document of the world bank...document of the world bank for offical use only report no: 59493-vn...
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Document of
The World Bank
FOR OFFICAL USE ONLY
Report No: 59493-VN
PROGRAM DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 45.2 MILLION (US$ 70 MILLION EQUIVALENT)
TO THE
SOCIALIST REPUBLIC OF VIETNAM
FOR THE
FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION
DECEMBER 28, 2011
Southeast Asia Sustainable Development Sustainable Development Department East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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VIETNAM - GOVERNMENT FISCAL YEAR January 1 – December 31
CURRENCY EQUIVALENTS (Exchange Rate Effective as of November 30, 2011)
Currency Unit = VND Vietnamese Dong
VND 21,005 = US$ 1.55156 =
US$ 1 SDR 1
ABBREVIATIONS AND ACRONYMS
AAA Analytical and Advisory Activities ADB Asian Development Bank AfD Agence française de Développement CCA Climate Change Adaptation CDM Clean Development Mechanism CIDA Canadian International Development Agency CPS Country Partnership Strategy CTF Clean Technology Fund DDMFSC Department of Dyke Management, Flood and
Storm Control (MARD) DFID Department for International Development DHMCC Department of Hydrometeorology and
Climate Change (MONRE) DIWM Department of Irrigation Water Management
(MARD) DMC Disaster Management Center (MARD) DPL DPO
Development Policy Lending Development Policy Operation
DRR Disaster Risk Reduction DRM Disaster Risk Management DSENRE Dept of Science, Education, Natural
Resources and Environment (MPI) DWRM Department of Water Resources
Management (MONRE) EE Energy Efficiency EECO Energy Efficiency and Conservation Office
(MOIT) GDP Gross Domestic Product GEF Global Environment Facility GFDRR Global Fund for Disaster Risk Reduction GHG Greenhouse Gases GoV Government of Vietnam IBRD International Bank for Reconstruction and
Development IDA International Development Association IFC International Finance Corporation IL Investment Lending
IMF International Monetary Fund JICA Japan International Cooperation Agency LDP MARD
Letter of Development Policy Ministry of Agriculture and Rural Development
MOF Ministry of Finance MOIT Ministry of Industry and Trade MPI Ministry of Planning and Investment MONRE Ministry of Natural Resources and
Environment NAMA Nationally Appropriate Mitigations Actions NAP National Action Plan NPL Non Performing Loan NTP National Target Program NTP-RCC National Target Program to Respond to
Climate Change ODA Official Development Assistance OoG Office of Government PCU Project Coordination Unit PER Public Expenditure Review PFM Public Financial Management PRSC Poverty Reduction Support Credit PSIA Poverty and Social Impact Assesment PSRDPO1 First Power Sector Reform Development
Policy Operation SAV State Audit of Vietnam SBV State Bank of Vietnam SEDP Socio Economic Development Plan SEDS Socio Economic Development Strategy SOE State Owned Enterprise SP-RCC Support Program to Respond to Climate
Change TA Technical Assistance VNCLIP Vietnam Climate Change Partnership VNEEP Vietnam National Energy Efficiency
Program
Vice President: Country Director:
Sector Director: Sector Manager:
Task Team Leader:
James W. Adams, EAPVP Victoria Kwakwa, EAPVF John Roome, EASSD Jennifer Sara, EASVS Christophe Crepin, EASER
VIETNAM
VIETNAM FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION
TABLE OF CONTENTS
CREDIT AND PROGRAM SUMMARY ..................................................................................................... i I. INTRODUCTION ............................................................................................................................ 1 II. COUNTRY CONTEXT ................................................................................................................... 4
Recent Economic Trends ..................................................................................................... 4 Government’s Policy Response ........................................................................................... 6 Macroeconomic Outlook and Debt Sustainability ............................................................... 7
III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES ....................... 11 The Macroeconomic and Development Program ................................................................. 11 The Government’s Program in Response to Climate Change Issues ................................... 11 Stakeholder Participation ..................................................................................................... 13
IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM ..................................................... 14 Link to Country Partnership Strategy and Socio-Economic Development Strategy and Plan.............................................................................................................................................. 14 Collaboration with Other Donors and the IMF .................................................................... 15 Relationship with Other Bank Operations ............................................................................ 16 Analytical Underpinnings .................................................................................................... 20
V. THE OPERATION .......................................................................................................................... 23 Operation Description .......................................................................................................... 23 Policy Areas ......................................................................................................................... 27
VI. OPERATION IMPLEMENTATION ............................................................................................. 42 Poverty and Social Impacts .................................................................................................. 42 Environmental Aspects ........................................................................................................ 43 Implementation, Monitoring and Evaluation ....................................................................... 44 Fiduciary Aspects ................................................................................................................. 45 Risks and Risk Mitigation .................................................................................................... 47
ANNEXES
ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY .............................................................. 49 ANNEX 2: POLICY MATRIX FOR THE VIETNAM CLIMATE CHANGE DEVELOPMENT OPERATION SERIES (CY 2010-2012) ....................................................................................................... 51 ANNEX 3: RESULTS FRAMEWORK FOR THE VIETNAM CLIMATE CHANGE DEVELOPMENT POLICY OPERATION SERIES (CY 2010-2012) ....................................................................................... 53 ANNEX 4: PUBLIC FINANCIAL MANAGEMENT IN VIETNAM ....................................................... 59 ANNEX 5: POVERTY AND SOCIAL ASSESSMENT .............................................................................. 64 ANNEX 6: ENVIRONMENTAL ASSESSMENT ....................................................................................... 66 ANNEX 7: FUND RELATIONS NOTE ....................................................................................................... 68 ANNEX 8: COUNTRY AT A GLANCE (includes country map) .............................................................. 71
The Vietnam Climate Change Development Policy Operation was prepared by an IDA team consisting of: Christophe Crepin (Task Team Leader, EASER), Douglas J. Graham (Senior Environmental Specialist, EASVS), Steven M. Jaffee (Lead Rural Development Specialist, EASVS), Cuong Hung Pham (Senior Operations Officer, EASVS), Xiaolan Wang (Senior Operations Officer, EASVS), Ky Hong Tran (Energy Specialist, EASVS), Quyen Thuy Dinh (Team Assistant, EACVF), Thu Thi Le Nguyen (Operations Analyst, EASVS), Keiko Kubota (Senior Economist, EASPR), Zoe Elena Trohanis (Infrastructure Specialist, EASIN), Beatriz Arizu de Jablonski (Senior Energy Specialist, EASIN), Sladjana Cosic (Social Development Specialist, EASER), Tuan Anh Le (Social Development Specialist, EASVS), Florian Kitt (Knowledge Management Officer, EASER), Stefan Csordas (Junior Professional Officer, EASER), Ngozi Blessing Malife (Program Assistant, EASER), Robert J. Gilfoyle (Senior Financial Management Specialist, EAPFM), Dzung Huy Nguyen (Disaster Risks Management Specialist, EASVS), Hisham A. Abdo Kahin (Senior Counsel, LEGES), Nat Pinnoi (Senior Carbon Finance Specialist, ENVCF), Laura Tlaiye (Adviser, CMD), Jane Olga Ebinger (Program Manager, ENV), Thao Le Nguyen (Senior Finance Officer, CTRLN), Tiziana Smith (Consultant, EASER), Desmond M. Cleary (Consultant, EASER). Additional advice was received from: Magda Lovei (Sector Manager, EASER), Vijay Jagannathan (Sector Manager, EASIN), Kulsum Ahmed (Lead Environmental Specialist, MNSEN), Sameer Akbar (Senior Environmental Specialist, ENV), Michael Peter Steen Jacobsen (Senior Water Resources Specialist, TWIWA), Toru Konishi (Senior Economist, EASIN), Abhas Jha (Lead Urban Specialist and Regional DRM Coordinator, EASIN), Dejan Ostojic (Sector Leader, EASIN), Rajagopal S. Iyer (Consultant, EAPCO), Ari Juhani Huhtala (Senior Environmental Specialist, ENV). Peer reviewers: Marianne Fay (Chief Economist, SDNVP), Adriana Jordanova Damianova (Lead Environmental Specialist and Program Team Leader, ECSS3), Mark Lundell (Sector Leader, LCSSD).
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CREDIT AND PROGRAM SUMMARY
VIETNAM FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION
Borrower Socialist Republic Of Vietnam
Implementing Agency Ministry of Natural Resources and Environment (main counterpart)
Financing Data
IDA Credit
SDR 45.2 million (US$70.0 million equivalent)
IDA terms for blended countries (25-year maturity with 5-year grace period)
Operation Type Single-tranche programmatic development policy operation; First of a series of three operations
Main Policy Areas
The program focuses on four policy goals organized under the three thematic pillars of adaptation, mitigation and cross-cutting issues:
Goal 1: Climate-resilient development: Improving the resilience of water resources
Goal 2: Lower carbon intensity: Exploiting energy efficiency potentials
Goal 3: Strengthening the capacity and preparedness to formulate, prioritize and implement climate change policies
Goal 4: Strengthening the financing framework to support climate change action
Program Results Indicators
Strengthened legal and organizational arrangements for a programmatic, integrated and adaptive approach to water resources management
Practices to strengthen energy efficiency are implemented in the most energy-intensive end-users of the industrial sector
Scientific, analytical and technical basis and monitoring capacity guiding the development of priority actions and targets for climate change has improved
Climate finance planned according to priorities and a multi-sectoral allocation process
Program Development Objective (PDO) and Contribution to CPS
The PDO of the operation is to support the GoV in its efforts to address climate change by adopting policies and strengthening institutional capacity to promote climate resilient and lower carbon intensity development.
Focusing on climate resilience and low carbon intensity development, the DPO directly contributes to Pillar II of the FY12-FY16 CPS “Sustainability”. Specific outcomes supported by the program are enhancing preparedness and adaptation to natural hazards and climate change, improving management of water resources and energy efficiency, and reducing carbon emissions.
With an emphasis on climate change adaptation and mitigation including formulation of policy and institution for effective response to climate change, the programmatic operation is fully aligned with the priorities
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reflected in the FY12-FY16 CPS.
Risks and Risk Mitigation Four risks to the program’s outcomes have been identified: Inadequate progress in broadening and deepening ownership of
Vietnam’s climate change agenda and difficulty to maintain momentum. Mitigation: Awareness support, active multi-sector engagement process, robust strategic dialogue and M&E highlighting progress made, together with capacity building - including for participation in international negotiations. In addition, technical assistance for analytical work to increase the understanding of climate change.
The PDO faces the risk of being diluted by the complexity and novelty of the climate change agenda in combination with financial and human resource constraints of the GoV. Mitigation: A targeted TA and advisory services package is being developed in support of the implementation of the policy reform agenda. Selection of policy areas corresponds to Government priorities; policy development will foster co-benefits and no-regret solutions.
Constraint in capacity to formulate innovative policy and mobilize inter-ministerial coordination, including constrained capacity of MONRE to leverage and monitor a dialogue with other ministries. Mitigation: Capacity development and TA will target gaps analysis for policy development needs in each of the 5 ministries involved. The establishment of a climate change office and of focal points within involved ministries is being supported, and the role of the Standing Office and responsible department in MONRE, including the Department of Hydrometeorology and Climate Change and its SP-RCC Project Coordination Unit as coordinating entity is being strengthened. Special attention will be put on M&E and reporting capacity.
Insufficient efforts to move the policy dialogue and reform agenda forward. Implementation of policies and financing of investments perceived as de-linked from support from SP-RCC. Mitigation: The development of a financing mechanism that links budget allocation to progress on the climate policy reform agenda is being supported. Interlinkages between the DPO and the Bank’s lending portfolio are designed to link implementation and policy dialogue. Planned technical assistance and capacity building will contribute to the incentive framework.
Operation ID P122667
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FIRST CLIMATE CHANGE DEVELOPMENT POLICY OPERATION
I. INTRODUCTION
1. Vietnam is one of the most vulnerable countries to the effects of climate change, in particular to floods, storms, and sea-level rise. Vietnam witnessed a 0.7°C rise in the average temperature and a 20 cm sea level rise over the past 50 years. According to the climate change scenarios issued by the Government of Vietnam (GoV),1 by 2100 average temperature could go up by 2.3°C, the sea level could rise by 75 cm, and annual rainfall could increase by 5% (all in comparison to the 1980 – 1999 period).
2. Climate change represents a significant threat to economic and human development, and the environment in Vietnam. While the exact degree and timing of future impacts is uncertain, it is expected that climate change will have negative effects on natural resources, agriculture, infrastructure and health. These effects are expected to affect some areas more than others, and poor people and communities with less adaptive capacity will likely be harder hit.
3. Impacts from climate change in Vietnam are expected to take a heavy toll on public finance as well as human and social development. Water resource management stresses arising from climate change further add to the problems that exist today. There are serious concerns about meeting future projected water uses, particularly in the dry season.2 Hydrological changes and sea-level rise will affect the availability of fresh water (saline intrusion) or even physically change the agricultural landscape. Climate related natural disasters result in annual economic losses equivalent to 1 percent of gross domestic product (GDP). The possibility that climate change could worsen flooding, prolong droughts, and increase the strength and frequency of typhoons associated with strong sea surges calls for preventive and
adaptive action.
4. Vietnam’s CO2 emissions have more than doubled over the past decade and are projected to reach 101.5 million tons of CO2-equivalent from energy-related sources in 2010. Under a business as usual scenario, Vietnam’s primary energy demand will more than double and total
1 The results of the scenario analysis were announced in September 2009. 2 See Government/ADB water sector review (ADB 2009) Asia Pacific Energy Research Centre, Energy Supply and Demand Outlook 2006.
Figure 1: Source: Vietnam Clean Technology Investment Plan, 2009
Figure 2: Source: Asia Pacific Research Centre, Energy Supply and Demand Outlook, 2006
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energy-related greenhouse gas (GHG) emissions triple by 2030. The industrial, transport and power sectors are projected to account for the bulk of the increase in GHG emissions overtaking the agricultural sector.
5. The GoV has identified climate change action as a policy priority and established a multi-sector platform to mainstream climate change adaptation and GHG mitigation. The National Target Program to Respond to Climate Change (NTP-RCC) covers the period 2009–15.3 Its main objective is the integration of climate change actions into development strategies, programs, and plans in all sectors via a unified platform. The NTP-RCC is directed primarily at research, analytical and capacity building activities with emphasis on adaptation, aiming at informing the formulation of climate change priorities. The Support Program to Respond to Climate Change (SP-RCC)4 is designed as a partnership between the GoV and donors in support of the development and implementation of climate change related policies and strategies consistent with the NTP-RCC. Work towards defining Vietnam’s climate change strategy over the medium-, and long-term is being completed and will identify targets and priorities as a basis for an integrated strategy in response to climate change as part of the SP-RCC agenda.
6. The Development Policy Operation (DPO) will support the implementation of the GoV’s multi-sector platform and institutional development agenda on climate change within the framework of the SP-RCC. The overall annual value of the programmatic multi-sector and multi-donor support program is expected to be about US $220 million and includes contributions from the Japan International Cooperation Agency (JICA), Agence française de Développement (AfD), and the Canadian International Development Agency (CIDA). The DPO is designed as a programmatic series of three single-tranche annual operations to support the GoV in building a strong institutional platform for climate change action that allows adjustments to account for the needs of the GoV and the evolving understanding of climate change.
7. The DPO’s policy matrix supports a subset of the GoV’s climate change and institutional development program. The DPO focuses on a select number of policy areas with an emphasis on adaptation and support for the initiation of a lower carbon development path. Key elements include building cross-cutting analytical, institutional, policy and financing capacity to establish the basis for a well-informed medium- to long-term response to climate change. The DPO’s four policy goals and actions were selected on the basis of their strategic importance for the country and the expected climate-development co-benefits of achieving the related policy actions. The decision was supported by a shared vision with the GoV on these priorities, strategic complementarity with the Bank’s portfolio, inter-linkages across the four goals and a comparative advantage of the Bank in these areas.
8. The DPO is designed and will be implemented in close partnership with the other co-financiers under the SP-RCC. The DPO’s prior actions, triggers and benchmarks are a subset of the GoV’s matrix under the SP-RCC. A regular dialogue with JICA and AfD has been established to coordinate the World Bank’s support to the SP-RCC closely and present a unified position towards the GoV. Common timing
3 established by PM Decision 158 in December 2008 4 policy matrix approved by OoG Letter No. 4171/VPCP-QHQT in June 2010
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of implementation and monitoring processes have been agreed maximizing the efficiency of donor support via the SP-RCC. This includes joint planning on co-finance capacity building, technical assistance and advisory services. The Bank, JICA, AfD, and CIDA also agreed to conduct missions and technical meetings jointly, as demonstrated by the joint Aide Memoire for the January and the April 2011 missions. The Bank, JICA, AfD, CIDA, have also briefed and invited other donors such as the Netherlands, UNDP, Korea EximBank, AusAID and others in coordination meetings. Nonetheless, the Bank retains individual responsibility for its own financing decisions.
9. The policy dialogue under the DPO will be strengthened by a targeted technical assistance and advisory services package including a new DFID-funded climate change trust fund and a Poverty and Social Impact Assessment (PSIA). This package is composed of targeted capacity and analytical support aligned with the four policy goals of the program matrix. It will involve direct execution by the five Ministries participating in the DPO, as well as Bank execution of analytical and technical services for policy, institutional and investment development support in climate resilient and low carbon development. This will include capacity building for SP-RCC management, monitoring, evaluation and reporting and awareness-raising. Local capacity for analysis of anticipated impacts of policy reforms will be strengthened through the PSIA process and a series of related learning events. Furthermore, additional staff and expertise funded by the DFID trust fund will, increase the Hanoi office’s capacity to support quality policy and technical dialogue with the GoV and development partners.
10. The focus of the adaptation measures under pillar one of the DPO’s policy matrix is to improve the climate resilience of water resources. The impact of climate change on the water sector is likely to be severe and will affect areas essential for Vietnam’s economic and social development, including agriculture. The GoV has demonstrated its commitment to reform, and its readiness to engage in a policy dialogue in this sector through a number of important policy actions such as developing a program on water resource management and regulations aimed at improving the efficiency of the irrigation system. Policy actions to further develop and implement this reform program are included in this DPO. The water sector was chosen not only due to the urgency of its adaptation challenges, but also due to its inter-linkages with most other adaptation sectors, including agriculture.
11. Mitigation efforts under pillar two of the DPO’s policy matrix are targeted at energy efficiency (EE). The energy sector will become the main source of GHG emissions in Vietnam, overtaking agriculture, which currently is the leading contributor. In addition, there is general recognition and consensus that strengthening EE is a no-regrets option for GHG mitigation. Promoting EE is a win-win policy that can lead to co-benefits such as reduced air pollution and enhanced energy security. Issuing the Law on Energy Efficiency and Conservation, the GoV has committed to a credible and sustained effort to improve EE. Regulations for the effective implementation of this law are included in the policy program of the operation to bring EE improved practices in the industrial sector.
12. The cross-cutting policy pillar three aims at building a platform to prioritize and integrate climate change actions into development planning and improve the
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climate financing framework. These are key components of an effective policy and institutional program addressing climate change. GoV has demonstrated its commitment to refining and advancing its policy response to climate change via a number of actions, including an update of the climate change scenarios for Vietnam, the development of action plans by line ministries, the development of a monitoring system supporting the implementation of the National Disaster Risk management (DRM) Strategy, the preparation of a Law on Natural Disaster Prevention, Response, and Mitigation and the advanced stage of preparation of a national climate change strategy. Building on these efforts, pillar three seeks to further strengthen Vietnam’s preparedness for identification and implementation of priority climate actions, and to establish a sound climate financing framework to increase GoV’s access to climate finance and to strengthen the allocation and prioritization of climate change expenditure.
13. Overall, the policy and institutional development program under the DPO aims to increase the GoV’s capacity to respond to climate change and to increase Vietnam’s preparedness to engage in international climate partnerships. This includes the development of a low carbon reference scenario, which will support the GoV in the formulation of Nationally Appropriate Mitigation Actions (NAMAs) and the completion of an adaptation prioritization methodology that could feed into the drafting of a National Adaptation Plan (NAP) under the UNFCCC. Both undertakings will provide the GoV with a much needed scientific and methodological base to plan and target no-regret and no-harm climate action under uncertainty.
II. COUNTRY CONTEXT
Recent Economic Trends
14. Since the beginning of 2011, the GoV’s priority has turned to containing inflation and restoring macroeconomic stability. The delayed withdrawal of the 2009-10 stimulus package, which was introduced in response to the 2008-09 global economic crisis, led to overheating in the economy. By the end of 2010, inflation was over 10 percent, the dong had depreciated rapidly against the US dollar, the reserves fell to below two months of imports, and the fiscal deficit was 6.4 percent of GDP. In response, the GoV introduced measures in February 2011 to tighten monetary and fiscal policy, and implement structural reforms intended to curb inflation, stabilize the economy and ensure social safety (Resolution 11). These efforts are starting to show results. Growth remains healthy, monthly inflation has started to decline, and the current account deficit has also fallen. While there are risks ahead from exogenous factors and planned increases in minimum wages and electricity tariffs, the GoV has reiterated its commitment to implementing Resolution 11 for sustained macroeconomic stability.
15. In 2007, Vietnam experienced an unprecedented surge in external capital flow, fueling a credit boom and an asset price bubble. Between 2006 and 2007, foreign direct investment increased three-fold, and portfolio flows increased four-fold, with total external capital increasing from US$ 3.6 billion (or 5.9 percent of GDP) in 2006 to US$ 12.8 billion in 2007 (18 percent of GDP). Insufficient sterilization led to
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rapid money supply growth, which in turn fueled a credit boom and created an asset price bubble. Inflation accelerated and the trade deficit widened during this period.
16. The economic boom came to a halt with the global financial and economic crisis in 2008. Portfolio flows reversed from their peak of US$ 6.2 billion in 2007, to US$ -0.5 billion in 2008, with the stock market losing nearly 66 percent of its value. The global commodity price shocks led to inflation reaching nearly 20 percent, and an appreciation in the real exchange rate. By 2009, there was a significant slowdown in manufacturing growth, contraction in export demand, and the potential closure of thousands of factories and millions of lost jobs. Many of the export-oriented firms, which had invested heavily in the belief that the boom would continue, suddenly found their orders cancelled and sales plunging. Some of the more leveraged firms, including the state owned enterprises, found it difficult to keep up with their debt service payments.
Table 1: Key Economic Indicators 2008 2009/r 2010/e 2011/p 2012/p 2013/p
Output, Employment and Prices GDP (% change previous year) 6.3 5.3 6.8 5.8 6.1 6.3 Industrial production index (% change, previous year) 13.9 7.6 14.0 11.0 12.0 12.5 Unemployment rate (%, urban areas) 4.7 4.6 4.4 4.0 4.0 4.0 Consumer price index (% change, period-end) 19.9 6.5 11.8 19.0 9.0 7.0 Consumer price index (% change, annual average) 23.1 6.7 9.2 19.0 10.5 7.5
Fiscal Balance
Official fiscal balance(% GDP, exc. off-budget items) 1.2 -5.1 -2.0 -1.1 -1.2 -1.2 General fiscal balance (% GDP, inc.off-budget items) -1.2 -9.0 -6.4 -3.9 -3.8 -3.6
Foreign Trade, BOP and External Debt
Trade balance (BOP definition, $US billion) -12.8 -8.3 -7.1 -7.0 -8.0 -8.7 Exports of goods, ($US billion, fob) 62.7 57.1 72.2 90.6 105.4 122.3 Exports of goods (% change, previous year) 29.1 -8.9 26.4 25.5 16.3 16.1 Imports of goods, ($US billion, fob) 75.5 65.4 79.3 97.6 113.3 131.0 Imports of goods (% change, previous year) 28.8 -13.3 21.2 23.1 16.1 15.6 Current account balance ($US billion ) -10.8 -6.1 -4.0 -4.5 -4.6 -5.1 Current account balance (percent GDP) -11.9 -6.6 -3.9 -3.8 -3.5 -3.5 Foreign direct investment (net inflows, $US billion) 9.3 6.9 6.1 6.8 7.3 7.5 External debt ($US billion)* 28.4 36.3 43.7 49.1 51.8 57.1
as percent of GDP 31.4 39.0 42.2 41.0 39.4 39.0 Debt service ratio (% exports of g&s) 2.6 4.5 3.2 3.0 3.2 3.2
Financial Markets
Credit to the economy (% change, period-end) 25.4 39.6 32.4 14.0 15.0 15.0 Short-term interest rate (3-M deposits, period-end) 8.1 10.7 14.0 14.0 --- --- Stock market - VN index (Jul 2000 =100) 316 495 485 --- --- ---
Source: General Statistics Office, State Bank of Vietnam, IMF and World Bank. e = estimate, p = projections. * These figures differ slightly from those reported in Debt Sustainability Analysis (2011) due to corrections in the exchange rates used.
17. A timely and large stimulus package helped to cushion the adverse impacts of the global crisis. Real GDP growth reached 5.3 percent in 2009, and an estimated 6.8 percent in 2010. The economy achieved higher than average growth and a more stable growth path over this period relative to others in the region. The rapid
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recovery from the effects of the crisis was supported by higher levels of investment and a strong revival in exports. Foreign direct investments continued to remain buoyant and remittances grew at a healthy rate. Exports grew at 26.4 percent, with export of non-oil sector doing particularly well, registering 30 percent growth in 2010. Overall, the recovery of the real sector of the economy has been remarkable.
18. With the rapid recovery, however, the economy started overheating again in the second-half of 2010, following a delayed withdrawal of the fiscal and monetary stimulus. In December 2010, inflation reached a two year high of 11.8 percent, the dong came under intense pressure, and the level of foreign exchange reserves declined to $12.5 billion (1.5 months of imports). There was concern over the health of the banking sector, in part because of the build-up of contingent liabilities of state-owned enterprises (SOEs). As a result of these developments, and following the default of one of the largest SOEs, Standard & Poor’s and Moody’s downgraded Vietnam’s sovereign rating to BB- and B1, respectively.
19. There are early signs that the Government’s efforts to stabilize the economy are starting to pay off, but sustained commitment to measures outlined in Resolution 11 is required to avoid recurring bouts of instability. GDP growth in the first nine months of 2011 is estimated at 5.8 percent. Inflation in the twelve months ending October 2011 declined to 21.6 percent from the peak of 23.0 percent, reached in August 2011, and monthly change in the Consumer Price Index showed a slowdown in inflation from 0.93 percent in August to 0.36 percent in October. Import growth has slowed and exports have remained strong (35.4 percent growth in the first nine months of 2011), largely thanks to high commodity prices. The trade deficit over this period has narrowed, and the current account deficit remains below 4 percent of GDP. The budget deficit is expected to fall to 3.9 percent of GDP5 in 2011 compared to 6.4 percent in 2010. For the purpose of the proposed development policy operation, it is the team’s assessment that the current macroeconomic policy framework is adequate.
Government’s Policy Response
20. The consensus among policymakers after the completion of the eleventh Party Congress in January 2011 was to focus on measures to restore macroeconomic stability, even if it was at the expense of slower growth in the short term. The Government approved Resolution 11 to pursue “tight and prudent monetary and fiscal policy.” A summary of implementation progress is provided below.
21. Exchange Rate Policy. The dong was devalued by 9.3 percent against the US dollar and the trading band was narrowed from +/-3% to +/-1%. This was the single largest correction to the exchange rate following the onset of macroeconomic instability in 2007. Domestic residents started to convert assets into gold and US dollars outside the financial system (creating a large increase in errors and omissions in the balance of payments) to hedge against inflation and currency depreciation. In response, a decree on management of gold trading was issued, centralizing gold exports, eliminating trading in gold bars, and preventing cross-border trafficking of gold.
22. Monetary Policy. As of October 2011, total credit to the economy rose by 8.6 percent since the beginning of the year (or 17.4 percent year-on-year), and total
5 IMF forecasts the deficit in 2011 will be below 3.5% of GDP.
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liquidity (M2) grew by 7.5 percent, well below their 2011 annual target of 20 and 16, respectively. The State Bank of Vietnam raised its refinancing rate by 100 basis points from 14 percent to 15 percent in October 2011. This is the fifth time this year that SBV has raised its key rate (600 bps in total). The SBV also increased the inter-bank over-night rate from 14 percent to 16 percent whilst cutting the rate for foreign currency deposits and deposits of the State Treasury. The rate cut for dollar deposits should help ease some of the recent pressures on the dong.
23. Fiscal Policy. Resolution 11 proposed to cut about 80 trillion dong (3.2 percent of GDP) in state capital investment; off-budget investment (GoV’s development bond); and investment by SOEs and other public entities. The Ministry of Finance reported that total revenues increased nearly 23 percent in first half of 2011 compared to the same period in 2010. The budget deficit is expected to fall to 3.9 percent of GDP in 2011 compared to 6.4 percent in 2010.
24. Banking Sector. Resolution 11 limits banks’ exposure to non-productive activities (which include real estate and security market) to 22 percent of total credit by June 30, 2011 and to 16 percent by December 31, 2011. Non-compliant banks will be asked to double their required reserves ratio and restrict their business activities. The GoV is revising Decision 493 to upgrade loan classification and provisioning practice in the banking system to bring them closer to international norms. The revision of the circular is supported by PRSC operations. It is taking longer than expected because the SBV is cautious about tightening regulations while the banking sector is coping with the effects of a turbulent period (more discussion in Section V). The government has also confirmed its participation in the Financial Sector Assessment Program (FSAP), and has sought technical assistance from the Bank and Fund.
25. State-Owned Enterprises. In 2011, the Government has started an annual exercise to publish the annual report prepared for the National Assembly, based on the audited financial statements of state-owned enterprises (prior action for the proposed operation). The Ministry of Planning and Investment (MPI) has reviewed planned loans and investment projects of SOEs and recommended those that can be dropped or scaled down. Resolution 11 also indicates that the Government will accelerate the equitization process and strengthen the governance of SOEs. A number of state-owned commercial banks including Vietinbank and Mekong Housing Banks have sold a part of their equity capital to strategic investors (supported under PRSC 8).
26. Other Structural Measures. The government has issued a Circular to increase disclosure of information and policies affecting monetary management and banking (prior action for this operation). Finally, the government is moving from an administrative mechanism for setting the prices of essential commodities such as electricity, gas and fuel, to a more market-based mechanism. In addition, Resolution 11 instructs Ministry of Industry and Trade to prepare a regulation for establishing a market mechanism for pricing electricity (supported under Power Sector DPL series).
Macroeconomic Outlook and Debt Sustainability
27. Vietnam’s macroeconomic stability remains fragile and premature loosening of policies will risk repeating the recent pattern of recurring instability. Steadfast implementation of fiscal consolidation and structural elements of Resolution 11, including restructuring and reform of the state-owned enterprise and financial sectors
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should help Vietnam return to a more sustainable macroeconomic environment while laying the foundations for greater efficiency and productivity to drive medium and longer term growth. However, undertaking these deep, structural reforms will require strong leadership, diligent implementation, support from development partners, and some short-term pains. Vietnam must choose between a few difficult years of stabilization with better prospects for rapid growth versus a decade of mediocre growth amidst recurring instability.
Fiscal Policy and Debt Situation
28. Vietnam experienced a sharp increase in its fiscal deficit in 2009 on account of the stimulus measures. The Government’s overall fiscal deficit was 9.0 percent of GDP in 2009, substantially higher than in previous years, as the stimulus package came on top of an already expansionary budget plan. Additionally, the fall in oil prices and the slowdown in economic activities resulted in a decline in government revenue. The fall was partially offset in the second half of 2009, as both international commodity prices and domestic economic activities became more buoyant.
29. With significantly higher than expected revenue outturn and expenditure in check, the government achieved a lower fiscal deficit than planned during 2010. Total budget revenue and grants increased from 26.7 percent of GDP in 2009 to 28.1 percent in 2010. The fiscal deficit is estimated to have declined from to 9.0 percent of GDP in 2009 to 6.4 percent in 2010 (Table 2). As noted earlier, the Government has committed to further fiscal consolidation in 2011.
30. Vietnam’s public debt is likely to remain sustainable if the current economic recovery continues and the authorities carry on the current fiscal consolidation. The results of the debt sustainability analysis conducted in 2011 indicate that the public sector debt was 51.2 percent of GDP at end-2009, two-thirds of which was owed to external creditors. Under the baseline scenario, this ratio was estimated to have increased to 52.8 percent of GDP in 2010, and is projected to decline slightly but steadily thereafter to reach 47.9% in 2015. The large fiscal deficits in 2009 and 2010 do not affect the overall debt sustainability significantly, as long as the government reverts to the pre-crisis levels of deficit in a few years as expected. The stress tests indicate that the two main risks to debt sustainability are a loss of access to non debt-creating capital inflows and a slowdown of exports. The standard assumptions applied for these shocks are severe, and are unlikely to materialize.
Table 2: Government Budgetary Operations (Percent of GDP) 2008 2009/r 2010/e 2011/p 2012/p 2013/p
Total revenue and grants 29.0 26.7 28.1 27.1 27.4 26.5 Revenue (excluding grants) 28.4 26.3 27.9 26.9 27.3 26.4 Tax revenue 24.5 22.3 23.6 23.0 23.4 22.5 Oil revenues 6.1 3.6 3.5 3.4 3.3 2.9 Non-oil tax revenues 18.4 18.7 20.1 19.6 20.1 19.6 Non-tax and capital revenues 3.9 4.0 4.2 3.9 3.8 3.9 Grants 0.6 0.4 0.3 0.2 0.2 0.2
Official expenditures 27.7 31.8 30.1 28.3 28.7 27.8 Current 19.7 20.9 21.2 21.5 22.1 21.5 of which: interest 1.1 1.4 1.3 1.5 1.7 1.7 Capital 8.0 10.9 9.0 6.7 6.6 6.2
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Official fiscal balance 1.2 -5.1 -2.0 -1.1 -1.2 -1.2
Other expenditures 2.4 3.9 4.4 2.7 2.6 2.3 Off-budget expenditure 1.8 2.8 2.8 1.8 1.8 1.7 ODA on-lending 0.6 0.5 1.6 0.9 0.9 0.6 Interest rate subsidy cost 0.0 0.6 0.0 0.0 0.0 0.0
Total expenditure 30.2 35.7 34.6 31.0 31.3 30.1
Overall fiscal balance -1.2 -9.0 -6.4 -3.9 -3.8 -3.6
Financing 2.6 8.8 6.4 3.8 3.8 3.6 Foreign (net) 1.7 3.6 3.4 2.4 2.5 2.1 Domestic (net) 0.9 5.2 3.0 1.5 1.4 1.5
Discrepancy (+ is over-financing) 1.4 -0.2 0.0 -0.1 0.0 0.0 Source: Ministry of Finance, IMF and World Bank staff estimates.
31. The largest source of uncertainty and hence, unquantifiable risk, to the debt sustainability comes from implicit obligations which are not captured under government and government-guaranteed debt statistics. A reliable estimate of such liabilities is not available, which limits the government’s ability to manage associated risks. Contingent liabilities might arise from off-budget statutory funds such as health insurance fund, the banking sector, or large SOEs. After the turbulent few years, and under the current tight monetary policies, some of the more leveraged SOEs, in ship-building and cement business in particular, are reported to be experiencing problems servicing their debts. The authorities are stepping up efforts to collect reliable and up-to-date information on contingent liabilities (mostly in the SOE sector) and to monitor and manage potential fiscal risks associated with borrowing by SOEs. By articulating these changes in policies taking place, and making public regular and up-to-date information on fiscal and debt situation, the government is trying to increase accountability of SOEs and rebuild confidence among market participants.
32. The second source of fiscal risk, albeit not of the same magnitude as contingent liabilities, arises from the large off-budget expenditure, which has been funded by issuing off-budget bonds. The off-budget spending is managed by the Ministry of Planning and Investment (MPI) to build infrastructure such as canals, schools and housing for poor. While the off-budget spending is approved by the National Assembly and is subject to the same level of oversight and scrutiny as on-budget spending, it is called off-budget (misleadingly in our view) because it is largely managed by MPI – a leftover from the planning era. The off-budget expenditure financed by MPI bonds has increased from 1.5 percent of GDP in 2007 to 2.8 percent in 2010. However, it is scheduled to fall to 1.8 percent of GDP in 2011 (Table 2).
Changes in the Banking Sector
33. The banking sector has been adversely affected by the succession of asset price bubbles, monetary tightening and growth slowdown. The real estate bubble of end-2007 and its subsequent freeze in early 2008 have made it difficult for several commercial banks to recover their loans; the rapid disinflation in late 2008, at a time when interest rates were still very high, substantially increased the debt service burden faced by enterprises.
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34. The asset quality of bank portfolios remains an ongoing concern given the unusually high credit growth of the past years and developing, but relatively weak, risk management capacity in the banking sector. According to the official data, the non-performing loan (NPL) ratio of the banking system was 1.9, 2.2 and 3.0 percents in end-2009, end-2010 and July 2011, respectively. Although rising, the SBV considers it still under control. However, if international standards are applied, the NPL ratio of the banking sector is expected to be significantly higher. Currently, only three commercial banks are assessed to have the adequate capacity to use international method of calculating NPLs. The Circular revising Decision 493 is intended to tighten regulations so that this capacity is strengthened among commercial banks.
35. The tightening of monetary policy in 2011 is putting further pressure on the banking sector. In response to strict liquidity conditions since late 2010, smaller commercial banks have offered high deposit rates (up to 18 percent) to gain liquidity despite SBV’s guidance to keep deposit rate at 14 percent or below, triggering fierce competition among the banks. However, as there are no prescribed limits on lending rates, banks have raised these to as much as 22-27 percent. The pressure on the borrowers is therefore expected to grow, resulting in further deterioration of the quality of banking sector assets in 2011-12. While the SBV has supported weaker banks through greater liquidity, it has hinted that some consolidation may be needed if the weaker banks do not perform up to industry standards. However, bank regulators are reluctant to force consolidation or allow bankruptcy to occur in the banking sector.
36. The unresolved problems in the banking sector are likely to remain a source of concern for Vietnam in the coming years. The SBV has upgraded its supervision efforts and raised minimum capital requirements in response to the concerns about the health of the banking sector. By the end of 2008, all commercial banks had met the new requirements. The process of increasing the minimum charter capital continues, in part as a gentle push towards some consolidation of smaller banks. However, the deadline to increase the minimum charter capital further to 3 trillion dong (about $150 million) by end 2010 was extended to end-2011, when 18 of the smaller banks were unable to meet it. The SBV opted for a more measured implementation of this policy, especially in the current fragile macroeconomic environment.
37. In 2010, a number of other important changes in the policies and regulations governing the banking sector were announced. These include revised laws (namely the SBV Law and the Law on Credit Institutions), and regulation on prudential ratios (formulation of these regulations were supported under PRSC9). These together are expected to reshape the working environment of the banking sector. The SBV Law should improve the accountability, mandate and autonomy of SBV in undertaking monetary policy. The Law on Credit Institutions is seen as enhancing the autonomy, safety and soundness of credit institutions. Credit institutions are subject to the tighter prudential ratios, most notably the significantly higher capital adequacy ratio (9 percent as of October 1, 2010), while facing stricter requirements on the amount of funds eligible for lending activities (although the subsequent Circular 19 lightened this requirement to some extent). Much needs to be done over the medium term, however, to address some of the structural weaknesses in the banking sector.
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III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES
The Macroeconomic and Development Program
38. The Socio Economic Development Plan (SEDP) envisions Vietnam as “an industrialized country by 2020”, moving out of a low income country status, and increasing average GDP per capita (about US$ 622 in 2005) to US$ 1,050–1,100 by 2010. The SEDP is Vietnam’s national poverty reduction strategy. One of the SEDP’s four general goals is to accelerate sustainable economic growth and development. The SEDP calls for:
improving the environmental regulatory framework (& enforcement mechanisms) strengthening the capacity of planning agencies to integrate environmental
considerations into development planning and management strengthening environmental planning and monitoring increasing public financing for environmental management and protection
39. The new Socio Economic Development Strategy (SEDS) 2011-2020 builds on the achievements of the 2001-2010 SEDS and includes a focus on sustainability, reflecting the increasing recognition that economic growth at any and all costs is no longer viable. Vietnam recognizes in the new SEDS that as one of the 13 countries that will be most impacted by climate change in the world, it is crucial to mainstream climate change into its planning processes.6
The Government’s Program in Response to Climate Change Issues
40. The GoV is committed to address climate change. It ratified the United Nations Framework Convention on Climate Change (UNFCCC) in 1994 and the Kyoto Protocol in 2002. The 2011-2015 SEDP approved by the XIth Party Congress in January 2011 lists climate change as a national priority challenge. The country fulfilled its international commitments by submitting the Second National Communication to the UNFCCC in December 2010, and the Prime Minister instructed the Government to develop Nationally Appropriate Mitigation Actions (NAMAs, PM Decision 282). As ASEAN President, Vietnam led the introduction of a new ASEAN climate change initiative at the COP16 in Cancún.
41. In 2008, the GoV adopted a guiding platform on climate change action, the National Target Program to Respond to Climate Change (NTP-RCC), adopted by Prime Minister Decision 158. The NTP-RCC covers the period 2009–2015 and its main objective is the integration of climate change actions into development strategies, programs, and plans in all sectors via a unified platform. The NTP-RCC outlines primarily research, analytical and capacity building activities with emphasis on adaptation, aiming at informing the formulation of climate change priorities.
42. The GoV demonstrated its commitment to scale-up, complement and strengthen its climate change response with the adoption of a national policy development program, the Support Program to Respond to Climate Change (SP-RCC), in 2009. The SP-RCC complements and reinforces the actions initiated under the NTP-RCC. The main objective of SP-RCC is to promote policy and institutional
6 Vietnam’s Development Goals 2011-2020, www.cpv.org.vn
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development conducive to mainstreaming climate change adaptation activities and GHG emission reduction. The SP-RCC, reflecting the evolution of the thinking of the GoV, complements the NTP-RCC, adding attention to mitigation opportunities. The SP-RCC promotes stronger inter-ministerial dialogues, aid harmonization and coordination of policy development related activities, technical and financial assistance provided by the GoV, donors and NGOs for Vietnam’s climate response. The SP-RCC was developed based on broad consultations, including development partners, and with support from JICA and AfD.
43. The SP-RCC covers a broad set of 14 policy areas in mitigation, adaptation and cross-cutting institutional issues and 46 related policy actions in 2010.
Figure 3: The SP-RCC Program
Pillar 1: Adaptation Pillar 2: Mitigation Pillar 3: Cross-Cutting Policy and
Institutional Framework
1. Water 2. Integrated Coastal
Management (ICM) 3. Natural Resource
Management (NRM) 4. Infrastructure 5. Health 6. Agriculture & Food Security
7. Energy Efficiency 8. Renewable Energy 9. Forest Management and
Development 10. Waste Management 11. Agricultural Production
and Food Security
12. Mainstreaming Climate Change Policies
13. Financial Framework to support climate action
14. Awareness raising and disseminating climate change information to the public
44. The GoV is in the process of finalizing the strategy and adoption by the Prime
Minister is expected by the end of 2011. The strategy outlines the vision, objectives, and priorities of the GoV on climate change and will serve as the first overarching document formulating a cross-sectoral and comprehensive assessment of Vietnam’s approach to climate change. It recognizes and calls for the completion of the ongoing efforts to establish clearer criteria and priorities for climate change finance and action and the development of methodologies as a basis for decision-making on mitigation and adaptation. This will support GoV’s efforts to strengthen the linkages between the NTP-RCC and the SP-RCC and to develop more specific priorities and targets. It has hence declared its intention to combine efforts on adaptation and mitigation under an umbrella strategy on climate change.
45. To ensure institutional leadership, the GoV created a high-level Steering Committee for climate change chaired by the Prime Minister. An Executive Board chaired by the Deputy Prime Minister co-ordinates the implementation of the NTP-RCC and the SP-RCC. The Ministry of Natural Resources (MONRE) is mandated to take the lead in coordinating the daily response to climate change. A Standing Office on Climate Change has been created within MONRE to fulfill this task. Counterpart offices or focal points have been created in the line ministries such as the Standing Office on Climate Change within the Ministry of Agriculture and Rural Development (MARD). MONRE aims to further deepen and widen this climate change network to improve the coordination of climate change related policy and investment programs. MPI and the Ministry of Finance (MOF) are closely involved, and participate actively in the dialogue.
46. In addition, Vietnam’s response to climate change relies on numerous existing or new sectoral policies, reviews, studies and investment projects that are related to
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increased climate resilient and low carbon development. These include, for example, the National Strategy for Natural Disaster Prevention, Response and Mitigation to 2020, the National Action Plan on Water Resources Management, the Vietnam National Energy Efficiency Program, the Study Report on Bottleneck Solution of CDM Projects, the Forest Development Strategy, the Fisheries Strategy, the Hydromet Strategy and ministerial and provincial climate change action plans currently under preparation. Vietnam has decided to access the Forest Carbon Partnership Fund as well as the Climate Investment Funds and is a beneficiary of the Clean Technology Fund.
47. The GoV is investing in advancing its diagnostic and analytical framework on climate change. It is currently completing a number of studies and capacity building activities such as the “Climate Change, Sea Level Rise Scenarios for Vietnam”, and an update of its Climate Change Scenarios. As part of this applied research focus the GoV is preparing the implementation of a mechanism to update its GHG emissions inventory on a regular basis and is preparing to launch a Low Carbon Growth Methodology paving the way for a low carbon growth strategy. The GoV is also developing a methodology on adaptation to guide its planning and monitoring of climate investments. As the GoV has also declared its intention to develop a green growth strategy, for which it intends to set up a task force within MPI, it will aim to coordinate this undertaking with the low carbon growth agenda. Other large technical assistance projects with the Asian Development Bank (ADB) on adaptation are under way and are in preparation for Low Carbon Development, confirming the interest of the GoV to be equipped with a comprehensive set of instruments and a stronger knowledge base.
Stakeholder Participation
48. Vietnam has established clear and regular mechanisms for stakeholder and donor coordination. The GoV engages donors and NGOs in the biannual Consultative Group (CG) Meeting for discussion on its development program. The CG is chaired by the Prime Minister and select sessions are open to the media. Climate change is a regular point of discussion. The latest CG on December 7-8, 2010, included a focused discussion on a more strategic approach to climate change financing. In addition, DPO specific consultations have been held with stakeholders, including the key ministries, research institutions, civil society organizations and donor partners, as part of the PSIA process.
49. Going forward, the DPO will build on the existing structures and consultations held on climate change and the NTP-RCC in particular. A regular consultation mechanism with the GoV and donors exists in the framework of the Donor Meeting within the SP-RCC. The DPO will interact closely with donors and NGOs via established sector-specific coordination meetings and groups (energy and water) ensuring that donors and civil society are fully informed and have the opportunity to influence the policy action program in which context the DPO series takes place. Looking forward, the DPO’s policy actions include the establishment of a multi-stakeholder platform on disaster risk reduction and climate change adaptation.
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IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM
Link to Country Partnership Strategy and Socio-Economic Development Strategy and Plan
50. Climate change adaptation and mitigation were first incorporated into the Bank’s strategy in the CPS Progress Report discussed by the Board on December 21, 2009 (Report 51659-VN). While Pillar III (“Strengthening Natural Resources and Environmental Management”) focused on the economic and environmental impacts of adaptation and mitigation, Pillar II (“Strengthening Social Inclusion”) highlighted the social impacts of weather-related disasters. Together both pillars addressed the main challenges due to climate change for the sustainability of Vietnam’s economic and social development. Building on this, the FY12-FY16 CPS, which supports the Government’s 2011-2020 SEDS and 2011-2015 SEDP, focuses on strengthening Vietnam’s competitiveness with more emphasis on infrastructure quality and efficiency (Pillar I), increasing sustainability of its development while better protecting the environment (Pillar II), including through climate change adaptation and mitigation as well as natural disaster risk management, and increasing opportunities (Pillar III). Complementing the three CPS pillars are three cross-cutting themes: governance, gender, and resilience. The global crisis has exposed Vietnam’s vulnerability to external shocks at both the macroeconomic and household level, and there is a heightened awareness of risks posed by climate change. The CPS theme of resilience aims to respond to these vulnerabilities.
51. Focusing on climate resilience and low carbon development, the DPO directly supports the outcome of strengthened environmental protection and management under Pillar II of the FY12-FY16 CPS. The DPO aims to contribute to meeting the targets of this outcome’s three indicators: reduced carbon emissions, and enhance preparedness and adaptation to natural hazards and climate change.
Table 3: Vietnam Climate Change DPO Support for CPS Objectives
CPS Outcome Outcomes that IDA will influence in
CPS periodDPO Reform actions and institutional
development in support of CPS outcomesCPS Pillar II: Sustainability
Improved Natural Resources Management
Water Resources Management: Increased water productivity in pilot areas 2011 Baseline: TBD at start of MDWM project 2015 Target: 20% improvement
The DPO focuses on reforms aimed at a more sustainable management of water resources.
Strengthened environmental protection and management
Climate Change Mitigation: CO2 emissions reductions compared to business as usual scenarios associated with investments 2011 Baseline: 0 2015 Target: 1.5 million tons (WB) + 1 mission tons (IFC)
The DPO targets policy actions aimed at enhancing energy efficiency in the industrial sector and at establishing an institutional framework to coordinate a low carbon growth assessment. The DPO will also support a first low carbon growth assessment.
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CPS Outcome Outcomes that IDA will influence in
CPS periodDPO Reform actions and institutional
development in support of CPS outcomes
Enhanced Preparedness for natural hazards and climate change
Disaster Risk Management: Targeted provinces and communes with disaster risk management plans 2011 Baseline: 0 provinces; 0 communes 2015 Target: 10 provinces; 100 communes Climate Change Adaptation: Coherent framework for prioritization of climate change adaptation action in key sectors is available. 2011 Baseline: No adaptation framework 2015 Target: Framework in place
The DPO includes policy actions aimed at integrating climate risk in development planning and strengthening coordination and M&E capacity. This includes measures to improve early-warning and measuring systems as well as disaster risk management and also includes strengthening coordination between disaster risk reduction and climate change adaptation. The DPO contains policy actions aimed at strengthening the scientific, analytical and technical basis for climate action and promoting an integrated approach for the financing of climate actions, including monitoring and reporting. This is also addressed by the integration of climate risk into development planning and the formulation and implementation of an adaptation prioritization framework.
52. The DPO is fully aligned with the World Bank’s corporate, regional, and
country-specific strategies and directions on climate change. It directly addresses four out of six objectives of the corporate Strategic Framework for Climate Change and Development. It is also fully consistent with EAP’s regional strategic directions: (i) supporting country-led climate actions; (ii) establishing a financial framework to mobilize additional concessional and innovative finance; (iii) accelerating development and deployment of new technologies; and, (iv) stepping up cross-sectoral policy research, knowledge, and institutional capacity building. Finally, it is in full conformity with the conclusions of the Bank’s study on Vietnam’s Strategic Directions on Climate Change (2010, P114038).
Collaboration with Other Donors and the IMF
53. Donor collaboration and coordination is strong in Vietnam. Donors meet regularly to discuss and coordinate sectoral policy dialogue and action. The Bank regularly participates in the climate change working group meetings and is active in the donor working groups on water and energy.
54. Donors involved in supporting the NTP-RCC and the SP-RCC meet regularly to discuss strategy, progress and action plans. The latest meeting in April 2011 included JICA, AfD, CIDA, DANIDA, DFID, UNDP, ADB, USAID, AUSAID and the Netherlands. The Bank will forge close links with these donors through regular consultations, co-financing of TA and joint events.
55. The Bank will work in close coordination with the other donors to the SP-RCC (JICA/AfD/CIDA), and at the same time continue to develop an active bilateral dialogue with the GoV. Together with CIDA, the Bank will join their 2nd operation. To support joint messages and alignment, all prior actions of the first Bank DPO are also prior actions of the second operation of AfD and JICA. The Bank is however adopting a stronger targeting by selecting a sub-set of policy areas of the broader
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Government’s program (see details in paragraph 40), and therefore has a shorter list of prior actions for the first operation. The Bank will continue to coordinate dialogue on the development of triggers for the next operation with JICA/AfD/CIDA via sectoral working groups and under Government leadership. It is expected that there will continue to be an alignment of triggers in the future. However, the Bank will retain a focused approach in the selection of the policy areas.
56. In coordination with other development partners, the Bank will provide targeted advisory services, capacity building and technical assistance, and develop effective synergies across instruments and partnerships. A new partnership with DFID has led to the development of the Bank-managed, and DFID-financed Trust Fund for Climate Change in Vietnam (Vietnam Climate Partnership, or VNCLIP, P125358), which will be an important contribution to the implementation of the DPO. It will include specific analysis, technical assistance and capacity building on climate change policy action and science in Vietnam, as well as on program management, M&E and reporting. Further support is also expected to be provided from other partnerships such as the GFDRR on disaster related issues, the GEF Clean Production and Energy Efficiency Project approved by the Board July, 2011, and the newly approved BNPP on ecosystem-based adaptation.
Relationship with Other Bank Operations
57. The operation is firmly based on, and supportive of, the broader World Bank’s operational and analytical engagement in Vietnam comprising IBRD/IDA investment lending and non lending operations as well as analytical and advisory activities (AAA). The design of the operation (i) complements ongoing and planned operations (ii) offers a platform for climate change dialogue with the GoV as well as internally with related World Bank sector or thematic operations, including SD and PREM, and (iii) provides a basis for further structured engagements in climate change.
58. The DPO is fully aligned with the Bank’s strategic agenda to address climate change in Vietnam. The DPO aims to facilitate the GoV’s climate policy reform agenda based on past and ongoing analytical work. Thus, providing a stronger enabling institutional, policy and regulatory environment for ongoing and pipeline investment projects to better address the climate change challenge in Vietnam. Internally, the DPO is expected to offer a coordinating platform for the Bank’s growing climate change engagement in Vietnam.
59. The operation is directly linked to and supportive of a set of Bank policy and investment lending operations in Vietnam. In the water sector, the DPO complements investment lending operations on water resource management in the Mekong Delta, where agriculture is the main land use, and in particular in coastal cities’ urban water supply and wastewater. The policy actions supported under the DPO target water resource management on the governance level and efficiency of the irrigation system. These activities form a set of efforts that strengthen the water sector in Vietnam both on the infrastructure and policy level, and both in rural and urban water supply. The energy efficiency component of the operation, which targets industrial sectors, complements the Vietnam Power Sector Reform DPO series that supports demand side energy efficiency through electricity tariff reform and regulations to promote efficiency in electricity consumption and demand response
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programs. The Clean Production and Energy Efficiency GEF Project will provide TA support for MOIT to develop roadmaps for key industrial sectors and to target largest energy saving potentials, also complementing this operation. Mitigation through promotion of renewable energy sources is being addressed through the ongoing Renewable Energy Development Project that provides financing mechanisms for local banks to lend to developers and to provide regulatory development technical assistance to MOIT. Jointly with this DPO, a clear signal of Bank support to energy efficiency as a no-regret mitigation option is delivered. With regard to DRM, this DPO complements, on the policy level, an investment lending operation on managing natural hazards, as well as several Bank and recipient executed capacity development grants. The Bank’s work is closely linked to Vietnam’s primary Disaster Risk Management framework, the National Strategy for Natural Disaster Prevention, Response and Mitigation to 2020. Current efforts by the GoV and donors, including the World Bank, are underway in support of the National Strategy; investments are primarily focused on infrastructure improvements - for example upgrading the dyke systems, enhancing early warning and forecasting capacities, and increasing communities’ resilience to natural hazards.
60. A number of ongoing and planned AAA/TA products on climate strengthen the analytical basis and facilitate implementation of the operation. This includes the Vietnam Development Report 2011 on natural resources management, which identifies priority areas for adaptation and the report on Climate-Resilient Development in Vietnam: Strategic Directions for the World Bank, which identifies priority areas for Bank engagement in climate change in Vietnam, and technical assistance for rural water supply and DRM, the latter of which is supported by two GFDRR grants directed at the hydromet strategy implementation and the provincial disaster risk management plans. An ongoing rural AAA includes work on food security and food balance scenarios with considerations being given to multiple factors, including future rice land availability in the face of climate change. The Clean Technology Fund (CTF) investment plan for Vietnam endorsed by the CTF Committee identifies energy efficiency as a priority sector for GHG emission reductions. A package of additional AAA/TA products is being developed and coordinated across sectors and donors to support the implementation of the policy actions under this DPO, including a low carbon growth study, criteria for climate change projects, and a methodology for adaptation actions.
Table 4: The DPO in the context of the Vietnam Portfolio DPO Goals Associated Bank Lending TA
. Climate-resilient development: Improving the resilience of water resources
Improve governance of water resources management
Enhance sustainability and resilience of water supply and use for irrigation
IL on water resource management in the Central region (P066051) and in the Mekong Delta (P113949 and P104806)
IL on urban water supply and wastewater (P073763 and P119077)
IL on rural water supply (P077287) IL on agriculture adaptation in the
Mekong Delta (P108885) IL on irrigation water resources
management (P065898)
Study on water use competition and conflict in the Mekong Delta
GEF Grant for coastal cities environment (P090374)
TA for rural water supply (P123908)
TA for mainstreaming climate change in development (P126010)
TA for DRM capacity building (P122619)
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DPO Goals Associated Bank Lending TA
. Lower carbon intensity development: Exploiting energy efficiency potentials
Improve the policy framework conducive to increase energy efficiency
Demand side energy efficiency and tariff reform elements of the Vietnam Power Sector Reform DPO series
Demand-Side Management & Energy Efficiency Project that closed in 2010
Proposed new project with CTF co-financing for energy efficiency and smart grid technologies in power distribution
SEIER TA component to MOIT
ASTAE funded TA for energy efficiency (P105834)
. Strengthen capacity to formulate, prioritize and implement climate change policies
Strengthen the analytical and scientific basis for climate policy formulation and implementation
Integrate climate change consideration into sectoral, national and provincial-level development plans, (includingDRM) and strengthen M&E, coordination, and implementation
IL on managing natural hazards (P073361 and P118783)
IL on urban upgrading in the Mekong Delta (P113904)
IL on coastal resources (P118979)
GFDRR grants of 600k and 900k
TA for urban resilience measures to climate change for Can Tho
TA to develop guidance on urban resilience to climate change
Strengthen the financing framework
Develop and implement an integrated approach (that includes domestic, international, private and public flows) for the financing of short to longer term climate change priorities, including monitoring and reporting
IL on public financial management reform (P075399)
Carbon finance operation on renewable energy program (P110477 and P103238)
MDTF for strengthening public finance management system (P110525)
Lessons Learned
64. The design of this DPO has made full use of the experiences available from the World Bank’s global, regional, and national portfolio (in particular from the PRSC series, see VDR 2007) and includes prior experiences, support actions built-in, and relevant issues preparation in the design of the DPO. Programmatic policy lending for climate change is still a relatively new instrument, and the task team will continuously review and flexibly respond to lessons learned over the programmatic credit series.
65. In line with lessons learned and good practices for development policy lending, the task team:
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Has been mindful of country ownership by being supportive and responsive to a GoV-driven policy reform process, and avoiding the role of an agenda setter or being seen as driver of policy formulation.
Agreed up front with the government and other financial partners on a coordinated accountability framework by developing a focused results framework and assuming leadership of the subset of policy areas, which the operation is focused on, within the donor group under the SP-RCC umbrella.
Customized the accountability framework and modalities of Bank support to country circumstances while blending into the existing SP-RCC instead of setting up parallel structures.
Chose only a limited number of policy goals and related actions critical for achieving results as conditions for disbursement by carefully reviewing the GoV’s climate change reform agenda and identifying those actions as triggers, which are essential for overall progress of the programmatic policy program impact on the climate change agenda. Built-in transparent progress reviews conducive to more predictable and performance-based financial support by scheduling regular meetings with the GoV to review progress within each operation instead of reviewing end-of-operation progress only.
66. In line with Good Practice, the task team has carefully reviewed the following experiences and main lessons learned from programmatic lending operations in Vietnam and elsewhere.
The GoV commits to full accountability for the program’s objectives and policy actions on programmatic and sectoral level.
The primary implementing agency, in this case MONRE, needs administrative, monitoring, reporting, and coordination skills to simultaneously administer the program, interact with donors and line Ministries, promote quality policy and institutional dialogue and report on progress and on results.
Joint monitoring of the program requires clear indicators agreed prior to implementation. Monitoring indicators will be reviewed jointly in the course of the DPO series.
Cross-sectoral programs require a clear understanding of incentives for implementing agencies and incentive structures be understood to determine which actors have or lack motivation to pursue the policy and institutional agenda. In this regard the provision of targeted TA and advisory services is critical to reinforce reforms at both sectoral and sub-national level and to reinforce capacity building and experience sharing.
67. Based on lessons learned from climate change programs, including the DPLs in Mexico and Indonesia, the DPO takes into account four key points:
Inter-ministerial coordination is crucial for mainstreaming climate change in development planning across sectors.
The implementation of an effective policy operation requires analytical support and capacity building on the national climate change agenda. How to best address
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needs has to be established. The DPO hence builds on a body of existing studies, and provides support to additional analytical work and TA.
A DPO on climate change involves learning by doing; the operation has to be programmatic and flexible to reflect lessons and new knowledge and to adapt to changes over a program series. Climate change is a relatively new sustainable development thematic area and the implementation of policy and institutional actions within and across line ministries calls for flexibility to revise and adapt the program series according to needs.
In the context of the evolving discussion about climate finance instruments and as reflected in the recent report of the High Level Advisory Task Force on Climate Finance (November 2010), a budget support operation is also a good vehicle to channel climate finance and generate lessons. Beyond its own scope, the dialogue developed under the DPO is designed to be conducive to enable the government to channel international and domestic sources of climate finance more strategically and efficiently, and to blend different financing sources for maximum impact. This, of course, does not mean that resources under this budget support operation will in any way be earmarked to climate change or other uses.
Analytical Underpinnings
68. The design of the DPO has benefited from a growing knowledge base on climate change in Vietnam. The Bank has done an in-depth review of the broad range of existing research, reviews and other recent information generated under GoV and non-GoV leadership. This just-completed “Study of Climate-Resilient Development in Vietnam: Strategic Directions for the World Bank” (World Bank, December 2010) analyzed the current understanding of climate change in Vietnam and likely impacts, outlining principles to guide the Bank’s engagement on climate change in Vietnam. The DPO has taken full account of these principles in its sectoral selection and choice of policy goals, looking strategically at both near- and longer-term considerations.
69. MONRE’s ongoing work on climate scenarios provides an overall indication of the general direction of change for the country as a whole. Its most recent update using the regional climate model (RCM)7 added a refined understanding of the expected impacts on the provincial level. This includes first projections on the expected magnitude and speed of sea level rise. Policy actions are informed by this enhanced understanding of impacts on the provincial level. More work, however, is needed to decrease uncertainty about the magnitude and speed of these changes but this recent body of knowledge is considered a fair base to further develop a policy dialogue with a view to refine priorities and targets for action.
70. First estimates of the economic impacts of climate change and possible sectoral responses have been recently undertaken by the World Bank. The Economics of Adaptation to Climate Change case study for Vietnam8 used existing analytical work and produced additional research on agriculture (crop production), aquaculture,
7 RCMs work by increasing the resolution of the Global Climate Model (GCM) in a small, limited area of interest. An RCM might cover an area the size of Western Europe, or Southern Africa - typically 5000km x 5000km. The full GCM determines the very large scale effects of changing greenhouse gas concentrations, volcanic eruptions etc. on global climate. The climate (temperature, wind etc.) calculated by the GCM is used as input at the edges of the RCM. RCMs can resolve the local impacts given small scale information about orography (land height), land use etc., giving weather and climate information at resolutions as fine as 50 or 25km. 8 Vietnam was one of the few case studies selected by the Bank global study.
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forestry, and coastal ports to establish a cost assessment basis for climate impacts and actions. This work adds value to the understanding of climate risks and scope of expected impacts, which is an additional useful basis to support the policy and institutional dialogue.
71. The most thoroughly researched area related to climate risks is Vietnam’s exposure to weather-related events and disasters, which is one of the policy areas selected under the DPO. MARD has a sound data collection on which basis it formulated the National Strategy on DRM up to 2020 (MARD, 2007). Further research on the fiscal impact of natural disasters was undertaken by the World Bank in “Weathering the Storm: Options for Disaster Risk Financing in Vietnam” (World Bank, 2010). This study assessed the frequency and severity of natural hazards and analyzed their cost of related damages. It reviewed the GoV’s budgetary process for financing natural disasters and conducted a dynamic analysis of the impact of natural disasters on the government’s fiscal balance. The study on Natural Disasters and Household Welfare: Evidence from Vietnam (SSRN, 2010) looked at the short- and long-term impacts on households for different disasters. The Global Facility for Disaster Reduction and Recovery Fiscal Impact of Natural Disasters in Vietnam has provided funds for technical assistance and research in DRM.
72. Social issues with regard to climate change were examined in the Economics of Adaptation to Climate Change report.9 The study found that Vietnam’s vulnerability to the effects of climate change is socially differentiated. Impacts of extreme weather events are related to poverty status, access to resources, and social security systems. Groups that were already the most socially vulnerable (women, ethnic minorities, the disabled) are disproportionately less likely to be able to adapt to climate changes. It was also found that climate impacts vary significantly from region to region. Impacts include drought and flashfloods in the Northern Mountains and Central Highlands; storms, floods and tornados in the Central Coastal areas and Red River Delta; and drought, floods and sea level rise in the Mekong Delta. Across the four regions, the most vulnerable groups were consistently the poor; ethnic minorities; groups with climate dependent income; groups with little capacity to react to climate events; and socially or medically vulnerable groups (the elderly, children, women, the infirm or disabled). The socially differentiated impacts in relation to the policy actions supported by the DPO have been examined in the PSIA.
73. The design of the DPO has further benefited from a first comprehensive analysis of the expected water resource stresses by climate change, which was undertaken by the Water Sector Review.10 The research findings provide a basis for policy actions in the water sector based on future projected water use stresses, particularly in the dry season. The Government of Vietnam has taken action and translated the findings into policy development to enable Integrated Water Resource Management (IWRM). The DPO will further build on this solid work and facilitate further research on water resources management issues in order to promote policy and institutional action that is conducive to building resilience to climate change, including, among others, managing water demand and increasing supply through water allocation, conservation, land use planning, and watershed management.
9 World Bank. 2010. Economics of Adaptation to Climate Change: Social Synthesis Report. Washington, DC. 10 The Water Sector Review (WSR) in 2007/2008 was a joint project of the government of Vietnam and a number of international development partners.
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74. Research on assessing Vietnam’s greenhouse gas emissions and mitigation options has started and has been a good basis to guide prioritization and selectivity. MONRE detailed the latest figures on Vietnam’s greenhouse gas emissions for energy, industrial processes, agriculture, land use, land-use change and forestry (LULUCF), and waste sectors, with respect to the most important greenhouse gases CO2, CH4 and N2O in its 2nd National Communication to the UNFCCC (MONRE, November 2010). According to the National Communication, GHG emissions in 2000 totaled 150.9 tCO2e, of which 65.1 million tCO2e were from agriculture 52.8 million tCO2e from energy, 15.1 million tCO2e from LULUCF, 10.0 million tCO2e from industrial processes, and 7.9 million tCO2e from waste. The National Greenhouse Gas Inventory is expected to be updated regularly to establish a firm basis and reference points for mitigation actions.
75. The Energy Master Plan Study (JICA, 2008) established a reliable and credible estimate for the projected increase of Vietnam’s emissions from energy use, and as such has been a useful input into the design of the DPO. According to the study, Vietnam will reach 508 MtCO2e/year in 2025 under a business-as-usual scenario. It concluded that mitigation of emissions from electricity generation can be achieved through strong policy action in three broad areas: economic pricing of energy, energy efficiency in industrial and household electricity consumption, and minimization of coal-fired electricity generation.
76. The 2010 Report “Vietnam Expanding Opportunities for Energy Efficiency”11 more specifically outlines regulations, measures and approaches to improve energy efficiency and introduce modern efficient technologies in industrial sectors. The report was undertaken with World Bank support in partnership with MOIT, the Institute of Energy funded through ASTAE. In line with the findings of the EAP Energy Flagship,12 it highlights the potential to reduce emissions focusing on energy efficiency and provides specific guidance for policy and institutional development.
77. The Report on Solutions to Bottlenecks of CDM Projects in Vietnam demonstrates that, though Vietnam ranks 11th on the CDM registry list, it needs to fully exploit its potentially in particular in the energy sector. The bottlenecks are majorly domestic and require institutional changes to enhance Vietnam’s access and use of market based financing sources to address its expected increase in greenhouse gas emissions. The report was undertaken by Nippon koei and Yachiyo Engineering with JICA support.13
78. It is clear from the existing body of knowledge outlined above that the climate change agenda is complex and research is still evolving. Deepening the analysis and strengthening policy guidance is important to prioritize policy and institutional support and investment decisions. The DPO will therefore be complemented by advisory services and technical assistance aligning additional resources from the Bank and partners to widen and deepen the analytical basis and advise on specific aspects of the agenda. In particular, the Bank, with the new DFID financed Vietnam Climate Change Trust Fund of US$ 4.5 million (P125358), will provide direct
11 World bank and ASTAE Report, March 2010 12 Winds of Change, East Asia Sustainable Energy Future, World Bank, May 2010 13 The Study on Urban Environmental Management in Vietnam, Interim Report: Study on Bottleneck Solution of CDM Projects, 2010
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assistance to further an analytical basis to guide the GoV in moving towards a low carbon and climate resilient economy. The GFDRR and the GEF Clean Production and Energy Efficiency project will finance further sector-specific studies as well as the BNPP and other Bank-resources. A PSIA grant has also been mobilized to assess the impact of climate change and climate change policies on the most vulnerable.
79. In addition, JICA and AfD will continue to provide targeted analytical and technical assistance support to the GoV’s full policy program under the SP-RCC. The ADB, USAID, UNDP, DANIDA, GIZ and soon AUSAID will maintain and/or develop their support for similar types of tasks under the SP-RCC and the NTP-RCC. Combined, these support actions should amount to a comprehensive package to guide policy formulation institutional coordination and investment programs to address climate change in Vietnam. MONRE, under the NTP-RCC and SP-RCC, MONRE will establish a coordination process aided by a data system to ensure efficiency, strategic focus and complementarity of the analytical and technical assistance provided by development partners. A strategic dialogue by GoV and donors about climate support actions will be part and parcel of the DPO’s implementation and supervision process.
V. THE OPERATION
Operation Description
80. The DPO will provide parallel financing under a multi-donor budget support within the GoV’s strategic policy and institutional reform program to respond to climate change. JICA and AfD will jointly provide roughly US$145 million and CIDA will join with a first US$ 4.5 million. Together with the Bank’s contribution, the total figure would rise to about US$ 220 million to in the context of DPO 2. Such financial contributions, to be provided programmatically over a series of three operations, with amounts that could increase over time, are designed to trigger catalytic impacts on the pace and effectiveness of the implementation of the GoV’s climate change program. Korean Eximbank and AusAID are expected to join the SP-RCC donor platform in CY 2012 for DPO 2.
81. The operation will foster enabling institutional and policy actions considered important to address climate change, as well as strategically complement other pieces of the Bank’s overall dialogue on sustainable development in Vietnam. It is expected to leverage and complement other Government, Bank and partners' activities in support of climate-resilient and low carbon development. Importantly, the DPO aims at a higher level of coordination and synergism of climate change responses by different government agencies and at an increased harmonization and alignment among development partners.
82. In essence, the policy actions and benchmarks under the DPO, once completed, will form the platform and framework for the GoV’s climate change programs and actions over the next 10 to 15 years. The climate change strategy, adaptation and mitigation methodologies and financial mechanisms developed within the context of the DPO will form the basis for cross-sectoral priorities and investments on climate change; the laws, action plans, and monitoring systems will anchor climate action firmly on the local planning level. Combined with the weight that the World Bank
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brings to the SP-RCC, this promises to establish a multi-donor platform for climate planning in Vietnam from which analytical and institutional underpinnings and investment actions will be initiated.
83. The DPO emphasizes adaptation and reflects an increased attention to mitigation relative to the NTP-RCC. This is consistent with the directions set forth by the GoV under the SP-RCC and is in line with the recommendations of the Bank’s strategic directions on climate change in Vietnam. Adaptation is a priority area to address the needs of the poor and vulnerable groups, who are likely to be most affected, yet have the least capacity to respond. The DPO serves as a signaling device demonstrating GoV’s and the Bank’s joint commitment and priorities in addressing climate change in Vietnam. Therefore, it was not the aim to have a balanced policy program between adaptation and mitigation, but rather structure a reform program that is aligned with country’s strategic priorities and the Bank’s added value.
84. The operation relates to a selective and cohesive subset of the GoV’s SP-RCC, which covers 14 goals in total, and a larger number of related actions. Out of this comprehensive program, the DPO focuses on a subset of four goals consistent with the usual targeting of the Bank’s policy development lending operations. The prior actions and the triggers for the next two operations have been jointly proposed with JICA/AfD/CIDA via sectoral working groups under Government leadership. Prior actions and triggers are aligned among development partners involved, but the distinctiveness in sub-set focus of the policy areas will likely remain throughout the series and has been agreed among donors and the GoV.
85. The DPO supports a policy and institutional development agenda based on three pillars, four interlinked policy goals and five prior actions (Figure 4). Five key line ministries are accountable for the policy and institutional actions identified in the policy matrix: MONRE, MARD, MOIT, MPI and MOF. The three pillars and four goals correspond to:
An adaptation/climate resilient development pillar and the first goal to improve climate resilience of water resources.
A mitigation/lower carbon intensity development pillar and the second goal to tap into energy efficiency potentials.
A cross-cutting pillar and two goals: the third goal to strengthen the GoV’s preparedness and capacity to formulate, prioritize and implement climate change policies and the fourth goal to strengthen the financing framework for climate action.
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Figure 4: The Programmatic Climate Change DPO Series in support of the Government’s Support Program to Respond to Climate Change
Objectives 2010
DPO 1 2011
DPO 2 2012
DPO 3 Results
Pil
lar
I:
Ad
apta
tion
Promote more integrated water resources management
MONRE has furnished to MPI a letter submitting for Prime Minister approval a National Target Program for Water Resources Management based on the Water Sector Review.
Develop the New Law on Water Resources
Prioritize actions and define responsibilities for the implementation of the National Action Plan on Water Resources Management
Strengthen legal and organizational arrangements for a programmatic, integrated, and adaptive approach to water resources management
Pil
lar
II:
Mit
igat
ion
Enhance energy efficiency in the industrial sector
The Prime Minister has issued a Decree guiding the implementation of the Law on Energy Efficiency and Conservation, and has received for approval the draft Decree on Administrative Sanctions in the field of energy saving and efficiency
Adopt regulations establishing the qualification and certification requirement for energy auditors and energy managers
Adopt regulations for energy efficiency measures and operationalize in key energy- intensive industrial sectors
Practices to strengthen energy efficiency are implemented in large energy users of the industrial sector
Pil
lar
III:
Cro
ss-C
utt
ing
Cli
mat
e C
han
ge P
olic
y an
d
Inst
itu
tion
al F
ram
ewor
k
Strengthen the scientific, analytical and methodological basis for development action on climate change, including M&E
MONRE has finalized a Report on Updated Climate Change Scenarios The Prime Minister issued an Official Instruction endorsing the Implementation Plan of the National Strategy for Natural Disaster Prevention, Response, and Mitigation to 2020
Develop National Climate Change Strategy guiding GoV actions on climate change Establish the National Platform for Disaster Risk Reduction and Climate Change Adaptation
Finalize the Adaptation Methodology to guide prioritization and initiate application. Finalize the Law on Natural Disaster Prevention and Mitigation for adoption
Scientific, analytical, and methodological basis and monitoring capacity guiding the development of priority actions and targets for climate change has improved
Promote an integrated approach for the financing of climate actions, including monitoring and reporting
The Prime Minister issued an Official Instruction outlining the guiding principles relating to the use of official development assistance to respond to climate change through budget support
Develop institutional mechanism to promote potential climate financing sources
Establish implementation guidelines for allocation and reporting of financial resources directed at climate change action
Climate finance is planned according to priorities and a multi-sectoral allocation process and reported subsequently
86. The policy areas selected for this DPO have been prioritized from the broader
GoV’s SP-RCC policy matrix as strategic actions to undertake. The prioritization was guided by a joint assessment of the strategic importance of each policy area, the scope of the complementarity with other Bank lending and non-lending operations and the synergy and inter-linkages across the four goals. In the course of the consultative selection process, other potential policy areas such as urban, transport, REDD and renewable energy were considered, but not selected for this first series due to concerns of selectivity, readiness and subsidiarity.
The adaptation pillar targets the water sector as the highest adaptation priority, in line with the World Bank’s Strategic Directions on Climate Change in Vietnam (2010). The impact of climate change on the water sector is likely to be severe and will affect a number of areas essential for economic and social
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development in Vietnam, in particular in the rural and the agricultural sector. The GoV has demonstrated its commitment to reform, and its readiness to engage in a policy dialogue in the water sector through important policy actions related to the development and approval of a National Action Plan on Water Resources Management and the approval of a new Law on Water Resources as the main components, as well as more specific actions including regulations aiming at improving efficiency of the irrigation system.
The mitigation pillar targets the energy sector. Whereas agriculture is currently the primary source of GHG emissions in Vietnam, the energy sector is forecasted to account for the bulk of GHG emissions increases in Vietnam, overtaking agricultural based emissions in the near future (see Vietnam’s Second Communication to the UNFCCC, 2010). Focusing on GHG mitigation in the energy sector, the DPO strategically tackles Vietnam’s emerging emission structure while also supporting the GoV’s efforts to manage its future energy needs in a sustainable manner. The focus on energy efficiency (EE) reflects a recognition and consensus that EE is a no-regrets strategic option.14 Targeting energy efficiency in the industrial sector, the DPO complements the Power Sector Reform DPO’s focus on promoting efficiency in electricity consumption. Urban and transport were excluded from this first series as they are not yet fully reflected in the Government policy matrix and were thus lacking a basis for a meaningful policy dialogue under the SP-RCC. REDD and renewable energy, on the other hand, are already supported by a strong policy dialogue. The Bank Renewable Energy Development Project is also providing a regulatory development TA component to MOIT. Hence, including renewable energy policies under this DPO does not seem warranted at this time. The Bank supports REDD policy via a FCPC grant that was recently signed, and strong multi-donor policy support for REDD in Vietnam is already in place. Therefore, it was assessed that including REDD in this DPO would not for now yield great value added to the ongoing dialogue. On agriculture, work has started to explore the options for carbon finance from reducing GHG in rice paddies. If this activity evolves, an ensuing policy dialogue could also be included in the DPO. In general, the DPO is designed to be flexible so that it can be extended to encompass further policy areas, which have not been included at this point, as needed.
The cross-cutting pillar focuses on strengthening the GoV’s ability to prioritize and integrate climate change actions into development planning and on establishing a more conducive environment for climate financing. The GoV needs to be able to mainstream the management of climate risks, to guide its resources to priority investments in an uncertain environment and to establish climate change planning at all levels. The GoV also needs to establish a financial framework to leverage and channel climate financing, thereby also being able to monitor and evaluate its actions on the central and local level. The selection of the policy actions is firmly based on the Bank’s capacity and experience in strategic policy development and in resource mobilization for climate change and the Bank’s ongoing work on methodologies for adaptation and mitigation and disaster risk prevention, reduction, and mitigation. The GoV has demonstrated its commitment to refine and advance its policy planning response to climate change by a number of prior and ongoing actions
14 See “Winds of Change: East Asia’s Sustainable Energy Future”, World Bank, 2010.
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including efforts to update climate change scenarios for Vietnam, the development of a comprehensive climate change strategy, and the finalization of a Law on Natural Disaster Prevention, Response, and Mitigation, and the strong ownership by MOF and MPI to establish a climate financing platform. The intention of the GoV to develop a green growth strategy and its intention to link it to its low carbon development needs to be noted.
87. The DPO consists of a programmatic series of three operations, which can best support the longer term nature of the agenda addressing climate change in Vietnam while strategically strengthening the capacity for policy and institutional action in a learning-by-doing mode. The programmatic approach is a coherent message to the Government, donor partners and the international community that changes required to address climate change need to happen incrementally over time, starting with strategic no-regrets actions. This message is consistent with the recommendations of the recent report (November 2010) of the High Level Advisory Committee on financing for climate change created at the Copenhagen Conference of the Parties of the UNFCCC. A programmatic engagement will provide the right framework to best adjust to the needs and capacity of the GoV and to a dynamic understanding of climate change issues and responses. The strategic inter-linkages of the three pillars and four goals of the DPO reinforce the programmatic logic of the three operations and will support the GoV to further define priorities and targets, and structure its longer term response to climate change accordingly. The outcomes will be meaningful sequencing of actions, identification and solution of problems that will further increase the overall effectiveness and ownership of the reform agenda together with the alignment and harmonization of the support of development partners.
88. The DPO is supported by a PSIA. The PSIA has been used to improve the evidence base for policy making, contribute to a transparent and informed development process, and augment the potential of the policy actions directed at improving the resiliency of vulnerable groups. The focus of research has been on improved capacity and resilience at institutional level and community level in the water sector, integration of community adaptation needs into disaster preparedness plans and institutions, and ‘pro-poor’ and socially sustainable use of climate financing.
89. Lastly, the implementation of the DPO will benefit from a package of Client and Bank-executed capacity support under the VNCLIP. This will include activities executed by the five involved Ministries (MONRE, MOF, MPI, MARD and MOIT), as well as targeted Bank-executed analytical and advisory services aligned with the four policy and institutional development goals of the DPO policy matrix.
Policy Areas
Pillar I - Adaptation 90. In spite of the apparent abundant water resources, many river basins and
aquifers are already under stress, and the pressure on surface and groundwater is projected to increase. The total surface water discharge in Vietnam is 9,856 m3 per person per year, well above the international standard for having adequate water (4,000 m3 per person per year). However, 77% of surface water occurs in only 3 river
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basins: the Cuu Long (57%), Red-Thai Binh (16%) and Dong Nai (4%). As well, a main issue for surface water stress is the seasonally uneven distribution of water discharge, with only 20-30% of annual discharge occurring during the long dry season, when water demand is highest. By international standards, in the dry season and at current development levels, about half of the 16 major river basins are currently experiencing irregular or local water shortages. The increasing stress on surface water resources is expected to be exacerbated by climate change impacts and to lead to greater reliance on groundwater as a supply source. Vietnam has large quantities of good-quality groundwater used to provide water for domestic use (groundwater provides about half of the domestic water supply) and for various other uses. However, in some locations groundwater is already being severely over-exploited. Over-exploitation of aquifers in Hanoi, Ho Chi Minh City, and other areas in the Mekong as well as the Central Highlands has already led to significantly declining groundwater levels. Population increase, continued urbanization, further hydropower development, and pollution from rapid economic growth will continue to increase pressures on water resources, all reinforcing the need for effective water management.
91. Climate change will significantly add to the growing pressure on water resources. Climate change aggravates the problems faced by vulnerable households by increasing crop water requirements, leading to greater irrigation water demand and causing additional stress to the sustainability of irrigation schemes. Greater variability of rainfall patterns and incidence of extreme weather events are likely to increase the overall uncertainty and risk associated with water resources. Dry season water availability is expected to decrease and the wet season to become wetter. Increasing temperatures lead to increased use of water for agriculture, thereby amplifying growth in water demands due to population and economic development. Higher water temperatures can also cause and exacerbate water quality issues and disturb ecological balances.
92. The goal of the policy program under the first pillar is to strengthen the management of water resources, which is a no-regrets adaptation option. Protecting, preserving and conserving water resources helps to build resilience to climate change impacts on water resources. However, in Vietnam, the effects of the rapidity and extent of the economic boom are increasingly stretching the natural resilience of water sources. This reform program is outlined in detail in the following paragraphs. As a result of the policy program, there will be a coordinated program with a statutory framework for integrated water management in place and operational. Furthermore there will be at least 3 irrigation management transfers piloted at secondary level.
Goal 1 – Climate-resilient development: Improving the resilience of water resources
93. The first medium term objective is to promote a more integrated approach to water resources management as a foundation for climate resilience. While efforts to achieve an integrated approach to water resource management have been evolving strongly in Vietnam, there remains much to do. Vietnam has not yet effectively developed and implemented sustainable approaches to natural resources and environmental management. It has not been able to integrate the management of water and other natural resources within river basins and coastal zones. Institutional
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and legal arrangements are not clear, leading to confusion and conflicts. Cooperation amongst sectors, between central government and local authorities needs to be strengthened. Management capacity remains limited.
94. As a prior action, MONRE has sent MPI a letter dated July 28, 2010 submitting for Prime Minister approval a National Target Program for Water Resources Management based on the Water Sector Review. Facing the growing challenges of increasing degradation and potential conflicts over access to water resources, the GoV has been progressively evolving new approaches to water resources management in cooperation with development partners. The 2006 National Water Resources Strategy was an important foundational work identifying the unsustainable aspects of the existing water resources management policies at the time and developing a reform agenda. This Strategy was expanded on by the Water Sector Review,15 which outlined a comprehensive program of reform. Using this Review as a basis, MONRE successfully prepared, with active involvement and support of other Ministries, a forward looking National Target Program (NTP) for Water Resources Management that received official support from the Prime Minister. However, the National Assembly has now decided to limit the number of National Target Programs in Vietnam and to carry forward only existing NTPs. It is nonetheless assessed, in consultation with other development partners, that both the development process and the content of the water resources NTP document represent major outcomes. The NTP document reflects a remarkable evolution of the policy and institutional aspects of water resources management in Vietnam and a significant step in a reform process towards the formulation of an action program and an implementation plan. Furthermore, the GoV has decided that the NTP document will now be turned into a National Action Plan (NAP) on Water Resources Management, and MONRE is currently in the process of developing this NAP.
95. Development of the New Law on Water is a trigger for the 2nd operation. The Water Sector Review found that the 1998 Law on Water Resources was in need of review, as were many other legal documents relating to the management of water resources. The New Law is expected to be submitted to the National Assembly after consultation with other line Ministries and it is expected that the implementation decree will shortly follow. This policy evolution will lead to a legal framework that is much more comprehensive than the existing law. It will introduce many concepts that are new and innovative for Vietnam, establishing a statutory framework for the water sector for the application of IWRM concepts in line with the objectives of the 2006 National Water Resources Strategy.
96. For the 3rd operation, the trigger is to prioritize actions, and define responsibilities for the implementation of the National Action Plan on Water Resources Management. MONRE is building on the successfully developed NTP to prepare a NAP on Water Resources Management to be approved by the Prime Minister. The NAP will set out the roadmap and investment plan for Vietnam to implement IWRM approaches for the next 5 to 10 years. IWRM is a critical aspect that has been missing from water management in Vietnam. Therefore, the NAP is important for setting out the major directions, priority measures and the funding
15 The Water Sector Review is a joint project of the Government of Vietnam and ADB, Netherlands, Australia and Denmark with the aim to help the GoV and its development partners to adopt better water management approaches based on IWRM principles. A detailed description of the project is at http://www.vnwatersectorreview.com/.
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required for the water sector. While a NAP will have less scope and budget than a NTP, it will nevertheless provide a clear action program of IWRM-based activities. In addition, many of the high-priority activities proposed in the NTP are already underway, some with donor support, providing further evidence of the GoV’s commitment to shift gears in water resources management. The NAP will include a detailed implementation plan that prioritizes actions and defines responsibilities for the implementation of the NAP on water resources management.
97. The second medium term objective is to enhance irrigation efficiency and water productivity in order to increase the resilience and sustainability of irrigation schemes in the context of greater variations in water availability. About 72% of water use in Vietnam is for irrigation, and overall demands will significantly increase in the future. However, the complexity of the agricultural management and administration systems has often undermined efforts to improve system productivity. Typically, a number of State or Province-owned irrigation management companies and agricultural cooperatives manage the complex irrigation systems, and in the past there have been problems of cooperation between the management bodies themselves, or with the local farmers. This has led to unpredictable and irregular use of irrigation waters, low yields for the rice crop, high labor costs and neglect of overall irrigation management. The system lacks flexibility and is not sufficiently responsive to the needs for changes in crops/plants and other on-farm activities to allow farmers to maximize their profitability.
98. The Minister of MARD has issued Circular 65/2009/TT-BNNPTNT on Irrigation Management Transfer, showing the GOV’s commitment to a more participatory approach to irrigation management. Transfer of responsibilities for the operations of the local level supply system to farmer groups is a key means of achieving greater efficiencies and of enhancing the sustainability of irrigation systems. International experience has demonstrated that farmer-based groups or organizations can manage and operate water supply works with better results than can be achieved by government agencies. Vietnam has recognized this and has embraced the irrigation management transfer (IMT), using the participatory irrigation management (PIM) approach. Under this approach, all stakeholders - irrigation and agricultural administrators and the farmers themselves - meet, discuss and make joint decisions. Large-scale irrigation and drainage systems, headworks, main canals and complex structures will continue to be managed by the irrigation companies. However, branch canals and structures on canals within communes or inter-communes will be transferred to legally constituted farmer groups. The Centre for PIM that has been established in MARD and the Circular on Irrigation Management Transfer provide guidelines for the operation of organizations and the decentralization of the management and development of irrigation schemes, providing the legal platform for the PIM initiative.
99. For the 2nd operation, a not disbursement relevant policy benchmark is for MARD to establish the model for the operationalization of irrigation management transfer at secondary level, and select at least 3 schemes for a pilot program, while for the 3rd operation, MARD will operationalize irrigation management transfer at secondary level. Despite the success of a number of schemes where irrigation management transfer (IMT) has been implemented, the take-up of PIM has been slow for reasons concerning governance at all levels and
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farmer awareness and capacity. IMT has thus far concentrated on tertiary level works. Focusing on strengthening existing institutions, processes and mechanisms to carry out their assigned functions will enhance the take-up of PIM, as will extending the initiative to include government entities responsible for local socio-economic development, such as the People’s Committees. In this way, PIM can be broadened to a local development issue and included in provincial planning processes so that state budget can be allocated. As an indicator for DPO 2, pilot IMT programs will be undertaken in three selected schemes at secondary level, and a progress report will be issued by the minister of MARD for each pilot. For the 3rd operation, the MARD minister will issue guidelines for the operationalization of IMT at secondary level in accordance with Circular 65. These guidelines will reflect the reality of the high levels of variation in irrigation schemes in Vietnam detailed in Circular 65 since this variability affects the feasibility of implementing IMT at secondary level in certain schemes. The effective transfer of irrigation management is an important policy and institutional evolution. IMT will contribute to ensuring service quality and the efficient use of water resources in irrigation schemes, and will better equip farmers to deal with the risks and uncertainties caused by climate change.
100. As a further means of increasing irrigation efficiency, not disbursement relevant 2nd and 3rd operation policy benchmarks are for MARD to adopt a roadmap for benchmarking of Irrigation Management Companies to promote efficiency of the irrigation supply system (DPO 2), and for MARD to operationalize the benchmarking program in selected irrigation schemes (DPO 3). Building capacity for irrigation system improvements calls for improved data about the subsector, and a benchmarking approach would help establish this. MARD, the Provinces and the irrigation companies can build their oversight and policy development capacity through improved collection and analysis of data and by using this data to chart more strategic directions for the irrigation sub-sector. Information collection and analysis, an important component of benchmarking, will allow for better and more informed decisions on sector policy, on allocation of scarce financial resources, and in oversight of the sector as a whole. Vietnam has trialed benchmarking for the urban water supply sector (with World Bank assistance), but in the face of the challenges in the irrigation sub-sector, support for the development and implementation of yearly performance benchmarking studies is an important new initiative. Under DPO 2, MARD will develop benchmarking guidelines to be approved by the MARD minister. The benchmarking program will start with a small number of core indicators and gradually expand as the system matures. In DPO 3, MARD will develop and circulate progress reports for selected pilot benchmarking schemes.
Pillar II – Mitigation 101. Scaling up energy efficiency activities in Vietnam will contribute both to
climate change mitigation and to energy security. Based on JICA Energy Master Plan Report, in a business-as-usual (BAU) scenario energy demand would grow around 13% per year between 2011 and 2015, and final energy consumption would increase from 21.8 million Tons of Oil Equivalent (TOE) in 2005 to 50.3 million TOE in 2015. The Power Development Master Plan 7 (PDMP 7) forecasts total power generating capacity increasing to 75 GW by 2020, of which 48% is planned as
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thermal coal fired generation and increasing emissions. Electricity demand has continued to grow fast during the last years, at an average rate of 15%, and investments in the power sector are barely keeping pace, with the country experiencing periods of shortages. Industrial electricity consumption is growing at a faster rate, representing more than 50% of total demand (compared with 41% in 2000) and an annual average 19% growth in 2010 (steel and other electricity intensive industries growing more than 20%).
102. The Government of Vietnam strategy for the development of the energy sectors focuses on improving energy efficiency and conservation. Although energy intensity reduced in the last years, Vietnam still remains the country in the Bank East Asia Region with highest energy intensity (see Figure 4 below). The National Energy Development Strategy of Vietnam, approved in 2007, defined diversification of energy resources and energy conservation technologies as the central task for the country industrialization and modernization, and called for energy development to be integrated with ecological environmental protection and with ensuring sustainable development. The strategic vision is to reduce investment needs in the power sector, strengthen energy security, control and mitigate environmental pollution in energy activities and foster socioeconomic sustainable development.
Figure 5: Vietnam Energy Intensity (TOE / $M GDP, 2008)
Source: Winds of Change, World Bank, based on IEA data 2008C
103. The Vietnam Energy Efficiency Program (VNEEP), approved in 2006, creates a comprehensive set of activities to improve energy efficiency and conservation (EE&C) in all economic sectors and across society as a whole. The VNEEP was designed to reduce the national total energy consumption by 3% to 5% between 2006 and 2010 (Phase 1), and then by 5% to 8% between 2011 and 2015 (Phase 2). VNEEP Phase 1 has proven to be successful in providing a national platform for implementing a variety of EE activities, including demonstration projects, education and awareness campaigns, standards and labeling of electricity appliances and capacity building. The aim of 3% energy savings was reached at the end of Phase 1, showing the effectiveness of measures and realism of targets of the VNEEP. The government has demonstrated good commitment to the program and provided financial support for its implementation. In 2007, VND 30 billion (about US$2 million) of state budget funds were allocated for around 28 projects registered under the VNEEP, of which around 30% were allocated to support two energy-efficiency lighting manufacturers. In 2008, VND 36 billion (about US$2.25 million) were allocated to around 48 projects, many continuation of projects initiated in 2007,
0
200
400
600
800
1000
Vietnam China Indonesia Thailand Malaysia Philippines EU Japan
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and around one third for the set up an energy-efficiency laboratory for air conditioners and refrigerators. However, Phase 1 could only introduce EE&C activities that attracted participation of energy users and equipment suppliers, mostly, on a voluntary basis. Available local experts with energy efficiency skills were still scarce and identified as one of the main weaknesses during Phase 1.
104. As part of the VNEEP Phase 1 and the Vietnam energy development strategy, the Law on Energy Efficiency and Conservation (the EE&C Law) was passed by Vietnam National Assembly in 2010. In addition to pilot projects targeting enterprises with large energy consumption; transition to market energy pricing; and creating awareness and capacity building on energy efficient equipment and technologies, the main success of Phase 1 was the establishment of the energy efficiency and conservation legal framework. The EE&C Law defines the principles and objectives for each economic sector, and the fundamental actions required for efficiently achieving the overall program objectives in terms of energy savings and sustainable EE&C market transformation. The EE&C Law delegates the authority and responsibilities for implementation to the relevant ministries, provincial departments and other specified organizations, under MOIT overall coordination, and establishes obligations and responsibilities on energy consuming sectors. There is a clear need for new regulations to effectively implement the EE&C Law and to achieve objectives and VNEEP energy savings targets.
105. The specific goal of the support to the VNEEP Phase 2 reform agenda under the second pillar is to exploit energy efficiency potentials focusing on the industrial sector, where the largest energy savings opportunities exist (see Table 4). While energy efficiency improvements are possible in all end-use sectors and regulations to implement the EE&C Law will impact all sectors, the industrial sector offers the most attractive energy savings potential and is expected to achieve at least 50% of VNEEP Phase 2 energy savings, contributing also to improving the demand-supply balance. Scaling up the energy efficiency market and the adoption of efficient technologies as well as of energy savings practices in the industrial sector requires a combination of effective policy and institutional measures, including improving local energy efficiency technical and management capacity, financing support mechanisms, growth in energy efficiency delivery services, capacity building and demonstration projects together with strong coordination and cooperation among relevant ministries, energy efficiency agencies, and donors.
Table 5: Vietnam Commercial Energy Consumption, 2007 (millions TOE)
Sector Coal
Petroleum
Products Natural
Gas Total Fuel Electricity Total
Share Electricity
Share Total
Industry 4.9 2.2 0.5 7.6 6.3 13.9 53% 46%
Transport 0.0 7.8 0.0 7.8 0.1 7.9 1% 26% Commercial & Public Services 0.3 0.8 0.0 1.2 0.9 2.0 7% 7%
Residential 1.0 0.7 0.0 1.7 4.6 6.3 39% 21%
Total 6.2 11.5 0.5 18.3 11.8 30.1 100% 100% Source: Vietnam Expanding Opportunities for Energy Efficiency, World Bank and ASTAE, March
2010, based on IEA Energy Statistics of non-OECD countries (2009)
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106. The medium term objective pursued in order to reach the program goal of energy savings is to establish an effective regulatory framework for the implementation of the Law on Energy Efficiency and Conservation (and to strengthen the implementation of VNEEP), and the development of a network of qualified energy managers and auditors. VNEEP Phase 2 requires well targeted actions to scale up energy efficiency activities and achieve the energy savings targets. The government’s main focus now is on the most energy-intensive end-users, called Designated Energy Users or simply “Designated Enterprises” (around 2,000 in the industrial sector and about 500 in the building sector) 16. The MOIT has prepared Phase 2 components, activities and action plan for its implementation, targeting support to highly-efficient equipment (and the phasing-out of low efficiency equipment), energy efficiency and conservation in industrial enterprises, building and transportation. Phase 2 now has to move to establishing energy efficiency local skills, putting in place the regulatory framework to implement and monitor the effective implementation of the law and institutional arrangements to coordinate and exchange information between the MOIT, provincial Departments of Industry and Trade (DOIT), other energy efficiency agencies, and other ministries assigned responsibilities in the EE&C Law. Within an effective and coordinated institutional framework, regulations are required to establish standards to ensure modern efficient technologies and phasing out inefficient technologies, develop monitoring and evaluation (M&E) activities, and the qualifications and certification of local energy efficiency expertise. It is expected that as a result of the supported policy program, 100 energy auditors will have completed training courses to support energy efficiency practices in industrial sector, of which 50 will be fully certified and 50 will be doing on-job training to become fully certified17.
Goal 2 - Lower carbon intensity development: exploiting energy efficiency potentials
107. As prior action for this operation, the Prime Minister has issued Decree Number 21/2011/ND-CP dated March 29, 2011 guiding the implementation of the Law on Energy Efficiency and Conservation, and has received for approval a draft Decree on administrative sanctions in the field of energy saving and efficiency. MOIT, through its Energy Efficiency and Conservation Office (EE&CO), is leading and guiding energy efficiency policy making and regulations, and is directly responsible for EE&C initiatives in the industrial sectors. The VNEEP and the EE&C Law call for a joint effort of various ministries, city/provincial Energy Savings Offices (ESOs) and other specified entities. While the EE&C Law requires relevant ministries and other government entities to develop EE&C activities within their jurisdictional authority, provision of leadership, direction, coordination, and integration remains the domain of MOIT with responsibilities delegated to DOITs to support coordination at provincial level. The MOIT is also responsible for
16 Chapter 8 of the EE&C Law assigns the expression “designated entities” to entities with high annual energy consumption. The implementation decree provides further details on consumption or size to be considered “designated entity”. In this document, the expression “energy-intensive” end-users or industries refers to targeted designated enterprises. 17 Certification of auditors will require a two step process consisting of training courses and practical on-job training afterwards. Currently in Vietnam there are 50 energy auditors, which would receive full certification after completing the training courses; 50 additional persons currently not working as energy auditors will have successfully complete the training courses. These 50 will be allowed to start working as energy auditors, but will not be fully certified until proof of successfully working during a specified amount of time is provided.
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implementing specific components and activities of VNEEP, preparing the decrees to guide the implementation and enforce the EE&C Law, issuing specific regulations for designated enterprises and industrial sectors, and preparing and submitting for approval the VNEEP action plan (detailing activities and required budget). Within such responsibility, MOIT allocates funds and resources assigned to the VNEEP among specific EE&C activities to be implemented by MOIT and by other entities.
108. A trigger for the 2nd operation is for MOIT to adopt regulations establishing the qualification and certification requirements of energy managers and energy auditors. The EE&C Law promotes the application of energy efficiency best practices and the use of energy efficient technologies by integrating energy efficiency into the management practices of large energy-users (designated enterprises), with MOIT responsible for the activities to achieve energy efficiency potential in the industrial sectors For the last decade, Vietnam EE program in the industrial sector has focused on ‘’external’’ energy efficiency experts and energy service providers rather than relying on in-house qualified staff. Such a strategy has been relevant with small and medium enterprises (SMEs) because of the lack of technical capacity in these industrial facilities. However, achieving the ambitious large energy savings in the targeted large energy users, which can rely on capable technical staff, requires a different strategy. Strong company-wide energy management practices and action plans developed and supervised by qualified on-site energy managers, periodic and systematic energy auditing and economically and technically sound planning are the basic strategy in the EE&C Law to capture the significant end-use energy savings potential at energy intensive industrial enterprises. The EE&C Law mandates designated enterprises to appoint an energy manager to identify specific measures and develop action plans to maximize energy savings within the company, incorporating EE as part of the business activities, and energy audits to provide inputs to the action plans and results. The EE&C Law imposes the certification of energy auditors and managers and assigns to MOIT the responsibility to issue and implement regulations that ensure adequate qualifications for the certification of energy managers and energy auditors18. Integrating energy efficiency into industrial management practices will contribute to addressing the principal institutional and behavioral barriers to wider adoption of energy efficient practices and technologies. Based on international best-practices, good energy management can contribute to significant energy savings, sometimes up to 10%.
109. The not disbursement relevant policy benchmark for the 2nd operation is for MOIT to issue regulations establishing the requirements and procedures for energy consuming designated enterprises to prepare and submit annual and five-year energy efficiency plans. Large energy consuming designated enterprises have been assigned responsibilities and obligations both in VNEEP and in the EE&C Law to contribute to reducing energy intensity in Vietnam. The goal of the VNEEP Phase 2 is for all designated enterprises to implement EE and conservation management models by 2015. Consistent with this objective, the EE&C Law mandates designated enterprises19 to prepare and submit one year and 5 year plans, which all industrial designated enterprises must submit to MOIT or DOIT. Each 5
18 MOIT with support of donors (DANIDA and JICA) is developing training programs and facilities with the aim of ensuring the required expertise in the certified energy managers and energy auditor. 19 The Decree guiding the implementation of the EE&C Law sets the criteria to define designated enterprises. For the industrial sectors, the criteria is enterprises that consume one thousand (1,000) or more TOE per year large.
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year plan will include, among others, a summary of implementation and results of the previous 5 year plan. The energy savings plan of each designated industrial enterprise will be prepared by its certified energy manager and will demonstrate changes in practices and technologies to be introduced, as well as provide information on expected energy savings in each facility. Through this regulatory tool, the MOIT together with provincial DOIT will be in charge of reviewing plans submitted by industrial designated enterprises and recommend when necessary improvements to promote maximizing energy efficiency in the industrial sector, and of monitoring implementation and progress in achieving targets, providing also inputs to the energy efficiency monitoring and evaluation framework for VNEEP.
110. Regulating energy efficiency measures and operationalizing in key energy-intensive industrial sectors, to support the preparation of effective best practice action plans in designated industrial enterprises and to identify areas for financial support mechanisms, is a trigger for the 3rd operation. MOIT, as responsible agency for energy efficiency in the industrial sector, has to strategize and focus on sub-sectors, technologies and activities that maximize energy savings. To achieve this action, the MOIT will carry out research studies to identify the industries with larger potential savings and, benchmark indicators and requisites and energy efficient technologies to be included in action plans in the key selected industries. As a result of this policy action, MOIT will regulate energy savings measures in the key industrial sectors and the government will be able to channel financial support mechanisms and budget to the identified most strategic and effective energy efficient technologies and industrial sectors energy management activities.
111. For the 3rd operation, as a not disbursement relevant policy benchmark, MOIT intends to establish the monitoring and evaluation (M&E) framework for VNEEP Phase 2, through regulations on objective, scope and procedures for DOIT and relevant ministries data collection, monitoring and reporting. An effective and comprehensive M&E framework for Phase 2 is needed to coordinate and oversee VNEEP and to report energy savings impacts to the Prime Minister as required in the EE&C Law. A large number of EE&C projects and activities have been implemented over the last decade, but there is still a significant gap in terms of M&E programs and availability of reliable data to measure actual impacts. During VNEEP Phase 1, MOIT initiated some core M&E activities, such as development of an online database to produce general reports on designated enterprises, and a basic assessment to estimate the direct impacts of EE&C activities and projects. An efficient data gathering system, data accuracy and a reliable result-based information management system are key tools for VNEEP. In particular, the VNEEP Phase 2 M&E framework needs to be strengthened for the industrial sector that represents the largest energy savings potential. This will involve selecting indicators and benchmarks, the methodology for their calculation, data collection, process and periodic - yearly, annual, mid-term - and final evaluation and reporting.
Pillar III - Cross-Cutting: Climate Change Policy and Institutional Framework 112. Strengthening the GoV’s capacity to address climate risk across sectors,
levels and institutions, necessitates the development of improved and integrated institutional, policy, financing, planning, and monitoring and reporting actions
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that are explicitly targeted at the climate agenda in support of the development and implementation of comprehensive and prioritized climate change adaptation and mitigation action programs. These programs will in turn outline geographic and sectoral priorities and support implementation according to nationally-owned criteria. As program results, this will enhance the GOV’s scientific, analytical, and technical basis and monitoring capacity, leading to the prioritization of adaptation actions on the basis of an adaptation framework, the coordination of climate change adaptation and disaster risk reduction efforts, and the development of a legal framework for disaster risk management. As a result, this cross cutting policy and financing pillar directly contributes to the effectiveness of the development outcomes promoted under Pillar I and II and will allow that the type of policy actions developed for water resource management and energy efficiency be broadened in scope and applied to other economic sectors. To engage in effective prioritized actions on climate change, The GoV needs to rest on an expanded financing framework for climate action that allows it to match priorities and funding and monitor and report on its allocations for climate action. Key to achieving full GoV ownership across Line Ministries, cities and provincial authorities and enabling them to implement priority actions is the strengthening of inter-ministerial coordination on the central-level and the initiation of provincial-level actions. Given the importance of strengthening GoV’s DRM actions in light of a 1% loss of GDP per annum due to extreme weather-related events, this provides the opportunity to bring all actors around table to jointly address the adaptation challenges, establish central-level coordination, and implement provincial actions plans and monitoring systems.
Goal 3 - Strengthening the capacity to formulate, prioritize and implement climate change policies
113. The medium term objective under this goal is to strengthen the analytical, scientific and technical basis for development action on climate change, including M&E. Actions over the three series of the DPO are expected to result in improved ability to identify priorities and targets for low carbon and climate resilient development based on strengthened analytical, technical and scientific basis, and to improve the integration of climate risk in development planning and the strengthening of coordination and M&E capacity. Together these two actions will form the basic platform for the GoV to plan and implement climate actions in a strategic, informed manner and monitor and evaluate quality and effectiveness. It is a condition to lift the GoV’s response to climate change from a project by project approach to one of integrated and forward-looking planning.
114. As first prior action, MONRE has finalized a Report on Updated Climate Change Scenarios dated 2011 updating the Recipient’s climate change scenarios with an improved methodology. In this report, the Regional Climate Model (RCM), a complex, numerical tool able to make detailed, high-resolution forecasts for a given limited area of interest, was applied on the basis of the initial and boundary conditions from a Global Circulation Model.
115. As 2nd series disbursement trigger, the GoV will develop the national Climate Change Strategy, which will provide a consolidated vision and priorities for climate change action in Vietnam and will serve as an umbrella for cross-cutting policy actions. The National Climate Change Response Strategy (NCCS) is planned to be
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signed and issued as a Decision by the Prime Minister. The NCCS states the official objectives to 2050 and vision to 2100 in relation to the GoV's response to climate change adaptation and mitigation. As a national strategy, the NCCS identifies the strategic objectives, priority tasks and implementation measures to be used to mainstream climate change response in sectoral, regional and provincial strategies and action plans. As it was being prepared over the past few months (with assistance from the Bank and other donors), the draft Strategy has incorporated certain key strategic principles that represent key policy evolutions and open up windows of opportunity for future policy dialogue and institutional support. While assigning the GoV a central role for management and coordination, the Strategy recognizes the private sector's role in implementing climate change response actions and bringing creative solutions, and welcomes the participation of civil society and local communities in the identification, design and monitoring of climate change response activities. The draft Strategy states that climate change response measures will need to be integrated, systematic, consistent, multi-sector, multi-region, with clear foci and priorities appropriate to different periods of time and local conditions, based on economic evaluations taking into account risks and uncertainty of climate change issue to ensure the join benefit of all relevant parties. In light of Vietnam's high vulnerability to the impacts of climate change, the draft Strategy states that adapting to climate change will be a priority during the first decades of the 21st century, but GHG mitigation/low carbon economy will also be supported with appropriate policies and programs and in line with international commitments.
116. As 2nd series supporting but not disbursement relevant benchmark, MPI will develop the concept for a National Adaptation Methodology to guide the prioritization, planning and monitoring of adaptation actions, taking into account financial and capacity constraints, the need for coordination and cross-sector action, the uncertainty on future climates, and the set of “climate change criteria” developed by MONRE.
117. For the 3rd series disbursement trigger MPI will develop a circular on Adaptation Methodology to guide prioritization in consultation with other Line Ministries, which will be approved by the MPI Minister. The application of this methodology will enable the GoV to strategically base its planning for climate investments in an uncertain environment on a methodology that ensures no-regrets and no-harm actions, and apply it to selected provinces threatened by the effects of climate change. The application of this methodology will also enable the allocation of human and financial resources for climate action to critical activities based on a strategic decision making process looking at short to longer term options. This policy evolution will directly build on the work done on climate scenario and vulnerability assessments and constitute a major step forward for the GoV.
118. Also in line with the objectives and priorities under the Climate Change Strategy, the GoV, as a supporting but not disbursement relevant policy benchmark in the 2nd series, will focus on establishing the institutional framework for the implementation of a low-carbon development assessment for Vietnam. This is to be achieved via the establishment of an inter-ministerial committee by the MPI Minister as delegated by the Prime Minister that guides and jointly owns the expected mitigation baseline and recommendations. This committee is expected to comprise of representatives of relevant line ministries (including MOF,
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MOIT, MPI, MARD, MOT, MOC and MONRE) and key economic sectors with support from academic and research delegates. Through regular meetings, the Committee will help to define (and adjust as relevant) the major orientations of the low-carbon development assessment (e.g., time horizon, sectoral and regional scope, low-carbon and climate-resilient options, methodology and schedule, etc.); ensure their alignment with national, sectoral and regional key climate and development priorities; facilitate mobilization of data, knowledge and expertise as well as information sharing and active engagement of stakeholders; review, adjust and endorse products and recommendations; and monitor appropriate progress according to schedule. Preliminary work has been initiated with a scoping study led by CIEM and DSENRE under a DFID-funded arrangement for a Low Carbon Climate Resilient study spanning Vietnam’s economy. For the 3rd series, the supporting but not disbursement relevant policy benchmark consists in the completion and endorsement of a low-carbon reference scenario for Vietnam, over a 2010-30 time horizon. This scenario is expected to be approved by the Prime Minister following submission by MPI. Together with the updated GHG emissions database developed with support from JICA, this will enable the GoV to formulate, as instructed by the Prime Minister, and submit Nationally Appropriate Mitigation Actions for Vietnam that are based on sound facts and data and that refer to clear priorities and targets. Similar to the adaptation prioritization methodology, this work will provide the basis for GoV to prioritize actions and plan to address the expected increase in GHG strategically and link its actions to international financing opportunities, including market-based ones.
119. As 2nd prior action under goal 3 the Prime Minister issued Official Instruction Number 1820/TTg-KTN dated September 29, 2009 endorsing the Implementation Plan of the National Strategy for Natural Disaster Prevention, Response, and Mitigation to 2020, which is a consolidation of 63 Provincial Disaster Action Plans and evidence of their development. This increased the GoV’s capacity to deal with extreme climate and weather-related events locally which negatively affect economic production leading to a loss of GDP of about 1% per annum. Following, the GoV will build on the development of these plans, and as 2nd series supportive but not disbursement relevant benchmark, the GoV will develop the indicators for an M&E system and identify areas to pilot. As 3rd series supporting but not disbursement relevant benchmark, the GoV will adopt and implement the M&E system to track the implementation of national and provincial DRM plans. The M&E system will be approved by the MARD Minister. It is crucially important to establish the means to monitor, build, learn from, and sustain the country’s capacity to address current climate risk expressed by the severe natural hazards faced which are hydro-meteorological, such as floods, water stress, and typhoons.
120. As a first series supporting but not disbursement relevant action, the Prime Minister adopted the mandate of MARD’s Central Committee for Flood and Storm Control which consists of members from both MARD and MONRE. As a 2nd series policy action trigger, the Prime Minister will issue decision establishing a National Platform on Disaster Risk Reduction (DRR) and Climate Change Adaptation (CCA). This platform will be based on and deepen the dialogue and joint actions developed by the National Platform on DRR and CCA and institutionalize annual sessions of the National Platform on DRR and CCA. The platform will serve as a coordination mechanism to enhance multi-stakeholder collaboration and
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coordination for the sustainability of DRR activities, fostering an enabling environment between national, non-governmental, international, and multi-lateral stakeholders for awareness-raising on DRR, integrating DRR into development policies, planning and programs. The platform will discuss and address the urgent issues on disaster risk reduction in context of climate change adaptation in order to strengthen and maximize the effectiveness of DRR activities. As third series supporting but not disbursement relevant benchmark, the GoV will hold the launching meeting of the national platform and MONRE and MARD will endorse a work plan for the platform, demonstrating the impact of the policy action.
121. For the 3rd series policy action trigger, the GoV will finalize the Law on Natural Disaster Prevention and Mitigation and submit it to the National Assembly for consideration and adoption. The law will strengthen the implementation of disaster risk reduction by a solid legal framework, which will firmly guide the actions and investments of all actors. This will not only enable the GoV to deal better with climate risk but allow it to base disaster planning and monitoring on a legal basis. As supporting but not disbursement relevant benchmarks, MARD established the drafting and editorial committee for the first series, and in the 2nd cycle will seek the authorization of the National Assembly’s Standing Committee to develop the Law on Natural Disaster Prevention and Mitigation. The law will establish a comprehensive legal framework for multi-hazard risk management combining the large number of legal texts comprising laws, ordinances, decrees and circulars covering different types of disaster and related activities. This will lead to a less dispersed DRM system based on specific criteria for determining and responding to different levels of disaster and the receipt of international assistance. This will ease the coordination of climate change and climate risk action.
Goal 4 - Strengthen the financing framework to support climate change action
122. Vietnam’s ability to implement climate actions also depends on an innovative and sound financing framework to leverage and channel climate financing resources now and in the future. Vietnam currently does not specifically allocate budget for climate change actions beyond the budget allocation for the NTP-RCC as it lacks the underlying mechanisms to do so. In order to be able to increase the scope of the GoV’s program of activities that address climate change, the GoV has decided to adopt a financial mechanism to allocate and channel additional resources strategically. Through an inter-ministerial, transparent process, this mechanism will allocate additional resources made available to the State budget as a result of the SP-RCC policy dialogue to priority activities that address climate change. In addition, the GoV lacks a coherent strategy to target access to current and expected future climate finance instruments, which entails understanding the options available and procedures and incentives needed. Continuous and sustained progress on the climate change agenda requires a strategic and robust financial underpinning. A broad approach to ensure mobilization of financial resources is needed for the planning and for the effective implementation of climate change investments. This will permit the country to strategically access and use international and public and private sources to fund priority climate change actions consistent with the upcoming national climate change strategy and in effective combinations with domestic resources. This strategic direction on climate financing is also interlinked with the development of adaptation
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priorities and of a low carbon development framework under goal 3, which will form the decision-making basis to prioritize where to channel available resources in the context of financing gaps over the short to medium term. It is also an important element to increase Vietnam’s contributions to international fora discussions on climate change.
123. The GoV has decided that a financial mechanism to direct the actual flow of resources provided through the SP-RCC to climate change action is needed. As prior action for the first operation, the Prime Minister issued Official Instruction Number 8981/VPCP-QHQT dated December 10, 2010 outlining the guiding principles relating to the use of official development assistance to respond to climate change through budget support. This is designed to allow MOF to allocate some of the state budget and resources provided in relation to the SP-RCC to climate change actions in accordance with the GOV’s own decision to channel part of the resources provided under the SP-RCC toward climate change projects. The guiding principles were prepared by MOF in consultation with other relevant government agencies (in particular closely with MPI and MONRE) and are meant to allow the GoV to direct budget support resources strategically to priority climate change actions. It is an important and strategic policy and institutional evolution that will allow effective action, though on a limited pilot scale, and will provide a useful framework to scale up support from domestic and international sources in the future, while building capacity and knowledge on climate financing and priority setting in a transparent multi-stakeholder process.
124. As a disbursement trigger for the second series, MPI will develop an institutional mechanism to help promote potential climate financing sources. At the heart of this mechanism will be a Task Force within MPI on Climate Financing Access to be established in coordination with MOF and MONRE. The DPO will trigger the development of an institutional mechanism designed to help identify, combine and leverage various public and private and international and domestic sources of climate financing. This It will operate as an advisory facility to (a) review potential mechanisms and sources of financing for adaptation and mitigation; (b) carry out preliminary assessment of financing options for combining various financial instruments, including good international practices, and (c) proactively strengthen existing market based mechanisms and explore new options such as programmatic carbon finance. As a result, the GOV will be able to develop innovative options that can complement and support regular domestic budget allocation process.
125. As a third series disbursement trigger, MOF will establish implementation guidelines for the allocation and reporting of financial resources directed at climate change action consistent with PM Decision 8981/VPCP-QHQT dated December 10, 2010. MOF is expected to coordinate with MPI to complete this policy action. These implementation guidelines will enable the Government to channel budget for climate action, particularly investments, to a dedicated budget line. An inter-ministerial council to be established by MONRE will select investment projects based on the climate action criteria, approved by the Prime Minister for funding under SP-RCC. As for any other GoV projects, it is understood at this point that these selected prioritized investments will be submitted to MPI and MOF for submission to the Prime Minister for consideration and approval. This is an innovative undertaking empowering GoV to strategically prioritize and allocate climate resources.
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VI. OPERATION IMPLEMENTATION
Poverty and Social Impacts
126. Given the strong linkages between the policy areas and issues of poverty, the DPO has the potential to help the poor mitigate some impacts of climate change and to contribute to poverty reduction efforts. Poverty impacts the access to resources and entitlements, and therefore increases vulnerability and sensitivity of livelihoods to risks. If properly crafted, reforms in water resource management and climate change related institutional and policy framework could help decrease vulnerability of the poor and increase their resilience to climate induced shocks.
127. The envisaged policy actions related to improvements in water resource management (WRM) have the potential for positive socioeconomic impacts on the poor and vulnerable groups in relation to the climate change induced challenges they are facing. In particular, PIM is expected to have positive impacts on local farmers and their communities by improving their adaptive capacity and ability to manage water resources in a more efficient manner. The WRM policies will need to build climate resilience while addressing a range of socioeconomic challenges in water management.
128. The reforms related to the establishment of a climate change policy and institutional framework provide an important opportunity to ensure that the Government’s future climate change actions have a ‘pro-poor’ character. Specifically, the policy actions related to development of climate change scenarios and the climate change strategy; development and implementation of the National Strategy for DRM at provincial level; and the establishment of a mechanism for climate change financing have significant social dimensions that could be addressed through strong local multistakeholder participation and measures that would ensure the pro-poor co-benefits and give voice to the poor and vulnerable groups.
129. The PSIA is being undertaken to assess: (i) poverty and social impacts of climate change in select sub-sectors; (ii) the capacity of the key policy reforms under the DPO to address the climate change impacts on the poor and vulnerable groups; and (iii) the general poverty and social impacts of the policy reforms on the well-being or welfare of different stakeholder groups. The PSIA aims to improve the Government’s understanding of how the policy reforms could contribute to building climate resilience of the poor, and what adjustments would need to be made to ensure that the reforms do not further exacerbate the climate change related issues for the vulnerable groups. It contributes to transparent and informed development process through policy dialogue, consultations, and collaboration with local scientific community and civil society organizations.
130. The PSIA has adopted a phased approach. The initial assessment of all prior actions and triggers, based on OP 8.60 review of “likelihood of significant effects”, identified potential poverty and social impacts of key policies on poor and vulnerable groups (see Annex 5). No relevant impacts were identified for PSIA under pillar 2. The actions identified as having potential positive and negative consequences under Pillars I and III were further examined through the preliminary research of the existing sectoral and country knowledge related to those areas. The first phase included a rapid assessment of how new WRM policies are likely to affect the poor
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and vulnerable Vietnamese, looking at the five transmission channels: employment, access to goods and services, taxes and transfers, assets, and social structures, power distribution, and prices (including probing potential increases in water tariffs). The Phase I work also provided initial guidance to help GoV and donors use participatory approaches in designing: (i) DRM plans; (ii) climate change scenarios and strategy; and (iii) mechanism for climate change finance.
131. On the whole, the proposed reforms are expected to have positive impacts on the poor and vulnerable groups. There is scope for making the policy dialogue on CC more pro-poor by conducting further analytical work on issues that may not be directly supported under the DPO but are related to climate change challenges that the poor are facing, such as issues related to hydropower policy planning and minimum flow requirement implementation, the need for a nuanced vulnerability classification reflecting multiple drivers of vulnerability, and the need for evacuation of residents from high risk locations in long-term. The findings of the preliminary research have been disseminated and validated by a wide range of stakeholders through a series of workshops in April and May 2011 in Hanoi. In the next phase, the PSIA will focus on analyzing and strengthening transparency, accountability and pro-poor aspects of the financing mechanism for CC funding, and continue with consultations and capacity building activities prioritized by stakeholders.
Environmental Aspects
132. The operation is likely to have significant positive effects on the environment, forests, and other natural resources. Climate change itself will have negative impacts on forests and other environmental resources over the long-term so the enhanced climate resilience that is the objective of this operation represents a significant positive environmental effect.
133. A few areas of policy intervention to be supported under this project are likely to have specific positive effects on natural resources or potentially negative effects (see further details in Annex 6). Specific positive effects will include:
i) Improvements in governance of water resources. The principal intent of these measures is to ensure better water management in the country during what are expected to be future periods of increasing uncertainty about water flows, precipitation, and trends in salinization. These measures will ultimately be beneficial for all uses of water, including conservation uses, as policies come into place to more rationally and transparently manage this increasingly scarce resource.
ii) Promotion of energy efficiency policy measures. These measures will also have positive environmental impacts by reducing energy consumption, compared to business as usual scenarios. This in turn will result in relative decreases of pollution emissions resulting from power generation and energy use. Renewable energies or biofuels, which do have environmental implications, are not targeted under the reforms of this project. In any event, it should be noted that under the Bank’s First Public Implementation Reform Development Policy Loan (PIR DPL 1), a Strategic Environmental Assessment of the Power Sector was carried out as a policy action. This SEA is being used in the development of new master plans in the sector to minimize environmental impacts.
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iii) Promotion of low carbon growth strategy. Such a strategy, to be supported under this project, will be an umbrella strategy which encompasses energy efficiency but also includes the consideration of a range of policy measures to reduce the country’s carbon emissions. These will ultimately have beneficial environmental impacts by reducing overall energy use beyond what it would have been otherwise.
134. As detailed in Annex 6, some policy reforms might theoretically generate negative environmental effects. This includes policy benchmarks related to the irrigation sector. The intention of the irrigation policy reforms is not to increase irrigated agriculture per se but rather to better manage water resources for irrigation. It could however result in more intense irrigated agriculture in some areas and result in more use of pesticides and localized adverse environmental impacts. A two-pronged approach is necessary to mitigate any potential environment concerns. On the one hand, as water management reforms are prepared, consideration of environmental issues and impacts needs to be part of the policy development; the Bank is supporting the Government in this area through the current Mekong Water Resources Development Project and this is also a focus of the DPO1. Secondly, the national EIA regulations and processes need strengthening; as noted above, this is a focus of World Bank technical support to the Government under the PIR Project as well as in other related TA activities.
Implementation, Monitoring and Evaluation
135. The overall management of the DPO will be fully aligned with existing Vietnamese government structures under the NTP-RCC and the SP-RCC and common to JICA, AfD and CIDA. The National Steering Committee for NTP-RCC (SC) and the Executive Board of the NTP-RCC (EB) are the governing bodies of the SP-RCC. The progress under the DPO will be reported to the SC and EB in alignment with the NTP-RCC’s reporting procedure.
136. MONRE is the counterpart agency and collaborates with relevant line ministries to coordinate the policy dialogue and provide overall accountability under the DPO. A SP-RCC coordination unit was created within MONRE and is assigned to be the focal point for the implementation of the DPO. It reports to the Executive Board on the progress on the policy matrix after each meeting and to the Prime Minister at least once per year to report on the achievement of previous operation and request commitment of the following operations. MONRE co-chairs Technical Meetings, held with development partners three times a year, and monitors the implementation of actions collecting information on progress towards the results committed with development partners.
137. Line ministries, agencies, and provinces are responsible for developing and implementing selected policy actions under the DPO and for participating in Technical Meetings in collaboration with MONRE. They update and report on achievements and progress of policy actions to MONRE.
138. Monitoring and evaluation. In line with GoV ownership and use of country systems, MONRE has overall responsibility for quality, progress, and effectiveness of the DPO. MONRE has indicated that it will monitor and evaluate:
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mobilization and allocation of resources supporting the delivery of the DPO’s policy actions (both governments’ budget and staff, as well as technical assistance and other supports provided through external sources),
implementation of the Program’s actions; achievements and level of progress,
weaknesses and strong points, inadequateness, challenges and opportunities in implementing the DPO. Based on this finding, monitoring and evaluation will identify reasons and make recommendations on how to overcome shortages and take advance of opportunities. At least one workshop per year will be organized on this subject with all participating institutions and donors.
139. The SP-RCC Office serves as the key agency to conduct monitoring and supervision, and assists the Line Ministries in synthesizing and reporting results to the Executive Board. The newly established SP-RCC Project Coordination Unit (PCU) will be guided in its M&E work by an Operational Guidelines detailing roles, responsibilities, and procedures. SP-RCC is also co-operating the NTP PCU in the establishment of a dedicated climate MIS and in harmonizing M&E. The SP-RCC PCU established a network of climate change focal points in the Line ministries that follow and report on the status of sector-specific climate change policy actions and benchmarks and report to MONRE on a monthly basis. The reporting system and shared responsibilities between MONRE and the focal points will be detailed in the Operational Guidelines of the SP-RCC PCU.
140. Monitoring: Recognizing the importance but also some challenges in monitoring the effectiveness of implementing the agreed multi-sector policy development agenda under the SP-RCC, capacity building measures will be provided by donors, including technical assistance financed by JICA and by the Bank at MONRE and in each of the 4 other Ministries involved in the DPO, to assist the GoV in the operation of a functional monitoring system via the cross-sectoral actions of the DPO. Bank experience in DPOs will be shared with the GoV during supervision missions and discussed with the other partners. MONRE will finalize a set of formal procedures to conduct M&E. Importantly the M&E technical assistance will be extended beyond MONRE so that sectoral Ministries can provide MONRE with quality inputs.
141. The Bank will fulfill its supervisory and monitoring role to review progress and identify issues as well as adjustments that may be needed. Main findings will be captured in the joint Aide Memoire shared with the Government as well as in Implementation Status Reports and in a final Implementation Completion Report at the end of the three operations. Annual and interim supervision, monitoring, and review missions will be organized according to the following schedule, dictated by the GoV’s budget cycle: interim review missions will be held each year assessing milestones; full annual post-operation reviews form the basis for preparation of the next operation and involve an assessment of progress towards accomplishing the agreed policy and institutional triggers. These reviews will include workshops with the Line Ministries and sector agencies implementing the policy actions.
Fiduciary Aspects
142. Public Financial Management. Vietnam’s public financial management (PFM) environment is considered adequate to support this operation. The most recent
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Country Financial Accountability Assessment conducted in 2007 concluded that ‘the financial management risk to proper use, control and reporting of funds that are managed through the Vietnam public financial management systems is assessed as moderate.’ The approved State Budget is published on the Ministry of Finance (MOF) website just before the start of the Fiscal Year. It includes information on: aggregate revenue and spending; budget financing; planned spending by government function; and domestic revenue sources. MOF publishes quarterly budget execution reports, which include information on spending at central, provincial, and district level, and estimated revenue collection. Audited financial statements are published eighteen months after the end of the FY. The Government has maintained strong ownership of the PFM reform agenda and continues to lead a coordinated reform program in consultation with the development partners. While the financial management and accountability systems of the government have improved, the risks arising from weak implementation and compliance remain. The quality and extent of independent audit oversight can be further strengthened by updating the audit strategies and methodologies of the State Audit of Vietnam to align with international practices, and through the development of an effective internal audit function, which currently is only at an embryonic stage in Vietnam. A detailed discussion on the state of PFM in Vietnam is in Annex 4.
143. Foreign Exchange Environment. An IMF safeguards assessment has not been conducted in Vietnam. This assessment would provide information about the foreign exchange control environment of the SBV and integrity of financial information. The SBV is subject to auditing by SAV on an annual basis, however under the current laws the audited financial statements and audit reports of SBV are not made public. Notwithstanding these factors, the Association understands, following recent discussions with the IMF, that there are no serious concerns with the SBV’s foreign exchange control environment.
144. Flow of funds and auditing. To address the potential residual fiduciary risks related to the foreign exchange environment, the Recipient will maintain a dedicated foreign currency deposit account (DA) at SBV in US dollars for the proceeds of the Credit, and will report on the funds flow of the dedicated deposit account. The government will, if deemed necessary by the Association, allow an independent external audit of the dedicated foreign currency deposit account (DA).
145. Disbursement. The proposed Credit will follow the Association’s disbursement procedures for development policy lending operations. The Credit proceeds will be disbursed against satisfactory implementation of the Program and not tied to any specific purchases, and no procurement requirements will be needed. Various measures have been taken to ensure that the overall fiduciary policies and institutions are adequate to proceed with support from the Association and other development partners. The Recipient will open and maintain a dedicated DA in US dollars for the Recipient’s use once the Credit is approved by the Board and becomes effective. The dedicated DA will form part of the country’s official foreign reserves. The Recipient shall ensure that upon the deposit of the Credit into said account, an equivalent amount in Vietnamese Dong is credited in the Recipient’s budget management system to be used for budget expenditures in a manner acceptable to the Association. If the proceeds of the Credit are used for ineligible purposes as defined in the Financing Agreement, the Association will require the Recipient to refund the amount
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directly to the Association. Amounts refunded to IDA shall be cancelled. The administration of this Credit will be the responsibility of MOF.
146. Reporting. The Recipient will report to the Association on the amounts deposited in the foreign currency account and credited to the budget management system and on the timing of such deposits and credits. The Recipient will forward the report within one month of receiving the letter from the Association advising of the deposit, and the report will include: (i) statement of the exact sum received into the dedicated DA and the timing of such receipts; (ii) confirmation to Association that all withdrawals are for eligible expenditures; (iii) confirm to the Association details of the Treasury account to which the Vietnamese Dong equivalent of the Credit proceeds will be credited, the credited amount, and their timing, and (iv) a report on receipts and disbursements for the dedicated DA.
Risks and Risk Mitigation
147. The DPO faces several risks, but they are judged to be outweighed by the expected benefits of the operation. The main risks are (a) inadequate progress in broadening and deepening ownership of Vietnam’s climate change agenda and difficulty maintaining momentum, (b) dilution of the reform agenda due to the complexity and novelty of the climate change agenda (c) slow implementation due to constrained capacity to formulate innovative policy and mobilize inter-ministerial coordination, (d) decreasing commitment to the program due to perception of weak short term benefits and outcomes by line agencies, and (e) the institutional changes may not translate into more sustainable livelihoods for the most affected groups.
148. One of the main risks is inadequate progress in broadening and deepening ownership of Vietnam’s climate change agenda and difficulty maintaining momentum. Climate change is a cross-sectoral issue and the implementation of the policy response supported under the operation requires broad and deep ownership across different government agencies. Furthermore, the momentum created by the NTP-RCC and the SP-RCC needs to be maintained for successful program implementation. If either one of these necessary conditions is not met, the objectives of the reform program might not be met. Hence, there is a risk that lack of ownership and loss of momentum slow down the pace of the reform. Mitigation: Awareness support, active multi-sector engagement process, robust strategic dialogue and M&E highlighting progress made with significant capacity building including for participation in international negotiations and with technical assistance for analytical work that increase the understanding of climate change issues. This includes support for the low carbon development study, which will jointly engage an inter-ministerial working group building ownership within and across agencies. Furthermore, there is support for study tours for key GoV staff aiming at raising awareness and building capacity. As a first action, key MONRE and MARD staff was nominated to participate at a conference on pro-poor DRM and climate change adaptation co-organized by the World Bank.
149. The complexity and novelty of the climate change agenda poses a risk to the implementation of an ambitious reform agenda. Responding effectively to climate change is a complex task, and government agencies in Vietnam have little experience in implementing climate change-related policies. Furthermore, GoV is engaged in a broad set of social and economic reforms that tie up extensive financial and human
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resources. Therefore, the project development objective faces the risk of being diluted by the complexity and novelty of the climate change agenda. Mitigation: A targeted technical assistance and advisory services package is being delivered in support of the implementation of the policy reform agenda. Selection of policy areas corresponds to Government’s priorities; policy development will foster no-regret solutions. The DFID-financed trust fund that will be the main vehicle used to fund GoV’s needs for specific technical assistance in support of the agreed policy actions.
150. A constraint in the capacity to formulate innovative policy and mobilize inter-ministerial coordination, including constrained capacity of MONRE to leverage and monitor a dialogue with other ministries, could slow down implementation of the policy reform program. While overall leadership and supervision of climate change policy is carried out by a steering committee headed by the Prime Minister and an associated Executive Board, the implementation and coordination of NTP-RCC is the responsibility of a Standing Office in MONRE. Successful implementation of NTP-RCC also depends on the participation and engagement of other line ministries and government agencies. However, MONRE is a relatively young ministry with limited resources, capacity, and experience in leveraging and leading a multi-sectoral policy dialogue. Therefore, the project faces the risk of being hindered by a lack of coordination between line ministries and agencies. Mitigation: Capacity development and TA will be provided targeted to gaps and policy development needs in each of the 5 ministries involved. The establishment of climate change offices and focal points within involved ministries is being supported, and the role of the Standing Office and responsible departments in MONRE, including the Department of Hydrometeorology and Climate Change and the SP-RCC PCU as coordinating entity, is being strengthened. Special attention will be put on M&E and reporting capacity; an ongoing effort in this respect is the support to develop an operational manual including for M&E for the PCU within MONRE.
151. Insufficient efforts to move the policy dialogue and reform agenda forward holds the risk of decreasing levels of commitment within line ministries implementing the policy program. The policy actions under the operation are prepared and implemented by five line ministries, while the budget support for the overall program is directed to the Treasury. Consultations have revealed the perception among implementing line ministries that reform progress is delinked to the support under the SP-RCC, which holds the risk of decreasing commitment to the reform program. Mitigation: The development of a financing mechanism that links budget allocation to progress on the climate policy reform agenda is being supported. Interlinkages between the DPO and the Bank’s lending portfolio are designed to link implementation and policy dialogue. Planned technical assistance and capacity building will contribute to the incentive framework.
152. There is a risk that the institutional changes supported by the DPO may not translate into more sustainable livelihoods for the most affected groups. Climate change and responses to climate change will affect the various stakeholders differently. For example, the water laws might affect the economic patterns of the local population. Mitigation: The expected positive outcomes for the poor outweigh the potential adverse impacts. The areas identified as having likely negative effects will be analyzed under the PSIA, with the emphasis on promoting sustainable solutions for poor and vulnerable groups.
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ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY
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ANNEX 2: POLICY MATRIX FOR THE VIETNAM CLIMATE CHANGE DEVELOPMENT OPERATION SERIES (CY 2010-2012)
Prior Actions and Benchmarks delivered20 DPO 1 (FY 2012 Board / Delivery)
Triggers and Benchmarks DPO 2 (FY 2013 Board / Delivery)
Triggers and Benchmarks DPO 3 (FY 2014 Board / Delivery)
Pillar I: Adaptation
Goal 1 - Climate-resilient development: Improving the resilience of water resources
MONRE has furnished to MPI a letter dated July 28, 2010 submitting for Prime Minister approval a National Target Program for Water Resources Management based on the Water Sector Review. (Letter Nr 2786/BTNMT-KH, July 28, 2010) Circular 65 /2009/TT-BNNPTNT approved and issued by MARD Minister on October 12, 2009.
Develop the New Law on Water Resources Establish the model for the operationalization of irrigation management transfer at secondary level, and select at least 3 schemes for a pilot program Adopt roadmap for benchmarking of Irrigation Management Companies to promote efficiency of the irrigation supply system
Prioritize actions and define responsibilities for the implementation of the National Action Plan on Water Resources Management Operationalize irrigation management transfer at secondary level Operationalize benchmarking of Irrigation Management Companies in selected irrigation schemes
Pillar II: Mitigation
Goal 2 - Lower carbon intensity development: Exploiting energy efficiency potentials
The Prime Minister has issued Decree Number 21/2011/ND-CP dated March 29, 2011 guiding the implementation of the Law on Energy Efficiency and Conservation, and has received for approval a draft Decree on administrative sanctions in the field of energy saving and efficiency.(MOIT letter 1522/TTr-BCT, February 23, 2011)
Adopt regulations establishing the qualification and certification requirement for energy auditors and energy managers Adopt regulation with requirements and procedures for energy consuming designated enterprises to submit annual and five-year energy efficiency plans
Adopt regulations for energy efficiency measures and operationalize in key energy- intensive industrial sectors Adopt objectives, scope and procedures for the M&E framework for Vietnam including specific methodologies, indicators and benchmarking for the industrial sector
20 Underlined and italicized policy actions are triggers for the following operation; policy actions that are not underlined and italicized are non-disbursement relevant benchmarks
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Prior Actions and Benchmarks delivered20 DPO 1 (FY 2012 Board / Delivery)
Triggers and Benchmarks DPO 2 (FY 2013 Board / Delivery)
Triggers and Benchmarks DPO 3 (FY 2014 Board / Delivery)
Pillar III: Cross-Cutting Climate Change Policy and Institutional Framework
Goal 3 - Strengthening the capacity and preparedness to formulate, prioritize and implement climate change policies MONRE has finalized a Report on Updated Climate Change Scenarios dated 2011 updating the Recipient’s climate change scenarios with an improved methodology The Prime Minister issued Official Instruction Number 1820/TTg-KTN dated September 29, 2009 endorsing the Implementation Plan of the National Strategy for Natural Disaster Prevention, Response, and Mitigation to 2020 which is a consolidation of 63 Provincial Disaster Action Plans and evidence of their development Decree 14 on the mandate and functions of Central Committee for Flood and Storm Control approved by the Prime Minister
Develop National Climate Change Strategy guiding GoV actions on climate change Develop a National Adaptation Methodology to guide prioritization of actions on climate change adaptation Establish institutional framework for implementation of the national low carbon development assessment Develop indicators for a monitoring and evaluation system for tracking implementation of national and provincial disaster risk management plans Develop the Law on Natural Disaster Prevention and Mitigation Establish the National Platform for Disaster Risk Reduction and Climate Change Adaptation
Finalize the Adaptation Methodology to guide prioritization and initiate application Complete the reference scenario of the low carbon development assessment (2010-30) Develop a monitoring and evaluation system for tracking implementation of national and provincial disaster risk management plans Finalize the Law on Natural Disaster Prevention and Mitigation for adoption Hold launching meeting of National Platform on Disaster Risk Reduction and Climate Change Adaptation
Goal 4 - Strengthening the financing framework to support climate change actionThe Prime Minister issued Official Instruction Number 8981/VPCP-QHQT dated December 10, 2010 outlining the guiding principles relating to the use of official development assistance to respond to climate change through budget support
Develop institutional mechanism to promote potential climate financing sources
Establish implementation guidelines for allocation and reporting of financial resources directed at climate change action consistent with PM Decision 8981/VPCP-QHQT dated December 10, 2010
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ANNEX 3: RESULTS FRAMEWORK FOR THE VIETNAM CLIMATE CHANGE DEVELOPMENT POLICY OPERATION SERIES (CY 2010-2012)
Goal 1 - Climate-resilient development: Improving the resilience of water resources
Program Objective Promote more integrated water resources management
Expected End-of-Program Results Strengthened legal and organizational arrangements for a programmatic, integrated and adaptive approach to water resources management
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery) DPO 3 (FY 2014 Board / Delivery)
Program Results Indicators
Prior Actions and Benchmarks
delivered21
Triggers and Benchmarks
Indicators
Triggers and Benchmarks
Indicators
MONRE has furnished to MPI a letter dated July 28, 2010 submitting for Prime Minister Approval a National Target Program for Water Resources Management based on the Water Sector Review. (Letter Nr 2786/BTNMT-KH, July 28, 2010)
Develop the New Law on Water Resources (MONRE/DWRM)
New Law on Water Resources submitted to National Assembly
Prioritize actions and define responsibilities for the implementation of the National Action Plan on Water Resources Management (MONRE/DWRM)
National Action Plan on Water Resources Management approved by Prime Minister
Baseline: i) Water resources management activities are dispersed, poorly coordinated and overlapping; insufficient legal basis for integrated management, including at the basin level ii) 0 irrigation management schemes transferred at secondary level End of Program: i) Coordinated program with a new legal framework for integrated water management in place and operational ii) At least 3 irrigation management transfers piloted at secondary level
21 Underlined and italicized policy actions are triggers for the following operation; policy actions that are not underlined and italicized are non-disbursement relevant benchmarks
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DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery) DPO 3 (FY 2014 Board / Delivery)
Program Results Indicators
Prior Actions and Benchmarks
delivered
Triggers and Benchmarks
Indicators
Triggers and Benchmarks
Indicators
Circular 65 /2009/TT-BNNPTNT approved and issued by MARD Minister on October 12, 2009.
Establish the model for the operationalization of irrigation management transfer at secondary level, and select at least 3 schemes for a pilot program (MARD/DIWM) Adopt roadmap for benchmarking of Irrigation Management Companies to promote efficiency of the irrigation supply system (MARD/DIWM)
Progress report for 3 pilot secondary irrigation schemes issued by MARD Minister Benchmarking guidelines approved by MARD Minister
Operationalize irrigation management transfer at secondary level (MARD/DIWM) Operationalize benchmarking of Irrigation Management Companies in selected irrigation schemes (MARD/DIWM)
Guidelines for the operationalization of irrigation management transfer at secondary level in accordance with Circular 65 issued by MARD Minister Progress reports provided by each selected Irrigation Management Company to MARD Minister
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Goal 2 - Lower carbon intensity development: Exploiting energy efficiency potentials Program Objective Enhance energy efficiency in the industrial sector
Expected End-of-Program Results Practices to strengthen energy efficiency are implemented in large energy users of the industrial sector
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery) DPO 3 (FY 2014 Board / Delivery)
Program Results Indicators
Prior Actions and Benchmarks
delivered
Triggers and Benchmarks
Indicators
Triggers and Benchmarks
Indicators
The Prime Minister has issued Decree Number 21/2011/ND-CP dated March 29, 2011 guiding the implementation of the Law on Energy Efficiency and Conservation, and has received for approval a draft Decree on administrative sanctions in the field of energy saving and efficiency.(MOIT letter 1522/TTr-BCT, February 23, 2011)
Adopt regulations establishing the qualification and certification requirement for energy auditors and energy managers (MOIT/EECO) Adopt regulation with requirements and procedures for energy consuming designated enterprises to submit annual and five-year energy efficiency plans (MOIT/EECO)
Circular on qualifications and certification of energy auditors and energy managers issued by MOIT Minister Circular on guidelines and procedures for energy consuming designated enterprises to prepare and submit annual and five-year energy efficiency plans issued by MOIT Minister
Adopt regulations for energy efficiency measures and operationalize in key energy- intensive industrial sectors (MOIT/EECO) Adopt objectives, scope and procedures for the M&E framework for Vietnam including specific methodologies, indicators and benchmarks for the industrial sector (MOIT/EECO)
Circular on guiding the implementation of energy efficiency measures in 2 key industrial sectors issued by MOIT Minister Circular on guidelines establishing objective, scope and procedures for the Monitoring and Evaluation framework for Vietnam National Energy Efficiency Program Phase 2 issued by MOIT Minister or Vice Minister
Baseline: i) No energy auditors certified by the government ii) No energy managers certified by the government iii) No energy efficiency plans prepared by certified energy managers End of Program: i) 100 energy auditors completed training courses to support energy efficiency practices in industrial sector, of which 50 fully certified and 50 doing on-job training to become fully certified ii) 1000 energy managers certified to support energy efficiency practices in industrial sector iii) 1000 energy efficiency plans implementation reports of large energy end-users of the industrial sector are received by MOIT or provincial DOITs, of which 600 have been prepared by certified energy managers
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Goal 3 - Strengthening the capacity and preparedness to formulate, institutionalize and implement climate change action Program Objective Strengthen the scientific, analytical and methodological basis for development action on climate change including M&E
Expected End-of-Program Results Scientific, analytical and methodological basis and monitoring capacity guiding the development of priority actions and targets for climate change has improved
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery) DPO 3 (FY 2014 Board / Delivery)
Program Results Indicators
Prior Actions and Benchmarks
delivered
Triggers and Benchmarks
Indicators
Triggers and Benchmarks
Indicators
MONRE has finalized a Report on Updated Climate Change Scenarios dated 2011 updating the Recipient’s climate change scenarios with an improved methodology
Develop National Climate Change Strategy guiding GoV actions on climate change (MONRE/DHMCC) Develop a National Adaptation Methodology to guide prioritization of actions on climate change adaptation (MPI/DSENRE) Establish institutional framework for implementation of the national low carbon development assessment (MPI/DSENRE)
Decision on National Climate Strategy issued by the Prime Minister Draft Adaptation Methodology to guide prioritization is developed and shared for consultation with Line Ministries Decision on the establishment of inter-ministerial committee for the national low carbon development assessment issued by MPI Minister as delegated by the Prime Minister
Finalize the Adaptation Methodology to guide prioritization and initiate application (MPI/DSENRE) Complete the reference scenario of the low carbon development assessment (2010-30) (MPI/DSENRE)
Circular on Adaptation Methodology to guide prioritization issued by MPI Minister and application initiated Decision on the reference scenario of low carbon development assessment issued by Prime Minister
Baseline: i) No agreed adaptation framework to prioritize actions available ii) GHG database has been developed but no strategic low carbon development assessment in place iii) 0% of provinces have disaster risk management plans iv) Dispersed and different legal frameworks for specific disaster risk hazards in place v) Disaster Risk Reduction and Climate Change Adaptation are only coordinated on an ad hoc basis between GoV agencies, donors, research institutes, and NGOs End of Program: i) Adaptation Methodology to guide prioritization is available and its application initiated ii) Low carbon development assessment initiated iii) 100% of provinces have disaster risk management plans and 2 provinces identified for piloting of monitoring and evaluation iv) Comprehensive legal framework for multi-hazards in place establishing a unifying legal framework for disaster risk action v) National Platform in place for all stakeholders to coordinate DRR and CCA actions
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DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery) DPO 3 (FY 2014 Board / Delivery)
Program Results Indicators
Prior Actions and Benchmarks
delivered
Triggers and Benchmarks
Indicators
Triggers and Benchmarks
Indicators
The Prime Minister issued Official Instruction Number 1820/TTg-KTN dated September 29, 2009 endorsing the Implementation Plan of the National Strategy for Natural Disaster Prevention, Response, and Mitigation to 2020 which is a consolidation of 63 Provincial Disaster Action Plans and evidence of their development Decree 14 on the mandate and functions of Central Committee for Flood and Storm Control approved by the Prime Minister
Develop indicators for a monitoring and evaluation system for tracking implementation of national and provincial disaster risk management plans (MARD/DDMFSC, DMC) Develop the Law on Natural Disaster Prevention and Mitigation (MARD/DMC) Establish the National Platform for Disaster Risk Reduction and Climate Change Adaptation (MARD, MONRE)
Decision on Indicators and M&E pilot issued by MARD Minister Draft Law on Disaster Prevention and Mitigation submitted to the GoV for approval Decision on the National Platform for Disaster Risk Reduction and Climate Change Adaptation issued by Prime Minister
Develop a monitoring and evaluation system for tracking implementation of national and provincial disaster risk management plans (MARD/DDMFSC, DMC) Finalize the Law on Natural Disaster Prevention and Mitigation for adoption (MARD/DMC) Hold launching meeting of National Platform on Disaster Risk Reduction and Climate Change Adaptation (MONRE/DHMCC, MARD/DMC)
Circular on Monitoring and Evaluation system issued by MARD Minister Law on Natural Disaster Prevention and Mitigation submitted to National Assembly for approval Reports of launch and annual meetings circulated by the secretariat and work plan endorsed by MARD and MONRE Ministers
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Goal 4 - Strengthening the financing framework to support climate change action
Program Objective Promote an integrated approach for the financing of climate actions, including monitoring and reporting
Expected End-of-Program Results Climate finance is planned according to priorities and a multi-sectoral allocation process and reported subsequently
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery) DPO 3 (FY 2014 Board / Delivery)
Program Results Indicators
Prior Actions and Benchmarks
delivered
Triggers and Benchmarks
Indicators
Triggers and Benchmarks
Indicators
The Prime Minister issued Official Instruction Number 8981/VPCP-QHQT dated December 10, 2010 outlining the guiding principles relating to the use of official development assistance to respond to climate change through budget support
Develop institutional mechanism to promote potential climate financing sources (MPI/ DSENRE)
Decision establishing Climate Financing Task Force within MPI issued by MPI Minister
Establish implementation guidelines for allocation and reporting of financial resources directed at climate change action consistent with PM Decision 8981/VPCP-QHQT dated December 10, 2010
Circular on implementation guidelines for allocation and reporting of financial resources directed at climate change action issued by MOF Minister
Baseline: i) No financial mechanism for allocating budget from MOF to Line Ministries for climate action ii) No government unit responsible for facilitating access to climate change financing End of Program: i) Financial mechanism for using ODA for climate financing through budget support is in place ii) Task force facilitates information sharing, coordination of and access to climate finance including market-based instruments.
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ANNEX 4: PUBLIC FINANCIAL MANAGEMENT IN VIETNAM
Overview
1. Over the past decade, Vietnam has made strides in establishing a sound public financial management system. With the adoption of the first organic budget law in 1996 and its revision in 2002, a legal framework for public resource management has been put in place. A centralized treasury system is being set up with branches extending from the center to all provinces and districts to provide basic essential financial services to all government agencies. Steady progress has been achieved in making the budget more predictable and pro-poor, and the budgeting process more transparent and participatory. Substantial efforts have also been made in recent years to improve transparency in the use of public resources through disclosure of information on detailed government spending as well as expenditure policies, regulations and procedures.
2. There is strong ownership in the Vietnamese Government of the PFM reform agenda. MOF is currently engaged, as are other Ministries, in developing a reform strategy for 2011-2020. The strategy aims at (i) maintenance of stability of public finances within the broader economy; (ii) improved effectiveness of public sector expenditure in achieving policy and service delivery; (iii) development of effective influence by government over key finance markets; (iv) effective and efficient resource mobilization to finance public expenditures. Support to the implementation of reforms is coordinated through the PFM partnership group which overarches the activities of government, donors, and working groups, meeting half yearly to discuss progress. There is ongoing effort among donors to directly align their support with the mainstreaming government’s strategies and plans.
3. PFM remains in the center of Public Sector reforms. Other focus areas are organizational restructuring, pay and employment reform, and institutional development. The PFM reforms hinge on seven priorities: budget management, revenue management, debt management, SOE fiscal risk management, financial market supervision and government bond market development, public asset management, and price management.
4. The overall conclusion of the latest Country Financial Accountability Assessment (CFAA 2007) stated that PFM arrangements and their implementation and performance pose a moderate risk that funds will not be properly controlled or used for intended purposes. The CFAA proposed a set of recommendations to help the government design and continue implementing reforms and capacity building programs to modernize and strengthen PFM and enhance transparency and accountability arrangements in support of sound economic management and improved governance.
5. Even though a series of analytical work, such as Public Expenditure Review (PER) or CFAA, have been undertaken every three to four years, progress and impact of the PFM reforms and development initiatives can only be measured by establishing an official monitoring framework, and baseline performance measures. The Public Expenditure and Financial Accountability (PEFA) measurement framework provides a recognized measurement of the performance of the public financial management of government. Similarly, the Debt Management Performance Assessment (DeMPA), adapted from the PEFA framework, but is focused on debt management issues, would provide a baseline assessment of debt management capacity. The Government has agreed in principle to introducing these measurement frameworks through pilot self-assessment process in 2011 (PEFA, scheduled to
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be completed in around the first quarter of 2012). The DeMPA assessment is now being carried out by the MOF and is scheduled to be completed in early of 2012
6. Within the MOF, the number of technically-qualified and experienced managerial staff needs to be increased to meet the reform challenges of the Ministry. Support is needed for Capacity building across sectors and sub-national government to implement decentralized PFM reforms.
Recent Developments and the Way Ahead
7. PFM Legal and Institutional Framework. The CFAA reported that since 2004, implementation of the 2002 State Budget Law and the 2005 Accounting Law has progressed and a State Audit Law has been enacted. However, it also noted that some confusion and overlap in budget responsibilities remain in the budgeting system which is limiting the participation of sectors in resource planning, budgeting and budget management and confuses accountabilities between the national and sub-national levels. Furthermore with the redevelopment of the government accounting systems and regimes, the Accounting Law is no longer adequate and needs revision, and the basis for accounting needs to be better defined, however there is no clear plan at that this time to revise the Accounting Law. The State Budget Law will be revised and re-submitted to the National Assembly in 2012, expectedly including a number of critical changes to state administration in Vietnam such as enhanced decentralization to subnational government and adjusted fiscal authority of central vis-a-vis subnational tiers of government in budget approval.
8. PFM information systems. The Treasury and Budgetary Management Information System (TABMIS) will progressively address difficulties in monitoring a fully-consolidated budget as well as the fiscal position. TABMIS has been developed since 2007, piloted in 2009, and recently rolled-out to MOF and treasuries and financial agencies in 35 out of 63 provinces. Fifteen largest spending line-ministries are getting ready to use TABMIS to conduct budget allocations for 2011. It is expected that the system will become fully operational in 2012 upon its nationwide roll-out. TABMIS will provide the capability to record and control commitments, improve cash management and arrears management, and strengthen expenditure management and controls. There are initial staged plans for TABMIS consolidation and expansion, in both terms of both functionality and coverage, towards the Integrated/Government Financial Management Information System (IFMIS).
9. Public accounting regulations. In parallel with TABMIS project, a unified Treasury and Budgetary Chart of Accounts has been developed to provide consistency of classification of revenues and expenditures in budgeting, accounting and reporting with expenditures classified on an administrative, economic and functional basis. This will facilitate accurate and timely financial reporting, and the flow of budgetary information between government ministries provinces and the public. For future TABMIS expansion, development of a unified and uniform chart of accounts for the public sector (including the Spending Units) is now envisaged. A staged roadmap for adoption of the International Public Sector Accounting Standards (IPSAS) is also being developed to align government accounting regimes and practices with international standards.
10. Budget Development & Execution. Vietnam’s budget coverage is reasonably comprehensive but still incomplete compared to international practices. Budget gaps arise from the lack of clarity in the state budget coverage of user fees and charges of many service delivery units, lack of integration or disclosure of the financial positions of public financial
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funds, untimely and sometimes inadequate incorporation of donor financing, and off-budget government bonds. Budget execution variations arise from such practices as revenue underestimation particularly for crude oil revenues, keeping the state accounts open after year end with post year expenditures recorded against previous year unused budgets, and over implementing construction and development plans. Separate preparation of the recurrent and capital investment budgets hampers effective management of resources and the composition of public expenditure remains unbalanced.
11. Public expenditure is planned annually and also for medium-term over five year periods but the linkage between the two remains weak. The ongoing revision of the State Budget Law introduces Medium-Term Fiscal and Expenditure Framework, to be mainstreamed in the annual budget cycle. There are also initial discussions on reforming budget planning toward output- and program-based budget elaboration.
12. Off-budget-balance expenditures, i.e., expenditures not counted in the calculation of the budget deficit, include government bonds issued to finance infrastructure projects and education facilities, recapitalization of entities such as the Vietnam Development Bank or the Vietnam Social Policy Bank, and borrowings by sub-national governments and their affiliated entities such as local development funds. However, these so-called off-budget expenditures in Vietnam can be considered on-budget in several respects. They are included in the budget that is reviewed and approved by the National Assembly, and their execution was done through the Treasury and subject to the same disclosures and scrutiny as standard budget expenditures. There are attempts under the ongoing revision of the State Budget Law to adjust budget structure and coverage to be more in line with the international norms.
13. Contingent liabilities might be arising from these “off-budget-balance expenditures” and other implicit sources. A systemic definition and a reliable estimate of such contingent liabilities are not available, which limits the government’s ability to manage such risks properly. More broadly, as Vietnam is reaching middle-income status, it will need to engage more long-term finance from both domestic and external sources. Under the recently improved debt management, initial attention from the government on risk management and monitoring of contingent liabilities has been observed. Given the recent default of one of the largest state owned Economic Groups (Vinashin), MOF is planning to strengthen monitoring of fiscal risks from the SOEs. However, although considered as the country’s lead agency for national and public debt management, MOF has not yet prepared an inventory of government contingent liabilities from various sources, due to lack of necessary legal framework, poor data availability and limited assessment capacity.
14. Revenue administration. Customs controls are still considered low in productivity, inconsistent and vulnerable to corruption. The Customs administration will need to change significantly, shifting its mindset from a culture of domestic protection and control of all transactions to one that facilitates foreign trade and promotes private sector development. The tax administration is also characterized by low compliance and vulnerability towards corruption. Five areas of tax administration have been identified as in need of special attention: (1) the fragmentation of the legal framework related to tax administration; (2) the absence of effective coordination and information-sharing between the tax administration and other government agencies; (3) taxpayers’ lack of knowledge about the tax laws and compliance procedures; (4) inadequate professional skills and training of tax administration; and (5) information technology system which is lagging behind the requirements of a modern tax administration. In addition, tax laws and policies will need further reforms to broaden the
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tax base, and to reduce the number of rates and exemptions. Reforms in the management of revenue are progressing with clearer allocation rules and decentralized responsibilities; however classification of revenue in line with international standards needs to be introduced, and enhanced consultation on revenue targets is needed to improve the quality of revenue budgets.
15. Public debt management has improved both in terms of legal framework and institutional arrangements. The Debt Management Department was established in May 2009 with the role of a modern debt management office under the MOF. Although not all of the tasks relating to public debt management have been consolidated to this Department, the organizational structure of the department is similar to the debt management office according to international practices, with 6 divisions functioning as front office, one division performing the middle office functions, and one division performing the back office functions. Meanwhile, the first-ever Law on public debt management was approved by the National Assembly in June 2009 and came into effect in 2010. The Law introduced substantial reforms in managing and monitoring comprehensively public debt and government commitments (including domestic sub-national debts and on-lending), and addressing many weaknesses in the public debt management in Vietnam. A series of guiding decrees were adopted in 2010 to facilitate the implementation of the law. Special attention is now paid to strengthening risk management and developing forward-looking debt management strategy and program.
16. Financial market supervision and the government bond market. At present, many agencies participate in financial market supervision, leading to overlapping responsibilities and ineffective management and supervision. There is a need to consolidate market supervision functions into a single agency and to separate state management and supervision functions. Vietnam’s government bond market is still small scale, low liquidity, and the maturity structure is skewed toward short-term. The number of market participants is relatively small and supporting infrastructure, such as depository, clearing and information systems, is yet to be developed. Therefore, considerable efforts are required to develop a full-fledged government bond market and coordinate it with development of related markets such as capital, security and real estate. A bond market development roadmap is being prepared towards these visions.
17. The Government’s PFM reform program highlights that state assets budget resources and human resources need to be managed in an integrated way for efficient and effective service delivery, and reforms are being gradually introduced. The legal framework and market principles in asset management were recently adopted under the Law on State Asset Management. The requirements for management reporting systems are being defined, but reform in this area has been slow. Initially, attention is needed for developing consistent and comprehensive asset accounting and asset management policies in line with international standards and practices. Further study will be carried out in 2011 to determine the most appropriate solutions to address the government’s accounting and asset management requirements.
18. Independent scrutiny of PFM has significantly increased, with external oversight of budgetary affairs by the National Assembly and the recently independent State Audit of Vietnam (SAV). The functional committees and deputies of the National Assembly, and the local People’s Committees have been given greater prominence in examining, decision-making and oversight of the state budget. There is steady expansion of external audit coverage and quality, and legislative oversight. Encouragingly, the SAV audit report was made public
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for the first time in 2006, and regularly since, triggering serious debates where are broadcasted live on the usage of state budgets. However, the capacity of these institutions, especially the SAV, is limiting the coverage and scope of audits. It is difficult for the SAV to manage the increasing workload including compulsory audit for 100% of SOEs, and to consider the move towards performance audit. Significantly, the SAV has recently approved an ambitious and comprehensive strategy to 2020 (with accompanying implementation plan to 2015) aimed at upgrading its capacity across the key areas of organizational and legal framework, human resources, audit planning and methodologies (including performance audit), information technology, and external relations.
19. The country’s public financial management system has a range of internal oversight mechanisms. In the past, the focus was on inspection rather than systematic review to provide regular and timely feedback to the management on the use of public resources. Internal auditing is an important element of a sound public financial management system, which helps increase effectiveness, efficiency and financial control. This issue becomes even more important if the government intends to decentralize further to the local levels. The legal and institutional frameworks for the organization and operation of internal audit are being developed. Although implementation will be challenging, this has been a very encouraging step towards establishing a sound internal audit system in Vietnam in the coming years.
20. Vietnam has increased its level of fiscal transparency. Budget plans and budget execution accounts are being made available publicly, and there is increasing compliance with reporting regulations. However there is still room for improvement, particularly in relation to consistency in quality of reports and their timeliness. The draft budget plan should be disclosed before National Assembly’s approval. To enhance the quality of financial reporting, consistency between budget and accounting classifications needs to be maintained. The number of budget execution reports needs to be rationalized. Content and presentation of financial information needs to be improved in line with existing government regulations in the publicly available budget execution reports to make them more informative. MOF is required to publish quarterly budget execution reports within four weeks of quarter-end, which they have been in fact doing within two weeks. They aim to further strengthen this through publishing budget execution reports on the MOF website on a monthly basis within 15 days after the end of the month, when TABMIS is operational nationwide expectedly in 2013. In addition, the Government is establishing a State Accounting General function, and working toward producing and issuing annual financial statements, including cash and asset information, in line with international practices. The annual final reports need to be issued faster than the current 18 months, e.g. 9 months, after year end to enhance their relevance to the discussions on the budget of the subsequent year.
21. Good progress has been made in establishing legislation and the environment for greater financial accountability and transparency of financial information. Regulations on financial disclosures of the State Budget Law, Accounting Law and State Audit Law have been issued increasing the scope and range of required disclosures by entities at all levels of government. Information is being made available on public accessible websites. However, implementation remains the challenge. To further increase transparency, the content of budget documentation and the final accounts could be enhanced by including analysis, explanations and information in line with international practices. Disclosure of financial information, particularly spending at unit level should be actively monitored to ensure compliance with the enhanced disclosure requirements. Published financial reports should be timely, and a calendar for disclosures issued publicly.
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ANNEX 5: POVERTY AND SOCIAL ASSESSMENT
Poverty and Social Assessment Review (OP 8.60 review of “likelihood of significant effects”)
No. Prior Action Impact22 Potential negative effects and government mitigation capacity
Potential positive impacts
Pillar I: Adaptation Goal 1 - Climate-resilient development: Improving the resilience of water resources Developed a National Target
Program for water resources management based on the Water Sector Review
Yellow ‐ The new Law on Water Resources (LWR) will establish a framework of rights to access water and it may lead to increase of fees for the efficient delivery of water services.
The increase of water user fees is not directly supported under the DPO, and it is difficult to predict if, and to what extent the fees would increase in the future. Since most poor do not pay for water services as they use ground wells, rain, or surface water, it is not expected that future water fee increases would have a significant poverty impact.
‐ Improved quality and quantity of water for household and economic production from surface water;
‐ Improved security over rights to access water,
protected by the GoV; ‐ Increased stability of river bank and coastal land
where people live, and enhanced sustainability of aquifers;
‐ Greater public participation in decisions that
affect them. Issued Circular on Irrigation
Management Transfer
Green No likelihood of significant negative effects.
‐ A more sustainable irrigation system more resilient to climate-induced drought and changing rainfall patterns.
‐ Improved efficiency and greater ownership of
irrigation systems by communities through Participatory Irrigation Management.
‐ Improved access for farmers by allowing them to
extend irrigation to areas that previously may not have been irrigated by water supply companies which only regulate water in major canals.
22 Grading adapted from Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending – A World Bank Toolkit (2008): Red– Very Likely Negative Impact; Yellow- Potential for Negative Impact; Blue – No Impact; Green – Positive Impact.
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Poverty and Social Assessment Review (OP 8.60 review of “likelihood of significant effects”)
No. Prior Action Impact22 Potential negative effects and government mitigation capacity
Potential positive impacts
Pillar II: Mitigation Goal 2 - Lower carbon intensity development: Exploiting energy efficiency potentials Submitted the Decrees to
implement and enforce the Law on Energy Efficiency and Conservation
Green No likelihood of significant negative effects.
‐ Greater efficiency in energy use, potentially freeing up resources that can be directed toward job creation and poverty alleviation.
Pillar 3: Cross-Cutting Climate Change Policy and Institutional Framework Goal 3 - Strengthening the capacity and preparedness to formulate, prioritize and implement climate change policies Updated regional level
climate change scenarios
Blue No likelihood of significant negative effects. A workshop on best practices in participatory forms of policy dialogue is envisaged as part of the PSIA process, with a view to applying lessons in future adaptation planning at various levels.
‐ Great efficiency in use of climate resources, improved climate governance and higher accountability
Developed provincial disaster risk management plans for all provinces
Yellow ‐ Possible eventual relocation of population from flash flood and landslide high-risk areas.
The PSIA preliminary research shows that there is a need for more dialogue on the resettlement issue, and makes further suggestions for improvements in DRM strategies and promotion of community-based DRM approaches. These will be discussed with the key stakeholders during the PSIA process.
‐ Higher capacity to manage disaster risk at the provincial level ‐ Improved early warning systems for the communities. ‐ Reduced vulnerability of communities in high-risk areas to natural disasters, including those that are exacerbated by climate change.
Adopted the mandate of the Central Committee for Flood and Storm Control
Blue No likelihood of significant negative effects. ‐ Increased resilience to climate intensified disasters through improved coordination on disaster risk reduction and climate change adaptation.
Goal 4 - Strengthening the financing framework to support climate change action Approved budget allocation
mechanism from MOF to line ministries to finance climate change priorities as part of the overall government budget system
Blue No likelihood of significant negative effects. ‐ More effective mainstreaming of climate in development planning and budgeting.
‐ Potential for pro-poor actions and investment projects from the climate financing. PSIA phase II will focus on analyzing and strengthening transparency, accountability, and pro-poor aspects of the climate finance mechanism. The findings and recommendations will be discussed with key stakeholders throughout the process
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ANNEX 6: ENVIRONMENTAL ASSESSMENT
Environmental Assessment Review (OP 8.60 Likelihood of significant effects on environment, forests, and natural resources)
No. Medium Term Objectives Impact23 Potential negative effects and borrower’s ability to manage them
Potential positive effects
Goal 1 - Adaptation: Improve the resilience of water resources to climate change impacts To promote a more integrated
approach to water resources management as a foundation for climate resilience (MONRE)
Green None. Changes in water resource management are intended to seek an optimal balance in the negative and positive consequences of human use. Uses of water for environmental purposes (e.g., conservation flows, ensuring conservation of wetlands or mangroves), representing non-monetary benefits with few defenders, are invariably neglected in the absence of an integrated approach so achieving this policy objective will have positive effects.
To enhance the efficiency of water supply and use in irrigation in order to increase the resilience of water resources to variability of needs and water flows (MARD)
Yellow If water resources were used more intensely for irrigation purposes this might reduce the water availability for other purposes, such as ensuring conservation flows. Increasing use of irrigation in a given area could lead to more intense agriculture with possible adverse environmental impacts, such as increased use of pesticides.
Good Analytical work has been undertaken in Vietnam and there is good understanding of the issues involved (Water Sector Review and many other studies and assessments).
The best single mitigatory measure (or measure to ensure an environmentally positive outcome
Improved efficiency in terms of water management of irrigation systems would generally lead to more availability of water for other purposes, such as environmental purposes, and so generally a positive effect would be expected from these policy measures.
23 Grading adapted from Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending – A World Bank Toolkit (2008): Red– Very Likely Negative Impact; Yellow- Potential for Negative Impact; Blue – No Impact; Green – Positive Impact.
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and eliminate any possibility of adverse environmental effects) is the development of water management practices for irrigation as part of larger integrated strategy for water resources management, which is the previous policy measure above. The GoV has demonstrated a commitment to the needed reforms, but moving this agenda quickly will require sustained focus from the GoV and support from donors.
Goal 2 - Mitigation: Exploit energy efficiency potentials Improve the policy framework
conducive to increase energy efficiency (MOIT)
Green No likelihood of significant negative effects.
Greater efficiency in energy use will be the most significant contributor to reducing the growth of GHG emission from Vietnam to below what would have the case under a business as usual scenario. This generates a global benefit. Co-benefits of some energy efficient measures can also have local and/or national positive benefits such as reducing air pollution if there is reduced need for power generation or measures are introduced to improve efficiency of energy use in transport.
Goal 3 - Strengthen the capacity to formulate, prioritize and implement climate change policies consistent with NTP-RCC Strengthen the scientific, analytical
and technical basis for climate action (MONRE, MARD, MPI, MOIT, MOF)
Green No likelihood of significant negative effects.
Improving the understanding of climate change impacts and adaptation and mitigation measures can only be expected to have positive environmental benefits.
Integrate climate risk in development planning and strengthen coordination and M&E capacity (MARD, MONRE, MPI)
Green No likelihood of significant negative effects.
Measures to improve planning and incorporation of climate risk should lead to positive environmental outcomes such as reduced emissions.
Goal 4 - Strengthen the financing framework to support the implementation of the climate change agenda Promote an integrated approach for
the financing of climate actions, including monitoring and reporting (MOF, MONRE)
Green No likelihood of significant negative effects. More efficient allocation of financial resources should lead to optimizing climate change responses, leading to inherently positive environmental benefits.
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ANNEX 7: FUND RELATIONS NOTE
Vietnam—Assessment Letter for the World Bank24
December 2, 2011
1. Significant progress has been made in implementing tight macroeconomic policy measures stipulated in the adjustment package (Resolution 11) adopted in February. However, confidence remains fragile.
GDP growth is projected to slow to 5¾ percent in 2011, recovering somewhat to 6¼ percent in 2012. Inflation peaked at 23 percent in August and is estimated to decelerate to 19 percent y/y by end-2011, and further decline to around 8 percent y/y at end-2012 (12 percent on average). Credit growth is projected to fall sharply to around 12 percent y/y at end-2011. The current account deficit is forecast to narrow significantly in 2011, thanks partly to a rise in the value of oil exports, and remain at low levels in 2012. However, significant downside risks arise from weaknesses in the U.S. economy and uncertainties surrounding the Euro Area, which could adversely affect exports, remittances, foreign direct and portfolio investment, and possibly aid.
Soon after an 8.5 percent devaluation of the official dong/U.S. dollar exchange rate in February, the market exchange rates converged with the official rate and were stable over the summer. However, confidence in the dong has eroded again in recent months. Interventions by the State Bank of Vietnam (SBV) have kept the gap between the official and market exchange rates relatively small, but have resulted in a decline in international reserves.
The overall fiscal deficit in 2011 is estimated at 3½ percent of GDP, owing to higher-than projected revenues and cuts in public investment. While the government intends to keep the tight stance on public investment in 2012, the fiscal deficit may not decline much unless additional consolidation efforts are made.
2. Concerns over the soundness of the banking sector are rising. Nonperforming loans are increasing, due partly to difficulties faced by industry and partly due to a decline in the value of some real estate projects, and would likely be significantly higher under international reporting standards. State-owned commercial banks have extended liquidity support to some small banks under stress, a move that can at best be a temporary solution.
3. While we commend the government’s efforts to date, and its intention to keep the tight policy stance into 2012, premature policy loosening would unravel the gains made so far. We believe that continuing, and strengthening where appropriate, the tight policy stance, remains critical. In particular, fiscal consolidation should be further accelerated to support monetary policy. At the same time, a transparent framework for financial sector consolidation and re-capitalization (both quantitatively and qualitatively) with a view to raising the capital adequacy ratio is needed, and action to implement it would need to start
24 The 2011 Article IV consultation was concluded on April 28, 2011. Staff has monitored the situation in Vietnam closely since then, including by the staff visit during November 4–10, 2011. The next Article IV consultation mission is planned for March 2012. For further information, please contact Mr. Masato Miyazaki, mission chief for Vietnam (phone number - 202 623 6313)
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without delay. These measures should serve to rebuild external, fiscal, and financial buffers, which are needed in an uncertain and volatile global economic environment.
70
71
ANNEX 8: COUNTRY AT A GLANCE (includes country map)
8/31/11
East LowerKey D evelo pment Indicato rs Asia & middle
Vietnam Pacific income(2010)
Population, mid-year (millions) 88.4 1,944 3,811Surface area (thousand sq. km) 331 16,302 31,898Population growth (%) 1.2 0.7 1.2Urban population (% of to tal population) 28 45 41
GNI (Atlas method, US$ billions) 99.9 6,149 8,846GNI per capita (Atlas method, US$) 1,130 3,163 2,321GNI per capita (PPP, international $) 2,910 6,026 4,784
GDP growth (%) 6.8 7.4 7.1GDP per capita growth (%) 5.5 6.6 5.9
(mo st recent est imate, 2004–2010)
Poverty headcount ratio at $1.25 a day (PPP, %) 13 17 ..Poverty headcount ratio at $2.00 a day (PPP, %) 38 39 ..Life expectancy at birth (years) 75 72 68Infant mortality (per 1,000 live births) 20 21 43Child malnutrition (% of children under 5) 20 9 24
Adult literacy, male (% of ages 15 and o lder) 95 96 87Adult literacy, female (% of ages 15 and o lder) 91 91 74Gross primary enro llment, male (% of age group) 102 111 109Gross primary enro llment, female (% of age group) 100 112 105
Access to an improved water source (% of population) 94 88 86Access to improved sanitation facilities (% of population) 75 59 50
N et A id F lo ws 1980 1990 2000 2010 a
(US$ millions)Net ODA and official aid 228 181 1,681 3,744Top 3 donors (in 2008): Japan 4 1 924 1,191 France 15 12 53 143 Germany 0 16 33 112
Aid (% of GNI) .. 3.0 5.5 4.0Aid per capita (US$) 4 3 22 43
Lo ng-T erm Eco no mic T rends
Consumer prices (annual % change) .. 36.4 -1.6 9.2GDP implicit deflator (annual % change) .. 42.1 3.4 11.9
Exchange rate (annual average, local per US$) 0.6 6,482.8 14,167.8 19,126.0Terms of trade index (2000 = 100) .. 88 100 127
1980–90 1990–2000 2000–10
Population, mid-year (millions) 53.7 66.2 77.6 88.4 2.1 1.6 1.3GDP (US$ millions) .. 6,472 31,173 103,572 4.6 7.9 7.5
Agriculture .. 38.7 24.5 20.6 2.8 4.3 3.7Industry .. 22.7 36.7 41.1 4.4 11.9 9.3 M anufacturing .. 12.3 18.6 19.7 1.9 11.2 10.9Services .. 38.6 38.7 38.3 7.1 7.5 7.5
Household final consumption expenditure .. 84.3 66.4 64.9 .. 5.1 7.7General gov't final consumption expenditure .. 12.3 6.4 6.5 .. 3.2 7.9Gross capital formation .. 12.6 29.6 38.9 .. 19.8 12.0
Exports o f goods and services .. 36.0 55.0 77.5 .. 19.2 11.2Imports o f goods and services .. 45.3 57.5 87.8 .. 19.5 13.2Gross savings .. -2.3 30.5 32.7
Note: Figures in italics are for years o ther than those specified. 2010 data are preliminary. Group data are for 2009. .. indicates data are not available.a. A id data are for 2009.
Development Economics, Development Data Group (DECDG).
(average annual growth %)
(% of GDP)
Vietnam at a glance
6 4 2 0 2 4 6
0-4
15-19
30-34
45-49
60-64
75-79
percent of total population
Age distribution, 2009
Male Female
0
10
20
30
40
50
60
1990 1995 2000 2009
Vietnam East Asia & Pacific
Under-5 mortality rate (per 1,000)
0
2
4
6
8
10
12
95 05
GDP GDP per capita
Growth of GDP and GDP per capita (%)
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Vietnam
B alance o f P ayments and T rade 2000 2010
(US$ millions)
Total merchandise exports (fob) 14,483 72,191Total merchandise imports (cif) 15,637 84,801Net trade in goods and services -173 -7,948
Current account balance 1,108 -3,999 as a % of GDP 3.6 -3.9
Workers' remittances and compensation o f employees (receipts) 2,000 6,626
Reserves, including gold 3,030 12,400
C entral Go vernment F inance
(% of GDP)Current revenue (including grants) 20.4 26.2
Tax revenue .. ..Current expenditure 15.9 21.2
T echno lo gy and Infrastructure 2000 2009Overall surplus/deficit -2.0 -6.5
Paved roads (% of to tal) 25.1 47.6Highest marginal tax rate (%) Fixed line and mobile phone Individual 50 35 subscribers (per 100 people) 4 137
Corporate 33 25 High technology exports (% of manufactured exports) 11.0 4.9
External D ebt and R eso urce F lo ws
Enviro nment(US$ millions)Total debt outstanding and disbursed 12,823 43,797 Agricultural land (% of land area) 28 32Total debt service 1,309 2,766 Forest area (% of land area) 37.7 44.5Debt relief (HIPC, M DRI) – – Terrestrial pro tected areas (% of land area) .. ..
Total debt (% of GDP) 41.1 42.3 Freshwater resources per capita (cu. meters) 4,508 4,221Total debt service (% of exports) 7.5 3.5 Freshwater withdrawal (billion cubic meters) .. 82.0
Foreign direct investment (net inflows) 1,298 7,600 CO2 emissions per capita (mt) 0.69 1.3Portfo lio equity (net inflows) .. 128
GDP per unit o f energy use (2005 PPP $ per kg o f o il equivalent) 3.3 3.7
Energy use per capita (kg o f o il equivalent) 477 689
Wo rld B ank Gro up po rt fo lio 2000 2009
(US$ millions)
IBRD Total debt outstanding and disbursed – – Disbursements – – Principal repayments – – Interest payments – –
IDA Total debt outstanding and disbursed 1,113 6,270 Disbursements 174 1,206
P rivate Secto r D evelo pment 2000 2010 Total debt service 9 87
Time required to start a business (days) – 44 IFC (fiscal year)Cost to start a business (% of GNI per capita) – 12.1 Total disbursed and outstanding portfo lio 223 156Time required to register property (days) – 57 o f which IFC own account 107 153
Disbursements for IFC own account 25 24Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 18 40 Access to /cost of financing .. 40.5 Access to land .. 25.9 M IGA
Gross exposure 46 95Stock market capitalization (% of GDP) 0.4 19.7 New guarantees 10 0Bank capital to asset ratio (%) .. ..
Note: Figures in italics are for years o ther than those specified. 2010 data are preliminary. 8/31/11.. indicates data are not available. – indicates observation is not applicable.
Development Economics, Development Data Group (DECDG).
0 25 50 75 100
Control of corruption
Rule of law
Regulatory quality
Political stability
Voice and accountability
Country's percentile rank (0-100)higher values imply better ratings
2009
2000
Governance indicators, 2000 and 2009
Source: Kaufmann-Kraay-Mastruzzi, World Bank
IBRD, 0IDA, 6,270
IMF, 83
Other multi-lateral, 10,010
Bilateral, 11,566
Private, 4,172
Short-term, 6,645
Composition of total external debt, 2009
US$ millions
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Millennium Development Goals Vietnam
With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)
Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2009
Poverty headcount ratio at $1.25 a day (PPP, % of population) .. 63.7 40.1 13.1 Poverty headcount ratio at national poverty line (% of population) .. 58.1 28.9 14.5 Share of income or consumption to the poorest qunitile (%) .. 7.8 7.5 7.3 Prevalence o f malnutrition (% of children under 5) 40.7 40.6 26.7 20.2
Go al 2: ensure that children are able to co mplete primary scho o ling
Primary school enro llment (net, %) .. .. 95 88 Primary completion rate (% of relevant age group) .. .. 96 .. Secondary school enro llment (gross, %) 35 .. 65 .. Youth literacy rate (% of people ages 15-24) 94 .. 95 97
Go al 3: e liminate gender disparity in educat io n and empo wer wo men
Ratio of girls to boys in primary and secondary education (%) .. .. 93 .. Women employed in the nonagricultural sector (% of nonagricultural employment) .. 41 41 .. Proportion of seats held by women in national parliament (%) 18 19 26 26
Go al 4: reduce under-5 mo rtality by two -thirds
Under-5 mortality rate (per 1,000) 55 44 29 24 Infant mortality rate (per 1,000 live births) 39 33 24 20 M easles immunization (proportion of one-year o lds immunized, %) 88 95 97 97
Go al 5: reduce maternal mo rtality by three-fo urths
M aternal mortality ratio (modeled estimate, per 100,000 live births) 170 120 91 56 B irths attended by skilled health staff (% of to tal) .. 77 68 88 Contraceptive prevalence (% o f women ages 15-49) 53 65 74 80
Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases
Prevalence o f HIV (% of population ages 15-49) 0.1 0.1 0.2 0.4 Incidence of tuberculosis (per 100,000 people) 204 204 204 200 Tuberculosis case detection rate (%, all forms) 37 37 56 54
Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs
Access to an improved water source (% of population) 58 68 79 94 Access to improved sanitation facilities (% of population) 35 47 57 75 Forest area (% of land area) 28.8 .. 37.7 44.5 Terrestrial protected areas (% of land area) .. .. .. .. CO2 emissions (metric tons per capita) 0.3 0.4 0.7 1.3 GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 2.5 2.9 3.3 3.7
Go al 8: develo p a glo bal partnership fo r develo pment
Telephone mainlines (per 100 people) 0.1 1.1 3.3 35.2 M obile phone subscribers (per 100 people) 0.0 0.0 1.0 101.5 Internet users (per 100 people) 0.0 0.0 0.3 27.5 Personal computers (per 100 people) 0.0 0.1 0.8 9.6
Note: Figures in italics are fo r years other than those specified. .. indicates data are not available. 8/31/11
Development Economics, Development Data Group (DECDG).
Vietnam
0
25
50
75
100
2000 2005 2009
Primary net enrollment ratio
Ratio of girls to boys in primary & secondary education
Education indicators (%)
0
50
100
150
2000 2005 2009
Fixed + mobile subscribers
Internet users
ICT indicators (per 100 people)
0
25
50
75
100
1990 1995 2000 2009
Vietnam East Asia & Pacific
Measles immunization (% of 1-year olds)
1
2
3
45
6
7
89
1010
11111212
13131414
1515
16161717
1818 191920202121
2222 2323
2424 25252626
2727
2828
2929
3030
31313232
3333
3434
3535
3636
3737
3838
3939
4141
4242
4040
4343 4444
4545
4646 47474848
4949
50505151
5252
6363
5353
5454
5555
5656
57575858
5959
6060
61616262
LangLangSonSon
Ho Chi Minh CityHo Chi Minh City
Bien HoaBien HoaThu DauThu Dau
MotMot
Phan ThietPhan Thiet
DongDongXoaiXoai
Tan AnTan An
Bac LieuBac Lieu
Vi ThanhVi Thanh
Vung TauVung TauMy ThoMy Tho
Ca MauCa Mau
Rach GiaRach Gia
Long XuyenLong Xuyen
Hai PhongHai Phong
Ha LongHa Long
DienDienBien PhuBien Phu
Lao CaiLao Cai
Quy NhonQuy NhonPleikuPleiku
Buon MaBuon MaThuotThuot
Gia NghiaGia NghiaDa LatDa Lat
VinhVinh
Vinh YenVinh Yen
Nam DinhNam DinhNinh BinhNinh Binh
Dong HoiDong Hoi
Dong HaDong Ha
Tam KyTam Ky
Nha TrangNha Trang
Tuy HoaTuy Hoa
Kon TumKon Tum
Son LaSon La
Yen BaiYen Bai
HaHaGiangGiang
TuyenTuyenQuangQuang ThaiThai
NguyenNguyen
Cao BangCao Bang
Bac CanBac Can
Soc TrangSoc Trang
Tra VinhTra VinhCan ThoCan Tho
Cao LanhCao Lanh
Ben TreBen TreVinh LongVinh Long
Tay NinhTay Ninh
Quang NgaiQuang Ngai
Da NangDa Nang
Ha TinhHa Tinh
Thanh HoaThanh Hoa
Thai BinhThai Binh
Hung YenHung Yen
Ha NamHa Nam
Viet TriViet Tri
Hai DuongHai Duong
Bac GiangBac GiangBac NinhBac Ninh
Hoa BinhHoa Binh
Hue Hue
Phan Rang-Phan Rang-Thap ChamThap Cham
HANOIHANOIHANOIHANOI
An
na
m C
or
di l l e
ra
CentralCentral
HighlandsHighlands
Ngoc LinhNgoc Linh(3143 m) (3143 m)
Lai Chau TownLai Chau Town
CHINACHINA
C A M B O D I AC A M B O D I A
THAILANDTHAILAND
LAOLAOPEOPLE'SPEOPLE'SDEM. REP.DEM. REP.
To To NanningNanning
To To HepuHepu
To To TiandongTiandong
To To BabaoBabaoTo To
KunmingKunming To To KaiyuanKaiyuan
To To Muang XaiMuang Xai
To To LuangLuang
PrabangPrabang
To To KhammouanKhammouan
To To SavannakhetSavannakhet
To To Kampong ChamKampong Cham
To To KampongKampongChhnangChhnang
An
na
m C
or
di l l e
ra
Hainan I.Hainan I.(China)(China)
1818°N
1
2
3
45
6
7
89
10
1112
1314
15
1617
18 192021
22 23
24 2526
27
28
29
30
3132
33
34
35
36
37
38
39
41
42
40
43 44
45
46 4748
49
5051
52
63
53
54
55
56
5758
59
60
6162
LangSon
Ho Chi Minh City
Bien HoaThu Dau
Mot
Phan Thiet
DongXoai
Tan An
Bac Lieu
Vi Thanh
Vung TauMy Tho
Ca Mau
Rach Gia
Long Xuyen
Hai Phong
Ha Long
Lai Chau Town
DienBien Phu
Lao Cai
Quy NhonPleiku
Buon MaThuot
Gia NghiaDa Lat
Vinh
Vinh Yen
Nam DinhNinh Binh
Dong Hoi
Dong Ha
Tam Ky
Nha Trang
Tuy Hoa
Kon Tum
Son La
Yen Bai
HaGiang
TuyenQuang Thai
Nguyen
Cao Bang
Bac Can
Soc Trang
Tra VinhCan Tho
Cao Lanh
Ben TreVinh Long
Tay Ninh
Quang Ngai
Da Nang
Ha Tinh
Thanh Hoa
Thai Binh
Hung Yen
Ha Nam
Viet Tri
Hai Duong
Bac GiangBac Ninh
Hoa Binh
Hue
Phan Rang-Thap Cham
HANOI
CHINA
C A M B O D I A
THAILAND
LAOPEOPLE'SDEM. REP.
PhuQuoc
Hainan I.(China)
Mekong
Black
Red
Ma
Gul fof
Tonkin
Gulfof
Thai land
M e k o n g De l
t a
To Nanning
To Hepu
To Tiandong
To BabaoTo
Kunming To Kaiyuan
To Muang Xai
To Luang
Prabang
To Khammouan
To Savannakhet
To Kampong Cham
To KampongChhnang
An
na
m C
or
di l l e
ra
Central
Highlands
Ngoc Linh(3143 m)
22°N
20°N
18°N
16°N
14°N
12°N
10°N
22°N
20°N
18°N
16°N
14°N
12°N
10°N
108°E106°E104°E
110°E108°E106°E104°E102°E
VIETNAM
12345678910111213141516171819202122232425262728293031
Lai ChauDien BienLao CaiHa GiangCao BangSon LaYen BaiTu Yen QuangBac CanLang SonPhu ThoVinh PhucThai NguyenBac GiangQuang NinhHa NoiBac NinhHung YenHai DuongHai PhongHoa BinhHa NamThai BinhNinh BinhNam DinhThanh HoaNghe AnHa TinhQuang BinhQuang TriThua Thien Hue
3233343536373839404142434445464748495051525354555657585960616263
Da NangQuang NamQuang NgaiKon TumGia LaiBinh DinhPhu YenDac LacDac NongKhanh HoaBinh PhuocLam DongNinh ThuanTay NinhBinh DuongDong NaiBinh ThuanT.P. Ho Chi MinhBa Ria-Vung TauLong AnTien GiangDong ThapBen TreAn GiangVinh LongTra VinhKien GiangCan ThoHau GiangSoc TrangBac LieuCa Mau
PROVINCES:
0 50 100 150
0 50 100 150 Miles
200 Kilometers
IBRD 33511R1
JANUARY 2010
V IETNAM
PROVINCE CAPITALS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
PROVINCE BOUNDARIES
INTERNATIONAL BOUNDARIES
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.