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Uncorking bottlenecks for infrastructure development

The Vietnamese government tries to speed up public investments while increasing the private sector’s involvement, focusing on infrastructure projects that are meant to stimulate growth, improve connectivity, and spur on socioeconomic growth.

1544 p3 uncorking bottlenecks for infrastructure development

Speedier public investment disbursement will enhance the fulfilment of infrastructure projects across Vietnam. 

 

Infrastructure development has been a major bottleneck in Vietnam’s economic development for many years, and data announced by the Ministry of Finance (MoF) last week showed that public investment disbursement slowed down, deepening the problems of the economy in the context that the government has been forced to give priority to COVID-19 prevention and control.

One such project is the ongoing construction of the Rach Mieu temporary ferry terminal – a temporary solution that the Mekong Delta province of Ben Tre aims to use to reduce the load on national highways No.1 and 60. This is a situational solution while a plan for building Rach Mieu 2 Bridge is waiting for approval from the Ministry of Transport.

Public investments are mainly focused on infrastructure construction such as this, but so far, a large amount of capital has not been disbursed. By the end of the first four months of the year, public investment disbursement through the State Treasury was only approximately 19 per cent, about one-fifth of the whole year’s plan. It is expected that there will be new measures to disburse public investments faster, as in the first four months of 2021, 31 projects have not yet had a disbursement plan.

Disbursing public investments is one of the important solutions to promote economic growth in 2021. Prime Minister Pham Minh Chinh asked the leaders of ministries, agencies, and localities to take direct and comprehensive responsibility for the implementation and disbursement of public investments according to the plan.

The PM urged local authorities to propose synchronous, effective, and feasible solutions to strive for the highest disbursement rate, focusing on key infrastructure projects. At the same time, PM Chinh clarified that it is crucial to ensure the objectives, quality, and efficiency of the use of public investments in accordance with the provisions of laws, while preventing any violations.

Sticky start

Leaders of the government since early last year have pushed localities and ministries to take drastic action to boost public investment as an important measure to stop the economic downturn caused by the pandemic.

However, the disbursement progress of projects related to land acquisition, compensation, support, and resettlement around Long Thanh International Airport “is looking less positive”, according to the assessment of the Ministry of Planning and Investment (MPI).

The airport project had been assigned with a medium-term public investment plan with a central budget of VND18.5 trillion ($804 million) between 2016-2020 and was then allocated a cumulative capital of around VND18.2 trillion ($791 million) between 2018-2020.

Vietnam’s economy entered 2021 as one of the few countries with positive growth, and the completion of the public investment disbursement plan is meant to contribute to boosting the economy in 2021, starting the implementation of the 5-year socioeconomic development plan for the 2021-2025 period.

The infrastructure development strategy disscussed at the 13th National Party Congress in February reaffirmed the country’s strong commitment to invest $119 billion in infrastructure in the next four years, as well as boosting the proportion of the private sector’s contribution from 42 to 55 per cent.

Capital infusions to improve the infrastructure system are and will help Vietnam achieve its annual growth target of about 7 per cent, while boosting returns for qualified investors, with improvements in the country’s road infrastructure conditions.

In a specific case, the southern province of Ba Ria-Vung Tau is rushing to complete the Bien Hoa-Vung Tau expressway dossier for submission to the MPI for appraisal, before submitting to the prime minister for approval this year. National Highway No.51 will soon be eased when the province puts into operation new routes, including the inter-port road connecting Dong Nai with Ba Ria-Vung Tau via Phuoc An Bridge.

Clear directions

MPI Minister Nguyen Chi Dung last December chaired a series of conferences to support localities in planning public investment for the 2021-2025 period. According to him, localities need to identify clear objectives and priorities, and avoid disconnected investment projects right from the beginning of 2021, as well as balance capital sources of the central budget of the 5-year medium-term public investment plan.

Minister Dung believed that it is both important and necessary to prioritise large-scale and dynamic projects that have positive spill-over effects on the socioeconomic development of each locality and the wider region.

He also recommended that cities and provinces resolutely avoid relying on official development assistance to implement projects that can be carried out by private investors or financed domestically to minimise the burden of debt repayment in the future.

For instance, the coastal route surrounding the Mekong Delta region is being appraised by the MPI in the context that climate change is having a negative impact on the economy of this region. Minister Dung said that respective localities need to create an economic corridor and development axis for the whole region.

If they only rely on central resources and build one transport route, many opportunities for development in this area will be lost.

Disbursing a large amount of capital for public investments – which amounts to VND477.3 trillion ($20.7 billion) – in the context of the prolonged pandemic, with higher requirements on quality and efficiency, is a huge challenge for the new government, its members, and localities.

The state has many macro-level solutions to improve the efficiency of investment activities. In the past five years, Vietnam for the first time had a 5-year medium-term public investment plan in accordance with the Law on Public Investment – an important institutional reform, helping to raise public investments from the state budget to the next level of transparency and accountability.

However, many economists said that Vietnam needs to have more specific policies for public investments, suitable for the context of the new normal. The shortcomings in public investment disbursement now are not new.

The main causes of delay in the progress of the largest public investment projects are still land clearance, problems related to appraisal and approval of compensation, as well as relocation of utility works and overlapping construction sites.

Le Tuan Anh, deputy director of the Department of Investment under the MoF, also confirmed that the large differences between the price of land recovered by the state and the compensation rates of investors under the agreement mechanism is the cause for many cases where the land compensation comes at a price higher than the agreed upon requirements. That is not to mention situations in which investors are not resolute in urging the contractors to speed up construction, leading to stagnation in capital disbursement.

There should be a change in mindsets on medium-term public investment. Projects can use a lot of money in a certain period and then spend almost no money at later stages, when the items are relatively completed, Anh added.

The state can use monetary and fiscal tools to reconcile if public investments at times causes inflation and the state budget deficit to increase. Investments in long-term projects will generate income and development and, in the future, the state can collect the money.n

Next week, VIR will report on the government’s decision to increase the public debt ratio by 2-3 per cent to free more resources for the support of the economy amid the pandemic – a move which could put pressure on the debt repayment target.

VIR

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