VN-Public Investment Reform 1

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The main objective of the First Public Investment Reform Development Policy Loan Program is to support modern governance, one of the four main 'pillars' of Vietnam's Socio-Economic Development Plan (SEDP) 2006-2010. The Country Partnership Strategy (CPS) is aligned to the SEDP. Better planning processes, more transparent procurement and stronger public financial management, all areas covered by the program, fall under the modern governance pillar of SEDP. The program is designed to assist the government of Vietnam to strengthen the selection, preparation, implementation and supervision of public investment projects. While much progress has been made over the last decade in the upgrading of public financial management in relation to recurrent expenditures, there are still important weaknesses in the management of investment projects. Those weaknesses take a toll on economic efficiency in a country where total investment accounted for 41.3 percent of the Gross Domestic Product (GDP) in 2008, and consolidated public sector investment for 12.6 percent. An increased focus on the quality of growth, in addition to its quantity, is warranted. The recent international macroeconomic turbulence has dramatically exposed the weaknesses of public investment in Vietnam. Distorted price signals resulted in capital expenditures going to sectors experiencing asset price bubbles, thus amplifying macroeconomic fluctuations. Insufficiently developed monitoring mechanisms also made it difficult for the government to adjust investment volumes so that they will play a more counter-cyclical role.