information and Forecast ODA Official Development Assistance OECD Organization for Economic Co-operation and Development PIM Public Investment Management PPPs Public-Private Partnerships R&D Research and Development SEZs Special Economic Zones SOEs State-owned Enterprises Kieu Ngoc Bich ATCA_K12 Graduation thesis 9 Banking Academy LISTS OF FIGURES AND TABLES No Name Page Figure 1.1 The public investment management system 10 Figure 2.1 Investment by ownership 2000-2012 (%) 17 Figure 2.2 Composition of public investment capital, 2000-2011 (%) 18 Figure 2.3 State investment by management level 20 Figure 2.4 Location of existing and under-development infrastructure in 24 Vietnam Table 2.1 State investment by kinds of economic activities (%) 19 Table 2.2 ICOR of some regional countries 21 Table 2.3 Quality of infrastructure global ranking out of 133 countries 30 Kieu Ngoc Bich ATCA_K12 Graduation thesis 10 Banking Academy TABLE OF CONTENTS DECLARATION ACKNOWLEDGEMENTS DEDICATION EXECUTIVE SUMMARY LISTS OF ABBREVIATIONS LISTS OF FIGURES AND TABLES INTRODUCTION. Significance of the study. Scope and limitations of research.
The organization of the thesis. 4 CHAPTER 1: THEORICAL FRAMEWORK OF PUBLIC INVESTMENT. The fundamental theory of public investment. Definition of investment, public investment.
Roles of public investment in socio-economic development. Definition and criteria to determine public investment efficiency. Definition of public investment efficiency. Criteria to determine public investment efficiency.
Achievements in public investment in some Asian countries and lessons for Vietnam. Achievements in public investment in Japan and China. 13 Conclusions of chapter 1. 15 Kieu Ngoc Bich ATCA_K12 Graduation thesis 11 Banking Academy CHAPTER 2: PUBLIC INVESTMENT IN VIETNAM IN RECENT YEARS.
O er ie Vietna ’ e n y. Current situations of public investment in Vietnam. Scale of public investment. Structure of public investment.
Incremental Capital Output Ratio (ICOR). The number and scale of state-funded projects. Public investment management (PIM). Quality of state-funded projects.
Assessment on achievements, limitations of public investment in Vietnam. Achievements of public investment. Limitations of public investment. Reasons for low public investment efficiency.
36 Conclusions of chapter 2. 38 CHAPTER 3: SOLUTIONS TO ENHANCE PUBLIC INVESTMENT EFFICIENCY IN VIETNAM. Improving the legal framework of public investment. Strengthening the public investment management cycle.
Enhancing human resources in charge of public investment. Creating impartial regulators for key infrastructure sectors. 42 Conclusions of chapter 3. 44 RECOMMENDATIONS AND CONCLUTIONS.
46 Kieu Ngoc Bich ATCA_K12 Graduation thesis 1 Banking Academy INTRODUCTION Public investment has become a concerning issue all over world, including Vietnam. Public investment in Europe and America has become the focal point of discussion since the end of 2010. Many countries such as Greece and Portugal are facing the risk of default as for a long time, they have borrowed excessively to finance public projects. With regards to Vietnam, presently public investment is still maintained at a high level.
During the period from 2001 to 2005, public investment accounts for 23% of total investment. During the period between 2006 and 2010, public investment experienced dramatic increases, constituting over 24% of the total investment. It is argued that high level of public investment is the main reason for rising public debt in Vietnam. Public debt made up 56.
e ti ate at t e en 2012 Vietna ’ t ta ub i ebt a USD 129 billion, accounting for 106% of GDP in 2011. Nguyen and Dinh (2010) point out the correlation between public investment and inflation and the potential of currency crisis and macro-economy instability. Basically, the study has revealed that the high volume but low efficiency of public in e t ent in t e nte t Vietna ’ a ing re u e i ri e t e tate t b rr more and more. This is a catalyst for the increases in interest rates, depreciation of domestic currency and double-digit inflation.
Being aware of the seriousness of this problem, the Party and the government has begun to make effort to manage public investment more effectively. General Secretary Nguyen Phu Trong, in his closing speech at the 3th plenary session of the 7th Centra C ittee t eC uni t Party Vietna in 2011 tre e “t e urgent need for restructuring the economy in accordance with transforming the growth e .” ea e are t at “in the next five years, the economic restructuring must concentrate on three key elements, namely investment restructuring, financial market re-arrangement, and SOEs renovation. Among the points mentioned, investment restructuring, particularly enhancing publi in e t ent e i ien y ay t e ey r e.” Kieu Ngoc Bich ATCA_K12 Graduation thesis 2 Banking Academy iti na y re gnizing t e ru ia i a t ub i in e t ent n Vietna ’ i - economic development, World Bank approved a USD 500 million loan to reform Vietna ’ ub i in e t ent. Considering the recent economic outlook and the status of public investment in t e untry’ i -e n i e e ent e i e t e t e t i “Current situations of public investment and solutions to enhance public investment efficiency in Vietna ” a y gra uati n t esis.
Research objectives This study is mainly aimed at analyzing and evaluating the current situations of Vietna ’ ub i in e t ent an it e i ien y i ering t e rt ing an factors behind, thus, recommending feasible measures to enhance public investment efficiency in Vietnam. Research questions This research focuses on discussing the appropriate solutions to enhance public investment efficiency in Vietnam by answering the following questions: 1. W at are t e e i ting etba Vietna ’ public investment? 2. W at are t e ain rea n rt e rt ing in Vietna ’ ub i in e t ent? 3.
What are the appropriate solutions to enhance public investment efficiency? 3. Significance of the study T i iterature re ear e t e Vietna ’ ub i investment, a hot topic, which ta e an un eniab e r e in t e ur i a an e e ent Vietna ’ e n y. T btain an re en i e ie n Vietna ’s public investment and to find suitable solutions to tackle the weaknesses of public investment, the writer is aware that it is essential to do more researches from many different aspects at present as well as in the future. However, this dissertation also supplies some worthy and useful insights for policy makers, students, future researches and other readers.