Country cracks on with vital public investment ambitions

Many infrastructure ventures were completed in the 2016-2020 period, but more investment is required to push on with current initiatives. Photo: Le Toan

In October last year, the Mai Dich-South Thang Long section of Hanoi’s Ring Road No.3, funded by the Japan International Cooperation Agency’s (JICA) official development assistance (ODA), was opened to traffic after nearly two and a half years of construction.

The project aims to become a high-standard inner-city expressway in the western section, connecting the Mai Dich and South Thang Long intersections of Ring Road No. 3 which runs along the outskirts of the capital city, meeting industrial zones that are home to hundreds of thousands of workers. The 5.4-km section contains 4.8km of viaduct.

Since then, the road has helped reduce chronic traffic congestion for the city centre and promoted logistical efficiency, thus contributing to economic development in the region.

JICA and the Vietnamese government inked a loan agreement worth around $195.5 million in 2013 to implement the project.

The government last week reported to the National Assembly (NA) that the Mai Dich-South Thang Long section is one of many infrastructure projects successfully completed in the nation’s 2016-2020 medium-term investment plan (MTIP). In which, 468km of highways were newly built – including projects that sought investment by localities, while 600km of national roads were upgraded and 31 flyovers were built like the Mai Dich-South Thang Long section.

In the 2016-2020 period, the total public investment capital adopted by the NA amounted to $86.96 billion, including $35.65 billion from the domestic central budget, $13 billion from foreign sources, and $38.26 billion from the local budget.

Of the $86.96 billion sum, the government has provided over $78.7 billion, or 90.8 per cent, for ministries, central agencies, and localities, with 11,100 projects using the central budget - equal to over 50 per cent of projects in the 2011-2015 period. The annual disbursement rate was 83.4 per cent of the plan assigned by the prime minister.

“The socioeconomic effectiveness of investment and of public investment in particular has gradually improved. Public investment capital has been focused on investing into crucial projects of the economy and key transport works such as roads, airports, seaports and railways,” said Minister of Planning and Investment Nguyen Chi Dung.

Getting ahead with disbursement

The incremental capital output ratio (ICOR), which is the additional capital required to increase one unit of output, has also clearly reduced, to 6.1 in the 2016-2019 period from 6.3 in the 2011-2015 period, according to the government report.

One of the main drivers behind Vietnam’s growth rate of 2.91 per cent last year was public investment, with a range of state-funded infrastructure projects playing a major role in boosting demand, supporting enterprise development, and creating jobs.

After a conference on public investment in July 2020, the government dispatched seven delegations to ministries and provincial authorities to learn about the situation and seek solutions to remove obstacles in disbursement. As a result, the rate of public investment disbursement accelerated in the second half of 2020 to reach 91.1 per cent of the full-year target, with the total figure at $20.2 billion, up 34.5 per cent from 2019.

However, in the first half of this year, public investment disbursement reached only $5.82 billion or 29.02 per cent of the government’s plan, down 34 per cent on-year.

At the end of this week the NA will pass a resolution on the 2021-2025 MTIP, with the prime target to “continue effectively restructuring public investment, reduce the ratio of public investment in the total development investment to attract more private investment, and create clear changes in infrastructure development.”

“Efforts are to be made to reach an average disbursement rate of over 90 per cent for the 2021-2025 period, with the number of completed projects accounting for over 80 per cent of the number of projects assigned with capital,” said the draft resolution on the 2021-2025 MTIP.

Under the draft resolution, in the period, total money for investment from the state budget will be at least $124.8 billion. This embraces $65.2 billion from central coffers – including $52.17 billion from the domestic capital and $13 billion from foreign sources – and $59.56 billion from localities’ budgets.

“The calculation of public investment capital for the period is based on financial and budgetary goals carved in the resolution of the 13th Party National Congress and resolutions of the government,” said the government report sent to the legislative body.

Specifically, the goals include an average economic growth rate of 6.5-7 per cent during the 2021-2025 period, with total average development investment to account for 32-34 per cent of GDP.

Expected outcomes

Also under the draft resolution, the NA will likely also earmark a provisional sum for settling issues arising from the process of implementing disbursement, consisting of $5.21 billion from domestic capital and $1.3 billion from foreign sources.

“The mobilisation of this huge sum of public investment for the period is quite feasible as the public debt and the government debt will reduce, while the room for further economic growth and state budget revenues is relatively big,” said Minister Dung. “Positive achievements in macroeconomic development lays a strong foundation for the country to hit the economic growth target of 6.5-7 per cent.”

He also noted that more financial resources will be seen in state budget revenues from the equitisation of state-owned enterprises (SOEs).

“Regarding state coffers revenue, up to 70 per cent of such enterprises (89 out of 128) named in the prime minister-approved list of SOEs needing to be equitised for the 2017-2020 period have yet to complete equitisation and they are now continuing to implement their budget restructuring,” he explained.

The 2021-2025 MTIP will be implemented under certain priorities, with the total number of projects so far at nearly 5,000, down over 50 per cent as compared to that in the previous period, and in which the number of new projects will be nearly 2,240. The average capital for each project will be $9.14 million, which is 2.4 times higher than that in 2016-2020.

“Sufficient capital will be provided for key national programmes and projects and three national target programmes, for site clearance of Long Thanh International Airport in the southern province of Dong Nai, for almost completing construction of the eastern cluster of the North-South Expressway, and for roads No.3 and No.4 of Hanoi and Ho Chi Minh City,” said the government report.

Sufficient capital will also be given to projects connecting localities in the Mekong Delta region, connecting the Central Highlands region with the south-central region, connecting localities in the northern mountainous region, building the 1,700km coastal road from the northern province of Quang Ninh to the southern province of Kien Giang, and also for the construction of the East-West Economic Corridor.

The NA last November passed a plan for boosting public investment for 2021. Accordingly, total investment capital from the state coffers will be $20.75 billion, up 1.4 per cent against the similar plan for last year. Money from the central budget will increase 0.9 per cent on-year, and money from the local coffers will expand 1.9 per cent on-year.

The public investment capital will be used for many projects. For example, $695.65 million will be used for national target programmes, $653.82 million for the project on constructing the North-South Expressway; $202.6 million for the project on land compensation and resettlement for Long Thanh International Airport; $121.74 million for developing coastal roads; and $204.34 million for supporting localities in implementing some key new infrastructure projects.

“The continuance of all JICA’s ODA-loan projects, including the Mai Dich-South Thang Long section, have sustained employment, thus contributing to supporting the economy. On the other hand, infrastructure development is also very important for improving the domestic investment environment and attracting foreign investment,” said a JICA press release.