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2.4. Shortcomings of the State budget law 2002


The State Budget Law was carried out in the practices and had its significant contribution to budget process during its validation. After seven years in services, however, the State Budget Law 2002 had appeared some major shortcomings, and it was needed to be changed. The main limitation of this law can be summarized as follows:

  • Budget system was complex and overlapped. Provincial budget includes both district and commune budget levels; the central budget level covers budgets of local government; competence to decide the agency's budget is unclear; and budget process is complex;

  • Regulations on revenue sources and expenditures are unclear; several charges, fees, revenues from lotteries, and land use fees have not been brought into balance; budget deficit calculation methods are not appropriate with international practice;

  • Decentralization of revenue sources and spending tasks between the central and local budgets, among different levels of local budgets does not fit reality; regulations on additional budget allocations from the upper budget to lower budget levels was inappropriate;

  • Annual budget plan is not appropriately built: inappropriate basis, unlinked to the medium-term budget plan, and disconnected with outcomes.

  • There is no regulations on operating state budget in case of emergency, no specified time frame for adjusting budget estimates assigned; regulations on using budget of the following year in advance to carry out the urgent tasks are inappropriate;

  • Some provisions on settlement, auditing, and publicizing state budgets are incomplete; spending tasks performed by changing budget sources are not be specified appropriately;

  • The responsibility and authority in management as well as allocation of development capital are not clearly and appropriately defined.

3. ASSESSMENTS ON ALLOCATION OF CAPITAL EXPENDITURES


Introduction of the State Budget Law 2002 marked a fundamental change in way the government of Vietnam manages its public finance. It gives more autonomy to lower levels of governments and then increases decentralization. The law has also empowered members of National Assembly by increasingly involved in the budgetary process, giving responsible for approval and allocation of state budget from central to lower levels of governments.

Budget allocation is an important component of the budgeting process, and it determines transparency, accountability and equality of the budgeting process. This section will focus on changes in budget allocation norms and their effects on allocation of capital expenditures from the central to provincial budgets, while the allocation of resources from provinces to districts and communes is less encouraging. In particular, this section concentrates on assessment of how changes in budget allocation norms affect capital allocation in both budgetary stability period of 2007-2010 and 2011-2015; how a change in provincial poverty identification (from MOLISA to GSO poverty rates) impacts on capital expenditures distributed to provinces; and how a change in the poverty line would affect the capital expenditures allocated from the central to provincial state budgets.


3.1. Assessment on changes in capital expenditures allocation norms


Budgetary stability period of 2004-2006 was carried out on basis stipulated in the decision 139/2003/QD-TTg, dated 11/7/2003. According to this decision, many specific characteristics of ministries, industries, and provinces such as the number of civil servants, number of pupils in each province, or number of hospital beds,... were used as budget allocation norms. In terms of capital expenditure allocation, it is stipulated that each province has to spend 27 to 28 percent of its total budget expenditures on investment capital, and this annual capital expenditure had continuously increased at least 7 percent compared to the previous plan. As a result, the resources available at local levels (provincial and district levels) are not commensurate with local needs, and the budget allocation process itself does not always reach to transparency and equality.

Introduction of the decision 210/2006/QD-TTg makes a turning point towards more transparency and equality of state budget allocation of capital expenditures. A significant change in allocation norms is newly built a set of criteria and allocation norms which totally get rid of previous inappropriate ones. The allocation norms of decision 210/2006/QD-TTg are divided into five groups:



  • Population criteria include provincial population size and its number of ethnic minority;

  • Provincial development level consists of provincial poverty rate, internal revenue, and portion transferred to the central budget;

  • Natural area of province;

  • Number of administrative units within provincial boundary include number of districts, mountainous district, remote, island, and disadvantage districts and cities;

  • Additional allocation criteria include special cities, central cities, provincial cities level 1, and the central of dynamic economic regions.

With the changes in the state budget allocation norms, a change in volumes and shares of capital expenditure in the total state budget expenditures were made. The structure of total expenditures and capital expenditures are presented in the table 3.

Table 3: Structure of budget expenditures in 2006 and 2007




2006

2007




Total

Central budget

Local budget

Total

Central budget

Local budget

Total expenditures

100.0

64.8

35.2

100.0

64.1

35.9

Capital expenditures

27.6

15.4

12.2

25.8

14.4

11.4

Education and training










3.3

1.4

1.9

Science and technology










0.8

0.4

0.4

Recurrent expenditures

45.1

26.1

19.0

50.2

27.2

23.0

Education and training

12.5

3.5

9.0

13.6

3.1

10.5

Science and technology

1.1

0.8

0.3

1.0

0.8

0.2

Source: The Finance and Budget Committee of National Assembly

The share of capital expenditures in total budget expenditures decreased from 27.6 percent in 2006 to 25.8 percent in 2007 due to a fall in share of both budget distributed from the central and local budgets on capital expenditures. This situation is resulted from a slower increase in capital expenditure from both central and local budgets. While annual growth rate of total expenditures in 2007 was 19.7 percent, the annual growth rate of capital expenditures is just 18 percent. It is similarly trended to expenditures from central and local budgets.



By using these new allocation norms, capital expenditures seem to be distributed to the regions where capital expenditures are most needed. Most disadvantage regions received a significant increase in capital expenditures from both central and local budget, while more developed areas still received sufficient amount to sustain social economic development. For example, capital expenditures allocated to the North Mountainous region in 2007 increased by 58.1 percent compared to 2006. This increase provided the region an appropriate amount of capital to implement its annual development plan and to achieve its social economic development goals. The capital expenditure in the South East region just increased 3.8 percent compared to the 2006, but its amount of capital expenditures accounts for 29.6 percent of total expenditures in 2007, a significant decrease compared to that in 2006.

Table 4: Change in capital expenditures from central to provincial budgets if changing in the allocation norms between 2006 and 2007 by regions




2006

(billion)

2007

(billion)

% change

Shares of 2006

Shares of 2007

North Mountainous

1847.4

2920.2

58.1

5.5

7.4

Red River Delta

9544.0

11766.6

23.3

28.7

30.0

North Central and Central Coast

6319.3

7448.9

17.9

19.0

19.0

Central Highlands

1217.4

1444.8

18.7

3.7

3.7

South East

11220.3

11646.1

3.8

33.7

29.6

Mekong River Delta

3148.6

4053.4

28.7

9.5

10.3

Total

33297.0

39280.0

18.0

100

100

Source: Consolidation from data provided by the Finance and Budget Committee of National Assembly

Data in the table 4 also show that Red River Delta and South East regions capture approximately 60 percent of total capital expenditure in 2007, a 2.8 percent-point decrease compared to that of 2006. For the North Mountainous and Mekong River Delta regions, their capital expenditure shares significantly increased.

The above analysis implies that capital expenditures are unfavorably distributed to more developed regions compared to that of previous year by using the new set of allocation norms. It seems to be that more disadvantage regions get a higher share than they did in the previous year, and more developed regions, however, still capture larger shares of total capital expenditures of a single year in general.

By using new allocation norms, capital expenditures seem to be favorably distributed to disadvantage provinces. This can bee seen in the table follows.



Table 5: Provincial growth rates and shares of capital expenditures using new allocation norms between 2006 and 2007




Capital expenditures in 2006

Capital expenditures in 2007

% Change

Share of 2006

Share of 2007

Share change

Hải Phòng

895.0

762.6

-14.8

2.688

1.941

-0.747

Cà Mau

217.8

202.6

-7.0

0.654

0.516

-0.138

Hậu Giang

165.5

155.4

-6.1

0.497

0.396

-0.101

Bạc Liêu

175.3

167.2

-4.6

0.526

0.426

-0.101

Bà Rịa - Vũng Tầu

1793.9

1726.5

-3.8

5.388

4.395

-0.992

Hưng Yên

363.0

356.2

-1.9

1.090

0.907

-0.183

Bình Phước

311.4

313.2

0.5

0.935

0.797

-0.138

TP Hồ Chí Minh

7057.2

7323.7

3.8

21.195

18.645

-2.550

Đồng Nai

1077.6

1128.1

4.7

3.236

2.872

-0.364

Đà Nẵng

1923.7

2016.5

4.8

5.777

5.134

-0.644

Kon Tum

165.2

178.5

8.0

0.496

0.454

-0.042

Quảng Trị

146.8

159.5

8.7

0.441

0.406

-0.035

Bình Định

490.8

533.4

8.7

1.474

1.358

-0.116

Phú Thọ

204.4

224.0

9.6

0.614

0.570

-0.044

Lâm Đồng

423.2

465.5

10.0

1.271

1.185

-0.086

Quảng Nam

331.3

364.8

10.1

0.995

0.929

-0.066

Ninh Thuận

128.2

141.4

10.3

0.385

0.360

-0.025

Quảng Ngãi

249.7

277.3

11.1

0.750

0.706

-0.044

Hải Dương

485.6

539.4

11.1

1.458

1.373

-0.085

Thừa Thiên - Huế

343.0

385.9

12.5

1.030

0.982

-0.048

Đồng Tháp

392.2

446.0

13.7

1.178

1.135

-0.043

Bình Thuận

477.1

545.0

14.2

1.433

1.387

-0.045

Vĩnh Long

205.0

237.4

15.8

0.616

0.604

-0.011

Bến Tre

128.5

148.9

15.9

0.386

0.379

-0.007

Ninh Bình

317.4

370.5

16.7

0.953

0.943

-0.010

Vĩnh Phúc

1122.8

1310.4

16.7

3.372

3.336

-0.036

Tây Ninh

187.1

219.0

17.1

0.562

0.558

-0.004

Bình Dương

793.1

935.6

18.0

2.382

2.382

0.000

Hoà Bình

178.7

211.6

18.4

0.537

0.539

0.002

Quảng Bình

219.9

261.2

18.8

0.660

0.665

0.004

An Giang

377.8

453.1

19.9

1.135

1.154

0.019

Kiên Giang

362.4

439.6

21.3

1.088

1.119

0.031

Gia Lai

267.7

325.1

21.4

0.804

0.828

0.024

Hà Nam

150.8

184.6

22.4

0.453

0.470

0.017

Hà Nội

4111.5

5135.5

24.9

12.348

13.074

0.726

Long An

295.9

370.1

25.1

0.889

0.942

0.054

Tiền Giang

240.7

304.0

26.3

0.723

0.774

0.051

Phú Yên

139.0

180.3

29.7

0.417

0.459

0.042

Đăk Lăk

259.1

341.1

31.6

0.778

0.868

0.090

Đăk Nông

102.2

134.7

31.8

0.307

0.343

0.036

Quảng Ninh

529.7

707.2

33.5

1.591

1.800

0.210

Thanh Hoá

505.0

674.7

33.6

1.517

1.718

0.201

Yên Bái

144.0

192.5

33.7

0.433

0.490

0.058

Lào Cai

144.0

194.2

34.8

0.433

0.494

0.062

Sóc Trăng

176.4

239.3

35.6

0.530

0.609

0.079

Nghệ An

488.3

666.0

36.4

1.466

1.696

0.229

Trà Vinh

110.8

151.5

36.7

0.333

0.386

0.053

Thái Bình

322.6

443.1

37.3

0.969

1.128

0.159

Khánh Hoà

666.6

925.7

38.9

2.002

2.357

0.355

Bắc Ninh

408.5

595.9

45.9

1.227

1.517

0.290

Bắc Giang

254.5

374.7

47.2

0.764

0.954

0.190

Hà Tĩnh

210.0

317.2

51.0

0.631

0.808

0.177

Sơn La

169.2

255.7

51.1

0.508

0.651

0.143

Thái Nguyên

193.8

293.4

51.4

0.582

0.747

0.165

Nam Định

260.2

410.0

57.6

0.781

1.044

0.263

Tuyên Quang

111.9

176.5

57.8

0.336

0.449

0.113

Bắc Kạn

83.1

135.2

62.6

0.250

0.344

0.094

Hà Giang

89.1

182.1

104.5

0.267

0.464

0.196

Điện Biên

64.2

137.3

113.8

0.193

0.349

0.157

Cao Bằng

76.4

165.3

116.4

0.229

0.421

0.191

Cần Thơ

300.2

738.2

145.9

0.902

1.879

0.978

Lai Châu

55.5

150.3

170.5

0.167

0.383

0.216

Lạng Sơn

78.7

227.5

189.2

0.236

0.579

0.343

Source: Consolidation from data provided by the Finance and Budget Committee of National Assembly

Table 5 indicates that a higher developed province captured smaller share of capital expenditure in 2007 than that in 2006, while a disadvantage province received a higher share of capital expenditure in 2007 than that did in 2006. It would be said that it is evidence showing pro-poor of the allocation norms during the budgetary stability period 2007-2010.



For the budgetary stability period 2011-2015, there are some additional changes in the state budget allocations norms, which are identified in the section 2. Using this set of allocation norms for distributing capital expenditures from the central to provincial state budget, disadvantage regions have received higher share than they did in the previous year when the new allocation norms had not applied. The inversed trend happens to the more developed regions such as South East and Red River Delta.

Table 6: Change in capital expenditures distributed from central to provincial budgets if changing in the allocation norms between 2010 and 2011 by regions




2011

(billion VND)

2010

(billion VND)

% change between 2010 and 2011

Share change*

North Mountainous

2882

2128.6

35.4

1.16

Red River Delta

10242.8

10084.1

1.6

-3.50

North Central and Central Coast

5109.8

3824

33.6

1.91

Central Highlands

1381.1

1004.6

37.5

0.60

South East

14378.3

12930.7

11.2

-1.20

Mekong River Delta

3858

3028.1

27.4

1.02

Total

37852

33000.1

14.7

0.00

Note that “share change” is the difference between the shares of 2011 and that of 2010.

Source: Consolidation from data provided by the Finance and Budget Committee of National Assembly



At the provincial level, the newly added allocation norms does not support high developed provinces and not strongly favorable to the most disadvantage provinces. The share changes in capital expenditures distributed to provinces show that higher developed provinces such as Ho Chi Minh, Vinh Phuc, Da Nang, Ha Noi, Can Tho, Ba Ria-Vung Tau, and Hai Phong are negative. Those negative changes in shares of capital expenditures imply decreases in shares of capital expenditures distributed to these provinces in 2011 compared to those in 2010 when applied the old allocation norms.

Table 7: Provincial capital expenditures growth rates and share changes due to new allocation norms applied for 2011-2015

Provinces

Capital expenditures in 2011

Capital expenditures in 2010

Growth rates (%)

Share changes (%)

TP HCM

8414.6

8407.9

0.08

-3.2481

Vinh Phuc

1160.2

2000

-41.99

-2.9955

Da Nang

538.2

870.7

-38.19

-1.2166

Ha Noi

5952

5450

9.21

-0.7907

Can Tho

640

817.9

-21.75

-0.7877

Ba Ria - Vung Tau

2058.4

1885

9.20

-0.2741

Hai Phong

689.6

660

4.48

-0.1782

Binh Phuoc

235.9

252

-6.39

-0.1404

Hai Duong

341.5

340

0.44

-0.1281

Thua Thien - Hue

242.1

237.2

2.07

-0.0792

Bac Lieu

138.9

135.5

2.51

-0.0436

Hung Yen

233.9

210

11.38

-0.0184

Bac Ninh

268.3

239.5

12.03

-0.0169

Ca Mau

264.4

235.3

12.37

-0.0145

Tay Ninh

201.9

180

12.17

-0.0121

Ben Tre

145.6

124

17.42

0.0089

Bac Giang

193.2

161.4

19.70

0.0213

Thai Nguyen

214.6

180

19.22

0.0215

Lam Dong

277.5

234.5

18.34

0.0225

Tuyen Quang

155.6

126.6

22.91

0.0274

Ninh Thuan

125.4

99

26.67

0.0313

Son La

268.6

223.7

20.07

0.0317

Nam Dinh

229.4

185.8

23.47

0.0430

Phu Yen

160.5

117.6

36.48

0.0677

Bac Kan

160.6

116.6

37.74

0.0710

Ninh Binh

145.6

103.4

40.81

0.0713

Yen Bai

178.2

131

36.03

0.0738

Tien Giang

276.2

215

28.47

0.0782

Lang Son

210.4

156

34.87

0.0831

Ha Giang

219.7

163.7

34.21

0.0844

Quang Binh

168.9

119.3

41.58

0.0847

Ha Nam

141.5

92.3

53.30

0.0941

Quang Nam

311.2

239.4

29.99

0.0967

Hoa Binh

234

170.5

37.24

0.1015

Binh Dinh

256.8

190.3

34.94

0.1018

Thai Binh

226

163.1

38.57

0.1028

Dak Lak

383.7

299.3

28.20

0.1067

Lai Chau

190.8

129.6

47.22

0.1113

Dak Nong

174.2

113.3

53.75

0.1169

Ha Tinh

210.5

144.4

45.78

0.1185

Quang Tri

158.3

98.5

60.71

0.1197

Cao Bang

218.2

149.3

46.15

0.1240

Lao Cai

200.4

133

50.68

0.1264

Tra Vinh

197.6

129.3

52.82

0.1302

Nghe An

430

329.5

30.50

0.1375

Dien Bien

199.5

128.4

55.37

0.1380

Kon Tum

202.8

130

56.00

0.1418

Binh Thuan

224

148

51.35

0.1433

Phu Tho

238.2

158.8

50.00

0.1481

Hau Giang

196

120.5

62.66

0.1527

Soc Trang

233.6

151.3

54.40

0.1587

Vinh Long

227.9

145

57.17

0.1627

Thanh Hoa

460.6

347.3

32.62

0.1644

Long An

345.4

245

40.98

0.1701

Dong Thap

363.3

260

39.73

0.1719

Gia Lai

342.9

227.5

50.73

0.2165

Quang Ninh

854.8

640

33.56

0.3189

Kien Giang

353.6

201

75.92

0.3251

An Giang

475.5

248.3

91.50

0.5038

Binh Duong

1789.3

1275.8

40.25

0.8610

Khanh Hoa

1130.5

662

70.77

0.9806

Quang Ngai

692.8

220.8

213.77

1.1612

Dong Nai

1678.2

930

80.45

1.6154

Source: Consolidation from data provided by the Finance and Budget Committee of National Assembly

Table 7 also shows that provinces, which lie on a top highest change in shares of capital expenditures, are not most disadvantage provinces. The new allocation norms applied for 2011-2015 seem to be unfavorable to the rich provinces and not significantly support the poorest provinces.

This section just gives an assessment of changing in allocation norms in both budgetary stability periods. Based on the growth rate of capital expenditures and its shares (at regional and provincial levels), the research have found:


  • Changes in the allocation norms applied for the period 2007-2010 seem to support disadvantage regions and poor provinces, while they are unfavorable to more developed provinces in terms of capital expenditures they had been distributed. Although, more disadvantage regions get a higher share than they did in the previous year, more developed regions still capture larger shares of total capital expenditures of a single year in general.

  • For the budgetary stability period of 2011-2015, changing in allocation norms would support the disadvantage regions and be unfavorable to more developed regions. At the provincial level, the set of new added allocation norms does not support the more developed and most disadvantage provinces.

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