Excellency PM Nguyen Tan Dung,
Other Government Ministers,
Ambassadors, Heads of Development Agencies,
Members of the Vietnam VDPF,
Welcome and Introduction
I join Minister Vinh in welcoming you all to VDPF 2015. Prime Minister Dung we recognize this is a busy time for Government and for you in particular and thank you for re-arranging your schedule to be with us today.
The 2015 VDPF is taking place against the backdrop of two important events that could significantly shape Vietnam’s development in the next five years and beyond: the SDGs, a new ambitious global development agenda for the next 15 years and an unprecedented wave of deeper trade integration for Vietnam marked by several bilateral agreements and three key multilateral agreements the AEC, the EUFTA and the TPP.
Vietnam is completing implementation of the first 5 year plan under the 2011-2020 SEDS; and preparing for important strategic and political decisions that will orient development priorities in the second half of the 2011-2020 SEDS period and guide the new Party and Government leadership that takes office next year. These external and domestic transitions need to and can indeed reinforce each other to deliver strong development outcomes for Vietnam in the next five years.
Highlights of Achievements in the last Five Years
The last 5 years have been significant on several fronts. First the SEDS provided broadly appropriate strategic orientations for Vietnam. Its focus on Modern Market Institutions affirmed the need for second generation reforms after Doi Moi to complete Vietnam’s market transition; it rightly recognizes the huge challenges to competitiveness from weak infrastructure and focuses on closing the large infrastructure gap; and it maintains Vietnam’s people-centered approach to development in the Human Resources Pillar, which also acknowledges the key role of skills for driving labour productivity, successful integration and poverty reduction.
Vietnam has achieved a lot on each of the three pillars of the SEDS and on broad development outcomes. Growth has averaged just under 6 percent over the period compared to regional average of about 5.6 percent delivering an almost doubling of the size of the economy to about $200 billion. Per capita income has risen annually by 4.8 percent reaching about $2,200.
Poverty, has continued to decline vary rapidly. Using the GSO-World Bank poverty line, the overall poverty rate fell from 20.7% in 2010 to 13.5% in 2014, meaning that more than 6 million people were lifted out of poverty in just five years. Infant and child mortality continued to show steady progress. Similarly, stunting of children fell from 29.3% to 24.9%4. To increase access to health services, health insurance coverage increased from 60% of the population in 2010 to 71% of the population in 2015.
Enrollment rates of five year olds in early childhood education (ECE) reached 95.0%. And Vietnamese teenagers’ performance on the 2012 Program for International Student Assessment (PISA) showed high levels of student learning achievement on mathematics and reading for 15 year olds, scoring better than many OECD countries.
As regards infrastructure provision, over 500km of expressway has been put into operation, (including: HCMC-Long Thanh-Dau Giay, HCMC-Trung Luong, Noi Bai – Lao Cai, Cau Gie-Ninh Binh, and Hanoi – Hai Phong); The widening of 1,700km of NH1 into 4 lanes which is almost completed will relieve the country’s backbone traffic congestions and reduce traffic safety risks. About 1,000km of inland waterways has been improved, especially the congested Cho Gao canal linking HCMC with Mekong Delta. Installed generation capacity increased from 19 GW to 32.7 GW, and about 820,000 households –over 3 million people in rural areas, were connected to the national power grid. In 2012 the competitive generation market become fully operational; and the pilot wholesale electricity market commenced in 2015. A major PPP decree was adopted in 2014 and is now in effect which should provide the basis for private investment in infrastructure.
On Market Institutions, under the new Constitution 2013, a number of very important pieces of legislation have been adopted, notably Laws on Enterprise, Investment, Business Insolvency, Procurement, Public Investment, Stage Budget, Land, Housing, and Management of State Investment in Enterprises. These laws provide elements of a strong framework for an efficient functioning of a market economy in Vietnam. Credible implementation is now the challenge.
Prime Minister Dung, as Vietnam comes to the end of the SEDP 2011-205, Development partners congratulate you and your Government for Vietnam’s numerous achievements and continued development progress over the last five years.
Suggestions on Priorities for Next Five years
As Vietnam looks forward to the next five years, the broad orientations of the SEDS remain relevant. We hope that our discussions today will offer some useful suggestions on areas that the Government could focus greater attention in order to maximize potential benefits from the new global development framework and from your new wave of integration. I’d lie to highlight a few broad areas:
First is Vietnam’s productivity challenge. In the last few years Vietnam has achieved a commendable growth recovery following the global recession. However the continued trend towards declining productivity growth is worrisome. Vietnam’s productivity growth rate is under 4 percent and declining compared to over 7 percent for China and over 5 percent for Korea when they were at similar levels of development as Vietnam is now. Current productivity growth rates are unlikely to deliver the sustained rapid growth that could see Vietnam follow the development trajectory of countries like Korea or Taiwan (China).
What is needed to stem the decline in productivity growth is a broad framework to level the playing field between all economic actors and promote genuine competition and security of property rights. Vietnam’s market institutions reform agenda will need to be significantly stepped up to achieve this. In addition, more market based determination of access to land and capital to ensure that resources are allocated to the most efficient and productive uses is particularly critical. Enabling the emergence and smooth functioning of land markets would be a great achievement at the end of the SEDP period that would have important economic and social benefits for citizens.
Equally important is a clearer separation between the regulatory and commercial activities of the state by transforming the role of the state in the economy from a producer to effective regulator and facilitator. The Government will need to step aside in areas where there is no rationale for public sector engagement to create space for the private sector. The decision to divest fully out of VINAMILK is a step in the direction and more other similar divestitures will strengthen the credibility of the Government’s reform efforts. All of this will support the emergence of a dynamic domestic private sector which the Government has indicated is an important objective in the coming years.
The second broad issue is the environmental footprint of Vietnam’s growth. Over the last five years, Vietnam’s GHC emissions has risen fastest in the region. Trends in the energy sector need attention. Hydro power constitutes 42 percent of Vietnam’s energy supply but this resource is almost fully tapped. A sound framework to incentivize investments in renewable sources such as wind, gas and solar, coupled with reinvigorated efforts to improve energy efficiency will promote a more sustainable energy path and help Vietnam achieve it INDC target of 8%. Development Partners stand side by side with Vietnam to help achieve even better outcomes. But Government action on the policy and institutional framework is fundamental to success.
A third area relates to poverty and social welfare. Despite remarkable progress, Vietnam still large numbers of poor people. There are also clear indications of limited progress in ethnic minority welfare. The decline of ethnic minority poverty was very limited 2012-2014 with almost no progress on malnutrition among these groups. In fact the most recent data shows a startling increase in infant mortality among ethnic minorities. These developments highlight the urgent need for a renewed agenda to tackle ethnic minority poverty. The upcoming new Rural Areas Program and the NTP on Sustainable Poverty Reduction if designed right could make a difference with significant decentralization to communes and consistency in approach across the different poverty programs could make a difference.
Pensions reform is also increasingly important, Recent work by the World Bank shows Vietnam has the most vulnerable pension system in the region. At the same time, Vietnam’s population is aging rapidly, faster than any country in the region, including China and Korea), Despite recent reforms, the Vietnamese pension system is still not financially sustainable for a variety of reasons including the low retirement age. Reform is needed urgently to ensure equity, financial sustainability and avoid creating a class of poor elderly Vietnamese.
A final broad area is Government capacity and accountability. Vietnam’s economy and society will face more complex challenges in the coming years that will require a more capable and accountable state to manage. Key to this is a highly professional public administration. Vietnam’s long standing public administration reforms has unfortunately not been able to deliver much tangible results. It could benefit from a fresh look and reenergized to enhance chances of success. Providing opportunities for more regular and meaningful feedback from citizens in policy formulation and monitoring will strengthen Government accountability.
A final question is how Vietnam will finance its ambitious development agenda in the next five years. At a time when concessional development assistance is phasing out, Vietnam will need to rely more on internal revenues. But in the last five years, revenue to GDP ratio has declined to about 21% from 27%. Reinvigorating domestic revenue mobilization complemented by efforts to enhance expenditure efficiency will be important to ensure that development objectives can be achieved without building unsustainable levels of debt. In addition ODA will need to be used more effectively to leverage private resources.
Prime Minister, Ladies and Gentlemen,
I believe we have an interesting and highly relevant set of issues for our conversation this morning. To get the most out of our session today, I hope that we will all be focused and succinct in our remarks and give others a chance to speak.
I look forward to a very productive dialogue.