Today we celebrate an important milestone in Vietnam’s development history—twenty years of development assistance. I would first like to recognize and pay tribute to the Government of Sweden for being a pioneer in development cooperation with Vietnam. Sweden began financial and technical assistance to Vietnam in 1967 and maintained uninterrupted strong support even when several others withdrew aid during Vietnam’s period of international isolation.
These twenty years have seen truly remarkable development progress in Vietnam. In 1993, Vietnam was one of the poorest countries in the world with income per capita of about $100 and low indicators of social progress.
Today Vietnam is an emerging middle income country with a $154 billion economy and income per capita of around $1,700. Income poverty has declined from 58% in 1993 to about 10% in 2012 with over 30 million people lifted out of poverty. Indicators of social welfare are now better than for most other countries at similar levels of per capita income and comparable even to some countries with higher incomes. For example, Vietnam’s population has become increasingly well educated. The fraction of the population with less than primary school has plummeted over time, and those born in the period following the Đổi mới reforms have attained higher levels of education than any other generation in the history of Vietnam. Literacy and numeracy among Vietnam’s students and adult workforce is widespread and more so than in other countries, including wealthier ones. A recent assessment showed that Vietnamese workers outperformed their peers not just in poorer Laos but also in richer Bolivia and Sri Lanka. Maternal mortality rate is 59/100,000 live births in Vietnam compared to 99/100,000 live births and 220/100,000 live births in the Philippines and Indonesia respectively. 95% of rural Vietnamese have access to electricity compared to 83% in the Philippines and 74% in Indonesia. Every day for the past ten years, 9,000 people have been connected to the grid for the first time in Vietnam. The country doubled its power generation capacity from 12,000 MW in 2005 to 25,000 MW in 2010.
Vietnam has already attained five of its eight original Millennium Development Goal targets and is well on the way to attaining two more by 2015. In 2010, Vietnam was ranked 6th globally in progress on MDGs. By any measure, Vietnam’s achievement over the last twenty years is outstanding.
Vietnam’s success is first and foremost due to the visionary and determined leadership of the Government and to the hard work and entrepreneurial spirit of the Vietnamese people. As development partners we have been privileged to accompany Vietnam during this remarkable journey and to contribute to the country’s achievements. Working with Vietnam has given us all a chance to test new ideas and to demonstrate that development assistance can and does indeed work.
ODA to Vietnam over the last twenty years has been about ideas, about knowledge and about financing. These three elements of our ODA partnership have come together to support Vietnam’s economic and social transformation during the period. I’d like to emphasize the importance of all three. Financing without new ideas, without sharing knowledge could not have delivered effectively. Similarly knowledge and ideas need financing to come into being.
In the case of the World Bank, our creative response to Vietnam’s need for new ideas early in our re-engagement with Vietnam at a time when we could not lend to the country remains one of the highlights of our partnership with Vietnam. The Bank was able to learn about Vietnam and also expose Vietnamese officials to experiences in other countries especially neighboring countries in SE Asia and the transitional economies of the former Soviet Union and China. The absence of lending during this initial stage of re-engagement was with hindsight a blessing in disguise as knowledge could be built up and shared without any operational pressures. Officials from that time credit the Bank with “holding our hand” as the country re-engaged with the world. I know that a strong emphasis on knowledge and ideas has characterized the partnership with other development partners as well.
Vietnam’s WTO accession, the climax of the country’s economic integration was facilitated by significant knowledge support from different development partners. The preparation and adoption of the new Enterprise Law in 1999 which was also supported by the UNDP and several partners has clearly been a watershed event in Vietnam’s market transition.
Financing has also been important. At the 1993 Paris round-table meeting, donors pledged around $1.9billion to Vietnam’s development. There has since been a steady increase in the amount of ODA commitments, particularly over the last decade since the turn of the millennium. In 2011, pledges totaled $7.4billion, of which $6.3billion was signed. Overall, since 1993, close to $52 billion in ODA has been signed between the Government and development partners. Based on data from MPI, the largest share of ODA resources, an estimated 66 percent has gone to investments in various infrastructure sectors while rural, social and economic development and the environment each constituted less than 10%. It is estimated that around 74% has been channeled through central ministries and agencies and 26% through local governments. ODA flows have also been instrumental indirectly in catalyzing foreign investment flows both because of contributions to ODA in improving the business environment and also through a less tangible signaling and confidence building effect.
Over the twenty years, there has been a rapid evolution and diversification of ODA modalities. In the 1990s many ODA programs were primarily working through project modalities. The turn of the millennium saw greater alignment around the VDGs, the CPRGS and the SEDP and parallel move towards donor harmonization. General budget support, programmatic approaches and work through national programs and country systems have become more widespread. The 10 year PRSC series involving a large number of development partners, the support of AusAid, Denmark and UK to the NTP on Rural Water and Sanitation and the recent World Bank and AusAid financed Program for Results operation to support provinces in the Red River Delta on their Rural water NTP are examples of some of these newer modalities.
A fundamental reason for the extraordinary success of Vietnam’s ODA partnership is the strong Government ownership of its development vision and agenda. Vietnam has sought ideas, knowledge and even advice from development partners and then found ways to contextualize and adapt it to fit Vietnam’s own context. This means development partner ideas have not been taken on “hook line and sinker”. In some cases with hindsight this strong ownership has compelled us as development partners to be more flexible and creative in working with Vietnam to adapt ideas and advice to fit Vietnam’s context better. We have learnt side by side with Vietnamese counterparts and the results in most cases have indeed been better.
Another factor has been Government use of ODA assistance as vehicles to test different policy options across a wide range of sectors. Successful tests or pilots have then been fully institutionalized in the legislative system and scaled up and replicated through Government programs or as part of regular service institutions. Examples of some of these successful policy models include IPM Farmer Field Schools; People Credit Funds, Commune Development Budgets, and one stop shops for administrative services [1].
Despite Vietnam’s remarkable success, its development journey is far from over. Poverty reduction gains while impressive are still highly vulnerable to reversal. A large number of Vietnamese are classified as “near poor” [2] and can easily be pulled back into poverty from climatic, economic and health shocks. Inequality both in access to economic opportunities and social services is growing and a source of concern in a society that places significant emphasis on equity. Finally Vietnam is currently experiencing some of the lowest growth rates in over a decade. It needs to create a new growth model based on greater economic competitiveness to put the economy back on a path of rapid growth that can be sustained over time. All of these are critical for Vietnam’s success as a Middle income country and for achieving its longer term objective of becoming an industrialized economy. Development partnerships will continue to be important and relevant for Vietnam going forward.
But after twenty years of ODA and with Vietnam now a middle income country it is natural that partnerships and financing sources are changing. Experience from other middle income countries shows that ODA partnerships will need to deepen even further their focus on ideas, knowledge and solutions. For several successful MICs, the attraction of ODA is not so much in the resources it brings but in the solution, ideas to help solve specific complex issues that countries face [3]. Vietnam can be expected over time to move in this direction. To respond to this, ODA must be even more than before, a package of ideas, knowledge and financing. ODA will need to be used more strategically and deliberately to leverage private financing to complement public resources. ODA must work more and more through Government programs and systems to really have maximum impact and be more sustainable. The existence of coherent and credible national programs will facilitate progress on this. And ODA coordination must become even stronger to fully leverage the comparative advantage of different partners and avoid inefficient fragmentation of support. The Government needs to take a strong lead in making this happen.
Within ODA, Vietnam’s Climate Change and Green Growth Strategies position it well to benefit from planned new climate and green financing platforms at the international level once they come into place.
While ODA will continue, its relative share in financing Vietnam’s development can be expected to decline and several other forms of financing will become increasingly important for Vietnam. International trade, private sector investments, domestic and international capital markets will need to be tapped more fully to support Vietnam’s development financing needs. Vietnam is indeed taking important steps to expand its opportunities for trade and is engaged in negotiations of several multilateral and bilateral trade arrangements. Partnerships around trade are clearly an important part of the future of Vietnam’s development financing. Vietnam needs to build capacity to make maximum use of the other financing sources in a way that does not threaten debt sustainability and broader macro stability. Strengthening the domestic financial system, including developing domestic capital markets and improving the country’s readiness to access international financing at affordable rates is a central part of this agenda. Other countries have done this successfully and Vietnam can as well.
It is also important to note that Vietnam has a period of transition. It still has considerable amounts of undisbursed concessional ODA. Between the World Bank, ADB and JICA, undisbursed concessional ODA is about $17 billion. Assuming that $3 -4 billion is disbursed annually this provides ODA flows for another 4-6 years. In addition, Vietnam will continue to have access to IDA in the coming IDA17 cycle. This gives adequate time for the country to transition smoothly to a greater share of newer forms of financing beyond traditional ODA. And finally the agenda for the future will need to include closer attention to more efficient use of scarce domestic resources.
As we celebrate this important milestone, let us all reaffirm our strong commitment to Vietnam’s continued development and work together to find innovative and creative ways to bring new partnerships and new financing possibilities to achieve this common endeavour. In doing this we will need to maintain the trust and mutual respect that has characterized our partnership so far. We would like to thank the Government and the people of Vietnam for the opportunity to accompany you on this exciting journey during these 20 years. We wish Vietnam and our development partnership every success in the years ahead.
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[1] But there have also been some much less successful policy models. Examples include participatory irrigation management, integrated maternal and child health and nutrition
[2] Near poor threshold is defined as 30% above poverty line.
[3] Some governments e.g. Malaysia and some in Eastern Europe, actually pay fees for such services from multilateral agencies.
