Solutions to expedite current disbursement of public investment capital in Vietnam

HCM City's Ben Thanh - Suoi Tien metroline _ Photo: Vnexpress.net

1. Disbursement of public investment capital in Vietnam

Public investment capital is viewed as the “seed capital” that attracts investments into socio-economic development, stimulates economic growth, and job creation, particularly in the face of possibly declining economic growth due to the negative impacts of unfavorable developments in global economic conditions. On the other hand, public investment capital is prioritized for investments in critical infrastructure projects that play a strategic role in the socio-economic development of the country. As a result, the 11th National Party Congress recognized the significance of accelerating the distribution of public investment capital in implementing strategic breakthroughs in infrastructure and socio-economic development.

Furthermore, as the proportion of public investment in total public expenditure has shown a sharp decline in recent years⁽¹⁾, the acceleration of the disbursement of public investment capital becomes even more significant. However, the sluggish disbursement of public investment capital in our country has been a persistent issue for many years.

In recent years, under the leadership of the Party and the decisive direction of the National Assembly and the Government, expediting the disbursement of public investment capital has been considered a political task of ministries, branches, and localities nationwide. Positive changes have occurred, but delayed disbursement remains a longstanding challenge.

In 2022, public investment played an especially vital role in the socio-economic development process. The importance of investment capital disbursement became even more pronounced as public investment capital constituted nearly one-third of the VND 350 trillion package for stimulating socio-economic recovery and development after the Covid-19 pandemic. Nevertheless, the disbursement of public investment capital and the execution of the three national target programs remained sluggish (for the three national target programs, only 38 out of 63 localities had successfully allocated over VND 13,400 billion from local budget funds; by the end of September 2022, disbursement from the central budget was estimated to reach nearly VND 927 billion, equivalent to a mere 2.86% of the planned disbursement)⁽⁴⁾. In a surprising turn of events, certain localities, ministries, and branches have even sought the return of public investment capital, despite the government’s stringent directives, including the establishment of six working groups for regular inspection and supervision, etc.

A swift report during the government’s online conference with localities and the regular meeting of the National Assembly Office in September 2022 estimated that, as of September 30, 2022, the disbursement of the state budget investment plan had reached only 46.70% of the Prime Minister’s assigned plan, slightly down from the same period in 2021 when it was at 47.38%. Many investment expenditures related to the Program of Socio-Economic Recovery and Development were still pending disbursement. At this point, only two central agencies and ten localities had disbursement rates exceeding 70% of the Prime Minister’s assigned plan. In contrast, fourteen ministries, two central agencies, and one locality had disbursement rates of less than 20% of the Prime Minister’s plan. As of September 30, 2022, the total value of disbursements had gone up by about VND 34,597.2 billion, which was a 16% increase from the same time in 2021. However, the task of disbursing public investment capital in 2022 remained greatly challenging, as the capital yet to be disbursed exceeded that of 2021 by approximately VND 80 trillion (not counting the additional estimated development investment expenditure in 2022, which was roughly VND 38 trillion according to the Program of Socio-Economic Recovery and Development)⁽⁵⁾. At the end of the 2022 budget year, data from the Ministry of Finance revealed that the disbursement of public investment capital across the nation amounted to only VND 539,276.51 billion, representing 80.63% of the plan and 92.97% of the plan assigned by the Prime Minister (compared to the same period in 2021, when it was at 78.08% of the plan and 95.11% of the Prime Minister’s plan)⁽⁶⁾.

As of May 20, 2023, the nation had disbursed approximately VND 110,000 billion, equivalent to just 15.56% of the Prime Minister’s 2023 public investment capital plan. Compared to the same period in previous years, although the absolute disbursement amount was higher than in previous years, it remained lower in relative terms. Particularly in the first quarter of 2023, certain ministries, branches, and localities reported disbursement rates well below par. For instance, Ho Chi Minh City, the country’s economic powerhouse, recorded disbursement rates close to zero in specific areas of the city.

 As a result, the amount of remaining public investment capital to be disbursed in 2023 is substantial: In 2023, the National Assembly approved a public investment plan with a total capital exceeding VND 700 trillion. This is a remarkably high total investment level, marking a significant increase of about VND 140 trillion (approximately 25%) compared to the 2022 plan and an increase of about VND 260 trillion compared to the 2021 plan. Furthermore, 2023 is also the year designated for the disbursement of the remaining capital under the Program of Socio-Economic Recovery and Development(7). If fully disbursed, this capital will contribute approximately 2% to GDP growth in 2023.

The sluggish disbursement of public investment capital leads to numerous adverse consequences for the economy, including: The state continues to incur fees and interest on loans; resources are wasted as capital is still stuck in the state treasury, awaiting allocation to construction projects and disbursement decisions and unable to be infused into the economy for payments to contractors, workers, raw material suppliers, and manufacturers lacking revolving capital, etc. Furthermore, the State Treasury, unable to disburse the funds, must deposit a significant portion of its loans in commercial banks. This complicates monetary policy management. Borrowed capital, originally acquired at high interest rates, ends up being deposited in commercial banks at significantly lower interest rates, leading to resource wastage and repayment difficulties. These issues collectively diminish the efficiency of public investment, hinder economic growth, reduce overall economic effectiveness, and give rise to numerous intricate socio-economic problems.

The disbursement of public investment capital faces difficulties due to a combination of subjective and objective factors, including the following key reasons:

Firstly, the negative impacts of natural disasters and epidemics, as well as unfavorable global and regional economic, political, and social developments, have directly hindered investment activities or indirectly slowed down the implementation of investment projects by driving up raw material costs due to increased production costs, transportation expenses, or disrupted supply chains of resources for investment activities.

Secondly, challenges arise from limitations and shortcomings in the existing legal system associated with public investment disbursement.

Despite ongoing revisions to relevant laws and legal documents aimed at facilitating public investment activities, overlaps and inconsistencies persist among various laws, such as the Public Investment Law, the Construction Law, the State Budget Law, the Bidding Law, the Forestry Law, the Land Law, and more. These inconsistencies create many barriers that prolong the appraisal, approval, and execution of public investment projects.

Thirdly, many issues related to public investment are governed by different legal documents, necessitating interdisciplinary cooperation for enforcement. This complexity contributes to delays in capital disbursement, especially when coordination among relevant agencies remains a challenge. In addition, the limited decentralization of management to local authorities in addressing certain public investment issues further prolongs their disbursement processes.

Fourthly, challenges also stem from delays in site clearance for investment projects’ execution.

Difficulties related to site clearance have posed a significant bottleneck for both project implementation and the disbursement of public investment capital in Vietnam in recent years. Despite substantial decentralization and simplification of procedures and processes aimed at promoting public investment capital disbursement and project execution, site clearance hurdles persist as the foremost impediment to project progress, according to the 2020 data from the Ministry of Planning and Investment’s Draft of the Pilot Project on Separating support, compensation, site clearance, and resettlement from investment projects (2020 is the year of application of the provisions of the 2019 Public Investment Law). Statistics reveal that projects falling behind schedule due to these clearance issues make up 60% of the total projects facing delays(8). Additionally, current land prices are at record highs and exhibit abnormal fluctuations, rendering site clearance, already challenging, even more formidable.

Fifthly, additional causes of delay in public investment capital disbursement:

In addition to the aforementioned reasons, the sluggish disbursement of public investment capital is attributable to several factors: Slow approval and decision-making for public investment projects, resulting in challenges in project preparation; Discrepancies between capital planning and actual construction and disbursement capabilities; Complex and time-consuming project adjustment and public procurement procedures; Complicated bidding processes and contractor/material selection, often failing to ensure the choice of consultants and contractors with appropriate capabilities and quality materials; Inadequate thoroughness in project preparation work, leading to delays in planned capital distribution and disbursement; Limited capacity among some investors, contractors, and project management boards; Ineffective promotion of roles and responsibilities among leaders in various localities, ministries, branches, and agencies tasked with implementing public investment projects; Lack of rigorous implementation in inspection and supervision efforts; Untimely or lenient handling of cases involving delays and violations of regulations; etc(9).

Furthermore, rising costs of raw materials, fuels, and transportation have compounded the issue, while the unit price of construction norms lags behind current market rates, with norms often representing only one-third of market prices. This discrepancy is particularly noticeable in transportation, where many expenses lack established cost norms. As a result, investors tend to delay accepting public investment packages and initiating projects, awaiting policy adjustments to better align with their financial considerations.

2. Solutions to accelerate disbursement of public investment capital in Vietnam

In order to expedite the future disbursement of public investment capital, it is necessary to focus on implementing the following solutions:

Firstly, it is necessary to accelerate the revision of legal regulations related to public investment in the direction of creating uniformity and facilitation, promoting management decentralization, streamlining and simplifying administrative procedures, transparency in procedural order, authorities, and accountability of entities responsible for addressing public investment matters, as well as strengthening supervision, inspection, investigation, and handling of violations.

Secondly, establish a well-defined mechanism for assigning and coordinating authority and responsibilities among relevant agencies and units involved in the work of public investment. Clarify the responsibilities of leaders who are accountable for public investment in general and the delayed disbursement of public investment capital in particular. Evaluate the completion of the investment capital disbursement task as part of the annual performance assessment for organizations and individuals. Uphold discipline and promptly address violations in a strict manner.

Thirdly, speed up the approval and decision-making processes for investment projects to facilitate project preparation (including compensation, site clearance, design, cost estimation, and more). Effective project preparation reduces the need for adjustments during implementation and accelerates related activities such as environmental impact assessments and land use conversions, contributing to the faster disbursement of public investment capital.

Fourthly, vigorously implement capital reduction and transfer funds from projects unable to proceed and that are behind schedule to establish reserve funds for projects capable of timely execution, thereby expediting disbursement while maintaining project quality.

Fifthly, refine and finalize the allocation of investment capital and avoid excessive dispersion by focusing on clearly identifying prioritized projects and concentrating resources on vital and truly urgent projects that can meet their deadlines.

For projects expected to receive capital allocation in the future, relevant ministries and agencies shall direct investors to well prepare project procedures and documents to ensure the necessary conditions for capital allocation and disbursement as soon as the project is included in the capital plan.

Sixthly, promote acceptance, settlement, and liquidation of completed project phases and completed projects. It is necessary to publicly and seriously accelerate the acceptance process, settlement, and liquidation for investment capital in completed project stages and projects. Take strict actions against investors and project management boards that fail to submit settlement reports on time or breach regulations regarding the submission of settlement dossiers. Resolutely withdraw advance capital from projects with sluggish disbursement.

Seventhly, expedite the progress of site clearance for construction. For projects facing site clearance issues, it is necessary to establish task forces with appropriate authority to closely collaborate with the respective localities to accelerate site clearance, ensuring timely project execution. Hasten the implementation and finalization of the Pilot Project on Separating support, compensation, site clearance, and resettlement from investment projects to facilitate this separation and accelerate the implementation of investment projects.

Eighthly, enhance the quality of consultant and construction contractor selection during investment and project preparation by employing specific and suitable selection criteria, thus ensuring responsibility, transparency, and accountability of organizations, individuals, and leaders throughout the bidding, consultant selection, and contractor selection stages.

Ninthly, establish a balanced approach to address the interests of the state, contractors, and the public, guided by the principle of “harmonious benefits and shared risks”; promptly adjust construction norms and unit prices in accordance with realities in localities where investment activities take place; supplement the lacking norms if necessary; and implement a mechanism to protect contractors’ rights and prevent arrears of basic construction.

Prevent the risks of fraudulent or indiscriminate disbursement of public investment capital by enhancing transparency, responsibility, and accountability throughout the public investment cycle. Strengthen inspections, investigations, and the prompt handling of violations to serve as effective deterrents against misconduct. Ensure that the acceleration of the disbursement of public investment capital is implemented in alignment with the objective of maintaining project quality and the efficient utilization of public investment funds.

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Received: 23-7-2023; Revised: 12-8-2023; Approved for publication: 24-8-2022.

Endnotes:

(1) According to the Reports of the Ministry of Finance (2019) and the General Statistics Office (2022), the proportion of public investment in total public expenditure has tended to decrease sharply in recent years; in 2009 it was 42%, in 2018 it was 25%, and in 2022 it was 34.7% (estimated).

2) ODA projects play an important role in infrastructure development, promoting socio-economic development, hunger eradication, and poverty reduction. According to data from the Ministry of Finance (2020), ODA capital has consistently accounted for over 15% of the country’s total public investment capital in recent years (between 1993 and 2020, Vietnam signed agreements for over USD86 billion in ODA capital, and in the period from 2016 to 2020, the total ODA capital reached nearly VND 360 trillion). However, the disbursement rate of ODA capital has persistently fallen short of targets and has declined over the years. During the period 2016–2020, the disbursement rate was only half of that during 2011–2015. The low disbursement of ODA capital has adverse economic implications. That is because once a donor has committed to providing ODA, Vietnam incurs commitment fees, even if the loan agreement hasn’t been signed; interest must be paid on the capital, whether or not it’s utilized; failure to meet commitment terms can even lead to fines; slow disbursement damages Vietnam’s international reputation, making future loan negotiations more challenging and reducing overall investment efficiency, which forces Vietnam to seek alternative sources of capital for project execution and debt repayment.

(3) Ministry of Finance: Report on disbursement of public investment capital plans in 2016, 2017, 2018, 2019, 2020, 2021, 2022, and the first 5 months of 2023.

(4) Tran Khang: Clarify collective and individual responsibilities for delayed disbursement of public investment capital, https://dantri.com.vn/kinh-doanh/lam-ro-trach-nhiem-tap-the-ca-nhan-cham-giai-ngan-von-dau-tu-cong-20220926154931621.htm, accessed November 8, 2022.

(5) Office of the National Assembly: Swift report on the content of the Government’s online conference with localities and the Regular Meeting in September 2022, issued October 1, 2022.

(6), (7) KL: Disbursement of public investment capital in 2022 reached over 80% of the plan, https://baochinhphu.vn/giai-ngan-von-dau-tu-cong-nam-2022-dat-tren-80-ke-hoach-102230202143237717.htm, accessed May 25, 2023.

(8) Ministry of Planning and Investment: Draft of Pilot Project on Allocating Support, Compensation, Site Clearance, and Resettlement from Investment Projects, Draft dated October 27, 2021.

(9) Lan Huong: Monitoring the practice of saving and combating wastage: Many localities are not interested in ODA loans, https://quochoi.vn/UserControls/Publishing/News/

BinhLuan/pFormPrint.aspx?UrlListProcess=/content/tintuc/Lists/News&ItemID=67867, accessed November 8, 2022.