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Strengthening The Financing Framework for Municipal Infrastructure in Vietnam

March 11, 2014

HANOI, March 11, 2014 – New Report, led by Cuong Duc Dang of the World Bank Office in Hanoi, highlights key constraints, opportunities and options for enhancing government access to financing for infrastructure development.

Vietnam’s transition to a market economy has been accompanied by rapid urbanization and annual economic growth that averaged 7.3 percent between 1990 and 2010. This outstanding achievement has resulted in a fivefold increase in per capita income. Vietnam has also pursued a path of fiscal decentralization through greater autonomy for sub-national governments over public finances and infrastructure development. The process of decentralization has however faced difficulties including growing disparities across provinces, variability in administrative capacity at the local level and insufficient accountability.

A fundamental challenge for Vietnam is to improve the affordability and efficiency of infrastructure investment and yet within this challenge there is a silver lining.

“This challenge also represents an opportunity for Vietnam, in that a significant part of the investment needs can likely be met by more efficient use of available resources,” said Victoria Kwakwa, World Bank Country Director for Vietnam. “The success of any initiative to improve the financing of municipal infrastructure in Vietnam hinges on advances in the broader landscape of policy reform as part of the country’s long-term development. Meeting these challenges requires a comprehensive approach that addresses issues of governance, financing, and execution.”

The Assessment of Financing Framework for Municipal Infrastructure Report has been produced through a joint study carried out by the World Bank and the Ministry of Finance (MOF) with the financial support of AusAID. The study has reviewed the current infrastructure financing framework from both legal and institutional perspectives, evaluated relevant international experiences and developed various options for improvements to the financing of infrastructure development.

The study identifies several avenues for the Government to consider in order to improve efficiency through the involvement of the private sector and market-based mechanisms to improve financing for infrastructure development. Possible options include the gradual development of a municipal development fund (MDF) for secondary cities that acts as a second-tier lender drawing on the successful experiences of similar funds in other countries as well as strengthening the enabling environment for municipal bonds.

“Existing inefficiencies in infrastructure investment represent an opportunity for efficiency gains – to do more with the same amount of resources. This calls for stronger use of market-based mechanisms – not only would this increase efficiency, but would also attract greater investor interest and participation from the private sector,” said Jennifer Sara, Sustainable Development Sector Manager of the World Bank. “The sustainable financing of municipal infrastructure investment in Vietnam will require greater involvement of capital markets and the private sector, and cannot rely on State Budget resources and official development assistance (ODA) alone.”

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For a copy of the Assessment of the Financing Framework for Municipal Infrastructure in Vietnam, please click here.


 

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