Improving Public Investment Management

The investment capital demand for Vietnam's seaport system is estimated at VND351,500 billion for the 2021–2030 period

Addressing overlaps in the legal framework

Recent revisions to the Public Investment Law include formalizing special mechanisms by the National Assembly for specific cases. Projects spanning many provinces, districts or communes have been simplified to overcome barriers in starting and managing such projects. Other improvements include raising approval thresholds at various levels and delegating authority in some cases, which reduces the need to report to the National Assembly or Prime Minister.

However, the legal framework for public investment is currently regulated by eight different laws. These laws define roles, powers and responsibilities for many central and local agencies, including the Prime Minister, National Assembly, ministries and provincial People's Committees. When a public investment involves many provinces and cities, the situation becomes even more fragmented and confusing.

Many legal documents and decrees are inconsistent, offering overlapping preparation and approval guidelines for different project types or capital uses. While investment capital is allocated under the Public Investment Law, the budget is often governed by the State Budget Law.

Additionally, although the Public Investment Law and the Construction Law require project appraisal from the start, other legal and budgetary factors reduce the incentive for thorough pre-audit appraisal. Specifically, whether a project continues depends on its inclusion in the fixed five-year capital limit, known as the Medium-Term Public Investment Plan. Once a project is included in the plan, there is no mechanism to remove it, and it will eventually be implemented. Due to this rigid framework, the incentive to conduct a thorough pre-audit based on solid feasibility analysis is weak.

Delays in project preparation and under-budgeting of public investment have become chronic. In 2024, public investment disbursement reached only 77% of the planned amount - similar to the average for lower-middle-income countries, but much lower than upper-middle-income countries (94%) and high-income countries (96%). A World Bank case study of projects in Da Nang found that delays were mainly caused by adjustments during the project life cycle and were especially long for large projects. The average preparation time for adjusted projects was 16 months, compared to 8 months for non-adjusted projects, showing a complex adjustment process. When weighted by project size, delays were even longer: 37 months for adjusted projects versus 13.5 months for non-adjusted ones. This indicates that preparation time for high-value projects is much longer than for low-value projects.

The scope of public investment remains too broad, covering various financial transactions, not just fixed assets. Poor coordination between localities and the central government has led to overlapping investments - especially since some provinces were very small before the process of merging provincial-level administrative units. This overlap is evident in the seaport, airport and hydropower sectors. Vietnam has 34 seaport clusters of different sizes across provinces, but 95% of cargo moves through just three clusters managed by the Ministry of Transport. There are 22 airports nationwide, but only eight are international; the rest can only handle small, narrow-body aircraft. Most airports operate at a loss and cannot even cover their operations and maintenance (O&M) costs. In three Central Highlands provinces: Dak Nong, Gia Lai and Kon Tum, 256 small and medium hydropower plants have been approved and are operating without sufficient consultation with affected stakeholders.

The main problem in project selection is that public investment planning in Vietnam has not given enough attention to exploring different options to reach the same goal. According to the World Bank, a serious weakness of the Public Investment Management (PIM) system is the failure to consider alternatives early in the process. At the “pre-feasibility” stage of the project cycle, best practice calls for evaluating a range of options and showing why the chosen solution (or solutions) is preferable, before examining it in more detail during the feasibility study.

The legal framework for public investment is currently governed by eight different laws

Raising the standard of public investment projects

In fact, countries that have advanced beyond the upper middle-income stage are those that have quickly increased public investment spending and improved its quality. Vietnam has made progress in both areas but must continue this momentum to help businesses grow and achieve high-income status.

To address the fundamental weaknesses holding back the public investment program, the World Bank recommends that Vietnam strengthen its capacity and processes alongside legal reforms. This includes better project preparation before adding them to the Medium-Term Public Investment Plan and enhancing mechanisms to eliminate low-quality projects. Additionally, delays can be cut by introducing resettlement plans earlier in the project cycle and increasing decentralization.

Additionally, transparency in the public investment planning process would bring many benefits but needs improvement. Providing access to key documents will encourage critical thinking, helping to eliminate projects that are unfeasible or not the best solutions. This will increase public infrastructure aligned with the economy’s needs and reduce uncertainty for businesses, allowing them to plan their operations based on information about future investment locations.

According to the World Bank’s assessment, the current legal framework for public investment is very complex, involving many laws and stakeholders such as ministries and local authorities. This complexity makes addressing the system’s weaknesses difficult. Since most public investment happens at the local level, cooperation between provinces and cities needs to be strengthened. Additionally, better integration between public investment management and budget estimates is necessary. Vietnam also needs to improve public asset management by reducing information fragmentation and reluctance to share data. The Public Investment Law and the State Budget Law should be further amended to close gaps between the budgeting process and the investment cycle.

The World Bank finds Vietnam’s public investment legal system very complex, with many laws and stakeholders like ministries and local governments. This makes fixing its problems hard. Since most investment happens locally, cooperation between provinces and cities must improve. Also, better links are needed between managing investment and budgeting. Vietnam should improve public asset management by reducing scattered information and data sharing issues. The Public Investment Law and State Budget Law need updates to better align budgeting with the investment process.