Date: 06 December 2011
Event: Consultative Group Meeting – 6 December 2011
Venue: Millennium Meeting Hall, Grand Plaza, Hanoi

The last six months of 2011 have marked a new period in Viet Nam’s development. The 13th National Assembly met for the first time in July 2011 and a new government, including the President, Prime Minister and Cabinet, was appointed in August 2011. With the approval of the 2011-2015 Socio-Economic Development Plan (SEDP) last month, directions are now set for the next five years.

The SEDP highlights the need for a new growth model as the Government endeavours to address recurrent periods of macro-economic instability, and generate sufficient jobs to absorb new labour market entrants and maintain poverty reduction targets. The United Nations (UN) welcomes the emphasis in the SEDP on ensuring a better balance between economic, social and environmental goals, addressing vulnerability and inequality, and promoting social equity. 2011 has already seen challenges to these ambitions as a volatile global and national economic situation continues to test Viet Nam’s growth and progress.

The challenge ahead is not only to focus on achieving macro-economic stability, but also to ensure inclusive, green, pro-poor development that promotes balanced rural and urban development, and generates jobs for the poor. Viet Nam is undergoing rapid socio-economic changes, including rapid urbanization and migration, and demographic change with a current ‘youth bonus’, followed by rapid population ageing by 2050. Rising inequalities are accompanied by new forms of poverty and vulnerability, and the country is increasingly affected by climate change and natural disasters. In the coming period Viet Nam will need to give much greater attention to tackling entrenched and chronic forms of poverty, as well as emerging forms of poverty and vulnerability such as urban and migrant poverty. Greater attention is needed to ensure Vietnamese people across the country have the opportunity to realize a better quality of life.

With high inflation, ensuring macro-economic stability should indeed be a priority.  So far, fiscal and monetary tightening has delivered initial results, but has also dampened GDP growth to 5.7 percent in the first nine months of 2011. The present period of instability has persisted since November 2010, exposing Viet Nam’s economy to a prolonged period of uncertainty. Viet Nam’s inflation rate, which stood at 18.62 percent in the first 11 months of 2011, has been higher than any other ASEAN country for the past three years and is among the highest worldwide.

The UN welcomes the Government’s decision to establish a new model for economic growth and adjust growth targets to be more realistic given the challenging circumstances the country is facing.  Addressing the root causes of high inflation and macro-economic instability will require vigorous implementation of Resolution 11.  In particular, greater efforts will be required to achieve longer-term economic reforms.  In so doing, it will be important to retain a focus on the broader socio-economic goals the country aims to achieve, including environmental sustainability, employment generation, poverty reduction and improved human development outcomes.

In this context, the UN appreciates Viet Nam’s efforts to develop a comprehensive green growth strategy. Commitments to move towards low carbon growth are one of the key elements of this strategy to improve the quality of growth.

A well designed green growth strategy will help Viet Nam to access clean technology, develop new and more productive jobs, and address environmental concerns. It is especially important that Viet Nam invests in green growth and addressing climate change challenges; if not, the costs incurred may undermine the progress and achievements made thus far.

Looking forward, as the Government undertakes macro-economic reform and restructuring of the economy, the UN sees five key priorities.

Firstly, as the global crisis may continue, the UN strongly recommends that economic reforms and restructuring take into account building resilience to unpredictable external and internal shocks to the economy and lives of the people.

Secondly, Viet Nam’s high and rising Incremental Capital Output Ratio (ICOR) at 6.3 in 2010 remains a concern. Notably, low investment efficiency is most evident in large public sector-led investments at 7.8 compared to 3.2 for the private sector and 5.2 for Foreign Direct Investment (FDI). As a result, Viet Nam is carrying a budget deficit of 8 percent of GDP in 2009, and growing public debt at 57.3 percent of GDP in 2010, however as debts of State-owned enterprises are not included, the real level of public debt is likely to be higher.  While budget tightening is important, the UN recommends that it is not at the cost of reducing investment for poverty reduction and social protection.

The UN recommends that the Government give priority to cutting expenditure in State-owned enterprises that are not performing well and that generate large debts. The UN urges the Government to ensure that clear criteria for any reduction in public expenditure, together with information about where cuts are to be made, is shared with the public and the business community as a matter of priority.  The UN also recommends that due attention be given to addressing any potential impacts of cuts to public investment on the poor and vulnerable.

More efficient use of public resources has the potential to not only contribute to economic growth, but also to free up resources for social services and environmental sustainability. At present only 15.2 percent of total public investment is spent on social services and 7.7 percent on governance, compared to 77.1 percent for economic growth-related purposes. External, independent oversight of public investment is required to ensure that sufficient economic returns are generated and environmental protection, climate change proofing and social welfare are not compromised.

Thirdly, economic restructuring must include measures to shift away from the current reliance on FDI and State-owned enterprises and increase investment in the domestic private sector and small-, medium- and micro-sized enterprises. Small, medium and micro-sized enterprises have a key role to play in income generation and poverty reduction. The UN recommends that negative impacts of tightening measures on rural development and small, medium and micro enterprises be very carefully considered. An enabling environment to access credit and markets is especially critical as some studies report that small and medium-sized enterprises are reporting difficulties accessing credit to finance their business operations.

Fourthly, it will be important to ensure a more balanced approach to decentralization. While decentralization is important to bring decision-making closer to the people, it is timely to re-examine the decentralization process, given the potential for fragmentation and duplication. Currently, provinces develop their own investment master plans with many overlapping and competing initiatives, in particular in economic investment and infrastructure. For example, 194 industrial zones, 18 coastal economic zones and a number of additional harbours and airports are planned, with no analysis of their strategic value to overall national development. The UN recommends that appropriate incentives are put in place in support of effective decision-making and resource allocation for balanced socio-economic development at the sub-national level.

The fifth and final key priority is that the Government will need to ensure that investment in economic restructuring does not depress GDP growth below the level at which job generation and poverty reduction can be supported.  As Viet Nam’s impressive performance in poverty reduction has been driven primarily by economic growth, a reduction in the growth rate is likely to adversely affect poverty reduction and job growth. Appropriate measures may need to be introduced to compensate for declining growth.  The UN recommends that the Government assess as a matter of priority, the potential costs of economic restructuring, including re-capitalization of the banks and State-owned enterprises, in order to ensure the capital expenditures required do not negatively impact overall growth targets and social expenditure.

Macro-economic instability is affecting people’s livelihoods and living standards. The poor and vulnerable are hardest hit, including those living close to the poverty line and people who depend on government assistance. Emerging poor and vulnerable groups are particularly at risk of falling back into poverty as a result of economic shocks.

Recent findings from the Rapid Impact Monitoring (RIM) assessment conducted by the Viet Nam Academy of Social Sciences (VASS) shed light on the social impact of the latest period of high inflation. Firstly, the RIM suggests that, as yet, high inflation in 2011 has not resulted in a significant decline in jobs. Most enterprises surveyed in the RIM assessment report that they are still able to operate and have not yet laid off workers.  However, continued economic instability will affect enterprises as they face reduced demand and lower profit margins. Enterprises will begin to delay investment and expansion of their businesses, including renewing technology and equipment. This will affect Viet Nam’s competiveness in the medium term with knock-on effects on employment.

While the RIM assessment shows that rice producers have benefitted from rising prices and a good harvest, price increases are largely offset by rising costs of inputs, fuel and food. In addition, as retail prices are significantly higher than the farm-gate price, intermediaries are benefitting more than primary producers. Poor and vulnerable rural households have no excess to sell, and are therefore unable to benefit from rising prices.

In addition, rising prices are impacting negatively on wage earners, informal sector workers, the urban poor and people living on government allowances. Reduced purchasing power, together with higher food, fuel and housing costs, has depressed savings and remittances and reduced consumption. Currently, Viet Nam is facing a situation of near-unlimited labour supply: rising youth cohorts in rural areas are knocking on the doors of productive industries looking for paid work.  This has contributed to keeping real wages down. Viet Nam has continued to see strikes throughout 2011. Rising living costs have fuelled these strikes. Some employers have also reneged on payment of employment benefits, including unemployment insurance, contributing to industrial tensions.

In periods of high inflation, it is important to increase the levels of social assistance and support available to poor and vulnerable groups, including those at risk of falling into poverty as a result of economic shocks. Resolution 11 outlines measures to ensure access to social protection benefits. However, to date limited additional funds have been allocated beyond what is already spent by Government on social protection initiatives. The official poverty line and levels of social assistance have not kept pace with inflation or increases to the minimum wage. For example, an older person in a rural area receives just 180,000 VND a month (6,000 VND a day), which is significantly lower than the 2011 official rural poverty line of 400,000 VND a month. The RIM shows that, while pensions and other allowances have been adjusted, net purchasing power of people receiving government assistance has fallen by 15 percent.

High inflation, currency depreciation in the context of a highly dollarized economy and the persistent trade deficit have all combined to depress people’s real incomes and purchasing power. The risk is that Viet Nam may remain trapped in lower middle-income status or may even slide down, and that vulnerable groups may fall into poverty. Countries with strong, coherent social protection systems are better able to weather periods of economic crisis and instability. However, social investments in Viet Nam have not kept pace with economic growth. Viet Nam’s system of social protection and poverty reduction programmes remains fragmented with many overlapping and competing initiatives. Some groups, such as migrants, remain unable to access social services and support. As Viet Nam is likely to continue to experience macro-economic instability and inflationary pressures in the short to medium term, extending social protection to all Vietnamese citizens must receive greater priority in the current package of reforms.

Rapid economic growth has seen millions of Vietnamese people lifted out of poverty. Poverty rates fell from 58 percent in the 1990s to 14 percent by 2008, lifting the living standards of all Vietnamese people. This impressive national progress is underpinned by two quite divergent trends.  The Kinh majority has continued to see steady poverty reduction. Among ethnic minority groups however, poverty reduction has stalled, slowing down overall national poverty reduction. Ethnic minority populations have a one in two chance of being poor, compared to a one in ten chance for the Kinh majority. Sixty-five percent of those in the bottom decile are now from ethnic minority groups.  As chronic, entrenched forms of poverty are likely to prove much more difficult to address in future, new, innovative strategies for measuring and addressing poverty will need to be developed, and promising initiatives scaled up.

Viet Nam’s official poverty lines are low by international standards, lower than most countries in the East Asia. Some groups, such as migrants of less than six months, are excluded from national surveys and this affects poverty calculations. According to the World Bank’s international $1.25-a-day poverty line the poverty rate was 21 percent in 2008.  General Statistics Office (GSO) data from the 2010 Viet Nam Household Living Standards Survey (VHLSS) shows a household poverty rate of 10.7 percent using existing poverty lines, rising to 14.2 percent when 2011-2015 official SEDP poverty lines are used.  In this regard the UN welcomes the initiative of GSO to update the poverty lines used in the VHLSS, and recommends that official poverty lines be updated annually to keep pace with inflation.

Viet Nam’s success in reducing poverty is likely to be further challenged by demographic shifts, with a surplus of young, rural, unskilled workers entering the labour market in search of jobs, and a rapidly ageing population needing social services and support. Increased mobility as people move in search of work is contributing to new forms of poverty including urban and migrant poverty. Young women aged 15-24, who make up the majority of internal migrants, are particularly vulnerable. Trafficking and child labour are exacerbated by difficult economic times, as families send their children to work in factories and cities, often in high-risk and vulnerable occupations.

Quality of employment remains an issue for workers in both the formal and informal sectors. While unemployment rates have remained low, the performance of the economy has been less impressive in terms of generating productive employment and decent work. In formal employment, wages are depressed in comparison to price increases. Workers continue to face occupational health and safety hazards and excessive working hours. Moreover, formal employment with social security benefits remains the exception in Viet Nam. Half of the Vietnamese labour force is still engaged in agriculture, mostly in informal occupations. More than two thirds of non-farm workers are in the informal sector, where low-skilled, less productive, poorly paid jobs predominate. Women dominate in unskilled, informal and vulnerable employment, in particular unpaid family employment.

Looking forward, the UN urges Viet Nam to make greater efforts to achieve the target of full, productive and decent employment set out in MDG1. The UN recommends that the Government pay special attention to generating sufficient decent jobs for young, rural workers and give priority to extending unemployment and social security benefits to vulnerable, informal sector workers. In this context, the UN recommends that improved data and evidence on the quality of work be collected in national surveys to support identification of appropriate employment strategies and policies.

Income poverty is not the only driver of vulnerability and deprivation. According to the 2010 Urban Poverty Survey in Ho Chi Minh City and Hanoi, while income poverty rates were low, non-monetary deprivations were significant, most notably lack of access to social protection initiatives, housing and social services.  Migrants were more likely to report deprivations in access to social services and social protection, housing quality and social inclusion than non-migrants

Nationally, multi-dimensional poverty is higher than income poverty, at 23 percent compared to 14 percent. According to the 2011 National Human Development Report, in 2008 the Multi-dimensional Poverty Index (MPI) headcount was five times higher in rural than in urban areas. Forty-nine percent of the poorest quintile experienced non-monetary deprivations compared to 5.7 of the richest quintile. Sixty-two percent of ethnic minority groups experienced non-monetary poverty compared to 17.4 of the Kinh majority. Similar differences are evident in relation to multi-dimensional child poverty, with two thirds of ethnic minority children categorized as poor when non-monetary dimensions of deprivation are considered. Multi-dimensional poverty indicators are thus an important measure of deprivation and exclusion and are more suitable than income poverty indicators alone for a middle-income Viet Nam. The UN recommends that multi-dimensional poverty indicators be institutionalised in national surveys and used alongside income poverty lines in targeting poverty reduction interventions.

Population groups with incomes close to the poverty line, including low-skilled wage workers, informal workers, migrant workers and people living on social benefits are particularly vulnerable to falling into poverty. Periods of economic instability and natural disasters exacerbate this vulnerability. Already, Vietnam is losing around 1.5 percent of GDP on average as a result of natural disasters. Climate change is likely to aggravate these impacts with increased incidence of extreme weather events leading to higher damage levels. The poor who are more vulnerable will be significantly more exposed. In addition to making concerted efforts to address climate change on an urgent basis, the UN recommends that these groups are targeted for poverty reduction programmes and social protection initiatives are extended to them.

Investing in People

The recent slowdown in poverty reduction is due, not only to difficulties in addressing more entrenched and chronic forms of poverty, but also because economic growth has not been fully inclusive, use of public resources has been inefficient, and insufficient priority has been given to social development. If Viet Nam is to realize its development goals it now needs to increase its investment in people. This is vital to address the ‘unfinished agenda’ of attaining all the MDGs, including targets under MDG6 on HIV and MDG7 on water and sanitation by 2015. Progress in maternal mortality rates has stalled, and while child mortality rates have fallen, the rate of stunting in children under five remains a concern at 33 percent in 2008.

Viet Nam’s recent performance in the Human Development Index (HDI) underscores the need to ensure a better balance between economic growth and inclusive, equitable, green and pro-poor development.  Economic growth has been the main driver of Viet Nam’s progress in the HDI. Between 1999 and 2008, the income index contributed 55.7 percent to growth in the HDI, compared to 31.8 percent for the life expectancy index and 12.6 percent for the education index. Less rapid progress in education now appears to be contributing to overall slower growth in Viet Nam’s HDI.

Human development is also strongly correlated with good governance. Provincial performance in the Governance and Public Administration Performance Index (PAPI) is strongly correlated with the HDI: provinces that score well in the HDI are also those that perform well in PAPI. Of the six dimensions in PAPI, people’s satisfaction with public services is most strongly correlated with higher levels of human development.

In this context, the UN welcomes the priority given to human resource development as one of three key breakthroughs identified in the SEDP and urges the Government to give greater priority to investing in basic social services such as health and education.

Viet Nam has made impressive progress in education with near-universal enrolment in primary and lower secondary education. However, education and skill levels lag behind other countries in the region. East Asia and the Pacific averaged 11.7 expected years of schooling and 7.2 mean years of schooling, compared to 10.4 expected years of schooling and 5.5 mean years of schooling in Viet Nam. Viet Nam’s 2010 Labour Force Survey found that 85.4 percent of employed workers had no formal training or qualifications.  Greater investment is needed in vocational training and quality higher education to develop a skilled and internationally competitive workforce.

Furthermore, it is important to ensure access to quality, affordable social services and education.  At present, household expenditure on health and education represents the bulk of total expenditure and is at significantly higher levels than 30 percent, the level that is recommended as the minimum necessary for enhancing equity in access and use of services.

Currently, around 60 percent of total health expenditure comes from private sources. In 2008 56 percent of overall health expenditure was from out-of-pocket payments.  Viet Nam has one of the highest rates of households facing catastrophic expenditure due to health payments in the region.

A recent study revealed that between 2002 and 2008, the proportion of households facing catastrophic health payments rose from 4.7 percent to 5.5 percent. During the same period, more than 3 percent of households were impoverished each year due to health payments.  In education, household spending has continued to escalate, in particular at higher levels. Household education spending varies by level of schooling, from 17.5 percent at primary level to 52.2 percent in tertiary education. Rising costs of health and education impose a significant burden on poor and vulnerable households who are unable to meet these costs.

Equitable access to quality social services can act as a lever to move households out of poverty and break inter-generational patterns of inequality and disadvantage.  The UN urges the Government to act now to strengthen regulation and oversight of private and public social services. Ensuring a more equitable funding burden between the State and households is also a priority. In this context, the UN recommends that the government review the socialization policy and its impact on household health and education spending.

Viet Nam is facing many forms of inequalities and social exclusion. Income inequality is rising: Viet Nam’s Gini coefficient rose from 0.420 in 2002 to 0.433 in 2010 while in absolute terms, the rich-poor gap rose from 8.1 in 2002 to 9.2 in 2010. Progress at the national level masks growing disparities between regions and ethnic groups. Gender equality persists in the household, where one third of women have experienced physical or sexual violence, in the labour market and in decision-making at all levels. Socially excluded and marginalized groups, such as people with disabilities and people living with HIV, lack equal access to social services and support, as well as opportunities.

The UN urges the government to act decisively to contain widening inequalities and scale up efforts to address new and chronic forms of poverty; including disparities in access to services and opportunities for vulnerable men, women, boys and girls. The UN recommends that the Government give the same level of priority to tackling inequality and poverty and investing in human development as is currently accorded to restructuring the economy and containing macro-economic instability.

Good governance is essential for achieving Viet Nam’s development goals. The UN acknowledges the commitments made by Viet Nam in ratifying the UN Convention Against Corruption (UNCAC). Laudable efforts have been made to enhance compliance with, and implementation of, UNCAC.

2011 marks five years of implementation of the Anti-Corruption Law. The UN acknowledges the tremendous progress made to strengthen legal frameworks, however notes the slow pace of implementation. In line with the second phase of Resolution 21/NQ-CP on the Anti-Corruption Strategy towards 2020, the UN urges the Government of Viet Nam to focus on strengthening the roles and mandates of anti-corruption agencies so they can become stronger watchdogs. Simplified administrative procedures, cracking down on corruption and leakages, and greater participation of civil society organizations in development can go a long way to improving accountability and transparency.

As confirmed at the recent High-level Forum on Aid Effectiveness in Busan, the Official Development Assistance (ODA) environment is becoming more complex globally. New players are entering the field, private aid is playing a greater role and more donors are earmarking their support. The net result is greater fragmentation and more limited Government leadership at a time when unity of effort and national ownership is essential. This is also evident in Viet Nam, where ODA is largely still delivered in a fragmented way, leading to inefficiencies and high transaction costs.

In this context, the UN and other development partners urge Government to adopt a more streamlined approach to ODA management and coordination processes.  The revision of Decree 131 presents an important opportunity to make progress in this regard. However, the UN remains concerned that the revisions will not be far-reaching enough to ensure simplified practices and procedures and reduce inefficiencies. As awareness of Decree 131 remains uneven among Government implementing partners at all levels, effective implementation and dissemination of the revised decree will be important.

The UN, in consultation with the Government, will shortly finalize the next One UN Plan 2012-2016, which represents progress towards key aid effectiveness principles.  The Plan is the joint programming framework for 17 participating UN organizations, and was developed through a joint and consultative process involving government, development partners, civil society and UN agencies.  The One UN Plan 2012-2016 is aligned to the SEDP timeframe and priorities and identifies key areas of focus for the UN in the coming period.  The UN looks forward to close collaboration with all its partners in the implementation of the One UN Plan for 2012-2016.

Over the next five years as Viet Nam implements the SEDP, under the oversight of the 13^th National Assembly, the country may face new risks and challenges. An uneasy global economic outlook coupled with internal factors is contributing to a difficult domestic economic situation that will impact on the quality of life of people.

In this context, the UN encourages the Government to pursue balanced socio-economic development. On the one hand this will require moving forward on economic reforms to achieve
Viet Nam’s aspirations of becoming a modern industrialized society and economy by 2015.  At the same time, Viet Nam will need to ensure that growth is inclusive, sustainable, equitable and pro-poor, and boost investment in human development so that all people have access to opportunities and the chance to realize a better life. Coping mechanisms will need to be built at all levels to support people to endure shocks and address poverty and vulnerability in all its forms. Also critical will be continuing to strengthen the oversight and monitoring role of key national institutions, encouraging greater transparency and accountability and giving greater voice to civil society and the people in policy making, policy implementation and policy monitoring processes.

Over the coming period, the UN Country Team will support the Government and people of Viet Nam to realize these aspirations, by ‘Delivering as One’ for inclusiveness and equality.

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