A rise in public investment will help further drive economic growth

After the first session of the 15th National Assembly (NA), the government, ministries, and localities will roll up their sleeves to pare down the list of state-funded projects to as many as 5,000 after trimming at least 1,500 deemed unnecessary and ineffective. This followed Prime Minister Pham Minh Chinh asking authorities to stop disconnected investment and fight corruption in the carrying out of projects.

To date, more than 1,000 projects have been removed from Vietnam's investment plan for the 2021-2025 period, according to the Ministry of Planning and Investment.

"Many provinces, though having limited coffers, have planned hundreds of projects for the 2021-2025 period," PM Chinh said at a group meeting within the 15th NA's first session. "In some cases, many projects have taken years to complete their procedures but have yet to be fully implemented. Some projects have experienced the tenures of many ministers, but have failed to be fully carried out."

Localities must exhude prudence, limit recurrent spending and prioritise investment with the focus on projects that can shore up socioeconomic development, he said.

Positive outcomes

The government reported to the legislative body that many infrastructure projects have been completed in Vietnam's 2016-2020 medium-term investment plan (MTIP). Specifically, 468 kilometres of highway were constructed in the period - including projects calling for the investment of localities, 600km of national roads upgraded, and 31 flyovers built.

In the 2016-2020 period, the total public investment capital approved by the legislature totaled VND2 quadrillion (US$86.96 billion), including VND1.12 quadrillion (US$48.7 million) from the central budget (including VND820 trillion or US$35.65 billion from the domestic central budget and VND300 trillion or US$13 billion) from foreign sources, and VND880 trillion (US$38.26 billion) from the local budget.

Of the VND2 quadrillion (US$86.96 billion) sum, the government granted more than VND1.81 quadrillion (US$78.7 billion), or 90.8%, to ministries, central agencies, and localities, with 11,100 projects using the central budget - tantamount to more than 50% of all projects in the 2011-2015 period.

The annual disbursement rate was 83.4% of the plan assigned by the prime minister. Of this, the rate was 97.46% last year.

"The socioeconomic effectiveness of investment in general and of public investment in particular has gradually improved," said the government report.

Specifically, the incremental capital output ratio (ICOR), that is the additional capital required to increase one unit of output, has also gone down from 6.3 in the 2011-2015 period to 6.1 in the 2016-2019 period.

One of the main contributors to Vietnam's growth rate of 2.91% in 2020 and 5.64% in the first six months of this year is public investment, with many types of state-funded infrastructure projects acting as a booster for socioeconomic development.

For example, in mid-October of 2020, the Mai Dich-South Thang Long section of Hanoi's Ring Road No.3, financed by the Japan International Cooperation Agency's (JICA) official development assistance fund, was officially inaugurated after more than two years of construction.

According to JICA, the project, including a 5.4km section with a 4.8km viaduct, is aimed at building a high-standard inner-city expressway in the western section, connecting the Mai Dich intersection and the South Thang Long intersection of Ring Road No. 3 which runs along the outskirts of the capital city.

"I often travel by car from the My Dinh area to the Thang Long Industrial Park to work. Since the opening of this project, I have escaped from chronic traffic congestion. The travel time has been halved," said Nguyen Van Tuan, an engineer working for a Japanese-backed company at the park.

In fact, since this project became operational, traffic jams have disappeared and the project has helped promote logistical efficiency, thus contributing to the economic development of this region.

JICA and the Vietnamese government clinched a loan deal valued at ¥20,591 million (US$195.48 million) in 2013 to carry out this major project.

However, in the first half of this year, due to the massive negative impact of the health crisis, public investment disbursement hit only VND133.89 trillion (US$5.82 billion) or 29.02% of the government's plan, representing a 34% year-year-on-year reduction.

Public investment is mainly concentrated on key socio-economic infrastructure projects, especially in transport, water resources, education, healthcare and agriculture. Thus, it will act as a lure to attract private and foreign investment, helping increase total social investment to 33-34%, a highly important factor in reviving and maintaining economic growth in 2021, the six-month growth rate of which was 5.64%.

A big scheme

The NA will soon approve a resolution on the 2021-2025 MTIP, with the prime target being to continue effectively restructuring public investment, paring down the ratio of public investment in total development investment so as to woo more private investment and boost infrastructural development.

"All efforts must be made to hit an average disbursement rate of more than 90% for the 2021-2025 period, with the number of completed projects at over 80% of the number of projects assigned capital," reads the draft resolution on the 2021-2025 MTIP.

Under the draft resolution, in the period, capital for investment from the state coffers will be at least VND2.87 quadrillion (US$124.8 billion). This includes VND1.5 quadrillion (US$65.2 billion) from the central budget - VND1.2 quadrillion (US$52.17 billion) from domestic capital and VND300 trillion (US$13 billion) from foreign sources - and VND1.37 quadrillion (US$59.56 billion) from localities' budgets.

Also under the draft resolution, the legislative body may also earmark a provisional sum of VND150 trillion (US$6.52 billion) for settling issues arising from the process of implementing disbursement, including VND120 trillion (US$5.21 billion) from domestic capital and VND30 trillion (US$1.3 billion) from foreign sources.

The 2021-2025 MTIP will be deployed with specific priorities, with the total number of projects so far at nearly 5,000, down more than 50% in comparison with that in the 2016-2020 period. Of which, the number of new projects will be close to 2,240. The average capital for each project will be VND210.4 billion ($9.14 million), 2.4 times higher than that in the 2016-2020 period.

"Sufficient capital will be provided for pivotal national projects and programmes, and three national target programmes, for the site clearance of the Long Thanh International Airport, for completing the construction of the Eastern Cluster of the North-South Expressway, and for roads No.3 and No.4 in Hanoi and Ho Chi Minh City," the government report stated.

Capital will also be provided for projects that will connect localities in the Mekong Delta region, connect the Central Highlands region with the south-central region, and connect localities in the northern mountainous region, and for constructing the coastal road from Quang Ninh province to Kien Giang province, and also for the building of the East-West Economic Corridor.

In November of 2020, the legislature adopted a scheme on accelerating public investment for the year. Accordingly, total investment capital from the state coffers will be VND477.3 trillion (US$20.75 billion), up 1.4 per cent as against the same plan for 2020. Of which, capital from the central coffers will rise 0.9% year-on-year, and capital from the local budget will climb 1.9 per cent year-on-year.

According to the JICA, Vietnam's boosting of public investment is a good move, especially in the context of limited private investment and COVID-19. The JICA has a long history of cooperation for the development of Ring Road No.3 in Hanoi. Japanese ODA loans were provided for the "Red River bridge construction project", "Hanoi city ring road No.3 construction project", and "New national highway No.3 and Regional road network project".

In 2007, the Thanh Tri Bridge connecting to Ring Road No.3 was completed. After that, the northern and southern approaching roads of the bridge opened to traffic in 2009 and 2010. Subsequently, in 2012, a 9km-section connecting the intersection of National Highway No.32 with the northern side of Linh Dam Lake, the southwestern section of Ring Road No.3, opened to traffic. Finally, in 2014, the section connecting Hanoi and the northern city of Thai Nguyen was also completed.

"Vietnam still faces bottlenecks in terms of basic infrastructure. The JICA will continue to support Vietnam's socio-economic development by implementing transportation infrastructure projects, under the policy of the Japanese government of 'Partnership for Quality Infrastructure," said Shimizu Akira, chief representative at the JICA Vietnam Office.