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1.2. Objectives of the research


This research is follow-up assistance, which was provided to the Ministry of Planning and Investment to develop the Social Economic Development Plan for the period 2011-2015 and to the government for making the Decision 60/2010/QĐ-TTg. The main objective of this assignment is to review evolution of budgeting mechanisms in recent years in relation to resource transfers between the central and provincial state budget levels. In addition, the assignment will also carry out an assessment of how recent changes in the allocation norms, in poverty lines and in the identification of provincial poverty rates would impact the redistribution of budget resources. In particular, this research assignment is carried out to get the following goals.

  • To describe the evolution of budgeting mechanism in the recent years in association with capital expenditure transferred from Central to provincial state budgets with a focal on changes in budgeting process and allocation norms.

  • 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 state budget to provincial budget level, 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.

1.3. Research approach


With given objectives and our understanding, our approach for this assignment follows three steps, which are described in the figure 1.

The first steps will provide basic information about budgeting process in Vietnam and its historical development. This is critical stage for better understanding how capital expenditures has been allocated, which criteria have been used, and how allocation of capital expenditures would be changed if there are changes in the ways of allocation imposed. At this stage, information about 15 national targeted programs (NTPs) will also be provided to bring better understanding of the NTPs. This step supplies necessary input for the latter.

The second step focuses on how allocation norms, provincial poverty identification, and new poverty line affect capital expenditure allocation from the central to provincial state budget levels. The research will collect data on provincial poverty rates in 2006, 2008 and 2010, which have been calculated by MOLISA, as well as by GSO. The provincial capital expenditures in 2006, 2007, 2010, and 2010 will also be collected. Based on the data collected, the research will calculate:


  • Provincial growth rate of capital expenditures between the year when new allocation norms applied and the previous year when new allocation norms had not applied. Negative provincial growth rate of capital expenditures means the new allocation norms results in a decrease in capital expenditures allocated to the provinces.

  • Changes in shares of capital expenditures in each province and region. A negative share change means that capital expenditures distributed to a province is smaller than that of previous year when new allocation norms had not applied, and vice versa. If positive share changes occur in disadvantage provinces, the new allocation norms are pro-poor. If negative share changes occur in high developed provinces, the new allocation norms are unfavorably to the rich provinces.

  • Relationship between per capita capital expenditures and provincial poverty rates. When GSO and MOLISA provincial poverty rates are used relatively in associated with provincial per capita capital expenditures and their shares, they will show the effects when changing in provincial poverty rate calculation and when changing in poverty line.

  • Regression of provincial per capita capital expenditure and their shares on provincial poverty rates. If coefficients of poverty rate are positive, a province with higher poverty rate would receive higher capital expenditures or their shares. In this case, it would be said that allocation norms is pro-poor.

This step is time-consuming because of data collection for the analysis, and quality of this calculation would determine the quality of the research.

The step 3 is also critical for this research assignment. Besides investigating effects of allocation norms, provincial poverty identification, and new poverty line on capital expenditure allocation from the central to provincial state budget, the research also studies how these factors associate to availability of resources for the national targets programs. To understand of how the changes in allocation norms affecting resources available to NTPs, research also use similar approaches done in the second step, but in which capital expenditures are now replaced by resources distributed to the NTPs respectively. The indicators used would be provincial growth rates and change in shares of resources distributed to NTPs in the province; relationship between resources distributed to NTPs and provincial poverty rates; and regression of resources distributed to NTPs and their shares on provincial poverty rates



Figure 1: The approach of the research assignment


1.4. Literature reviews


This quick literature review is to provide brief summary of previously done research/studies which relates to budgeting process in Vietnam since the State Budget Law was introduced in 2002. It also provides a short summary of impact of changes in allocation norms, provincial poverty identification, and new poverty line on redistribution of capital expenditure from the central to lower state budget levels, with focus on the provincial state budget, and resources for the national targeted programs.

The state budget Law was introduced in 2002 and run in effect from January 1, 2004. From its introduction, many studies have been done to understand the Law and its innovation from the previous. Most of studies in this related issues confirmed that the introduction of the State Budget Law have been improved the budgeting process in Vietnam towards more transparent, accountable, and decentralized. Out of those studies, World Bank (2004) had an overview study of governance in Vietnam, in which budgeting process was a small component. According to this study, many aspects of budgeting process have been improved as stated above, and the coordination between Ministry of Planning and Investment (MPI) and Ministry of Finance (MOF) is critical for the success of budgeting process. In addition, the introduction of Medium-Term expenditure Frameworks (MTEF) could play important roles in supporting integration of planning and budgeting. This studies also emphasized on budget allocation norms, especially allocation from the central to provincial budget level. The allocation norms helped to increase transparency and decentralization in public finance management. This kind of arguments can be found in some other studies (Vasavakul et al., 2009; Hanai and Bach, 2008; Bartholomew, 2006; and Cheng, 2004).

Those studies found that some limitations when the new Law was introduced. For example, poverty reduction rates used as an allocation norm, thus there is no incentives/effort made by provinces to reduce its poverty rate (World Bank, 2004). Another problem was a coordination of MPI anf MOF in the budgeting process. If this coordination somehow failed, the planning could not be based on resources because the MOF does budgeting (Cheng, 2004, and World Bank 2004). The allocation norms are used for long period but did not take into account the differences in inflation among provinces, and a wider gap between the norm and the reality (Office of National Assembly, 2011).

In terms of achievements in governance, previous research and studies confirmed that the introduction of State Budget Law 2002 have improved transparency, accountability, and decentralization. While the introduction of the Decision 210/2006/QĐ-TTg and Decision 60/2010/QĐ-TTg makes a further step towards more transparent, accountable, and decentralized (Vasavakul et al., 2009; and Office of National Assembly, 2010).

Regarding to the impact of allocation norms, provincial poverty identification, and new poverty line on capital expenditures and resources for the national targeted program, there are fewer previously done studies/research. As far as knowledge of the research team, only one comprehensive study has been done about this issue (Office of National Assembly, 2011). This study also investigated the social-economic effects of allocation norms on distribution of capital expenditures to provincial level. It found that capital mobilization for investment from state budget increased so that many national important projects have been done in the period of 2006-2010. However, many limitations should be addressed once new allocation norms would be designed. Those obstacles are thoroughly presented in Office of National Assembly (2011).

In short, this research assignment will fulfill empty holes in literature relating to the issue. It will not only focus on budgeting process with strengths, weaknesses, and new changes of allocation norms, but also impacts of those changes on allocation of capital expenditures and availability of resources for the national targeted programs.


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