World Bank insists greater efficiency gains needed

 What does the WB think about the pace of Vietnam’s institutional and economic reforms?

In 2014, the government has issued instructions to cut the time spent paying taxes to the ASEAN-average by the end of 2015, and measures have been put in place to reform and simplify tax administrative procedures. Similar efforts are being made to reduce the time spent paying employer social security contributions and to reduce the length of time for registering a business. 

The revised Law on Bankruptcy, passed in July 2014, is another effort to improve the legal framework for businesses. The law incorporated international good practice, including the introduction of professional insolvency practitioners. Revisions to the laws on enterprise and investment were approved by the National Assembly last week. The Investment Law provides more flexibility for the private sector to invest in the economy by clarifying only six areas where private investment is not allowed. The Enterprise Law simplifies business registration by allowing enterprises to register in a broader category of activities. Both laws should improve corporate governance in enterprises and state-owned enterprises (SOEs) in particular, further reduce licensing and administrative burdens as well as open up more business opportunities for the private sector.

Despite a pick-up in momentum, SOE reform has lagged behind the government’s own targets. By the end of September, 71 enterprises had been equitised. The planned divestment of SOEs from five non-core “risky areas” has taken off, although at a slower pace than anticipated. Future progress will require strengthened information disclosure, performance monitoring, corporate governance reform, transparency of the divestment process, and clearer lines of accountability in SOE oversight. The Law on Management and Use of State Capital Invested in Production and Business passed by the National Assembly last week is expected to improve the focus, transparency, and accountability in public investment in SOEs. 

The pace of banking sector reforms needs to pick up. In particular a clear strategy to actually resolve bad debts needs to be articulated. An important part of this is providing an enabling legal framework for insolvency and asset titling, and for protecting Vietnam Asset Management Company (VAMC) and commercial bank staff against possible lawsuits arising from potential losses to the state in case a fair market price mechanism cannot be established.

What recommendations will the World Bank make at the Vietnam Business Forum (VBF) and the Vietnam Development Partnership Forum (VPDF) this week?

The topics for this year’s VDPF are market institutional reforms and private sector development. Two joint government-development partner working groups have been set up to discuss these issues and come up with recommendations that will be proposed at the VDPF. The WB is engaged actively in both working groups. The thrust of the recommendations of the Market Institutional Reform Working Group is to further push Vietnam’s move to a market economy through changes to policies and institutions based on market principles.

The recommendations of the Private Sector Development Working Group focus on supporting the emergence of a dynamic domestic private sector through actions in five broad areas: (i) increasing opportunities for private sector development; (ii) improving their productivity and scale; (iii) building their capacity and human resources; (iv) improving their access to finance; (v) increasing spill-over impacts of foreign direct investment for domestic firms. Details of these recommendations will be spelt out at the VDPF.

What does the WB expect from the government’s policies and its recommendations?

Our great expectation is to see more action on reforms. In addition to decisive implementation of new legislation on transparency and accountability, we encourage the government to prioritise those reforms that will help SOEs engage on a level playing field with the private sector. This means removing any barriers to entry for private firms, created by, for example, preferential treatment (like preferential access to credit, land and procurement contracts) accorded to SOEs.

On public debt, we would encourage the government to find ways to reduce the fiscal deficit over the medium-term, by both cutting spending and strengthening revenue mobilisation. The recent rise in public debt, although still assessed as sustainable, does significantly limit fiscal space for critical spending, or the ability to absorb any fiscal shocks.