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Many diagnostic studies have been undertaken on public finance management in the recent years. The Vietnam public expenditure reviews were carried out in 1996, 2000, and 2004; a review of fiscal transparency was in 1999; a country financial Accountability assessment was in 2001; country procurement assessment review in 2004 and 2004; a joint evaluation of general budget support was in 2006; a review of AECID-UNDP strategic Partnership Initiative was in 2009. A general consensus is that the quality of public finance management in Vietnam has been improved, even though weaknesses still remain. An important improvement in treasury management and control of budget execution has been recognized; financial decentralization and transparency have also been improved.

This section briefly describes the budgeting process in Vietnam in two different periods: before the introduction of the State Budget Law 2002 (limit to period after the introduction of State Budget Law 1996), and the current budgeting process. Based on the description, the section will summary new changes in the current system with focuses on changes in budgeting process and changes in allocation norms of capital expenditures from the central to provincial budget levels.

2.1. Budgeting process before the introduction of State Budget Law 2002

Before the implementation of the State Budget Law 2002, fiscal management of state budget was highly centralized (Hanai and Bach, 2008). The central budget level took control and allocated both recurrent and capital expenditures to the lower budget levels by allocation norms set discretely by central government. The lack of transparency in budgeting process and lack of incentives of local government resulted in the introduction of the State Budget Law 1996. This is the first budget law in Vietnam, and it is the most important regulations in the area of budgetary and fiscal management at that point in time. Its enactment created a turning point in management of state budget, a legal framework for controlling budgeting process, and critical contribution to social economic development (Hanai and Bach, 2008). The introduction of the State budget Law 1996 was also considered as a first step of shifting from input-control system toward early stage of result-oriented budgeting process in Vietnam (World Bank, 2004).

According to the State Budget Law 1996, budget levels were divided into four different levels equivalently to four governmental levels: central, provincial, district and commune levels. The structure of governmental and budget levels is reconfirmed in the State budget Law 2002. The figure 2 provides an overview of planning and budgeting system in Vietnam, which is regulated by the State Budget Laws.

Figure 2: Planning and budgeting system in the State Budget Laws

There is no full-time official in charge of planning. Commune accountant is also in charge of budgetary management.

Source: Consolidation from existing legal documents

2.1.1. General budgeting procedure regulated by state budget law 1996

The State Budget Law 1996 also regulated budgeting process which is carried out annually. The budgeting process is started by a Directive of the Prime Minister on planning of socio-economic development and drafting the state budget. Based on the Directive of the Prime Minister, Ministry of Finance issues a Circular guiding on drafting the state budget, which includes some basic items: (i) revenue estimation is based on tax laws and other guidance documents, including the collection of additional taxes (if any); (ii) cost estimation is based on the policies and spending norms agreed by the central government regulations.

The MOF has a drafted budgetary plan to assign revenues and expenditures to the ministries, central agencies, provinces and cities under central authority. Based on the Directive of the Prime Minister, Circular of the MOF, and its drafted budgetary plan, ministries and other central agencies assign revenue sources and budgetary expenditure tasks to units under their management; while People's Committees at all levels assign revenue sources and budgetary expenditure responsibilities to units under their control.

Based on the instructions, estimation of state budget is conducted “bottom up”, from the base unit (budget beneficiaries), and it is consolidated at each level. Then, the MOF calculates the total revenues and expenditures of whole country. Eventually, all sub-national budgets will be consolidated into state budget and then submitted to the Government and National Assembly for approval.

2.1.2. Activities and timeline of budgeting process in State Budget Law 1996

The State Budget Law 1996 stipulates that the National Assembly decides drafted state budget plan and allocates state budget before November 30. The main activities and timeline can be summarized in the following table.

Table 1: Main activities and timeline of budgeting process stipulated in the state budget law 1996

Stages of budgeting process

Main activities

By the State budget Law 1996

Preparation of budget Plan

Prime Minister issues instruction on building state budget plan

by June 15th

MOF, MPI issue instructional guidelines; then

ministries, central bodies and people committee instruct lower levels to build their budget plans

From Jun 15 to the end of July

Provincial authorities submit budget plans to MOF and MPI

By August 15th

MOF works with the central and local agencies, consolidating and building national budget plan.

From August to the end of October

Review, approval and allocation of the state budget

Government submits national budget plan to National Assembly via the Committee of Economic and Budget Affairs for verification

Early of November

National Assembly Congress is held where discussion, hearings and decision on the state budget plan and central budget allocation scheme are made

By November 30th

Conducting distribution of the national state budget; National Assembly Standing Committee decides to allocate the central budget

Within one month from December 1st to December 31st

Source: Consolidation from existing legal documents

Based on the legal framework of the State budget Law 1996, the budgeting process can be divided into several steps as follows:

  • Step 1: Before June 15th, Prime Minister issues a Directive on the plane of social-economic development and state budget plan for the coming year.

  • Step 2: After getting the Directive mentioned above, prior to June 10th, MOF issues a circular guiding the central agencies and lower budget levels on requirement, content, deadline of budget estimation. MOF also has a decision on checking state budget estimation for each sector and total revenue and expenditure (for the ministries, central agencies) and total revenues and expenditures for important areas such as education, science and technology (for the provinces and cities under central management). At the same time, MPI issued a circular guiding on planning of socio-economic development, investment plan. In addition, coordinated with MOF, MPI announces amount of estimated capital investment from the state budget and capital investment from credit.

  • Step 3: Based on the Directive of Prime Minister, the Circular of MOF and MPI, and upon the request of specific local agencies, ministries, central agencies and Provincial People's Committees have responsibilities for informing on budget estimation to lower units under their direct management. This step is usually done in mid-June.

  • Step 4: Once getting instructions from the upper levels, state budget beneficiaries have to draft their budget estimation as instructed and send it to the direct management level. The upper management level will review the budget estimation of the lower units, then consolidates and send consolidated budget estimation to the budget level-I unit. The budget level-I units review and consolidate all drafted budget plans of their under direct management levels, then send consolidated budget estimation to the agencies of finance and planning and investment offices, which are at the same level. The central agencies have to send budget plans prior to July 20th. Budget plans of ministries, central bodies, and localities must be accompanied by a written explanation on basis for calculating each of revenue source and expenditure responsibility.

  • Step 5: By August 15th, the budget plan of ministries, governmental bodies, and localities have to send their budget plans to MOF and MPI. Once getting budget plans, the MOF will work with ministries, governmental bodies, and localities on their budget plans, and then consolidates the national budget plan.

  • Step 6: During October, the MOF have to consolidate national budget plan, and then submit to the government.

  • Step 7: Government has to submit national budget plan to the National Assembly via the Committee of Economic and Budget Affairs for verification.

  • Step 8: After consulting with the agencies of the National Assembly, Government (MOF and MPI) reviews and has explanations on budget plan such as issues in budget estimation and budget allocation plans. MOF and MPI also work with ministries, provincial people's committee to complete such budget plan, budget allocation plan, which will be submitted to National Assembly for approval such that they are in accordance with regulations in Constitution and the State Budget Law. The budget plan and budget allocation scheme have to be sent to all members of National Assembly at least ten days before the session begins.

  • Step 9: Congress decides the state budget plan, budget allocations for the coming year before November 30th.
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