House of Commons - International Development

Select Committee on International Development Written Evidence

Memorandum submitted by the Department for International Development (DFID)

EXECUTIVE SUMMARY

1. Vietnam is changing fast. Government Leadership and commitment to poverty reduction and growth is strong. This has led to strong economic growth (7-8%) and poverty reduction (over 50%) during the past 10 years. The country is on course to become a Middle Income Country (MIC) by 2012. Five of the Millennium Development Goals (MDGs) have already been achieved. Only targets for HIV and AIDS, sanitation and the political representation of women remain off track. The new Socio-Economic Development Plan (SEDP) 2006-10, Vietnam's second Poverty Reduction Strategy (PRS), seeks to accelerate economic growth; improve access to basic services; protect the environment; and improve governance. WTO accession in January 2007 confirmed the progress made in the transition to a market economy since reform began two decades ago.

2. DFID has contributed to this success. Some examples of this include:

— DFID support under Rural Transport 2 (co-funded with the World Bank) reduced the number of communes without all-weather roads by 28% and lifted 210,000 people out of poverty.

— DFID support to primary education has trained 250,000 primary school teachers in 10 provinces and increased quality of schooling for more than 1 million children.

National Targeted Programme

Poverty Reduction Support Credit

3. But there are still big challenges. WTO accession will bring its own development challenges; 14 million people are still poor; HIV and AIDS has yet to be controlled; inequality between the majority kinh and ethnic minorities is growing and poverty reduction gains are very fragile with many people vulnerable to slipping back into poverty. Wider governance reform is a big challenge and social and political reforms are needed for the future prosperity and stability of Vietnam. Pervasive corruption poses a serious threat to continued development and Government accountability remains weak.

4. In recognition of Vietnam's progress but also the continuing challenges, DFID in 2006 signed a 10-year Development Partnership Arrangement (DPA) with the Government of Vietnam. Government welcomes the funding predictability this brings and holds it up as a model for other donors to follow. The DPA confirms the UK's long-term commitment to helping Vietnam address the remaining challenges. It commits DFID to a minimum investment of £50 million a year in support of Vietnam's poverty reduction plans (SEDP) of which the majority will be through budgetary support complemented by technical assistance and projects.

5. The DPA and the SEDP are the basis of the UK's partnership with Vietnam for poverty reduction. Building on previous experience, DFID's planned approach to poverty reduction and development in Vietnam over the next five years will continue to use a mix of budget support, technical assistance and projects to help:

— Strengthen public financial management, government accountability and tackle corruption.

— Improve the quality and inclusiveness of services for the poorest and most vulnerable including ethnic minorities in; primary education, sanitation, rural transport, HIV and AIDS, and social and health insurance for the poor.

— Assist Government to make the most of opportunities for the poor in WTO accession whilst protecting those who will be adversely affected.

— Make aid more effective in Vietnam to maximise its poverty impact including through UN reform.

CONTEXT FOR DEVELOPMENT ASSISTANCE IN VIETNAM

6. Vietnam is a country "aiming high" in development terms. Country ownership, equality, economic growth and opportunity are important parts of Vietnam's approach to development. As a result of a decade or more of broad based economic growth and strong poverty reducing social policies Vietnam has made unrivalled progress in reducing poverty and achieving the MDGs.

7. Vietnam is still a largely agricultural economy. About 74% of its 83 million population live in rural areas. Two thirds of the population depend at least in part on agriculture for a living. Despite suffering three lost decades of economic development due to the wars, Vietnam has boomed since the Party began to turn away from communist central planning in the late 1980s under its policy of "Doi Moi". Associated agricultural reforms transformed Vietnam from a country experiencing extreme food insecurity into one of the world's largest exporters of rice, coffee and agricultural commodities. Vietnam is now among the fastest-growing economies in Asia with consistent Gross Domestic Product (GDP) growth of around 8% (8.2% in 2006). Gross National Income (GNI) per capita was US$ 620 in 2005. [1]Recent growth has been led by manufacturing which has increased by over 10% in recent years and, to a lesser extent, by services which have grown at 7% per year. The rate of poverty has fallen from 58% in 1993 to 19% in 2004—one of the sharpest declines of any developing country.

8. Vietnam's position on the United Nations Human Development Index is well above other countries with similar level of GNI. It currently ranks 108 out of 177 countries. [2]Life expectancy has increased to 70 years and adult literacy has been maintained at over 90%. Mortality rates among children under five have declined to 23/1,000 live births in 2004. The primary net enrolment rate increased from 91% in 1993-94 to 98% in 2004. Income inequality is relatively low.

9. It is a one-party state dominated by the Communist Party. It is led by a triumvirate of the Party General Secretary, State President and Prime Minister. Although the National Assembly (Vietnam's parliament) is increasingly powerful, it remains firmly subordinate to the Party. There are no free elections in Vietnam. Candidates for election to the National Assembly and local People's Councils must in practice be approved by the Party. There is, however, an increasing minority of elected representatives who are not Party members. The next National Assembly elections are scheduled in May 2007. No legal opposition to the regime is permitted, but nor is there any widespread popular opposition to the regime as the strong economic performance and poverty reduction gives the party and government widespread support. The Party also still enjoys popular support following its wartime successes against France, the US and China, its re-unification of Vietnam and subsequent maintenance of peace and stability.

KEY QUESTIONS

A. What is the appropriate size and scope for DFID's programme in Vietnam?

10. What is the appropriate size?

DFID's Vietnam programme is informed by DFID's corporate resource allocation model. This uses relative country need and performance in reducing poverty and achieving improvements in living standards as the basis for allocation. DFID judges Vietnam to still need considerable aid resources with 14 million of its 83 million people living in poverty. Although Vietnam is a major recipient of ODA it is not aid dependent nor is aid per capita high by international standards. DFID judges Vietnam to have a responsive and capable government as evidenced by its strong poverty reduction (58% in 1993 to 19% in 2004) and progress towards achieving the MDGs (all but three targets on-track). Government has introduced better planning and management of its public finances (see section B below). This gives DFID confidence that its resources will be used effectively including for budgetary support. In 2006, DFID signed a 10 year DPA with Vietnam based on shared commitments to poverty reduction, human rights and improving public financial management. It commits the UK to spend a minimum of £50 million a year until 2011 and the majority of funds channelled through budget support instruments.

11. What is the appropriate scope?

The scope of DFID's programme has been determined by the challenges that Vietnam faces in achieving the MDGs, ensuring sustainable economic growth and poverty reduction and where DFID is best placed to respond alongside other donors. In this context, DFID works with Government to address five major challenges:

— The provision of high quality education and livelihood opportunities for the most marginalised groups.

— Increasing government's capacity and accountability to its people including by strengthening public financial management and tackling corruption.

— Preventing the spread of HIV and AIDS.

— Assisting Government to make the most of opportunities for the poor in WTO accession whilst protecting those who will be adversely affected.

— Making aid more effective in Vietnam to maximise its poverty impact including through UN reform.

12. We are also looking at increasing our support to improving access to sanitation. Other development issues are supported by those donors better placed to address them (see section D para 26).

13. Effective delivery of this programme currently requires an office comprising 26 staff (6 UK and 20 Vietnamese). However improved IT, administrative and project management systems and strengthened in-country staff capacity, will reduce this to 22 by 2010. Given the strong Government ownership of development and good poverty policies, DFID plans to make greater use of budget support supported by technical assistance.

B. What are the strengths and weaknesses of budget support over other aid instruments and why DFID chose to spend the majority of its funding through budget support?

14. Some of the strengths of budget support in Vietnam in comparison with other aid instruments such as projects are that:

— It is one of the most effective ways to help increase the ability of the government of developing countries to help their people themselves and take responsibility for it. It strengthens national leadership and responsibility by directly linking donor support to Government's policies and systems. Benchmarks chosen to monitor results and performance are agreed by Government and drawn from their own national plans.

General Budget Support

Targeted Budget Support

— It substantially reduces transaction costs for the Government and donors associated with implementing separate projects and reporting against different rules and regulations.

— Budget support has helped to strengthen and raise the profile of monitoring of results and ensure the links between policy measures and impact.

— Budget support has achieved a much stronger record of predictable and timely disbursement of donor funds than projects because of the use of Government's own systems and procedures. In 2005, donor budget support disbursements were 96% of commitments while projects disbursements were only 65% of commitments.

Education for All

15. Some of the perceived weaknesses of budget support are:

— It is more difficult to directly attribute a specific donor contribution to specific development outcomes, as compared to projects. However recent independent international evaluations have strengthened our evidence base for assessing the impact of budget support.

— The reforms and improved delivery of Government services that budget support promotes can be less immediately effective in directly reducing poverty than some projects. However, compared with other low income countries Vietnam has remarkably strong service delivery systems giving us greater confidence that the expansion of services will benefit the poor and impact will be wider and more sustainable than donor projects.

— Donors can impose conditionality to their budgetary support although they can also do this with projects and programmes. In Vietnam the Government takes full responsibility for the reform agenda and performance benchmarks are fully agreed with them and are not imposed.

16. Why are the majority of DFID funds spent through budget support?

DFID Budget support has grown from just under £10 million per annum in 2002 to £34.5 million in financial year 2006-07. As a percentage of our overall programme, budget support has increased from 43% to 70% (see Table 1 below). The reasons for increasing the volume and proportion of budget support are:

— Government increasingly requests budget support. It sees its increased use by donors as a way of reducing transaction costs and improving national responsibility. Aid is just over 10% of public expenditure and until recently has been mainly achieved through projects operating to different rules and regulations. This results in high transaction costs and low disbursement rates—only 65% of donors' project commitments were disbursed in 2005.

Hanoi Core Statement

— There is no evidence in Vietnam that funds channelled through budget support rather than projects are more at risk of being misused. Vietnam has one of the best fiduciary risk ratings for a DFID partner country. Studies to track expenditure from central to commune levels also showed very low levels of leakage (only 3-5% in Government's programme to help the poorest communes—Programme 135—low by international comparison).

17. Budget support on its own is not sufficient in Vietnam. Projects are useful in providing technical advice to Government on specific issues, when policies and implementation are not sufficient to justify budget support (rural transport) or when the fiduciary risks are too high. DFID Vietnam uses a mixture of aid instruments to maximize the achievements of the development objectives—budget support (GBS and TBS) and projects. The 10 year DPA commits DFID to spend the majority of its country programme funds through budget support. Table 1 shows the increase in use of budgetary support over recent years.

Table 1

DFID VIETNAM PERCENTAGE SPENDING ON PROJECTS AND BUDGET SUPPORT

	2003-04	2004-05	2005-06	2006-07	2007-08 (forecast)
Total spend (£million)	23.2	40.4	55.6	50	50
Projects	57%	51%	38%	31%	30%
Budget Support	43%	49%	62%	69%	70%
— General budget support	43%	49%	36%	40%	40%
— Targeted budget support			26%	29%	30%

C. Whether DFID is focusing it activities adequately on the most vulnerable groups, including the rural poor and ethnic minorities?

18. The Country Programme Review (CPR) by DFID's Evaluation Department and the National Audit Office (NAO) study on rural poverty indicate that DFID's CAP and programme are strongly focused on poverty reduction. 90% of DFID spend (£45 million) in 2006-07 was for delivering quality basic services like primary education and health care, infrastructure, agriculture and rural transport to the poor and vulnerable.

19. DFID supports Programme 135 (P135) with £26 million. This programme tackles rural poverty and is the Government's most effective National Targeted Programme (NTP). It targets 8.7 million poor people living in the 1,644 poorest communes and 2,500 of the poorest villages in the remote up-land areas of Vietnam. These areas are populated largely by ethnic minorities. DFID's support to P135 has already contributed to:

— Lifting half a million poor people out of poverty in the poorest communes in the country over the last two years.

— A 90% primary enrolment rate in the poorest communes through construction of more than 4000 primary schools.

— Access of 600,000 people to clean drinking water (45% access) through construction of 2,346 communal taps.

20. By 2010, P135 aims to eliminate hunger, reduce the number of households living in poverty by 20% and reduce malnutrition by 5% in the poorest parts of the country. All communes and villages will have roads, water supply, schools, health clinics, electricity and markets.

21. In education, DFID provides £26 million to a project targeted at disadvantaged children. This has increased school access for disabled children and other vulnerable groups such as street children. DFID has also upgraded the teaching skills of over 250,000 primary school teachers through its £8 million project for primary teacher development. DFID support to the Government's NTP for primary education (EFA) is improving schooling quality for poor and disadvantaged children nationally. It will also accelerate the achievement of minimum standards in all primary schools by 2010. Every school will have proper classrooms, toilets, a package of basic learning materials and a trained teacher. The programme also provides free textbooks to ethnic minority children and other disadvantaged groups.

22. In rural transport, DFID supports projects (RT2 and now RT3) with £40.5m. RT2 which has recently finished, has (co-funded with the World Bank) reduced the number of rural communes without all weather roads by 28% and lifted 210,000 people out of poverty. The new phase RT3, is working to:

— Achieve road access to the poorest 3,000 communes, and enhanced mobility for three million of the poorest people in Vietnam. It is estimated this will lift 320,000 people out of poverty by 2011.

— Ensure these gains are sustainable, by improving road maintenance systems nationwide.

— Strengthen the capacity of provincial and district government to plan and deliver rural access efficiently and accountably. A major focus is tackling corruption in the infrastructure sectors including piloting of the Construction Sector Transparency Initiative (COSTI) which builds on the success of the Extractive Industry Transparency Initiative (EITI).

23. Complementing these is our support to the PRSC (£20 million annually). This promotes policy and institutional reforms that directly impact on the poor. For example, it has:

— Increased public spending in the social sectors.

— Ensured 15 million poor people have health insurance and thereby access to free health care.

— Helped 25% of poor ethnic minority households get access to forest land.

— Increased funding to NTPs for ethnic minorities and the poorest regions.

— Promoted gender equality by funding the issuing of land titles in the names of wives as well as husbands. About 30% of land titles now record the names of both spouses and the rights of wives are being enforced.

24. The new phase of PRSC will address gender disparities through increasing the retirement age for women to that of men to facilitate the promotion of women to senior positions in Government; supporting a law on domestic violence; and implementation of the gender equality law.

D. Aid Effectiveness: What is DFID's role in Vietnam and where does it add value compared to other donors, particularly in light of Vietnam's cultural and historical links with other donors?

25. Aid effectiveness is a priority for Government as the majority of Official Development Assistance (ODA) is not a free resource. About 80% of ODA comes in the form of concessional loans that must be repaid from domestic revenues. Government has a policy of only using loans for investment in infrastructure and using grants for complementary technical assistance, policy development, strengthening the capacity of Government staff and improving service quality. DFID's role and added value in Vietnam are based on an assessment of our comparative advantage in the light of what other donors are doing.

26. In terms of comparative advantage, Government has told DFID that its clear global mission to reduce poverty makes it a trusted partner and source of unambiguous advice focused only on poverty reduction. Government has welcomed the DPA with its predictability of funding and clear poverty focus and uses it as a model that other donors should follow. DFID's focus on marginalised people and their social and economic inclusion has also helped define a clear role for DFID in Vietnam. As Vietnam's largest grant donor and one of the few that is completely untied, Government often looks to DFID to provide complementary grant resources for the policy work and capacity building associated with loans—for example in the rural transport or education sectors. Government appreciates our ability to be innovative. For example, DFID was the first donor to support Government in piloting TBS to Vietnam through P135. This gave other donors the confidence to support TBS. Government also appreciates DFID's flexibility to use different type of aid instruments where appropriate (GBS, TBS, co-funding projects and technical assistance).

27. Given DFID's flexibility, Government is increasingly asking us for our aid in the form of budget support (also see section B). This allows timely and predictable disbursal of funds to deliver Government's own development outcomes. For the donor community our flexible use of aid instruments is useful in complementing others who are less flexible. Our strong technical expertise (we have the largest advisory team in country apart from the World Bank) particularly in budget support, targeting excluded groups and governance is highly regarded and seen as a useful balance to the World Bank's dominance in these areas and policy discussions with Government.

28. DFID therefore adds value in the areas of poverty focus and governance in comparison to countries such as Japan, Australia, China, France, Sweden, and the USA who have stronger cultural and historical ties with Vietnam. Our piloting of new aid instruments and leadership on improving aid effectiveness through implementing the Hanoi Core Statement is something that, until recently, other donors have been unable to do because of the lack of flexibility of their budgetary and management systems. The UN system also has strong historical links with Vietnam. The UN should have an important role but their capacity in-country remains weak and they are presently unable to fulfil their full potential. DFID has led in improving UN effectiveness by promoting the "One UN" reform process in country—one leader, one plan, one budget, one set of management systems and one "house".

29. DFID does not work in areas where others have the experience, expertise or there are already sufficient donor funding available. For example work on economic reform is better left to the international financial institutions such as the World Bank, the health sector already has a large number of EU donors and the EC, human rights dialogue to the Embassy working through the European Union (EU) and the environment to the UN, Dutch and Canadians. We are currently considering whether, over the period of the next CAP, we might also gradually withdraw from directly supporting areas where others can now lead—for example in rural transport and public financial management. This is in line with a more rational donor division of labour and in keeping with UK and EU global commitments. We have however identified a gap in resources to improving rural sanitation which we are now considering.

E. What is the progress against relevant DFID's Public Service Agreement targets and the MDGs in Vietnam?

30. Vietnam is making good progress against most of the MDGs (see Table 2 below). The country has already achieved the targets for income poverty and hunger. Enrolment in primary education is above 90% for boys and girls and gender equality is improving although a significant gender imbalance remains for some ethnic minority groups. The under five and maternal mortality targets are on track. 90% of births are attended by a health professional. The tuberculosis (TB) detection rate and treatment rate are high at 89% and 92% respectively. Vietnam is on track to meet the land area covered by forest and access to clean water targets.

31. However, Vietnam is off track in relation to HIV and AIDS (although data is not reliable) and in the provision of sanitation where 70% of the population are without access. Although Vietnam, like all countries, is off-track on the target for women's political representation, women are politically active and Vietnam has the highest percentage of women in the national parliament for the whole Asia-Pacific Region.

Table 2

PROGRESS TOWARDS MILLENNIUM DEVELOPMENT GOALS

MDG	Vietnam Progress to 2005
One: Eradicate extreme poverty and hunger	Proportion of population below the International Poverty Line: 58% in 1993 to 19.5% in 2004; On track.
Two: Achieve universal primary education	Net enrolment in primary education: boys 97.1%, girls 91.5%, both 94.3% in 2001. On track.
Three: Promote gender equality and empower women	Ratio of girls to boys in primary education: 0.93 in 2001, 0.93 in 2004. On track. Proportion of seats held by women in national parliament: 26% in 2000, 27.3% in 2006. Off track.
Four: Reduce child mortality	Under five mortality rate/1,000 live births: 30 in 2000, 23 in 2004. On track. Infant mortality rate (0-1 year)/1,000 live births: 23 in 2000, 17 in 2004. On track.
Five: Improve maternal health	Maternal mortality ratio/100,000 live births: 130 in 2000, 85 in 2004. On track. Proportion of births attended by skilled health personnel: 85% in 2002; 90% in 2004. On track.
Six: Combat HIV and AIDS, malaria and other diseases	HIV prevalence: Proportion of population living with HIV and AIDS is 0.5%. Off track.
Seven: Ensure environmental sustainability	Proportion of the population using improved drinking water: 58% with access and 42% without. On track. Proportion of population using improved sanitation facilities: 30% with access and 70% without. Off track.
Source: UN country statistics.

32. DFID's 2003-06 Public Service Agreement (PSA) objectives for Asia originally included only Bangladesh, China, India and Pakistan. It was only in the subsequent PSA for 2005-08 that Vietnam was added. Nevertheless, the recent DFID Evaluation Department CPR used the 2003-06 template (Table 3 below) to assess the extent to which the Vietnam programme has contributed:

Table 3

ASSESSMENT OF DFID CONTRIBUTION TO THE 2003-06 PSA

DFID PSA 2003-06: Objective I: Reduce poverty in Asia
Target 1: Progress towards the MDGs in 4 key countries demonstrated by:
— a sustainable reduction in the proportion of people living in poverty from 15% to 10% in East Asia and the Pacific; and from 40% to 32 % in South Asia;	DFIDV Contribution: Medium
— an increase in gross primary school enrolment from 95% to 100%; and — an increase in the ratio of girls to boys enrolled in primary school from 87% to 94%;	DFID Contribution : High
— a reduction in under-five mortality rates for girls and boys from 92 per 1,000 live births to 68 per 1,000; — an increase in the proportion of births assisted by skilled birth attendants from 39% to 57%;	DFID Contribution : Low (not a focus area for DFID V)
— prevalence of HIV and AIDS infection in vulnerable groups being below 5%;	DFID Contribution: Low
— a tuberculosis case detection rate above 70%; — a TB treatment rate greater than 85%.	n/a
Source: DFID Evaluation Department Report EV673
Note: ratings High, Medium, Low are estimates by the CPR team

33. The table is based on assessing the level of attribution (ie the extent to which the observed outcome can reasonably be attributed to DFIDV) and the impact of the DFID effort in terms of the goals that were set for the specific programmes by DFIDV and Government. In practice only 4 out of 8 of the targets are relevant because DFIDV did not implement any programmes to address TB.

34. Overall, DFIDV has scored well for its contribution to improving the poverty focus of Vietnam's national policies and use of its public financial resources (see section C). Similarly the DFID contribution to the two education PSA targets are rated as "High" because of the efforts to improve teaching quality through raising standards and more recently under targeted budget support to ensure access for the poorest and marginalised. DFID had only minor contributions to programmes targeting child and maternal mortality through funding infrastructure support for poor people and regions through RT2 (rural roads) and P135. The assessment against HIV and AIDS status is "Low" although the improved performance of the HIV and AIDS project targeting high risk groups is starting to pay off—for example provision of clean needles and syringe provision in 2007 is expected to be 10 million, up from only 1.5 million in 2006.

F. What is the role of MDGs in shaping DFID's programme of assistance to Vietnam and the Government of Vietnam's Socio-Economic Development Plan (SEDP)?

35. About 90% of DFID's funding in Vietnam directly supports progress against the MDGs. Vietnam has already met many of the MDG targets and is on track to meet most of the others. So the Government has set itself even more challenging MDG targets called the Vietnam Development Goals (VDGs). The Government's SEDP sets out its plans for achieving the MDGs and its own more ambitious targets. The SEDP also recognises that improvements in governance are fundamental to sustaining economic growth and poverty reduction.

36. The DFID Vietnam country programme objectives directly support achievement of the MDGs and VDGs. There are major programmes in rural poverty, primary education, rural transport and economic opportunities for the poor. DFID's new CAP (2007-11) is organised around support to the SEDP with a particular focus on three SEDP pillars (governance, economic growth and social inclusion). Governance is an increasing focus of the programme (see section G).

37. The current off-track MDG targets are HIV and AIDS, sanitation and women's representation in the national parliament. As part of DFID's new CAP (2007-11) we are exploring how to increase support to the sanitation sector. With regard to HIV and AIDS, DFID is the main funder of programmes for high risk groups. Improvements in DFID's project performance and Government commitment to tackling HIV and AIDS also increase opportunities for further investment in tackling HIV and AIDS. With regard to representation in Parliament, DFID supports a project with the Office of the National Assembly which promotes gender equality. On this last MDG target, Vietnam is doing better than most Asian countries and the UK.

38. An important focus of the SEDP is the needs of the poor and vulnerable, ethnic minorities and poor urban migrants. It also has a focus on the poorest provinces in the country, which have made poor progress towards achieving the MDGs. These priorities are reflected in budget allocations. Over the SEDP period the allocations for NTPs (the main vehicle for reaching the poor and vulnerable in poor provinces) will increase significantly. [6]DFID has been a significant funder of NTP P135 and other poverty targeting programmes. The Government is committed to making basic health, education, housing and credit accessible to urban migrants. Allocations for social sector spending which underpins the achievement of the MDGs has been steadily increasing from 6.9% (2000) to 9.2% of GDP (2006).

G. What is the impact of governance on DFID programmes and DFID programmes on governance?

39. What is the impact of governance on DFID programmes?

DFID's own Country Governance Assessment and Country Programme Review indicate that governance reform is a main challenge for the future of Vietnam. Significant changes will be needed to run a country where the public have raised expectations, is more integrated globally and whose economy is more complex. Widespread petty corruption poses a serious threat to continued development. Accountability remains weak, National Assembly oversight of the executive is limited, the judiciary is not independent, and media freedom is still carefully controlled as is people's participation in the political process.

40. In response to these challenges, DFID has increased its work on governance. Our draft CAP identifies the priority areas for the next five years: (i) strengthening anti-corruption measures and public financial management; (ii) strengthening institutions which promote domestic accountability (like the National Assembly and State Audit, as well as civil society and media); and (iii) increasing people's participation in the political process. On human rights, we use the established EU dialogue with Government and support the Embassy's lead.

41. DFID monitors the impact of governance on its programmes through: (i) ongoing financial monitoring for all projects including targeted budget support; (ii) annual political governance and financial management risk assessments for the PRSC; (iii) twice-yearly DPA meetings with Government to jointly monitor progress against DPA benchmarks; and (iv) periodic country governance assessments.

42. DFID also uses the DPA discussions and benchmarks, the twice yearly formal donor meetings with Government and the PRSC policy discussions to focus attention on Government's commitments and progress in tackling corruption. All UK high level meetings with Government are also used to reinforce these messages—recent examples include the visit of the Vietnamese Minister of Finance in February 2007 to DFID and the Secretary of State, Hilary Benn's visit to Vietnam in September 2006. Annual project reviews, financial audits and financial management assessments ensure rigorous monitoring and risk assessment of DFID's programme. DFID's Internal Audit Department carried out a full programme audit in 2006 and rated our systems as one of the best in DFID.

43. What is the impact of DFID's programme on governance?

The recent CPR found that DFID's impact through our Public Financial Management programmes included:

— Establishment of the Inspectorate in Ministry of Planning (MPI) with responsibility for investment spending in all 64 provinces.

— Strengthened capacity of the elected bodies (National Assembly and Provincial Peoples Councils) to inspect Government budgets.

— Introduction of medium-term expenditure planning in Ministry of Finance through adoption of sectoral Medium Term Expenditure Frameworks.

— Improved coordination of development plans/budgets, and adopted budgeting norms making capital and recurrent spending more coherent.

44. In addition, impact through our sector work includes:

— through P135, DFID support has improved financial management by introducing reconciliation between the treasury and spending units;

— through the EFA, we supported an assessment of procurement and financial management in the education sector;

— through the Primary Teacher Development Project we supported the introduction of the first-ever competence framework to strengthen performance management of teachers; and

— through our work on rural roads (RT2), we supported the development of a small-scale contractor market for the road sector in Vietnam. This has increased competition, improved procurement practices and value for money.

45. DFID has also had considerable impact on the way other donors view governance. For example by drafting the governance section of the 2007 Vietnam Development Report (VDR)—the donor community's joint response to the SEDP. The analysis persuaded donors that the governance priority for the next five years should be improving the accountability of state institutions.

H. Trade and the Private Sector: What is the likely impact on development of Vietnam WTO's membership?

46. WTO accession should contribute significantly to continued growth, further poverty reduction, and help achieve the MDGs through increased incomes and opportunities for employment for people and resources for Government to devote to social development. However the impact on development can be both positive and negative. On the positive side WTO membership will:

— Strengthen investor confidence as the economy becomes more rule-based and transparent, thus further increasing domestic and foreign investment.

— Provide greater momentum for further reforms and more open competition between firms. For example, Vietnamese investment rules and regulations are being brought up to international standards.

— Give access to WTO mechanisms to deal with trade-related disputes. Anti-dumping cases against Vietnam by the US in cat fish and EU in shoes last year resulted in severe reductions in employment for the poor. Analysts viewed that Vietnam could have won the cases with WTO membership.

— Increase the share of Vietnam's products and services in foreign markets. In the first two months of 2007 since WTO accession, exports increased by 23.5% compared to the same period of 2006.

47. Potential negative impacts include:

— Increased competition from abroad and removal of subsidies may lead to adverse social impacts. Small holders in agriculture could be forced out of sectors such as maize, sugar, livestock fruit production. Small family businesses and companies could lose out to foreign competition in goods and service distribution.

— Greater vulnerability of people's livelihoods and the economy as Vietnam integrates itself into global capital and product markets. Vietnam's semi-closed economy protected it from the impact of the Asian financial crisis in 1997-98 but this will no longer be the case.

— Vietnam's needs to develop sufficient trade related infrastructure such as roads, ports, industrial zones, power plans, may lead to serious environment damage.

48. DFID, with Australian Aid and the World Bank is supporting Government's preparation of its WTO implementation plan including the incorporation of a "development approach" to the implementation of WTO commitments. This will help Government develop and implement a credible, pro-poor, pro-environment post WTO action plan to ensure Vietnam takes full advantage of the economic opportunities whilst protecting against the negative impacts on the poor and the environment. As 45% of the population currently survive on less than $2 US per day, we are working with Government to develop a comprehensive social and health insurance programme that includes the poor to reduce their vulnerability to slipping back into poverty.

MAIN CHALLENGES AND ISSUES

I. Most of Vietnam's poor live in rural areas

49. 19% of the population, 14 million Vietnamese still live in poverty. 13 million of those live in rural areas. One million poor people are estimated to live in urban areas but this figure is probably a significant underestimate.

Table 4

GEOGRAPHICAL DISTRIBUTION OF POVERTY IN VIETNAM

Where is	Poverty Rate (%)		Millions of
poverty	1998	2004	people
DELTA	33.1	14	4.8
COAST	48.1	31.9	3.3
UPLANDS	58.3	34.3	4.7
URBAN	9.2	3.6	1.0
Source: Vietnam Households Living Standards Survey

50. Delta and coastal poor

Largely reliant on agriculture, land is becoming increasingly scarce and many are losing land as a result of the commercialisation of agricultural production and industrialisation. Off-farm employment is mostly informal and low paid as the poor lack the skills required to access the better paid private sector jobs. Their poverty is compounded by variable access to basic services. The coastal poor, in particular, are vulnerable to annual weather shocks—typhoons, flooding, and drought.

51. Upland poor

Limited access to irrigated and forest land, credit, advice on farming, markets and health and education services is a result of their remoteness. The full benefits of national economic growth have yet to reach these areas. Language and culture are also major barriers. Ethnic minority women and girls are particularly disadvantaged and fare poorly across the MDGs. One in five of them do not have access to basic education and maternal mortality, despite low national averages, is significant as few trained birth attendants are available.

52. Urban poor

"Officially" only 1 million. This is an underestimate as unregistered rural migrants are not included in censuses. Such migrants seek low paid informal employment but, lacking registration, they are unable to access basic services, and housing quality and access to credit are major problems. If these issues are not addressed effectively and planned for the number of urban poor number will grow.

53. The vulnerable

Because poverty reduction has been rapid in Vietnam those who have escaped poverty subsist just above the poverty line (45% of the population survive on less than $2 US per day). They are very vulnerable to shocks—economic, political, weather or public health—and could easily slide back into poverty. Government recognises this problem and is planning new forms of social protection which DFID will support.

54. Government's SEDP recognises that poverty is essentially a rural phenomenon. Two of the pillars of the SEDP are committed to improve access to basic services for the poor, develop social and health insurance for the poor and protect the environment, the degradation of which affects the poor most. Government has most success in delta and coastal poverty reduction. It is in the remote rural areas that poverty reduction is least successful and Government's plans and programmes are being strengthened with DFID support (see section C).

J. Ethnic minority populations are almost twice as likely to be poor and over three times as likely to live in hunger

55. Vietnam since Doi Moi has seen impressive growth and reductions in poverty benefiting the population as a whole. Over the past 11 years poverty has reduced by almost 40% from 58% in 1993 to 19.5% in 2004 (see Table 5 below). This has lifted 30 million people out of poverty. In fact between 2002 and 2004 the rate of poverty reduction has doubled (to 5% annually) largely due to broad based growth and steep gains in world agriculture prices for rice and coffee. This progress is unprecedented and Vietnam outperforms countries like China which took double the time to reduce poverty by the same levels.

56. Ethnic minorities continue to lag behind (Table 5). In 2004, 60% of ethnic minorities were poor as compared to 13.5% of Kinh, the majority ethnic group. This implies that ethnic minorities are nearly four times more likely to be poor in comparison to the Kinh. Data also suggests that ethnic minorities experience much deeper poverty than the Kinh majority. In 2004, over 34% of ethnic minorities lived in hunger in comparison to 3.5% of Kinh.

Table 5

DISTRIBUTION OF POVERTY BETWEEN KINH AND ETHNIC MINORITIES

	1993	1998	2002	2004
Poverty Rate	58.1	37.4	28.9	19.5
Kinh	53.9	31.1	23.1	13.5
Ethnic Minorities	86.4	75.2	69.3	60.7
Food Poverty
Kinh	20.8	10.6	6.5	3.5
Ethnic Minorities	52	41.8	41.5	34.2
Poverty Gap
Kinh	16	7.1	4.7	2.6
Ethnic Minorities	34.7	24.2	22.8	19.2
Source: General Statistics Office, 2004 VHLSS

57. The SEDP has a strong focus on the needs of ethnic minorities in remote regions. The Government's response is to use of specific poverty targeted programmes—NTPs. (Section C provides details on DFID support to NTPs).

K. There are concerns about progress on the MDG target for sanitation

58. Sanitation is now the most off track MDG target in Vietnam. Rural sanitation coverage rates are very low with only 16% of the rural population having access to hygienic sanitation facilities in 2004. The low coverage is particularly striking when compared to access to other forms of infrastructure, for example the rates of rural electricity access are over 90%.

59. The joint donor-Government review in 2005 revealed that in poorer regions with less access to clean water and hygienic latrines, there was a greater incidence in malnourishment and diarrhoea related illness in children. These in turn lead to infant malnutrition, loss of productive capacity in later life and higher health care costs. The impact of low sanitation coverage is felt disproportionately by women. They are affected most by the lack of privacy and shoulder the burden of caring for sick family members.

60. The previous five-year SEDP did not emphasise sanitation. Only in the recent five-year plan, 2006-10 are environmental issues including water and sanitation addressed adequately. The situation is further hampered by the lack of a clear lead ministry for rural sanitation. The mandate for rural sanitation passed from the Ministry of Health to the Ministry of Agriculture and Rural Development in 2000 but neither Ministry have made the issue a priority. Consequently the sector has been underfunded. Only $35 million dollars a year is currently being invested in rural sanitation, less than half that required to meet the Government's own coverage target of 75% access by 2010.

61. DFID has been working on sanitation in a number of ways. Firstly we have been funding sanitation facilities in schools and raising awareness of hygiene through our support to Government education programmes. Secondly through the sanitation components of its rural infrastructure programmes eg Northern Mountains Poverty Reduction Project and more recently through the NTP Programme 135. Thirdly through the PRSC we have talked with Government to clarify the institutional roles, policy priorities and raise the levels of investment in the sector. We have also strengthened the World Bank's capacity in this sector (the main investor in water and sanitation) through secondment of a DFID infrastructure adviser.

62. An important element of our discussions with Government has been to improve the Government's approach to sanitation provision. Government programmes have relied on state subsidies for the construction of household latrines, with little success. A lack of communication and education on the need for improved sanitation behaviour and inappropriate latrine designs has led to many latrines simply being left unused. Introducing demand led approaches that have been successful in other countries is a focus for the future. This work will be reinforced through a regional "research into action" programme managed by the World Bank, Water and Sanitation Programme (WSP) supported by DFID and Sweden.

63. But this is not enough. DFID Vietnam is examining options for further support for sanitation. The most likely approach at present will be to co-finance the next phase of the World Bank's water and sanitation work in Vietnam. Initial analysis indicates that a direct DFID investment in the sector of £20 million could increase rural sanitation coverage by around 8%, or roughly 4 million people. In addition by improving the effectiveness of Government's own investments sanitation coverage rates could increase by up to 10% per year, getting the sector back on track to meet the MDG target by 2015.

L. HIV prevalence is on the increase

64. Since the first recorded AIDS case in 1990, reported HIV infections and AIDS cases has risen rapidly. The number of people living with HIV and AIDS is estimated to have increased to 260,000 by the end of 2005, with the number of annual AIDS deaths rising between 2003 and 2005 from 9,000 to 14,000. Latest national figures place the prevalence rate among the general population at 0.3% whilst the UN estimate a rate of 0.5%. This is low by international comparison.

65. According to Government, prevalence levels are stabilising in the general population although the picture is not clear. If the data is broken down, the economic hubs of Ho Chi Minh City, Hai Phong and other cities show prevalence rates in excess of 1%. The point at it would become a generalized epidemic.

66. As in other East Asian countries, the epidemic in Vietnam is concentrated among high risk groups notably intravenous drug users (IDUs) and sex workers (SWs). IDUs comprise 50-60% of all reported HIV infections and prevalence rates among IDUs have risen sharply from an estimated 25% in 2000 to 34% in 2005. By 2005 prevalence among sex workers had increased to 16%. Both these groups are recognised as the main sources for a more generalised epidemic. The significant increase in HIV prevalence among at risk groups presents a serious threat of more rapid transmission to the whole population. There urgent need to contain the spread to the wider population through prevention programmes targeted at these at risk groups.

67. In recent years, there has been an increase in political will to tackle the epidemic. Traditionally in Vietnam, HIV is associated with drugs and prostitution and treated as a "social evil" by the state. The state's response has been discrimination and punishment. Since 2000, Government policy has slowly evolved to promote prevention and harm reduction programmes for at risk groups, in line with international good practice. In 2006, a law on HIV and AIDS prevention was passed providing a legal framework for harm reduction interventions (needle exchange and drug substitution therapy). This improved policy environment offers the opportunity to scale up coverage of prevention and harm reduction activities to reduce the spread of the HIV epidemic.

68. In 2002 DFID pioneered with Government HIV prevention targeted at high risk and marginalised groups. Sex workers and IDUs in one third of the 64 provinces were provided with access to condoms and clean needles. As a result national capacity to deal with at risk groups has been strengthened and the new AIDS law provides a more positive environment within which to increase clean needle and syringe provision (from 1.5 million needles in 2006 to 10 million in 2007) and support procurement for Vietnam's first methadone programme. Since 2006, DFID has taken a lead in coordinating the donor response to HIV to ensure that donor funding is used to best effect. DFID is currently exploring whether to provide extra resources for expanded delivery of harm reduction work.

M. Other Significant Challenges Facing Vietnam

69. Improving the efficiency of state investment

Continued rapid economic growth is underpinned by high rates of investment. Measures are needed to make sure state investment decisions are transparent and based on sound economic and social analysis. Insufficient attention to this increases funding risks and potential contingent liabilities putting in jeopardy national funding for poverty reduction.

70. Tackling pockets of persistent poverty

Economic growth will continue to reduce poverty but some persistent pockets of poverty are likely to remain—remoter regions and ethnic minorities. As poverty falls, stronger targeting of NTPs will be required and new approaches needed.

71. Dealing with the negative impacts of WTO membership

WTO accession will generate new vulnerable groups and pockets of poverty. The development of a land market will increase landlessness and rapid urbanization may lead to increased urban poverty. Effective action to tackle these will require better information and research combined with a more open debate on the problems and solutions. The challenges of rapid migration, urbanisation and land sales will need to be managed in a fair, transparent and well-informed manner.

72. The governance agenda remains very challenging

Reforms are underway in promoting more transparent and accountable public financial management at all levels of Government. Legal and judicial reforms have been less rapid and need to be accelerated over the next few years. Corruption represents one of the most significant risks to growth and poverty reduction over the next five years. The Government is fully aware of this but will need to carry out on its promises to tackle this. Simplifying and strengthening Government systems will be an important part of the solution.

73. In regard to these other challenges, the Development Banks such as the World Bank and Asian Development Bank lead on supporting Government's economic growth and reform programme including state investment. In line with the recent Country Programme Review, DFID's focus, working with other donors, will be to help Government to strengthen its approach to reducing poverty of marginalised groups including ethnic minorities, addressing new poverty challenges such as urbanisation and WTO accession, strengthening governance and tackling corruption.

April 2007

ACRONYMS AND ABBREVIATIONS

CAP Country Assistance Plan

CGA Country Governance Analysis

COSTI Construction Sector Transparency Initiative

CPR (DFID) Country Programme Review

DPA Development Partnership Arrangement

EFA Education For All (targeted budget support)

EITI Extractive Industry Transparency Initiative

EU European Union

FRA Fiduciary Risk Assessment

GBS General Budget Support

GDP Gross Domestic Product

GNI Gross National Income

HCS Hanoi Core Statement

HIV and AIDS Human Immunodeficiency Virus and Acquired Immunodeficiency Syndrome

IDU Injecting Drug Users

MIC Middle Income Country

MDG Millennium Development Goal

MPI Ministry of Planning and Investment

NAO National Audit Office—UK

NGO Non Governmental Organization

NTP National Targeted Programme

ODA Official Development Assistance

OECD/DAC Organisation of Economic Co-operation and Development/Development Assistance Committee

P135 Programme 135—Livelihoods and Infrastructure for Poorest Rural Communes

PRS Poverty Reduction Strategy (National poverty reduction plan)

PRSC Poverty Reduction Support Credit

PSA Public Service Agreement

RT Rural Transport (RT2 and RT3—co-funded projects with the World Bank)

SEDP Socio-Economic Development Plan (Vietnam's PRS)

TB Tuberculosis

TBS Targeted Budget Support

UN United Nations

UNDP United Nations Development Programme

VDG Vietnam Development Goal (Vietnam's version of the MDGS)

VDR Vietnam Development Report 2007

WSP Water and Sanitation Programme

WTO World Trade Organisation

1 World Bank, 2006. Back

2 Human Development Report 2005 (UNDP, 2005). Back

3 OECD/DAC Joint Evaluation of Budget Support, May 2006 and Independent PRSC Review, November 2006. Back

4 Mokoro Independent Review of the PRSC1-5, November 2006. Back

5 OECD/DAC Evaluation of General Budget Support, May 2006. Back

6 The government allocation for P135 phase 2 has increased by 23%. The allocation for Hunger Eradication and Poverty Reduction (HEPR) has increased by roughly 10%. Back



© Parliamentary copyright 2007	Prepared 24 July 2007