HOW WILL VIET NAM BLOSSOM? Reforming institutions for effective implementation 2045 2021 1986 VIET NAM SYSTEMATIC COUNTRY DIAGNOSTIC UPDATE - 2021 INFORMATION AND COMMUNCATION PUBLISHING HOUSE Every five years, the World Bank Group proposes a Systematic Country Diagnostic for its member countries. At the end of 2021, the emphasis for Viet Nam is on the priorities for an efficient, sustainable and inclusive post Covid-19 recovery toward a high-income economy in 2045. The country will have also to raise its implementation performance by considering five major reforms that will make its institutions fit for the 2045 aspiration. Scan to download FULL REPORT OVERVIEW Information and Communication Publishing house @2021 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of the World Bank with external contributions. 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EMBARKING ON AN INSTITUTIONAL REVOLUTION Viet Nam aspires to reach upper middle development priorities into concrete income by 2035—prosperous, creative, actions. Streamlining administrative equitable, and democratic—and high processes will increase the effectiveness income by 2045. Reaching middle income of government at all levels. Using market- requires the accumulation of human based instruments will motivate public and physical capital and the sustainable and private stakeholders. Enforcing rules use of natural resources. Reaching and regulations will enhance motivation, high income requires using assets and trust, and fairness. And engaging in resources much more efficiently and participatory processes will secure OVERVIEW strengthening market-based institutions. greater transparency and accountability. 1 Realizing those aspirations demands a Building that platform will underpin dramatic shift in economic model and the country’s vision for economic a sharp improvement in coordinating development, its capacity to implement and implementing economic policies national strategies, and its motivation and plans. Viet Nam has long relied on to produce results. Its vision will require an abundant youthful labor force and leadership at the top to provide clear extensive stocks of agricultural and direction about strategies, priorities and mineral resources. Using resources to enhance rapid and inclusive growth made sense for reaching lower middle income today, but such a model faces diminishing returns and is unsustainable in the longer term. Viet Nam also needs to move from Reaching high income implementing its policies and plans fairly well but unevenly to ensuring consistently requires using assets strong implementation across the board. and resources much Sharply improving implementation more efficiently and requires building a platform of five strengthening market- institutional reforms. Creating a solid institutional anchor will transform based institutions. How will Viet Nam blossom? plans and to coordinate agencies so a mechanism to collect and share timely that they work together at and across information with key stakeholders all levels. Its capacity will depend on the financial and technical resources needed Can Viet Nam close the implementation to translate priorities into action plans gaps on so many economic fronts? Yes. It and targets. And its motivation will derive did so with the Doi Moi, reforms initiated in from incentives that create a sense of 1986 to create a socialist-oriented market individual and collective responsibility for economy. And in response to Covid-19, it achieving the country’s vision and from has started to do so once again. SHIFTING THE ECONOMIC AND IMPLEMENTATION MODEL OVERVIEW In these challenging times, Viet Nam democratic—it has become increasingly needs to navigate a series of shifts—from timid in its policy reforms and 2 focusing on the quantity of growth to implementation. Two key challenges focusing on its quality, from dealing with threaten its development aspirations. urgent issues to dealing with structural First, the Covid-19 pandemic, coupled with problems, from engaging in incremental slowing globalization (“slowbalization”1) experimentation and rollout to launching and rising recognition of the country’s an institutional revolution (the second vulnerability to external shocks, Doi Moi), and from experiencing especially climate shocks, has unleashed implementation shortfalls to delivering on substantive challenges to Viet Nam’s six development priorities that demand current growth model. Second, the immediate and greater attention (figure uneven implementation record of the past 1). Using resources with greater efficiency 35 years has left Viet Nam’s institutions is more important than increasing them underprepared to address more complex, at all cost. Doing that means relying on often cross-cutting development trials, high-value products and services, digital such as climate change, or to facilitate transformation, green growth, modern the transition to a higher-income infrastructure, diversified and inclusive society. These two challenges—one with financial markets, and universal social contemporary roots, the other historic— protection. are expected to reorient the country’s development priorities and alter the As Viet Nam has grown bolder in its actions that Viet Nam needs to take to development aspirations—to become achieve its development aspiration of prosperous, creative, equitable, and becoming a high-income country by 2045. Reforming institutions for effective implementation FIGURE 1. SIX DEVELOPMENT PRIORITIES Adjusting to slowing globalization by focusing on higher value addition of exports and increased trade in services. Accelerating digitalization of the economy. OVERVIEW Moving from a growth at any cost mindset 3 to an emphasis on building a green and sustainable economy. Stepping up infrastructure by improving the quality of public spending and enhancing private sector solutions. Balancing banking sector stability with expansion of financial inclusion and deepening capital markets. Shifting from piecemeal poverty reduction efforts to a nationwide social protection program. How will Viet Nam blossom? Viet Nam has epitomized successful combination of a country’s productive, development over the past 35 years, but physical, human, and natural capital. the government recognized as early as Optimizing wealth accumulation requires 2010 that it had to adjust the country’s improving the efficiency of all four growth model. The traditional drivers of categories of capital. growth—accumulating physical capital, having a fast-growing youthful workforce, l Improving the efficiency of productive and expanding manufacturing, mostly in capital requires the entry or labor-intensive sectors—were gradually development of competitive firms running out of steam. and the exit of noncompetitive ones, so that resources are allocated to the Three major diagnostic studies produced most productive and innovative firms. between 2016 and 2020 to probe how Achieving that depends on having to structure this new growth model a supportive business environment all emphasized shifting to greater that draws on transparent regulations efficiency.2 International experience and legal protection to ensure healthy reveals that achieving middle-income competition; providing equitable OVERVIEW status requires accumulating physical access to infrastructure, public 4 and human capital and using natural services, and finance; and rewarding resources. But transitioning to high innovation. income demands using new and existing assets and resources, including l Improving the efficiency of physical human and natural resources, more capital–beyond the development efficiently and strengthening market- of modern infrastructure–requires based institutions3. Efficiency advances are needed to generate the productivity gains in output and improvements in quality that are expected by a more sophisticated middle-class population. In National weath early 2021 the government adopted the accummulation Socio-Economic Development Strategy for 2021–2030, which included many of is defined as these recommendations. the combination A wealth asset framework—as in the of a country’s recent Vibrant Viet Nam report—provides a simple organizational framework for productive, analyzing how to make the Vietnamese economy more efficient. It defines physical, human, national wealth accumulation as the and natural capital. Reforming institutions for effective implementation Photo credit: Celebrating the Viet Nam’s National Day @ Minh Truong/People’s Army Newspaper more efficient management of public to turn its attention to the quality of investment, including in the operation, health care, especially in view of a maintenance, and use of public assets rapidly aging population. OVERVIEW to raise the quality of infrastructure 5 services. Better public investment l Improving efficiency in natural capital planning and coordination are needed requires attending to sustainability and to optimize synergies between resilience, areas in which Viet Nam is economic sectors and across lagging many of its peers. Sustainable region. In the provision of quality development involves a shift from infrastructure, priority should be given liquidating natural assets for short- to partnerships with the private sector term growth to using resources more and with the more efficient state- efficiently over the longer term. It also owned enterprises. requires transitioning to a low-carbon economy, with many opportunities l Improving the efficiency of human for more effective natural resources capital requires developing advanced management, stricter pollution university-level and vocational- control, and greater resilience to technical skills and supplying the the impacts of climate change. social protections needed for a middle- Countries that manage their natural income economy. As the relative size assets carefully are able to move up of the labor pool shrinks, efficiency the development ladder—investing as well as equity demands removing more in manufactured capital, entry barriers, including discrimination infrastructure, and intangible capital, and information gaps. Having already such as human skills and education, achieved near-universal health care strong institutions, innovation, and coverage, the Government now needs new technologies. How will Viet Nam blossom? BUILDING THE PLATFORM OF INSTITUTIONAL REFORMS To achieve upper middle-income priorities. And the bar has been raised status by 2035 and high-income even higher for Viet Nam in a dynamic status by 2045, Viet Nam needs world where all upper middle-income to move from relatively good but countries are making strong progress. uneven implementation of reforms to consistently strong implementation, Building a platform of five institutional while recognizing that some priorities reforms can help the government are more complex and require develop better vision, capacity, and more difficult policy trade-offs. motivation, the key determinants of The Government has delivered on efficient implementation. These five its promise to catch up with lower reforms (figure 3) give specificity to middle-income countries in three of the steps needed to modernize the OVERVIEW six priorities but not in the other three country’s institutions and establish (figure 2). The uneven implementation the conditions needed to elevate 6 has been particularly evident for the government’s implementation the priority of moving toward performance: greener growth, which is almost 40 percent below the lower middle- l Create a solid institutional anchor. income country threshold. To reach l Streamline administrative processes. thresholds achieved by upper middle- l Use smart market instruments. income countries, Viet Nam will need l Enforce rules. to strongly boost its implementation l Engage in participatory processes. performance in five of the six Viet Nam will need to strongly boost its implementation performance in five of the six priorities. And the bar has been raised even higher for Viet Nam in a dynamic world where all upper middle-income countries are making strong progress. Reforming institutions for effective implementation FIGURE 2. HOW MUCH VIETNAM NEEDS TO IMPROVE ITS IMPLEMENTATION PERFORMACE TO REACH UPPER MIDDLE INCOME 170% The percentages on the x axis capture Trade 0% Viet Nam’s past implementation Required performance improvement to reach the upper middle income threshold performance in pursuing its six main development priorities to reach lower Lower middle income threshold 150% middle income. And those on the y axis, how much Viet Nam has to improve it implementaion performance on the six priorities to reach upper middle income. 130% For example, Viet Nam’s implementation performance for its finance priority fell short of reaching its OVERVIEW objective of lower middle income by 9%, and it has to improve by 68 percent to 7 110% reach upper middle income. Upper middle income threshold 90% Infrastructure 24% 70% 36% 38% Digital 50% Environment 49% Poverty/social protection 30% Finace 68% 30% 50% 70% 90% 110% 130% 150% 170% Past performance in relation to the lower middle income threshold How will Viet Nam blossom? FIGURE 3. A PLATFORM OF INSTITUTIONAL REFORMS TO CREATE THE DETERMINANTS OF EFFICIENT IMPLEMENTATION Solid institutional anchor Streamlined administrative processes OVERVIEW QUALIT Y OF 8 IMPLEMENTATION PERFORMANCE Smart market DETERMINANTS instruments Enforcement of rules Participatory processes Reforming institutions for effective implementation Each institutional reform will shape interpreted as directions for stimulating the determinants of implementation debate and making decisions. Because and thus boost implementation Viet Nam has already successfully performance across all six priorities. The applied the proposed platform of current status of each proposed reform institutional reforms in managing for more efficient implementation of the Covid-19 crisis in 2020, it should priorities is evaluated below, paving be able to replicate the reforms to the way to recommendations based on systematically improve implementation best (local and international) practices. performance of its other development These recommendations can be priorities. Create a solid institutional anchor to transform reform visions into actions A solid institutional anchor is required to Constitution in 1992.4 Accordingly, the OVERVIEW secure strong leadership and coordination- main functions and responsibilities of 9 two components of the vision. Inter- key ministries have changed little as well. agency coordination is difficult without This stability has benefits, but it has also a strong and specific institutional home delayed the adaptation of the institutional for reforms, whatever the sector. Without framework even as the economy has an institutional anchor, policy messages grown thirtyfold. The problem is acute. from leaders are easily diluted and Development priorities have been unlikely to be translated into concrete evolving while institutional arrangements plans and actions. This diminishes the to implement them have not adapted, likelihood of developing a whole-of- especially for aligning implementation Government framework that can assign for complex, cross-cutting challenges responsibilities across institutions and such as climate change adaptation and of defining each institution’s functions, mitigation, environmental protection, skill relationships, and accountabilities, both development, and digital transformation. vertically and horizontally. The absence of an institutional anchor reduces The Government has improved its accountability—and thus motivation—as implementation performance when institutional functions and responsibilities it has adapted its institutions to are fragmented across agencies and not changing conditions and priorities. clearly defined. The strengthening of the Ministry of Industry and Trade was key in the The Government organizational structure successful implementation of trade has changed little since adoption of the liberalization reforms in the mid-1990s. How will Viet Nam blossom? The Government has improved its implementation performance when it has adapted its institutions to changing conditions and priorities. Photo credit: Grand Ballroom, National Assembly Building @ Duy Linh Similarly, elevating the Committee for steering committees can complement OVERVIEW Ethnic Affairs to ministry rank and thus but cannot substitute for a strong 10 to participation in cabinet discussions institutional anchor, because it does led to greater poverty reduction among not confer adequate legitimacy and ethnic minority groups. Accordingly, Viet may not send a clear message to Nam has outperformed lower middle- individual ministries, which may income countries and many upper continue to act independently. middle-income countries on the trade and poverty reduction priorities. l Consolidating key and related functions and responsibilities in one The main recommendation would institutional anchor. This has been therefore be to better align the effective in Viet Nam, as evidenced institutional framework with the six by the experience of the Ministry of development priorities. While institutional Industry and Trade. The Netherlands reforms need to be carefully evaluated, has merged the Ministries of three directions can be derived from the Economy and Climate Change for historical evidence in Viet Nam and from dealing with the priority of climate international experience. change, and other countries, including Singapore, Thailand, and the United l Anchoring implementation of Kingdom, have consolidated their each priority on strong, high-level digital transformation agenda around institutional arrangements—often one strong institution. Consolidation with direct reporting to the Prime does not necessarily mean vesting Minister. This is imperative. Ad hoc all implementation responsibilities Reforming institutions for effective implementation in one ministry or agency, but rather implementing increasingly complex establishing efficient institutional priorities that require strong regional mechanisms to coordinate and coordination and economies of integrate decisions. scale. Many development challenges such as climate change and water l Adapting the decentralization resources or air pollution are framework to current conditions. Most transboundary. Reducing the number fiscal decentralization rules have not of provinces and establishing regional been altered since 1996. The current coordination, or perhaps governing, fragmentation across a high number bodies could be an option. of provinces has been ineffective for Streamline administrative processes to improve Government effectiveness OVERVIEW 11 Streamlined administrative processes promptly and take prudent risks with are crucial for enabling the proper new initiatives. Streamlined procedures functioning of public administration in the business environment reduce and influencing the determinants of transaction costs and delays and can capacity and motivation. They are also diminish opportunities for bargaining a key element for effective coordination and corruption, contributing to improved among government agencies and transparency. relationships between the Government and private stakeholders. Administrative The heavy administrative burden imposed processes influence Government on almost all ministries and agencies effectiveness through multiple channels. is a legacy of French colonialism and An important one is accelerated decision- the centrally planned economic system. making and approval processes that In 2016, the Government launched a enable administrative units to respond nationwide and provincewide initiative effectively and efficiently to emerging to rationalize administrative procedures. challenges, freeing time for more creative Approximately 1,000 business licenses tasks. Effectiveness and efficiency are and two-thirds of specialized inspections also enhanced when administrative of goods were eliminated by the end of processes are not overcentralized and 2020. To advance this rationalization, when civil servants are empowered to the authorities have used benchmarking make decisions and are held accountable to monitor and compare progress over for them, motivating them to act time. Since 2019, the greater attention How will Viet Nam blossom? of Government to the digitalization of to be intensified, but they might not administrative procedures has reduced be sufficient. Another option to further the transaction costs associated with incentivize administrative reforms many procedures. has been to provide civil servants or administrative units with appropriate All these efforts at rationalization, financial awards or key performance benchmarking, and digitalization need indicators. Use market-based instruments to motivate public and private stakeholders Three first-order principles for a well- the country’s development priorities have functioning market economy are making improved considerably. Its dramatically the same information available to all successful trade liberalization was based participants, ensuring fair competition in on these three principles. In contrast, weak OVERVIEW market entry and exit, and using pricing implementation of the environmental/ 12 mechanisms to achieve supply and climate change priority reflects, to a large demand equilibrium. Applying these extent, limited access to information principles can influence the quality of and the misalignment of prices to the implementation, especially through their country’s priorities. The question is why impact on planning, accountability, and those market instruments are not used transparency. For example, good and more widely in all priorities. timely information is crucial for allocating resources optimally and for monitoring their use for their intended purposes. Competition encourages innovation and incentivizes market participants Competition and government agents to improve performance. Finally, in a market economy, encourages prices are the main signal for participants to adjust their behavior. The challenge for innovation and Government interventions is to correct incentivizes market market failures that prevent the application of these three principles without creating participants and new government failures. government When Viet Nam has applied the three basic agents to improve principles of a market economy, its vision, capacity, and motivation to implement performance. Reforming institutions for effective implementation Economically successful countries designing information campaigns to have been able to reduce potential explain complementarities that justify, resistance from losers while optimizing for example, increasing prices/tariffs to gains for winners. These approaches improve the quality and sustainability have included combining pricing of public services or deploying climate instruments, taking advantage of events financing instruments to reduce that modify the existing equilibrium greenhouse gas emission. to create coalitions of winners, and Enforce rules and regulations to enhance motivation, trust, and fairness While incentives are a powerful complemented by smart regulations. instrument for modifying behavior, Soft regulations can focus on sharing enforcing regulations is a key tool for information to modify behavior and OVERVIEW strengthening motivation and thus encourage negotiations, such as 13 implementation performance. Because requiring information labels on the prices alone do not always achieve energy efficiency or carbon contents the desired effects, competition and of products, which can shape more market pricing are more effective when responsible consumer behavior and Photo credit: Aerial view of Solar panel in Ninh Thuan @ Nguyen Quang Ngoc Tonkin/Shutterstock How will Viet Nam blossom? generate demand for compliance with enforcement has not been consistent socially and environmentally responsible in non-crisis times. Inadequate or production regulations. Harder targets incomplete rules and regulations and lack or ceilings can be set for the quality of monitoring and reporting can lead to of goods or services purchased with weak enforcement. Proper enforcement public money, or controls or prohibitions requires an uncorrupted monitoring and can be placed on the use of products inspection system, accompanied by detrimental to the environment or strong and independent regulators and people. Ultimately, it is important to a judicial system that enforces property find the right balance between carrots rights and consumer protection against and sticks and, when sticks are used, to potential abuses. Because developing strengthen monitoring and enforcement and applying an inspection system capacities. that achieves the highest levels of compliance, while keeping regulatory The Government has been especially costs and administrative burdens low, good at motivating citizens to follow is a major challenge, new information rules during an emergency, especially technologies and digital data platforms OVERVIEW one that is defined as a common enemy can be a promising resource for efficient 14 or threat to the national welfare. However, enforcement. Engage in participatory processes to secure greater accountability and transparency Information is the nervous system of a and of active policies adopted by the country’s political, economic, and social Government. system. Just as the human nervous system tells the brain where the body The government has applied participatory needs attention, transparent flows of mechanisms unevenly or selectively information are necessary for an efficient across priorities, most notably in the use participatory process. Once information of data to monitor and share progress is collected and shared, stakeholders with stakeholders. Comparing selected can provide informed feedback to outcome indicators with targets can policymakers. A mechanism for sharing lead to more consistent monitoring of information gives stakeholders a voice, implementation performance. Sharing leading to better resource allocation the results with stakeholders can improve decisions and stronger accountability. accountability and create a sense of Participatory processes are generally the common ownership that strengthens the joint outcome of the demands of society reform process. Reforming institutions for effective implementation Data need to be effectively used to the Covid-19 pandemic: collecting data, address priorities. This could be done providing open access to data, and using using the same three step-approach that digital tools to collect, standardize, and Viet Nam adopted so successfully during share more information and data. Together, the five institutional reforms constitute a platform for efficient implementation While each of the five institutional reforms Ministry of Industry and Trade (MOIT), can contribute to the improvement of thus creating a clear leadership the determinants of implementation, hierarchy. Empowering the MOIT only applying them together will make with decision-making authority a real difference to implementation enhanced its effectiveness in leading OVERVIEW performance. This is well illustrated by the country’s international economic 15 Viet Nam’s radical but highly successful integration agenda. move during the 1990s and 2000s from being one of the most closed economies l Gradually streamline administrative in the world to being one of the most open. processes and procedures by The Government used the institutional establishing special regimes for reform platform to: strategic investors, including those established in export and industrial l Constitute an institutional anchor by parks; delegating approval processes establishing the National Steering to the provinces (notably for foreign Committee for International Economic investment); and setting up a single Integration and strengthening the window for customs procedures. While each of the five institutional reforms can contribute to the improvement of the determinants of implementation, only applying them together will make a real difference to implementation performance. How will Viet Nam blossom? l Apply a market-based approach to environmental, labor, and social creating competition by reducing regulations even if there are still barriers to entry and lowering external huge variations in performance and tariffs to change relative prices sanctions. between tradable and non-tradable goods. Multilateral and regional l Enhance participatory processes by trade partnerships, with transparent using open data and consultations information sharing,5 have been a with key stakeholders, including powerful channel for introducing business associations and citizens, these market mechanisms. as part of the country’s international commitments, thereby reinforcing l Achieve effective enforcement visibility and ownership and by monitoring the compliance by contributing to greater accountability exporters and FDI companies with among decision makers. DRIVING THE INSTITUTIONAL REVOLUTION OVERVIEW 16 By positively influencing the determinants of analyses of the six priorities, of implementation, adopting the five showing scores (from 0, weakest, to proposed institutional reforms will enable 5, strongest) for the determinants and Viet Nam to implement its development their components calculated through priorities more effectively. Drawing on an intensive consultative process.6 the literature on public policy and political The lowest scores are associated with science, a new methodological framework the weakest quality of implementation has been developed to illuminate the determinants, and the highest scores mechanisms of implementation in Viet with the strongest quality. For example, Nam. Implementation performance the quality of vision, capacity, and was deconstructed into the three motivation has been uniformly determinants of vision, capacity, and better for the trade priority than for motivation, which were in turn unbundled the environment or infrastructure into six components (figure 4). priorities. There is a wide range in the quality of the determinants; the Low scores on these three determinants Government has performed better on of implementation performance and strategic leadership and planning than their components explain the uneven on accountability and transparency. implementation performance across Coordination and accountability are the the six development priorities. Figure 5 weakest determinants across almost summarizes the quantitative outcomes all priorities. Reforming institutions for effective implementation FIGURE 4. DETERMINANTS OF IMPLEMENTATION PERFORMANCE AND THEIR COMPONENTS VISION CAPACITY MOTIVATION LEADERSHIP RESOURCES ACCOUNTABILITY commitment at the adequate sets of incentives OVERVIEW highest level and provision and and sanctions that 17 clear direction of allocation of create a sense of priorities that, in financial and individual and Viet Nam, are technical collective ownership captured by capacities and responsibility strategies, resolutions, laws, and directives TRANSPARENCY COORDINATION PLANNING/DESIGN /COMUNICATION processes of translation of mechanisms to organizing agencies priorities into collect and share so they work together actions and relevant information properly across the targets through in real time with key same level action plans and stakeholders. (horizontal) or across regulations levels (vertical) How will Viet Nam blossom? FIGURE 5. HEATMAP OF THE QUALITY OF THE DETERMINANTS OF IMPLEMENTATION PERFORMANCE PRIORITY VISION CAPACITY MOTIVATION Leadership Coordination Resources Planning Accountability Transparency Adjusting to slowing 5 3 4 4 3 4 globalization Accelerating digitalization 4 2 2 3 3 3 Moving away OVERVIEW from a growth at any cost 3 1 1 1 1 2 18 mindset Stepping up infrastructure 3 2 3 3 2 3 Balancing banking sector stability with greater financial 4 3 3 4 2 1 inclusion and deepening of capital markets. Shifting from piecemeal poverty reduction efforts to a 4 3 3 4 4 3 nationwide social protection program. Note: Red is weak quality ([1–2 rating], orange is mixed quality [3 rating], and green is strong quality [4–5]. Reforming institutions for effective implementation Comparing the score of the determinants each 1-point increase in the total score of implementation performance for each of the determinants, implementation priority with the corresponding past performance improves by 5.7 percent.7 implementation performance yields For example, if the Government had an estimate of how implementation demonstrated the same quality of performance might improve if the quality vision, capacity, and motivation for of determinants improved. While only infrastructure as for trade, it would have indicative, this statistical correlation improved implementation performance confirms a positive relationship for the infrastructure priority almost to between the quality of determinants the threshold attained by lower middle- and implementation performance. For income countries. REACHING UPPER MIDDLE AND HIGH INCOME OVERVIEW Like most countries, Viet Nam will have challenge for Viet Nam are to join the 18 19 to find ways to build back better in the graduates. aftermath of the Covid-19 pandemic and meet its ambition to become a high- Viet Nam has arrived at a crossroads— income economy by 2045. The transition the steps it takes today will determine from middle income to high income whether, in two decades, it becomes as status is profoundly challenging. Over successful as Korea. Guided by the six the past 50 years, only a few countries development priorities, Viet Nam can have graduated from low to middle both safely navigate the waters of the income and even fewer from middle to high income. Of countries categorized as middle income in 1965, only 18 were categorized as high income by 2013, including five East Asian countries Over the past 50 years, (Hong Kong SAR, China; Korea; Japan; only a few countries Singapore; and Taiwan, China). Korea, one of the most successful, increased its have graduated income per capita sixfold in the 25 years from low to middle after it reached the level of Viet Nam today (figure 6). Thailand, by contrast, income and even managed to multiply its income per capita less than threefold within the fewer from middle to same time frame. The aspiration and high income. How will Viet Nam blossom? FIGURE 6. EMULATING KOREA WILL REQUIRE VIET NAM TO IMPROVE THE QUALITY OF ITS INSTITUTIONS 1 0.8 Quality of Insitutions Score 0.6 In 2019, Korean institutions 0.4 were in the top 20% of the 0.2 world, while those in 0 Viet Nam in the bottom 40%. -0.2 -0.4 -0.6 -0.8 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 OVERVIEW 20 Viet Nam Thailand Korea Source: Worldwide Governance Indicators Note: The overall quality of institutions is measured as the unweighted average of the score for the six subindicators defined by the World Bank Group methodology: voice and accountability, political stability, government effectiveness, regulatory quality, rule of the law, and control of corruption. post-pandemic era and achieve greater efficient implementation. Viet Nam has efficiency in the use of its capital— already applied several of these reforms, imperative for a strong transition from but implementation has been uneven middle- to high-income status. Acting and generally in response to crisis. on these priorities should lead to better When the country was on the verge of integration into global markets and to economic collapse in the mid-1980s, the more digitally transformative, greener, Government moved daringly to transform resilient, and inclusive growth. the economy from centrally planned to a socialist-oriented market economy. Because these priorities will make a Similarly, the Government boldly reformed difference only if properly implemented, its institutions, using market-based building the platform of five institutional instruments to incentivize farmers in the reforms can help the Government 1980s and strengthening the Ministry of develop better vision, capacity, and Trade and Industry to accelerate trade motivation—the key determinants of liberalization in the mid-1990s. Reforming institutions for effective implementation In the absence of crisis, the Government accelerate institutional reforms. The of the Socialist Republic of Viet Nam has divergent growth trajectories of Korea taken a gradual approach to institutional and Thailand, for example, can be reform, relying on pilot projects before explained to a large extent by differences adopting measures on a larger scale. While in the quality of their institutions over experimentation reduces the uncertainties the past 25 years. Korea’s experience of policy reforms and insulates the rest suggests that it is an opportune time of the economy from possible negative for Viet Nam to act more boldly in its impacts, gradual institutional reforms are institutional reforms. As the Korean often not comprehensive, systematic, or economy matured during the 1980s and timely. Gradualism is also a long process its institutions showed signs of weakness that may not lead to concrete outcomes in handling social and economic changes, and, so, discourages reformers and the Government adopted bold reforms results in lost opportunities. that are similar to those in the proposed platform for Viet Nam. It replaced five- The stop-and-go process of oscillating year economic plans with innovative from bold to gradual institutional reforms agendas to improve planning and provide OVERVIEW has only marginally improved the quality 21 of institutions in Viet Nam over the past 25 years. The Worldwide Governance Indicators (WGI), which collects annual information on six dimensions of governance, reveal that institutional Implementing the quality has even deteriorated slightly since 2015 (see figure 6). The limited five institutional improvement in institutional quality and reforms will require adaptability means that the platform for efficient implementation has not been a change of mindset, widely applied and that institutions are unprepared for the next phase determination, and of economic development. When a commitment. Viet Nam country progresses up the ladder of economic development, it requires now needs a second better institutions to manage the societal issues that emerge with more Doi Moi to rebound extensive and sophisticated markets from Covid-19- pandemic and achieve and respond to the needs of a more demanding society. its goal of becoming a Viet Nam risks falling into a middle- income institutional trap if it does not high-income country. How will Viet Nam blossom? more flexibility in decision processes, the country address the new challenges merged the Economic Planning Board emerging from the Covid crisis and with the Ministry of Finance and Economy implement its development priorities to solidify the institutional anchor, and faster and better. established the Regulatory Reform Committee to streamline procedures and Implementing the five institutional the use of market-based instruments. reforms will require a change of mindset, determination, and commitment. Viet A traditional policy objective in Viet Nam Nam’s top policy makers evidenced such has been to find the balance between a bold change during the Doi Moi in the institutional stability and adaptability. late 1980s, when the country faced one Important changes in the global of its most severe economic crises. context and the desired shift in the Exceptional time calls for expectational country’s growth model toward greater responses. Viet Nam now needs the efficiency suggest giving more weight second Doi Moi to rebound from the to adaptability in the next phase of Covid-19-pandemic and achieve its goal economic development. This could help of becoming a high-income country. OVERVIEW 22 Photo credit: Peach blossom in spring @ Tran Quoc Chinh Reforming institutions for effective implementation OVERVIEW 23 1 The term “slowbalization,” which was coined 5 The Viet Nam Trade Information Portal and by Nobel Laureate Paul Krugman, refers to the Viet Nam Free Trade Agreement Portal were slowing of globalization, characterized by the respectively established in 2017 and 2020 to slowing of global trade. greatly enhance information sharing. 2 The Systematic Country Diagnostics, the 2035 6 The deep dives and consultative process Viet Nam report, and the Vibrant Viet Nam report. was conducted in early 2021 through the establishment of specific groups within the World 3 As most low-income countries, Viet Nam has Bank Group that were chosen because of their relied heavily on its demographic dividend (a technical knowledge and years of engagement young and abundant labor force) and natural with the authorities. These groups included the resources, using its extensive stocks of participation of external experts. For each priority, agricultural and mineral resources to enhance these groups assessed the implementation its economic development over the past performance and quality of each determinant, three decades. Using its natural advantages which were then quantified by assigning specific to enhance rapid and inclusive growth ratings on a scale from 1 to 5 (with 1 being weak during its first phase of development made quality and 5 being strong quality). sense for Viet Nam, a country blessed with abundant agricultural land, water resources, 7 However, this statistical correlation should be and mineral reserves. However, such a model interpreted with some caution as it assumes produces diminishing returns and has become that all determinants have the same weight on unsustainable over time. the implementation performance. It also only captures the impact of a variation in the quality 4 The 1992 Constitution was subsequently of the determinants across priorities at one time, amended in 2001, and replaced by the 2013 but not its evolution over time. The number of Constitution, effective January 1, 2014. observations is also limited. OVERVIEW Content and publishing responsibility INFORMATION AND COMMUNICATION PUBLISHING HOUSE Director - Editor-in-Chief: Website: www.nxbthongtintruyenthong.vn; book365.vn TRAN CHI DAT Editors Headquarters: 6th floor, Radio Frequency Department Building NGUYEN LONG BIEN No. 115 Tran Duy Hung, Cau Giay District, Ha Noi City NGUYEN THO VIET Editorial phone: 84-24.35772143 Design and presentation Publication Phone: 84-24.35772138 Fax: 84-24.35579858 LE BROS E-mail: nxb.tttt@mic.gov.vn Print 300 books, size 19 x 25cm. 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