Government of Vietnam Update on Macroeconomic Developments in the First Four Months of 2014
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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 87865-VN INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR PROPOSED CREDITS1 Public Disclosure Authorized IN THE AMOUNT OF SDR 161.8 MILLION (US$250 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE SECOND ECONOMIC MANAGEMENT AND COMPETITIVENESS DEVELOPMENT POLICY OPERATION Public Disclosure Authorized April 29, 2014 Poverty Reduction and Economic Management Department Vietnam Country Management Department East Asia and Pacific Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 1 Refers collectively to both an IDA Blend Credit and IDA Hard Terms Credit VIETNAM - GOVERNMENT FISCAL YEAR JANUARY 1 – DECEMBER 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 2014) Currency Unit Vietnamese Dong US$1.00 VND21,036 WEIGHTS AND MEASURES Metric System ABBREVIATION AND ACRONYMS AAA Analytical and Advisory Activity MONRE Ministry of Natural Resources and Environment ADB Asian Development Bank MPI Ministry of Planning and Investment APs Administrative Procedures MTDS Medium-Term Debt Management Strategy APCA Administrative Procedures Control Agency MTIF Medium-Term Investment Framework ASEAN Association of Southeast Asian Nations NPLs Non-performing Loans ABP AusAID-WB Strategic Partnership in Vietnam OECD Organization for Economic Cooperation and Development CFAA Country Financial Accountability Assessment OOG Office of Government CIEM Central Institute for Economic Management PAPI Public Administration Performance Index CIT Corporate Income Tax PCI Provincial Competitive Index CPIA Country Policy and Institutional Assessment PEFA Public Expenditure and Financial Accountability CPS Country Partnership Strategy PFM Public Financial Management DA Deposit Account PFMRP Public Financial Management Reform Project DFAT Department of Foreign Affairs and Trade, Australia PIM Public Investment Management DFID Department for International Development PIR Public Investment Reform DPO Development Policy Operation PPP Public Private Partnership DSA Debt Sustainability Analysis PRSC Poverty Reduction Support Credit EMCC Economic Management and Competitiveness Credit ROSC Report on the Observance of Standards and Codes FA Financial Agreement SAV State Audit of Vietnam FDI Foreign Direct Investment SBV State Bank of Vietnam FSAP Financial Sector Assessment Program SECO Swiss State Secretariat for Economic Affairs GDP Gross Domestic Product SEDS Socio-Economic Development Strategy GDT General Department of Taxation SEDP Socio-Economic Development Program GCs General Corporations SEGs State Economic Groups GOV Government of Vietnam SMEs Small and Medium Enterprises GSO General Statistics Office SOCBs State-owned Commercial Banks IDA International Development Association SOEs State-owned Enterprises IDF Institutional Development Fund TAMP Tax Administration Modernization Project IFC International Finance Corporation TWG Technical Working Group ILO International Labor Organization UNIDO United Nations Industrial Development Organization IMF International Monetary Fund UNDP United Nations Development Programme JICA Japan International Cooperation Agency VASS Vietnam Academy of Social Sciences MDGs Millennium Development Goals VAT Value-Added Tax MDTF Multi-Donor Trust Fund VASS Vietnam Academy of Social Sciences MOF Ministry of Finance VCCI Vietnam Chamber of Commerce and Industry MOIT Ministry of Industry and Trade VDR Vietnam Development Report MOJ Ministry of Justice WTO World Trade Organization Vice President: Axel van Trotsenburg Country Director: Victoria Kwakwa Sector Director: Sudhir Shetty Lead Economist: Sandeep Mahajan Task Team Leader: Habib Rab i SOCIALIST REPUBLIC OF VIETNAM ECONOMIC MANAGEMENT AND COMPETITIVENESS CREDIT 2 The Second Economic Management and Competitiveness Credit was prepared by an IDA team consisting of Abha Prasad (Senior Debt Specialist, PRMED); Adu-Gyamfi Abunyewa (Senior Procurement Specialist, EASR2); Anjali Acharya (Senior Environmental Specialist; EASVS); Christopher Fabling (Senior Financial Management Specialist, EASFM); Deepak Mishra (Lead Economist, EASPR); Duc Minh Pham (Senior Economist, EASPV); Greg Smith (Economist, AFTP 3); Habib Rab (Senior Economist, EASPV); Nina Masako Eejima (Senior Counsel, LEGES); Hoon Sahib Soh (Operations Advisor, EASOS); Huong Thi Lan Tran (Governance Specialist, EASPV); Huong Thi Mai Nong (Junior Counsel, EACVF); James Anderson (Senior Governance Specialist, EASPV); Kien Trung Tran (Senior Procurement Specialist, EASR2); Linh Anh Thi Vu (Program Assistant, EACVF), Linh Hoang Vu (Economist, EASPV); Lynn Yeargin (Senior Program Assistant, EASPW); Miguel-Santiago Oliveira (Senior Finance Officer, CTRLN); Minh Van Nguyen (Senior Economist, EASPV); Nga Thi Quynh Dang (Trust Fund Coordinator, EACVF); Phuong Anh Nguyen (Research Analyst, EASPV); Quang Hong Doan (Senior Economist, EASPV); Quyen Hoang Vu (Economist, EASPV); Sameer Goyal (Sector Leader for Finance and Private Sector Development), EASFP); Sandeep Mahajan (Lead Economist, EASPR); Viet Quoc Trieu (Financial Sector Specialist, EASFP); Viet Tuan Dinh (Senior Economist, EASPV); and Yuling Zhou (Lead Procurement Specialist, EASR2). IFC team members include Lan Van Nguyen (Senior Operations Officer, CEAIC), Nhanh Thi Thu Nguyen (Operations Officer, CEAIC), and Viet Anh Nguyen (Operations Officer, CEAIC). EMCC-2 was coordinated by the International Cooperation Department of the State Bank of Vietnam led by Mme. Doan Hoai Anh (Director-General) and supported by Mr. Tran Anh Tuan (Manager). Contributions of colleagues gratefully acknowledged from the Ministry of Finance; the Ministry of Planning and Investment; the Ministry of Justice; the Government Inspectorate; and the State Bank of Vietnam. Additional contributions gratefully acknowledged from Dominic Mellor (ADB), Nguyen Thi Ngoc Minh (DFID), Brigitte Bruhin (SECO), Nguyen Hong Giang (SECO), Katrin Ochsenbein (SECO), Miroslav Delaporte (SECO), Mark Palu (DFAT-Australia), Andy Isbister (DFAT-Australia), Nguyen Chi Mai (DFAT-Australia), Daisuke Watanabe (JICA), Nguyen Diem Thanh (JICA), Naito Yuko (JICA), Joanne Pindera (DFATD-Canada), Jon Silva (DFATD-Canada), Chau Nguyen (DFATD-Canada), John Nelmes (IMF), Sanjay Kalra (IMF), Ashvin Ahuja (IMF), and Geoffrey Bannister (IMF). Thanks also to DFID, DFAT-Australia, DFATD-Canada and SECO for contributions to the EMCC Programmatic Analytical and Advisory work. Peer reviewers for EMCC 2 are Rashmi Shankar (Lead Economist, ECSPE), Genevieve Boyreau (Senior Country Economist, SACBT), Sunita Kikeri (Program Manager, FCMCG), and Bill Mako (Lead Private Sector Development Specialist, MENA). The operation was prepared under the overall guidance of Victoria Kwakwa (Country Director, EACVF), Sudhir Shetty (Sector Director, EASPR), and Sandeep Mahajan (Lead Economist, EASPR). ii CONTENTS CREDIT AND PROGRAM SUMMARY .................................................................................................... 1 I. INTRODUCTION AND COUNTRY CONTEXT ........................................................................... 3 II. MACROECONOMIC POLICY FRAMEWORK ........................................................................... 5 2.1 RECENT ECONOMIC DEVELOPMENTS ................................................................................ 5 2.2 IMF RELATIONS ...................................................................................................................... 14 III. THE GOVERNMENT’S REFORM PROGRAM ......................................................................... 14 IV. THE PROPOSED OPERATION .................................................................................................... 15 4.1 LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION ....................... 15 4.2 PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .............................. 19 4.3 LINK TO CAS AND OTHER BANK OPERATIONS .............................................................. 43 4.4 CONSULTATIONS, COLLABORATION WITH DEVELOPMENT PARTNERS ................ 43 V. OTHER DESIGN AND APPRAISAL ISSUES ............................................................................. 44 5.1 POVERTY AND SOCIAL IMPACT ANALYSIS .................................................................... 44 5.2 ENVIRONMENTAL ASPECTS ................................................................................................ 47 5.3 PFM, DISBURSEMENT AND AUDITING ASPECTS ............................................................ 47 VI. SUMMARY OF RISKS AND MITIGATION ............................................................................... 48 ANNEX 1 – LETTER OF DEVELOPMENT POLICY ......................................................................... 50 ANNEX 2: EMCC POLICY AND RESULTS MATRIX ...................................................................... 53 ANNEX 3: IMF ASSESSMENT LETTER ............................................................................................ 59 ANNEX 4: GOVERNMENT OF VIETNAM UPDATE ON MACROECONOMIC DEVELOPMENTS IN THE FIRST FOUR MONTHS OF 2014 ........................................................................................... 62 iii CREDIT AND PROGRAM SUMMARY SOCIALIST REPUBLIC OF VIETNAM ECONOMIC MANAGEMENT AND COMPETITIVENESS CREDIT 2 Borrower The Socialist Republic of Vietnam