Letter No. 2

                            SOCIALIST REPUBLIC OF VIETNAM


                                                                                          June 6, 2003

International Development Association
1818 H Street, NW
Washington, DC 20433
United States of America


                                            Re: Credit No. 3767 VN
                                           (Public Financial Management Reform Project)
                                           Performance Indicators

Dear Sir/ Madame:

        We refer to paragraph 8 (a) of Schedule 4 to the Development Credit Agreement (Public
Financial Management Reform Project) of even date herewith between the Socialist Republic of Vietnam
and International Development Association concerning Performance Indicators.

        We hereby agree that the Performance Indicators to monitor and evaluate the carrying out of the
Project and the achievement of the objectives thereof are those set forth in the Annex to this letter.

       Please confirm the agreement on behalf of the Association to the application of these
Performance Indicators by signing the form of confirmation below.

                                            Very truly yours,

                               SOCIALIST REPUBLIC OF VIETNAM


                                           By /s/ Le Duc Thuy
                                        Authorized Representative



Confirmed:

International Development Association


By: /s/ Klaus Rohland
        Authorized Representative
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                                                                                                ANNEX

                               KEY PERFORMANCE INDICATORS


Sector Indicators

(a)     Establishment of a sustainable and publicly disclosed Medium-Term Fiscal Framework (MTFF).

(b)  Establishment of sector-level and provincial-level Medium-Term Expenditure Frameworks
(MTEFs) increasingly aligned with MTFF and CPRGS goals.

(c)     Reduced discrepancies between budget plans and end-year out-turns.

(d)     Timely, annual publication of detailed and accurate budget data and budget out-turns at each
level of government.

(e)     Reduced corruption and reduced perception of corruption in use of state budget.

(f)     Progress against CPRGS goals through better budget management.

(g)     Sustainable public debt ratios, with portfolio reflecting an appropriate debt and fiscal risk
strategy.

Outcome/Impact Indicators:

(a)     Accuracy, timeliness, relevance, transparency and compliance with international best practices in
budget execution and reporting at each level of government.

(b)    Better planning of the State Budget and the Public Investment Program to achieve the growth
and poverty reduction goals set out in the CPRGS.

(c)    Greater fiscal sustainability through improved and more integrated recording of external and
domestic public and publicly guaranteed debt, improved capacity to monitor SOE liabilities, and
improved ability to assess associate fiscal risks.

Output Indicators

Part A of the Project: Strengthen Treasury and Budget Management

(a)   Utilization throughout government of an integrated chart of accounts for treasury and budget
management and spending units, consistent with appropriate international standards (by end 2004).

(b)    Implementation of TABMIS in Treasury head office, MOF, MPI and one pilot province (by end
2005), with relevant staff trained.

(c)    Roll-out of TABMIS to all Treasury offices in provinces and districts (by end 2007), with
relevant staff trained.
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(d)     Roll-out of TABMIS to Finance departments and planning departments at provincial and district
level (by 2008), with relevant staff trained.

(e)      Piloting of TABMIS in selected large spending units (by 2008), with relevant staff trained.

(f)      Progress on the road from cash to accruals accounting and to a Treasury Single Account.

Part B of the Project: Strengthen State Budget and Investment Planning

(a)      5 year MTFF prepared as part of 2005 budget cycle, and rolled over, updated and published as
part of each subsequent budget cycle.

(b)     MTEFs successfully piloted in two sectors and two provinces as part of 2005 budget cycle; rolled
over and updated in the first two sectors and provinces, plus piloted in a further two sectors and
provinces, as part of 2006 budget cycle; and rolled over, updated and published in all four sectors and all
four provinces in subsequent years.

(c)      Budget planning module of TABMIS tested and implemented in all 61 provinces by 2008.

(d)      Workshops on medium-term expenditure planning provided to all relevant senior government
officials by 2006, with consensus for wider roll-out of medium-term budget planning emerging.

Part C of the Project: Strengthen the Management of Public Debt and Other Fiscal Risks

(a)     Identification of a lead department in MOF to direct debt management across Government, with
appropriate regulations issued by end 2004.

(b)      Approval and publication of debt management objectives by end 2005.

(c)     Domestic debt recording system (able to provide consolidated public debt data, including
external debt) established and operational by end 2005, with key staff trained in new systems/practices.

(d)      Analytical capability in debt management enhanced with critical staff identified and trained.

(e)      SOE liabilities monitoring practices established and operational by end 2006, with key staff
trained in the use of this information to make preliminary assessments of associated risks.

Part D of the Project: Project Implementation Support

(a)      Key project staff and equipment in place by 2004 and throughout project implementation period.

(b)      Full compliance with procurement, financial management and reporting requirements.




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