Annex 1: Revenue assignment between central and local budgets under the State Budget Law 2002 59
Annex 2: Capital expenditure changes when changing in allocation norms between 2007 and 2006 60
Annex 3: Capital expenditure changes when changing in allocation norms between 2010 and 2011 62
Annex 4: Scores of poverty for capital expenditure allocation of central to provincial state budgets during 2007-2010 if changing in poverty identification 64
Annex 5: Scores of poverty for capital expenditure allocation of central to provincial state budgets during 2007-2010 if changing in poverty identification 66
Annex 6: Budget allocation scores by regions for two budget stability periods 66
Annex 7: Scores of poverty for capital expenditure allocation of central to provincial state budgets during 2011-2015 67
Annex 8: Budget allocation scores by provinces for two budget stability periods 69
Annex 9: Provincial shares of capital expenditures, 2006-2007 and 2010-2011 71
Annex 10: Capital allocation to the national targeted program 2006-2010 73
Annex 11: Capital allocation to the NTPs by provinces in 2006 and 2007 74
Annex 12: Legal documents as basis of state budgetary allocation 76
This research assignment is carried out to describe the evolution of budgeting mechanism in the recent years in association with capital expenditure transferred from central to provincial budgets with a focal on changes in budgeting process and allocation norms. It is also to carry out an assessment of how recent changes in the allocation norms, poverty line, and identification of provincial poverty rate would affect the redistribution of capital expenditures from the central to provincial budgets, and then to verify whether these recent changes are pro-poor. The report also mentions how recent changes in the allocation norms, poverty line, and identification of provincial poverty rate would affect availability of resources for the national targeted programs.
The introduction of the State budget Laws in 1996 and 2002 further elaborated the changes in this field. Following up these changes, allocation norms for distributing state budget capital expenditures from the central to lower budget levels were significantly developed. All allocation norms are divided into five groups, which cover many aspects such as population, levels of development, natural geographic areas, the number of district administrative units, and additional criteria (Decision 210/2006/QD-TTg, 2006). For the budgetary stability period of 2011-2015, allocation norms are basically similar to those stipulated in the Decision 210/2006/QD-TTg with some minor changes. For example, arable land area of rice is added into natural geographic areas; indicators for city types 1, 2, and 3 and provinces and cities belonged to dynamic economic development or center of regions and sub-regions were also added to the allocation norms.
These changes in allocation norms are believed to have significant impacts on allocation of capital expenditures from the central to provincial budgets. They have improved transparency, equality, and predictability of the budgeting process as well as in allocation of capital expenditures from the central to provincial budgets. The analysis results of the budgetary stability period of 2007-2010 suggest that the capital expenditures are unfavorably distributed to more advanced provinces, and seem to be supportive to more disadvantage provinces and regions. At the provincial level, evidence also shows that new allocation norms used to distribute capital expenditures from the central to provincial budgets are pro-poor. In the budgetary stability period of 2011-2015, newly added allocation norms do not support advanced developed provinces and regions, and they are not strongly favorable to the most disadvantage provinces.
Besides, there are changes in insights of allocation norms such as change in the way of identifying provincial poverty rate (shifting from MOLISA to GSO provincial poverty rates) and change in the poverty line (starting in late 2010). The analysis results suggest that, for the budgetary stability period of 2007-2010, the GSO provincial poverty rate would be more pro-poor than MOLISA counterpart. For the budgetary stability period of 20011-2015, in the other case, analysis results show that the new poverty line seems to be supportive to the most disadvantage provinces and regions but not strong as GSO provincial poverty rate. They also imply that, however, the “new poverty line” poverty is unfavorable to the poor provinces than using GSO poverty rates.
Resources available to the NTPs and specific goals-oriented programs are an important supplement to capital expenditure allocated from the central to provincial state budgets. This amount of capital has contributed to sustain objectives of the specific programs, support disadvantage areas over the country on catching up, promote economic development, and improve living standard of population. Changes in allocation norms and in insight poverty identification as well as new poverty rates have certain impacts on resources available to the NTPs and other specific goals-oriented programs. Evidence shows that both GSO and MOLISA provincial poverty rates are positively associated with amount of capital allocated to the programs, but GSO provincial poverty rate seems to be more pro-poor than using MOLISA one.
1.1. Background of the research
The promulgation of the State Budget Law in 2002 has marked a significant change in state budgeting process of Vietnam. The Law has directed to increase the transparency, accountability and predictability in budgeting process. Many significant changes have been resulted from the introduction of the State Budget Law. Decentralization between the central and local budgets is improved and more than 50 percent of state budget expenditures have been directly managed by local governments. It has promoted initiative and creativity of local authorities in managing budget to meet expenditure demand for economic development.
There have been important changes in the budgeting process in Vietnam since 2006 when Government issued Decision 210/2006/QĐ-TTg and Decision 60/2010/QĐ-TTg on promulgating a set of quantitative norms for state budget allocation for investment expenditures in the periods of 2007-2010 and 2011-2015, respectively. This is a revolutionary reform in the management and allocation of state budget. For the period of 2007-2010, the norms include ethnic minority population and poverty rates, and the addition made the allocation norms become progressive. It would be a greater progression once the newly revised allocation norms are used to allocate investment expenditure from the central state budget to local budget levels, for targeted transfers as well as for national targeted programs.
According to the Decision 60/2010/QĐ-TTg on promulgating a set of quantitative norms for state budget allocation for investment expenditures in the period 2011-2015, allocation of investment expenditures is still progressive, but the weight of norms or allocation criteria is significantly changed. Recently, the new poverty line has been introduced, and it is twice as high as that used for the period of 2006-2010. This change would result in a significant change in provincial poverty rates. In addition, government has decided to use the General Statistic Office (GSO) provincial poverty rate rather than that provided by Ministry of Labor, Invalid, and Social Affairs (MOLISA). These changes would have fiscal impact on allocation of capital expenditures and resources for national targeted programs.
The above changes are likely to make the budget allocation criteria, weight, and norms flexible; therefore, they would have significant impacts on redistribution of state budget for capital expenditures and availability of resources for the national targeted programs. A thorough understanding of how central state budget is transferred to lower-state budget levels and how those changes in budget allocation criteria, weights, and norms affect poverty reduction is critically important for the assessment of poverty reduction effort. This understanding also provides valuable inputs for designing next poverty reduction programs and allocating resources for the national targeted programs.