report no. 67987-vn international development association program document...
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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 67987-VN
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROGRAM DOCUMENT FOR A CREDIT
IN THE AMOUNT OF SDR $ 45.2 MILLION (US$ 70 MILLION EQUIVALENT)
TO
SOCIALIST REPUBLIC OF VIETNAM
FOR A
THIRD CLIMATE CHANGE DEVELOPMENT POLICY OPERATION (CC DPO3)
May 29, 2014
Vietnam Sustainable Development Unit
Vietnam Country Management Unit
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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1
VIETNAM - GOVERNMENT FISCAL YEAR
January 1 – December 31
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of April 30, 2014)
Currency Unit = VND Vietnamese Dong
VND 21,083 =
US$ 1.548 =
US$ 1
SDR 1
ABBREVIATIONS AND ACRONYMS
AAA Analytical and Advisory Activities
ADB Asian Development Bank
AfD Agence Française de Développement
Dfat Australian Department of Foreign Affairs and Trade
CCA Climate Change Adaptation
CDM Clean Development Mechanism
CIDA Canadian International Development Agency
CPS Country Partnership Strategy
CTF Clean Technology Fund
DANIDA Danish International Development Agency
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)
DONRE Provincial Department of Natural Resource and Environment
DPL
DPO
Development Policy Lending
Development Policy Operation
DRR Disaster Risk Reduction
DRM Disaster Risk Management
DSENRE Department 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)
GDE General Directorate of Energy (MOIT)
GDP Gross Domestic Product
GEF Global Environment Facility
GFDRR Global Fund for Disaster Risk Reduction
GHG Greenhouse Gases
GIZ German Society for International Cooperation
GoV Government of Vietnam
IBRD International Bank for Reconstruction and Development
IDA International Development Association
IFC International Finance Corporation
IL Investment Lending
IDMC Irrigation and Drainage Management Companies
IMF International Monetary Fund
IMT Irrigation Management Transfer
IWRM Integrated Water Resources Management
2
JICA Japan International Cooperation Agency
LDP Letter of Development Policy
LWR Law on Water Resources (2012)
MARD 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-CC National Action Plan on Climate Change
NAP-GG National Action Plan on Green Growth
NAP-WRM National Action Plan on Water Resources Management
NCCC National Climate Change Committee
NCCS National Climate Change Strategy
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
PA Prior Action
PCU Project Coordination Unit
PER Public Expenditure Review
PFM Public Financial Management
PIM Participatory Irrigation Management
PMR Partnership for Market Readiness
PRSC Poverty Reduction Support Credit
PSIA Poverty and Social Impact Analysis
PSRDPO 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
UNDP United Nations Development Program
USAID Unite States Agency for International Development
VNCLIP Vietnam Climate Change Partnership
VNEEP Vietnam National Energy Efficiency Program
VGGS Vietnam Green Growth Strategy
WRM Water Resources Management
Vice President:
Country Director:
Sector Director:
Sector Manager:
Task Team Leaders:
Axel van Trotsenberg, EAPVP
Victoria Kwakwa, EACVF
John Roome, EASSD
Jennifer Sara, EASVS
Christophe Crepin, EASER
Thu Thi Le Nguyen, EASVS
3
VIETNAM
THIRD CLIMATE CHANGE DEVELOPMENT POLICY OPERATION
The Third Climate Change Development Policy Operation was prepared by a team consisting of:
Christophe Crepin (Task Team Leader, EASER), Thu Thi Le Nguyen (Co-Task Team Leader,
Operations Analyst, EASVS), Cuong Hung Pham (Sr. Water Resources Management Specialist,
EASVS), Ky Hong Tran (Energy Specialist, EASVS), Ngozi Blessing Obi Malife (Program
Assistant, EASER), Cung Van Pham (Sr. Financial Management Specialist, EAPFM), Dzung Huy
Nguyen (Sr. Disaster Risk Management Specialist, EASVS), Nina Masako Eejima (Sr. Counsel,
LEGES), Huong Thi Mai Nong (Jr. Counsel, LEGES), Pierre Audinet (Sr. Energy Specialist,
SEGES), Tiziana Smith (Consultant, EASER), Habib Rab (Sr. Economist, EASPR), Miguel-Santiago
Oliveira (Sr. Finance Officer, CTRLN), Anjali Acharya (Sr. Environmental Specialist, EACVF),
Tuan Anh Le (Social Development Specialist, EASVS), Defne Gencer (Energy Specialist,
EASWE), Phuong Thu Nguyen (Team Assistant, EACVF), Toru Konishi (Senior Economist,
EASIN), Ashraf Bakry El-Arini (Junior Professional Associate, EASER)
Peer reviewers: Marianne Fay (Chief Economist, SDNVP), Adriana Jordanova Damianova (Lead
Environmental Specialist and Program Team Leader, ECSS3), Andrea Liverani (Sr. Social Specialist,
MNSSO)
4
TABLE OF CONTENTS
1. INTRODUCTION AND COUNTRY CONTEXT 7
2. MACROECONOMIC POLICY FRAMEWORK 10
2.1 RECENT ECONOMIC DEVELOPMENTS 10
2.2 IMF RELATIONS 18
3. THE GOVERNMENT’S PROGRAM 19
4. THE PROPOSED OPERATION 21
4.1 LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 21
4.2 PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS 26
4.3 LINK TO CAS AND OTHER BANK OPERATIONS 34
4.4 CONSULTATIONS, COLLABORATION WITH DEVELOPMENT PARTNERS 37
5. OTHER DESIGN AND APPRAISAL ISSUES 38
5.1 POVERTY AND SOCIAL ASPECTS 38
5.2 ENVIRONMENTAL ASPECTS 40
5.3 PFM, DISBURSEMENT AND AUDITING ASPECTS 41
5.4 MONITORING AND EVALUATION 42
6. SUMMARY OF RISKS AND MITIGATION 44
ANNEX 1: POLICY AND RESULTS MATRIX 46
ANNEX 2: SIGNIFICANT GOV ACTIONS TAKEN TO STRENGTHEN CLIMATE CHANGE
RESPONSE 51
ANNEX 3: LETTER OF DEVELOPMENT POLICY 52
ANNEX 4: IMF ASSESSMENT LETTER 55
ANNEX 5: GOVERNMENT OF VIETNAM UPDATE ON MACROECONOMIC DEVELOPMENTS
IN THE FIRST FOUR MONTHS OF 2014 58
5
SUMMARY OF PROPOSED CREDIT AND PROGRAM
VIETNAM
THIRD CLIMATE CHANGE DEVELOPMENT POLICY OPERATION (CC DPO3)
Borrower Socialist Republic of Vietnam
Implementing Agency Ministry of Natural Resources and Environment
Financing Data
IDA Credit
SDR 45.2 million (US$70.0 million equivalent)
IDA terms for blend countries (25-year maturity with 5-year grace period)
Operation Type Single-tranche programmatic development policy operation; Third of a series of
three operations
Pillars of the Operation
And Program Development
Objective
The Program Development Objective 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
Pillar A (Adaptation): Climate-Resilient Development by Improving the
Resilience of Water Resources (Goal 1)
Pillar B (Mitigation): Lower Carbon Intensity Development by Exploiting
Energy Efficiency Potentials (Goal 2)
Pillar C (Cross-Cutting): Cross-Cutting Climate Change Policies and
Institutional Readiness to Formulate, Prioritize, Finance, Implement and Monitor
Cross-Cutting Climate Change Policies (Goal 3 and 4)
Result Indicators Pillar A: End-of-Program Results (CY 2015): GoV has scaled-up, prioritized and initiated
implementation of key IWRM actions in the context of a new legal and
organizational framework for IWRM that allows a more programmatic,
integrated and adaptive approach to water resources management in support of
CCA.
Baseline: Insufficient legal and institutional basis for integrated water resources
management needed for CCA.
Targets: i) Three new high level legal IWRM instruments are operational with
priority actions taken; ii) Minimum flows established for the Vu Gia-Thu Bon
and Ba rivers and used to guide water allocations decisions during the dry
season.
Pillar B:
End-of-Program Results (CY 2015): Practices to improve energy efficiency are
implemented in large energy users of the industrial sector with related operating
capacity increased.
Baseline: i) 2010 (end of VNEEP 1) level of energy use by heavy industry; ii)
No energy auditors or managers certified by the government.
6
Targets: i) 4% energy savings by heavy industries compared to baseline
(forecast under business as usual scenario); ii) 100 energy auditors completed
training to support energy efficiency practices in industrial sector, of which 50
fully certified and 50 doing on-job training to become fully certified; iii) 1000
energy managers certified to support energy efficiency practices in industrial
sector; iv) 1000 energy efficiency plans and 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.
Pillar C: End-of-Program Results (CY 2015): GoV has improved its planning,
prioritization and financing for climate change action; Additional financial
resources for climate change action are mobilized, planned according to
priorities and a multi-sector allocation process and reported subsequently.
Baseline: i) No agreed tool in place within the MPI SEDP process to plan and
prioritize climate adaptation action; ii) No Province has disaster risk
management and reduction plans in place; iii) Addressing Disaster risk hazards
relies on dispersed and diverse legal frameworks; iv) No additional Financial
Mechanism for allocating budget for climate change action; vi) No government
unit responsible for facilitation/awareness raising on access to climate change
financing.
Targets: i) An Adaptation Prioritization Framework is operational within MPI
SEDP annual cycles and initial implementation reflected in MPI SEDP annual
guideline frameworks and budget reports; ii) Provinces have disaster risk
management and reduction plans under implementation as reflected in the
Government Report on Evaluation of 5 years implementation of the National
Strategy for DRM; iii) A comprehensive unified legal framework to address
climate hazards is operational enabling a stronger focus on DRR; iv) Additional
financial resources are mobilized for climate action, planned according to
priorities and a multi-sector allocation process, and reported subsequently.
Overall risk rating Moderate
Operation ID P131775
7
1. INTRODUCTION AND COUNTRY CONTEXT
1. The Third Climate Change Development Policy Operation (DPO3) aims 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. It is
the third of a series of three operations of an amount ofUS$70.0 million equivalent.
2. Vietnam has witnessed impressive economic growth and poverty reduction in the past
25 years. Political and economic reforms have transformed Vietnam from one of the poorest
countries in the world, with per capita income below US$100, to a lower middle-income country
within a quarter of a century. In 2012, Vietnam’s per capita income was estimated at US$1,755.1
Using a ‘basic needs’ poverty line initially agreed in 19982, the poverty headcount fell from 58
percent in the early 1990s, to 14.5 percent by 2008, and is expected to be well under 10 percent by
20143. The country has attained five of its ten original Millennium Development Goal targets and
likely to attain two more by 2015.
3. Reforms in the early nineties contributed to major competitiveness gains, which enabled
a structural shift from agriculture to manufacturing and services. Investments in physical capital
and human resources led to increased capital and labor productivity. Vietnam’s membership of the
Association of Southeast Asian Nations (ASEAN) and the World Trade Organization (WTO) in 1995
and 2007 respectively, and a series of bilateral trade agreements, promoted reforms and led to higher
private and public sector investments.
4. Higher resolution projections of climate change impacts, vulnerability and sensitivity
for Vietnam provide further evidence of the need for climate response. Vietnam is one of the
world’s most vulnerable countries to climate variability and change. Natural disasters and sea level
rise already have significant economic and human costs, with estimated losses of up to 1.5% of GDP
per year to natural disasters alone.4 The 2012 Government of Vietnam (GoV) climate change and sea
level scenarios project a 2-3°C mean temperature rise and a 57-73 cm sea level rise by 2100.5 The
2012 projections include provincial and sub-provincial level analysis. The scenarios are being
complemented by additional research on downscaled climate impacts and analysis of vulnerability
and sensitivity, in some cases to the city or province level.6 Current recent global emission trends are
actually projected to lead the world to be 2°C warmer by the 2040s, causing Vietnam to encounter
increased unprecedented heat extremes in the summer months, a sea level rise of 30 cm, and nearly
all coral reefs projected to experience severe bleaching. Vietnam will also experience significant
increased saltwater intrusion and coastal erosion, negatively impacting agricultural productivity,
1 Source: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
2 The GSO-WB poverty line was presented in the 2000 Country Economic Memorandum Attacking Poverty (World
Bank, 2000) and is approximately US$1.10 (2005 PPP). It was constructed on the basis of the consumption behavior
of the poor in the 1993 VLSS, and has been updated for inflation for each round of the VHLSS. 3 In September 2010, Vietnam announced a new official poverty rate of 14.2 percent. In June 2012, the World Bank
and GSO, using 2012 VHLSS data, have proposed a new and higher poverty line for Vietnam that is consistent with
its status as a lower-middle income country 4 In Vietnam, natural disasters include floods, storms, flash floods, landslides, inundations, drought and saltwater
intrusion. GDP figures are for the period 2001-2010. Data from GoV 2011 National Climate Change Strategy 51980-1990 baseline, B2 scenario. MONRE 2011. Update to the Climate Change and Sea level Rise Scenarios.
6 For further details please see Analytical Underpinnings section.
8
aquaculture production, and increase the vulnerability of coastal cities.7 Studies continue to indicate
that poor and vulnerable communities will be harder hit.8
5. Vietnam’s Greenhouse Gas (GHG) emissions are growing, especially from the energy
sector, where there is significant potential for mitigation co-benefits. While Vietnam is not a
major global GHG emitter, Vietnam’s national and per capita GHG emissions continue to grow. Both
Vietnam’s total emissions and per capita emissions almost tripled over the past decade while the
carbon intensity of GDP increased by 48%. Vietnam’s energy intensity is the highest among major
East Asian economies. Under business as usual (BAU), Vietnam’s GHG emissions are expected to
triple between 2010 and 2030, with the share of coal in the power generation mix expected to triple
from 17% in 2010 to 58% in 2030. 9 The 2011 GoV Power
Development Master Plan recognizes the need for modernization and
quantifies some of the linkages between energy sector
modernization, energy security, cost reductions, and avoided GHG
emissions. In 2012, Vietnam demonstrated its commitment to low
carbon growth by adopting the national Green Growth Strategy
(GGS), which includes targets for GHG emissions reductions. As
illustrated by the projections shown here, the GGS sets an ambitious
target for mitigation in Vietnam. Energy efficiency is one of the
most significant contributors to Vietnam’s goal of improving
economic competitiveness while lowering GHG emissions. In a low-
carbon development scenario, energy efficiency measures, most of
which have negative marginal abatement costs, have the potential to
reduce electricity demand by a cumulative 350,000 GW between
2015 and 2030, without a detrimental effect on the end service or
product provided.
6. The GoV has demonstrated a strong commitment to, and
continued increasing leadership on, climate change, adopting an approach focused on
adaptation with growing efforts on mitigation. As part of a sustained momentum of climate
change action, the GoV has issued significant guiding documents on climate response, including the
2011 National Climate Change Strategy (NCCS), the 2012 National Action Plan on Climate Change
(NAP-CC) and the 2012 Green Growth Strategy (GGS). The GoV has also developed three
strategically complementary Climate Change Programs: the Support Program to Respond to Climate
Change (SP-RCC) which is the national policy and institutional reform program that follows annual
policy matrixes developed jointly with development partners, is approved by the Prime Minister and
guides this WB DPO series, the National Target Program (NTP) on climate change capacity building
and pilots, as well as the Scientific and Technical Program (STP) on climate change information and
scenario. The GoV is now about to issue the National Action Plan for the Implementation of the
Green Growth Strategy (NAP-GG) while the Central Committee of the Communist Party of
Vietnam, the highest policy making body of the country, has issued Resolution 24 of its XI Congress
on June 3, 2013 on “Responding to Climate Change, protection of natural resources and the
environment”. Moving forward, the GoV has extended the SP-RCC through CY 2016, and is
developing a 2014-2015 policy matrix. The World Bank has been and will remain closely involved in
the SP-RCC policy dialogue, working with other DPs.
7 World Bank (2013). Turn Down The Heat: Climate Extremes, Regional Impacts, and the Case for Resilience. 8 World Bank 2013. Turn Down the Heat II – Global Hotspots and Regional Case Studies: Southeast Asia
9 Vietnam’s Second National Communication to the UNFCCC.
0
100
200
300
400
500
600
2010 2020 2030M
illi
on
s of
Ton
s of
CO
2 e
qu
ival
ent
With GG Strategy Under BAU
Vietnam Projected CO2
Emissions
9
7. The CC DPO3 supports three policy pillars and four goals which have been consistent
throughout the DPO series, as outlined in Table 1. These are selected from the broader policy
matrix of the national SP-RCC based on (i) GoV’s primary strategic priorities for climate response,
and (ii) close complementarity with Vietnam’s socio-economic development plan as well as sector
priorities of the World Bank’s Vietnam Country Partnership Strategy and portfolio. The design of the
CC DPO3 has been closely coordinated with Development Partners involved in the SP-RCC,
resulting in a sustained policy dialogue and synergies in technical assistance (TA) support. The
ownership on all sides of this operation is therefore strong and the risk rating is moderate. At this
stage, the DPO series end of program indicators are expected to be achieved by Q 1 of CY 2015.
Table 1: Overview of Structure and Rationale of CC DPO 3 Pillars
Pillar Rationale
Pil
lar
A.
Ad
ap
tati
on
The water sector was chosen due to the importance and urgency of its adaptation
challenges and inter-linkages with other adaptation sectors, particularly agriculture
and energy. There were important gaps in the GoV WRM policy.
Water Security is a specific objective of NCCS and NAP-CC
Integrated water resources management and water use efficiency are included
throughout GGS
Pil
lar
B.
Mit
iga
tio
n
Enhancing industrial EE is expected to contribute significantly to the GoV target
energy savings by 2015 and can significantly mitigate projected GHG emissions
growth from the energy sector while increasing longer term competitiveness.
EE is a component of the GHG reduction task in NCCS and NAP-CC
EE is a priority under the GGS
The GGS targets to reduce GHG emission from energy by at least 10% by 2020
relative to 2010
Pil
lar
C.
Cro
ss-C
utt
ing
Evolutions to coordinate, guide, increase and monitor efforts, including allocation of
resources, for a more effective response to climate change are critically needed.
Improving GoV climate response financing and capacity is a target under NAP-
CC and specific task under the NCCS and the GGS
The GoV has been successful at mobilizing international financing for climate
response, although has tended to be rather had hoc in the absence of a solid enough
policy framework. There is a need to develop more transparent and effective
mechanisms for mobilizing climate finance.
Mobilization of domestic and international funding is included in NCCS, NAP-CC,
and GGS.
8. The DPO is a critical part of the broader World Bank Group climate change
engagement strategy in Vietnam. The DPO serves as the main programmatic climate policy
dialogue engagement in the World Bank Group’s wholesale approach to addressing climate change
in Vietnam. It is complemented by investment and knowledge support with a growing mainstreaming
of climate response in project development across the portfolio. The World Bank will remain
engaged in climate change policy, institutional and financing development in Vietnam following this
DPO series through AAA and policy and investment lending programs. The nature and modality of
this engagement will be determined following a review of outcomes under this current DPO series,
ability to agree on action oriented policy triggers with the GoV, and consolidating policy actions
under the recently approved green growth action plan with the climate change policy matrix.
10
2. MACROECONOMIC POLICY FRAMEWORK
2.1 RECENT ECONOMIC DEVELOPMENTS
9. Macroeconomic stability continues to improve, underpinned by moderating
inflation and strengthening external accounts. Inflation (y/y) has fallen from a peak of 23
percent in August 2011 to 6.0 percent in December 2013 and 4.4 percent in March 2014 (figure
1). Subdued credit growth and easing of food price increases contributed to this. The decline in
core inflation (excluding food and energy prices) has been more gradual, down from about 14
percent in August 2011 to 5.8 percent in March 2014, reflecting a series of increases in
administrative prices. Pressure on the Vietnamese dong has eased and the exchange rates in the
official and unofficial markets have converged after an adjustment of one-percent to the
reference rate in July 2013 (figure 2). Stronger external trade and capital account flows have
enabled foreign exchange reserves to build up to an estimated US$35 billion (roughly 3 months
of import cover) as officially reported by the government in the first quarter of 2014, up from 1.6
months in December of 2011 (figure 3). Acknowledgement of these positive developments by
financial markets has led to a decline in the sovereign risk on Vietnam’s credit default swap
(CDS) – to levels seen just before the global financial crisis in 2009 (figure 4).
Figure 1: Headline inflation (y/y, %)
Figure 2: VND/USD exchange rate
Figure 3: International Reserves (months of imports)
Figure 4: Credit default swap (bp)
Source: SBV, GSO, IMF and WB
0
5
10
15
20
25
-1
0
1
2
3
4
Monthly (RHS)
Year-on-year
20,000
20,250
20,500
20,750
21,000
21,250
21,500
21,750
22,000
Free market
Official rate (SBV)
Com. bank (mid)
0.0
1.0
2.0
3.0
4.0
2007 2008 2009 2010 2011 2012e 2013e0
100
200
300
400
500
600
700
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
Sovereign spreads
CDS, 5 years
11
Real sector
10. Economic activity remained relatively subdued in 2013. Real GDP growth picked up
from 5.5 percent in Q3 to 6.0 percent in Q4 of 2013. Overall growth is estimated to have
reached 5.4 percent in 2013 and 5.0 percent in the first quarter of 2014, compared to 5.3 percent
in 2012. The services sector was the main driver of growth, contributing 2.8 percentage points to
overall GDP growth whilst industry and agriculture contributed another 2.1 and 0.5 percentage
points respectively.
11. On the production side, activity has been relatively slow in industry and
construction due to weak domestic demand and previous stockpiling of factory inventories.
This seems to be coming largely from domestic enterprises catering to the domestic market,
whilst foreign invested export firms are still performing relatively well. The slowing domestic
sector is reflected quite clearly in the Index of Industrial Production (IIP), which grew at 5.9
percent in 2013 and 5.2 percent in the first quarter of 2014 – a higher pace than the 4.7 percent
increase in 2012 but much lower than the 8 percent increase in 2010-11.
12. Demand side components of GDP have also been growing at a modest pace, except
net exports, which have grown quickly. Total investment was at about 30.4 percent of GDP
for the whole 2013, about 12 percentage points below the peak in 2007. The decline in domestic
private investment, from 16.4 percent of GDP in 2007 to around 11.5 percent in 2013, is
worrisome. Household consumption has been lackluster since the onset of the global crisis,
recording an average growth rate of 4.9 percent during 2009-2013, compared to 7.6 percent
average during the previous 5 years. Business closures and layoffs over the past years took their
toll on the labor market. The Nielsen Consumer Confidence Index indicates a recovery in
consumer confidence in 2013 in Vietnam, remaining well above the average global consumer
confidence level.10
However this has not yet translated into real spending - retail and wholesale
trade growth continued to moderate in in the first quarter of 2014.
External sector
13. Vietnam’s export performance continues to be strong, growing at 15.4 percent in
2013, after 18.2 percent in 2012. Earnings from commodity exports are declining due to falling
prices. Labor-intensive manufacturing exports such as garments, footwear and furniture continue
to sustain rapid growth. But it is the high-tech sector (e.g. cell phones and parts, computers,
electronics, automobile parts), which is showing the fastest growth. In 2013, exports of cell
phones and accessories reached $21 billion, overtaking garments as the largest export item.
14. Import growth picked up in 2013. In 2012 lower demand for capital and intermediate
goods, as well as weaker private consumption, caused imports to moderate at 6.6 percent growth.
Imports grew at 16.1 percent in 2013. In particular, imports of machinery, equipment, raw
materials and intermediate goods have risen faster in 2013 compared to 2012. A new cycle of
investment and production may therefore be underway - offsetting to some extent the pessimism
10
The Nielsen GCCS is an online survey of over 30,000 respondents across 60 countries to measure consumer
attitudes about the job market, spending intentions and changing habits (www.nielsen.com).
12
about domestic investment demand. There are some preliminary indications of a pick-up in
fixed capital accumulation, which is likely to increase further in the coming year.
15. Although foreign direct investment commitments have remained steady, actual
disbursements have declined relative to GDP. FDI disbursements have fallen from an average
of 10.7 percent of GDP in 2007-09, to 8.4 percent in 2010-12, to an estimated 6.7 percent in the
2013. Some sectors that saw significant FDI inflows during the economic overheating of 2007-
2009 include housing, hotels and urban development. However, a shift has been underway, with
a rise in FDI into manufacturing, retail and technology11
.
16. Vietnam is expected to maintain trade and current account surpluses in the near-
term (Figures 5 and 6). The current account recorded a surplus of 0.2 percent in 2011 and 5.8
percent in 2012. In 2013, the current account is expected to record a surplus of 6.5 percent. The
capital account surplus remains sizeable owing to consistent FDI inflows and Vietnam’s
continued access to concessional financing. These developments have contributed to a build-up
of foreign exchange reserves, which however are still below prudential levels for an economy
that is as open as Vietnam’s and that maintains a system that is close to a crawling peg exchange
rate regime. SBV had to intervene in mid-2013 to stabilize the dong and gold market. This
internal flight to non-VND assets still suggests some fragility in VND sentiment.
Figure 5: Trade balance (USD billion)
Figure 6: Balance of payments (% GDP)
Source: GSO, SBV and WB
Inflation and monetary policy
17. Inflation has fallen and remains relatively stable. Headline inflation (y/y) was at 4.4
percent in March 2014, a steep deceleration from 18.1 percent in December 2011. The decline is
largely due to the easing of food prices and the effect of stabilization measures. Food price
inflation, which peaked in August 2011 at 34 percent, grew by 2.9 percent in March 2014 thanks
to abundant supply of agricultural products, easing international prices and reduced growth in
household consumption. However, there remain some upside risks to inflation during 2013/2014
if price of administered goods and services are adjusted to market levels, since user charges for
many public services (healthcare, transport and education services) remain below cost.
11
FDI reports prepared by the Ministry of Planning and Investment
-20
0
20
40
60
80
100
120
140
2008 2009 2010 2011 2012 2013 Q1-14
Exports (FOB)
Imports (CIF)
Balance
-9.0 -11.0
-6.5 -3.8
0.1
5.8 6.5
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
2007 2008 2009 2010 2011 2012e 2013e
Capital account
Current account
13
18. Efforts by the authorities to support growth through easing monetary policy have
had limited impact. Lower inflation in the past twelve months has provided the SBV the space
to cut key policy rates by 800 basis points and lower the deposit rate cap on local currency
accounts by 700 basis points. Most recently, on March 18, 2014, the State Bank of Vietnam cut
its discount and refinancing rate by 50 basis points to 4.5 percent and 6.5 percent respectively
(figure 7). Policy rates are now below the level at which they were when monetary tightening
began in early 2011. Despite this, total credit to the economy from the banking system is
estimated to have grown by only about 9 percent in 2013 compared to the annual target of 12
percent (figure 8).
Figure 7: Key policy rates (%)
Source: SBV
Figure 8: Growth in monetary aggregates (%)
19. Low credit growth can be attributed to several factors. First, the domestic private
sector remains weighed down by low business confidence, thereby moderating the demand for
credit. Second, with their balance-sheets impaired by rising Non-Performing Loans (NPLs),
commercial banks have been cautious in extending further credit to the real sector. Third, the
banks have been focusing on addressing NPLs which has also limited their liquidity due to the
need to increase reserves and provisioning.
20. Under such circumstances, any further monetary easing is likely to have only
limited impact on growth, unless banking sector reforms pick up. It will add to concerns
surrounding credit quality and macroeconomic stability. In order to restore the functions of the
credit market and make monetary policy more effective, restructuring of the banking sector (and
the associated restructuring of SOEs) continues to be an imperative.
21. Important financial sector vulnerabilities remain, creating a drag on overall
economic performance. Concerns about the overall quality of the banking sector portfolio
remain, and the policy response thus far to stem further deterioration of the sector’s financial
health has yet to confirm its effectiveness (discussed further below). NPLs in the banking sector
continue be a major concern. There are concerns regarding quality of banking data (at both
aggregate and bank level) and the limited disclosure of these statistics (by banks and SBV). The
SBV reported an NPL ratio of about 4 percent as of December 2013. However, there is general
acknowledgement that the actual NPL ratio would be higher if international accounting standards
were applied.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14
Discount rate
Refinancing rate
0
10
20
30
40
50
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14
Total credit
Total liquidity
Total deposit
14
22. Vulnerabilities in the banking sector likely present significant risks to overall
macroeconomic stability. There is also a strong – and as yet not quantified – link between the
financial performance of SOEs and State Owned Commercial Banks. High NPLs pose macro-
fiscal risks as fiscal injections may be needed for recapitalization of banks. Foreign investors
can play an important role in helping with recapitalization as well as NPL resolution for the
banking system, once the extent of the required recapitalization is made more precise. The Bank,
together with the IMF, SBV, and MOF, will seek to close these analytical gaps to better assess
these vulnerabilities. There is a general need to strengthen the crisis management framework. .
Fiscal policies and developments
23. Although the government in 2010-2011 successfully reigned in the fiscal stimulus
implemented in 2008-2009, it is now facing serious fiscal challenges due to slowing revenue
collection. The fiscal deficit in 2013 reached 5.3 percent of GDP by government accounting
standards (5.6 percent of GDP by GFSM 2001) compared to planned target of 4.8 percent of
GDP .12
It has therefore overshot the indicative deficit target of 4.5 percent of GDP (2011-2015)
in its fiscal strategy, adopted through Prime Minister’s Decision 958 (2012). The primary deficit
is estimated to have increased from 3.5 percent of GDP in 2012 to roughly 4.2 percent in 2013.
24. A combination of slower growth and tax relief for enterprises has led to lower
buoyancy of Corporate Income Tax and Value Added Tax over the past two years. CIT and
VAT constitute just over half of total revenue in Vietnam. In addition to this, collection of trade
taxes has fallen due to slowing imports and tariff reductions, so has revenue from land sales,
which is linked to lower domestic investment. Preliminary figures show that both SOEs’ and the
domestic private sector’s CIT contributions (nearly 35 percent of total revenue) declined by 2
and 7 percent respectively in 2013. Foreign invested firms’ CIT contributions on the other hand
have increased by 7 percent.
25. In response to these developments, and in line with its policy to enhance public
investment efficiency, the government has continued to consolidate capital spending. Total
capital spending (including off-budget) is estimated to have fallen from around 11.6 percent of
GDP in 2010 to an estimated 7.8 percent in 2013. A number of policy measures have been
implemented over the past two years to establish more discipline over the capital budget.
Attention has been focused on completing ongoing projects; new projects are agreed only in
exceptional cases.
26. The growth in recurrent spending has fallen in 2012-2013, though recurrent
spending on the social sectors has remained a priority in the State Budget. The government
has made efforts to spend more efficiently (discussed below in the outlook section), which has
contributed to a drop in recurrent spending growth in real terms from 14 percent in 2011-2012 to
3.2 percent in 2012-2013. The ratio of capital to recurrent spending has declined from 62
percent in 2010 to an estimated 40 percent in 2013. This partly reflects the relative priority
12
By Government Finance Statistics Manual 2001 standards, covered in table 1 below, the deficit is estimated to
have increased from 2.8 percent of GDP in 2010 to 5.5 percent of GDP in 2013. These are preliminary figures
based on the government’s first estimates of 2013 fiscal outturn.
15
accorded by the government to the social sectors. Recurrent spending on social sectors as a
share of share of GDP has steadily risen since 2010 from 8.4 percent to an estimated 9.4 percent
in 2013.
MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY
27. The medium-term outlook remains favorable on balance, albeit with considerable
downside risks. GDP growth in the baseline scenario is projected to rise modestly, to 5.5 percent
in 2014 and 5.6 percent by 2015 (table 2.5). This assumes fiscal and monetary prudence and
acceleration of structural reforms. The current account is expected to remain in surplus, although
this is expected to narrow as imports pick up and exports of foreign-invested manufacturing
companies start to moderate. Capital inflows are expected to pick up as investor confidence
recovers, resulting in continued reserve accumulation.
Table 1: Vietnam’s Key Economic Indicators13
2010 2011 2012 2013e 2014/p 2015/p
Output, Employment and Prices
GDP (% change previous year) 1/ 6.4 6.2 5.3 5.4 5.5 5.6
Industrial production index (% change, previous year) 8.8 7.3 4.7 5.9 6.0 6.2
Unemployment rate (%, urban areas) 4.3 3.6 3.2 3.5 3.5 3.5
Consumer price index (% change, annual average) 9.2 18.6 9.1 6.6 6.5 6.3
Fiscal Balance (% of GDP)
Total revenue and grants 27.2 25.9 22.9 22.2 19.6 19.7
Total expenditure (including off-budget items) 30.0 26.9 27.7 27.8 26.0 25.7
General fiscal balance (including off-budget items) -2.8 -1.1 -4.8 -5.6 -6.4 -6.0
Foreign Trade, BOP and External Debt
Trade balance (BOP definition, $US billion) -5.1 -0.5 9.8 10.6 9.8 8.5
Exports of goods, ($US billion, fob) 72 97 115 132 152 175
Imports of goods, ($US billion, cif) 85 107 114 131 153 178
Current account balance ($US billion ) -4.3 0.2 9.0 11.1 8.3 5.7
Current account balance (% GDP) -3.8 0.1 5.8 6.5 4.5 2.8
Foreign direct investment (BOP inflows, US billion) 8.0 6.5 7.2 7.4 7.6 7.7
External debt - PPG (% of GDP) 2/ 29.5 27.2 28.0 28.5 27.7 27.3
Debt service ratio (% exports of g&s) 3.3 3.8 3.3 3.2 3.2 3.2
Reserves, including gold ($US billion) 12.4 13.5 25.4 28.4 --- ---
Reserves (in months of imports) 1.8 1.5 2.7 2.6 --- ---
Financial Markets
Credit to the economy (% change, period-end) 32.4 14.3 8.7 9.0 12.0 14.0
Short-term interest rate (3-M deposits, period-end) 14.0 14.0 9.0 6.5 6.0 ---
Stock market - VN index (Jul 2000 =100) 485 352 414 505 --- ---
1/ GDP based on 2010 price; 2/ WB estimates of Public and Publicly Guaranteed External Debt Source: GSO, SBV, MOF, IMF and WB
13
Revenue and expenditure to GDP ratios in table1 are on average between 1 and 2 percentage points of GDP lower than earlier
estimates because GDP figures have been rebased from 1994 to 2010.
16
28. There is likely to be limited short-term impact from the US Federal Reserve’s
ongoing tapering of its expansionary monetary policy. Vietnam did not experience the same
market turmoil as other emerging market economies in 2013 when initial indications were made
on tapering. Nonetheless, trade links with affected emerging market economies are not
insignificant. Vietnam’s exports to the ASEAN 5 account for around 15 percent of total exports.
Any knock-on real economy effects in these countries would be felt by Vietnam. Any further
slowdown or rebalancing towards consumption spending in China would also impact Vietnam’s
exports. On the other hand, positive developments in the US and the EU (together accounting for
almost 40 percent of Vietnam’s exports) should help counter some of the regional trade effects.
29. The government is faced with crucial fiscal policy choices, as it seeks to balance the
twin objectives of economic expansion and macroeconomic stability. The government will
continue to face revenue challenges over the medium-term. Part of it will be due to counter-
cyclicality because of projected moderate growth and tax breaks to stimulate economic activity
among small and medium enterprises. Though there will also be some short-term loss from cuts
in the CIT rate, which over the longer-term may be offset by incremental investment.
30. To address slowing revenue, the government is working on strengthening tax
administration. The revised Law on Tax Administration (November 2012) has introduced
several new provisions to increase efficiency of tax administration, adopt Advance Pricing
Arrangements (which should reduce loss from transfer pricing), and strengthen collections
through improved tax audit and risk-based management. On tax policy, the government is
expected to raise selected excise tariffs and adjust import tariffs on petroleum, and is looking at
clearer requirements for SOEs to pay dividends to the State Budget14
– at the same time it needs
to broaden the tax base and reduce exemptions.
31. The government is also paying more attention on spending consolidation. For capital
spending, aside from policy measures mentioned above, there are now stricter provisions on
spending of revenue collected over what was planned in the original budget. Ordinarily,
provinces have discretion to spend a portion of the over-realized revenue on new capital projects.
However, now these receipts have to be channeled to existing appropriations and for exceptional
situations only such as natural disasters. If provincial authorities raise below what was budgeted,
then they have to first find financing from existing sources (e.g. Financial Reserve Fund) before
they can request additional transfers from the central government.
32. The government has introduced a number of policies to cut recurrent spending: (i)
gradual reduction in subsidies and adjustment of administered prices; (ii) reduction in non-
essential spending (e.g. workshops and seminars); (iii) cuts in the goods and services budget (e.g.
government utility costs) by 20 percent; and (iv) generate 10 percent savings across the budget to
finance salary reform costs.
33. The 2014 State Budget projects a similar deficit of 5.3 percent of GDP according to
government accounting, but shows an increase to 6.4 percent of GDP according to GFSM
2001 estimates (see table 1). This difference is partly due to the projected increase in off-budget
14
The government has issued Decree No. 204/2013/ND-CP dated December 5, 2013 providing guidance on budget
execution and collection of dividends from enterprises where the state has shareholding.
17
capital expenditure. Revenue projections in the 2014 State Budget are conservative, showing a 1
percent decline in total collections compared to the 2013 estimates. Overall spending in the 2014
State Budget is expected to grow at 3 percent in nominal terms from the 2013 estimated outturn,
compared to an average of 16 percent growth in nominal terms in 2011-2013. But given the
overall fiscal stance, there will be little fiscal space to absorb potential shocks unless some of the
above structural revenue and spending efficiency measures are implemented.
34. The latest joint World Bank-International Monetary Fund Debt Sustainability
Analysis (DSA) carried out in June 2013 assesses Vietnam at low risk of debt distress but
there are important downside risks. Public debt (domestic and external) has increased slightly
to around 56 percent of GDP in 2012 from 55 percent of GDP in 2011. Public sector debt
dynamics over the medium to long-term have deteriorated somewhat compared to the 2012 DSA,
largely on account of slower growth projections, lower revenue buoyancy and higher fiscal
deficits. Debt sustainability indicators are projected to remain below their applicable debt
thresholds. The increase to the 2013 deficit target will not change the overall rating of low level
of debt distress.
Figure 9: PV debt to GDP
Figure 10: PV debt to export
Figure 11: PV debt to revenue
Source: IMF, WB
35. The government will need to maintain its ongoing control over spending growth and
implement measures to reverse the decline in revenue collection to ensure continued debt
sustainability. The DSA results hinge on a baseline macroeconomic scenario in which
government over the medium-term reduces the pace of spending considerably below historical
levels. Even a small increase in the pace of spending growth will lead to a rapid deterioration in
debt dynamics.
36. In terms of contingent liabilities, government guarantees for external and domestic
debt were at around 11 percent of GDP in 2012 (this is part of total public debt at 55 percent
of GDP mentioned above). The level of guarantees increased by nearly 20 percent between 2011
and 2012. There are no major concerns at this stage, but the government is monitoring risks
closely particularly because some of the guaranteed firms (mostly SOEs) are operating in sectors
facing difficulties (e.g. cement, paper, electricity production); the quality of reporting from
guaranteed firms is mixed; longer-term investment projects are funded by shorter-term loans
guaranteed by the government; and several loan guarantees are for social projects, which have
longer gestation period. For these reasons, the government is imposing tighter controls on
issuance of debt guarantees and has also adopted a Medium-Term Debt Management Program.
-20
-10
0
10
20
30
40
50
60
2012 2017 2022 2027 2032
Threshold
Historical scenario
Baseline
Extreme shock
-50
0
50
100
150
200
250
2012 2017 2022 2027 2032
-100
-50
0
50
100
150
200
250
300
350
2012 2017 2022 2027 2032
18
37. Aside from explicit liabilities however, the baseline scenario in the DSA assumes no
realization of other possible liabilities that may arise from banking or SOE-related shocks
and/or reforms. Any systemic shock, recapitalization of banks by the government, or
acceleration of SOE restructuring – all of which have associated fiscal costs – would contribute
to a rise in debt. These costs would be beyond whatever fiscal space could be generated out of
revenue increase or further efficiency gains given the current fiscal situation.
38. The medium-term macroeconomic framework has been updated and confirmed to
be adequate to proceed with a Development Policy Operation (DPO). Government policy
has been largely consistent with maintaining macroeconomic stability15
. Interest rate cuts in the
past year, although quite aggressive, have remained in line with falling inflation. The SBV’s
stance to build foreign exchange reserves on the back of strong export and FDI performances,
adjusting the exchange rate as necessary, also seems appropriate. There are concerns over a
growing fiscal deficit with slowing revenue collection, which in turn is linked to slower growth
and tax incentives to the private sector. In response the government is strengthening revenue
mobilization through tax administration measures, and consolidating both capital and recurrent
spending. The macroeconomic risks linked to the financial sector remain important. The SBV
has taken preparatory steps to help address these, including by tackling short-run liquidity
pressures, which until recently did heighten perceptions of risk in the financial sector. More
work is needed to address the fundamental weaknesses in the financial sector, which is part of
the Bank’s ongoing dialogue with the government.
2.2 IMF RELATIONS
39. The IMF maintains a regular policy dialogue through Article IV consultations,
interim staff visits, and its resident representative office in Hanoi. It has not had a program
in Vietnam since the Poverty Reduction and Growth Facility ended in April 2004 but does have a
series of technical assistance support. There are a range of ongoing areas of joint work between
the Bank and the Fund, which are of direct relevance to the EMCC. These include a joint work
program on strengthening debt management, annual joint debt sustainability analysis, tax policy
and administration reform, public expenditure management, banking sector supervision, and the
Financial Sector Assessment Program (FSAP).
15
The Government of Vietnam has provided an update on macroeconomic developments in the first four months of
2014 based on recent information available to the authorities, which is attached in annex 5.
19
3. THE GOVERNMENT’S PROGRAM
40. The NCCS, NAP-CC, GGS and GG-NAP outline the GoV’s national policy priorities
for climate action and serve as the basis of the national policy reform program (the SP-RCC)
supported by this DPO series. The 2011 NCCS laid out an overall strategic objective for climate
response that emphasizes that adaptation and GHG emission reduction need to be carried out in
parallel, with the former given more priority in the immediate future. The NCCS includes 10
strategic tasks with goals for 2015 and 2020. The NAP-CC builds on the NCCS by listing specific
adaptation and mitigation programs and projects for implementation by sector ministries and
provinces. The GGS and the GG-NAP lay out 3 strategic tasks of (i) Reducing GHG emissions, (ii)
Greening Production, and (iii) Greening Lifestyle. Closely linked to, and aligned with the GHG
emission strategic objectives and tasks defined in the NCCS, the GGS defines specific targets
through 2050 and provides 17 implementation solutions. Line ministries are being requested to align
their sectoral strategies toward these GGS strategic tasks. For example, MARD has launched an
agriculture restructuring program which highlights the reduction of inputs including water, chemical
fertilizer, pesticides in order to increase climate resilience and incomes as well as co-benefit with
GHG emissions reduction. MOIT leads the Vietnam Energy Efficiency Program (VNEEP) and its
implementation is progressing. MOT has developed and issued for implementation the national
standard on fuel consumption for car and motorcycle manufactured, assembled and imported to
Vietnam.
41. The GoV’s institutional response to climate change continues to strengthen with
improved inter-sector coordination under the recently established National Committee on
Climate Change (NCCC). Annex 2 summarizes recent GoV actions on climate change at the
national level. Within the central Government, the mandate for guiding and coordinating climate
change response sits with the NCCC, which is chaired by the Prime Minister and is composed of the
Deputy Prime Minister and ministers and vice ministers of other key ministries, as well as the chairs
of various technical academies. The NCCC has an operational standing office in MONRE and is
charged with directing the formulation of policies and institutions at strategic levels, coordinates
international cooperation on climate change, and is responsible for guiding implementation priority
and coordination of the National Climate Change Strategy (NCCS) and related National Action Plan
on Climate Change (NAP-CC). This high level Committee met on February 19, 2014 and confirmed
that he will oversee the implementation of the Vietnam Green Growth Strategy (GGS), and ensure a
strategic coordination of the CCS and the GGS. The GoV issues NCCC annual reports and work
plans. The SP-RCC is now overseen by the NCCC as are the NTP and National Program on Science
and Technology for Climate Change. As a result, there is a growing high level platform of dialogue
to address inter-sectoral coordination issues under the leadership of the Prime Minister Office.
42. To support the development of its climate action, the GoV has also been active in
mobilizing climate finance, has stepped up its role in the international dialogue and is already
using the State budget to finance investment projects that have climate change co-benefits The
GoV has committed domestic finance to climate change response through different programs,
starting with the National Target Program to Respond to Climate Change (NTP-RCC) and has been
successful at mobilizing international finance. Going forward, it aims to improve the mobilization of
climate finance with improvements in cohesiveness, evidence-based decision-making, alignment of
the planning and budgeting process and increased transparency. The draft Climate Public
Expenditure/Investment Review (CPEIR), recommends that the GoV move from an ad hoc approach
in climate change spending to an integrated, targeted, and prioritized climate change response. As
part of the action plan that follows the recommendations of the CPEIR, the GoV would improve its
20
planning and budgeting systems to conduct climate change response mainstreaming discussions with
relevant line ministries and provinces to define climate change response strategies in each sector of
the SEDP and CC-response action plans. In turn, this should allow for the integration of climate
change considerations in the investment projects planning and budgeting process. All of these will be
critical to improving the effectiveness of Vietnam’s climate response and access to medium term
international climate finance. Vietnam has also become more active in the international climate
dialogue, building on experience gained from its expanding national program and the desire to be
more visible in the global discussions based on increased experience and capacity. For example, the
GoV has increased visibility in the United Nations Framework Convention on Climate Change
Conference process, strengthened its participation in the Partnership for Market Readiness, and has
been proactive in engaging in the development of several Nationally Appropriate Mitigation
Strategies (NAMAs). The GoV has extended the SP-RCC through 2016 with a policy matrix aligned
with key national strategies and supporting significant policy evolutions, including a new Irrigation
and Drainage Law, a revised Environmental Law, and a Hydrometeorology Law among others. The
World Bank will continue to engage with the GoV on climate policy through the SP-RCC.
43. In addition to progress and leadership at the central level, the climate change agenda is
also progressing at sub-national level. A number of key provinces and cities have developed
provincial and city action plans and allocate budget to respond to climate change with emphasis on
reduction of vulnerability to climate risks. Some provinces have set up their climate change offices
under the provincial People’s Committee or Department of Natural Resources and the Environment
(DONRE) to coordinate cross-cutting efforts within the province and assist local authority in
planning and decision making related to climate change as well as by engaging in complementary
GG action plans.
44. While the Government has made significant accomplishments in strengthening the
framework for climate change action as outlined above, implementation requires increased
inter-sectoral coordination and will need sustained policy, institutional and technical reforms
and the continued attention of GoV’s senior leadership. Given the cross-sectoral nature of climate
and green growth response, dialogue across ministries requires further strengthening beyond
improvements observed since DPO 1. The GoV needs to further reflect the implementation of these
priorities in the SEDP planning, budgeting, monitoring and reporting. Line ministries and Provinces
have generally taken actions to mainstream adaptation responses into socio-economic development
and planning to address observed impacts of climate change which have already affected adversely
agricultural and aquaculture production, coastal and urban areas, water supply, etc. NCCC
leadership is critical to ensuring coherence, prioritization and coordination necessary for
implementing the GoV’s climate change and green growth agenda across line ministries and
provinces.
21
4. THE PROPOSED OPERATION
4.1 LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION
45. The DPO program throughout the series has maintained a selective and cohesive subset
of SP-RCC policy goals from DPO 1 and 3. This subset consists of four goals organized under
three pillars, illustrated earlier in Table 1. Prior actions were jointly developed and agreed with the
GoV and DPs involved in the SP-RCC via sector working groups led by MONRE and line ministries,
including MONRE, Ministry of Agriculture and Rural Development (MARD), Ministry of Industry
and Trade (MOIT), Ministry of Planning and Investment (MPI) and Ministry of Finance (MOF). The
main thrust of the DPO series is summarized below.
Pillar A. Adaptation
46. Pillar A: This Pillar supports an adaptive legal framework for integrated water
resources management, which is considered a strategic, no-regrets adaptation option. The
water sector was selected for inclusion in the DPO series in accordance with GoV priorities, the
World Bank’s 2010 Strategic Directions on Climate Change in Vietnam, and for its linkages to other
major sectors where increased adaptive capacity is needed, especially agriculture and hydropower.
In spite of apparently abundant water resources, water security in Vietnam has become a critical
issue since many river basins and aquifers are already under water stress, particularly during the dry
seasons. The pressure on water security is projected to grow due to increasing water use in upstream
countries, population growth, rapid urbanization, hydropower development, industrialization and
pollution from fast economic growth. The agricultural sector is currently the largest water user,
representing 72 percent of water us in Vietnam, but characterized by unmeasured use of water, high
consumption of inputs (water, land and labor) and generally weak irrigation management. Climate
change is projected to significantly further deepen these pressures by causing greater variability of
rainfall, increased salinity intrusion, and a higher incidence of extreme weather.16 This amplification
of extremes requires integration of various aspects of water management, including disaster risk
management for droughts and floods, and managing water quality in low flow conditions. Thus,
Pillar 1 focuses on supporting the Government to more fully adopt and implement the principles of
integrated water resources management (IWRM) to create a resilient water resources management
policy framework that can adapt to observed and projected stresses.
Goal 1 - Climate-Resilient Development: Improving the Resilience of Water Resources
47. Goal 1 Background: In order to achieve the end-of-program result of an operational,
IWRM-based legal and organizational framework for water resources management by 2015,
Goal 1 supports a series of policy actions related to national water resources management. As
recognized in the 2006 MONRE National Water Resources Strategy and the 2009 joint GoV and
multi-donor Water Sector Review (WSR), the institutional and legal arrangements for water
resources management in Vietnam were not clear and weak. In 2010, MONRE took action to begin
reforming the water sector by preparing and submitting a National Target Program for Water
Resources Management (NTP-WRM) based on the WSR, prioritizing actions for water resources
management across sectors through 2020 (DPO 1 PA). Although the NTP-WRM, like several other
NTPs was not approved by the National Assembly due to budget constraints, the development
process and content of the NTP-WRM benefited from significant background preparatory inter-
16
2009. Water Sector Review
22
ministerial work and represented a significant step in the WRM process which led to the new Water
Law and the Water NAP in a short period of time. In 2012, the National Assembly approved a new
Law on Water Resources (LWR-DPO 2 PA) based on the principles of IWRM. For example, the law
strengthens the management linkages between surface water, groundwater and coastal water;
supports climate resilience through a strong focus on addressing saltwater intrusion and sea level
rise; and mandates holistic planning as a basis for addressing water issues including climate change
impact projections. In irrigation, the main use of water in the country, MARD has piloted Irrigation
Management Transfer (IMT) and benchmarking of irrigation schemes to inform reforms for more
efficient irrigation water management. These latter actions are paving the way to the development of
the new Law on Irrigation and Drainage.
Pillar B – Mitigation
48. Pillar B: The Pillar B policy program focuses on scaling up energy efficiency activities
in Vietnam, contributing both to climate change mitigation and to strengthening energy
security. The National Energy Development Strategy of Vietnam, approved in 2007, defined the
diversification of energy resources and energy conservation technologies as the central task for the
country’s industrialization and modernization, and called for energy development to be integrated
with ecological environmental protection and sustainable development. The Vietnam National
Energy Efficiency Program (VNEEP), approved in 2006, created a comprehensive set of activities to
improve energy efficiency and conservation (EE&C) in all economic sectors and across society as a
whole. The strategic vision is to reduce investment needs in the power sector, strengthen energy
security, increase competiveness, control and mitigate environmental pollution in energy activities
and foster sustainable socioeconomic development. At the same time, it is estimated that the energy
sector will account for 80-90% of all GHG emissions in Vietnam by 2030.17 Thus, increasing energy
efficiency (EE) represents a major opportunity for co-benefits between climate change mitigation and
improving energy security, reducing power sector shortages and dependency on fuel imports. The
second phase of VNEEP aims to achieve 5 to 8% reduction in total national energy consumption in
the 2011-2015 period compared with the energy demand forecast conducted in 2005.
49. The World Bank is also involved in this sector through technical assistance and
investment lending. This includes the strengthening of capacity at MOIT and of key stakeholders for
an effective delivery of VNEEP in key industrial sectors under the Global Environment Facility
(GEF) funded Clean Production and Energy Efficiency (CPEE) project. TA and investment support
are also involved under the Distribution Efficiency Project (DEP) to improve the performance of
Vietnam’s Power Corporations in providing quality and reliable electricity services through, demand
side response and efficiency gains. Lastly, the Bank supports the development of competitive
electricity markets through the Power Sector Reform DPO 3 (PSR DPO3). It is expected that through
promoting greater efficiency in the sector, the Bank’s combined support to the Government under
CPEE, DEP and PSRDPO3, will contribute to GHG avoidance as a result of energy efficiency
gains.18 This complements IFC’s support for promoting Green Buildings and the complementary
development of EE and RE lending capacity by providing dedicated capital lines and advisory
services in the banking sector (subject to market conditions).
17
MPI and UNDP (2012) cited in UN Vietnam. Climate Change Fact Sheet, Feb 5, 2013 18
Despite this, it cannot be fully assumed that a more competitive market will result in reduced GHG emissions.
23
Goal 2 - Lower carbon intensity development: exploiting energy efficiency potentials
50. Goal 2 Background: In order to achieve the end of program results to strengthen EE in
large energy users of the industrial sector, Goal 2 targets enhancing EE capacity and better-
informed EE practices in large industrial large energy users to promote GHG emissions
reduction compared to projected energy demand growth. To address barriers to EE identified
during VNEEP Phase 1, the DPO series supports GoV policy actions to establish and monitor an
effective regulatory framework to successfully implement the mandates and measures defined in the
EE&C Law and to strengthen the results of VNEEP 1. The EE&C Law imposes obligations on large
energy consuming users, called Designated Energy Users or simply “Designated Enterprises”
(around 1,200 in the industrial sector, of which 300 are the major energy consumers). The obligations
on enterprises are combined with building local energy efficiency skills through specialized capacity
enhancing programs for the certification of energy managers and energy auditors, under overall
coordination of MOIT. In the industrial sectors, the monitoring of, and support for, designated
enterprises to implement effective EE plans is delegated to the provincial Departments of Industry
and Trade (DOIT). The substantial goals under VNEEP and the EE&C Law have begun to be
operationalized starting with the adoption of the Implementation and Sanctions Decrees of the EE&C
Law (DPO1 prior action). In order to develop the necessary human resources capacity to implement
EE&C Law mandates, and achieve sustainable energy savings, MOIT has issued and implemented
regulations on training to ensure adequate qualifications for the certification of energy managers and
energy auditors (DPO2 prior action). To provide additional guidance, MOIT has issued guidelines for
energy consuming designated enterprises to prepare and submit EE plans.
Pillar C – Cross-Cutting Climate Change Policies and Institutional Readiness
51. Pillar C: The policy program under Pillar C aims to increase the GoV’s capacity to
strategically address climate risks and lower carbon intensity development through improved
cross-cutting decision-making, planning and financing frameworks. These are key to ensure
national objectives such as food, water, and energy security, while addressing the impacts of climate
change and moving toward green growth in a less carbon-heavy economy. This cross-cutting pillar is
also expected to contribute to increase the effectiveness of the outcomes supported under Pillar A and
B. The policy program under Pillar C is expected to help guide the development of sub-national and
sectoral climate change response priorities and support implementation according to nationally
owned criteria. The program focuses on prioritization of adaptation actions on the basis of an
adaptation prioritization framework, the synergy and coordination of climate change adaptation and
disaster risk reduction efforts, the development of a legal framework for disaster risk management,
inter-ministerial coordination, and the strengthening of climate finance.
Goal 3 - Strengthening the Capacity and Preparedness to Formulate, Prioritize and Implement
Climate Change Action
Goal 3 Background: In order to achieve the end of program results, Goal 3 under Pillar C
focuses on cross-cutting capacity improvement. The series of reforms under Goal 3 are expected to
improve the GoV’s ability to mainstream and reflect national, sub-national and sector priorities on
climate change adaptation and GHG emission reduction in the socio-economic development plans of
sectors and provinces. Goal 3 builds on a series of policy actions achieved by the GoV that
demonstrate advancement in leadership, coordination, and cooperation on climate change action,
including the development of the NCCS and the high level dialogue leading to the development of a
24
National Forum on Disaster Risk Reduction and Climate Change Adaptation (both recognized by
DPO2). Goal 4 - Strengthening the Financing Framework to Support Climate Change Action
52. Goal 4 Background: In order to achieve the end-of-program results to mobilize and plan
financial resources for climate action according to priorities and a multi-sector allocation
process, Goal 4 supports the GoV’s efforts in enhancing the climate financing framework.
Increased needs for climate finance is reflected for example in disaster risk reduction, flood control,
sea dykes improvement, water supply, mangrove and forest plantation, energy efficiency and
renewable energy programs. Vietnam currently does not specifically plan and record allocation
of budget for climate action beyond the budget line items on allocation for the NTP-RCC. In order to
address increasing needs for financing targeting climate action, the GoV issued an Official
Instruction No. 8981/VPCP-QHGT on December 10, 2010 on guiding principles related to the use of
official development assistance to respond to climate change through budget support (recognized in
DPO 1). A Climate Finance Task Force was subsequently established to guide decision making
within MPI (recognized in DPO 2) and a Climate Finance Options Platform aimed at raising
awareness on climate finance opportunities available in country and at global level, provide
information on accessing and combining sources for climate action, and create new opportunities is
being developed by MPI. MPI, at the request of the Prime Minister, and in coordination with MOF
and MONRE, has also decided to undertake a climate public expenditure review to provide
recommendations on how to best increase the efficiency and effectiveness in allocation and
utilization of public resources for climate action. All combined, these evolutions confirm the GoV
strategic directions towards mobilizing additional and more effective financing to address climate
change. This supports the development of a Green Growth Financial Mobilization Framework that
MPI plans to develop under the new National GG Action Plan, which will include market-based
mechanism options and a review of fiscal instruments.
Lessons Learned
53. The design of DPO3 has built on lessons from the World Bank’s global and Vietnam
portfolio of budget support operations, including CC DPO 1 and 2. The task team has reviewed
experiences, good practices and lessons learned from programmatic development policy lending
operations, including the CC Development Policy Loans in Mexico and Indonesia as well as more
recent operations in Mozambique and Morocco. Box 1 outlines how the team has applied good
practice principles in DPO3.
Box 1: Good Practice Principles
Principle 1: Reinforce ownership
The operation is fully aligned with GoV plans and strategies, in particular the NCCS and the
GGS, which underwent detailed consultation prior to promulgation.
The policy content of DPO3 is underpinned by a substantial and evolving body of analytical and
advisory work on climate change led by the GoV, the World Bank and others.
The NCCC, chaired by the Deputy Prime Minister, is tasked with oversight of the SPRCC.
Implementation of DPO1&2 further evidences commitment and ownership across stakeholders.
The Letter of Sector Development Policy provides further demonstration of sustained ownership.
Principle 2: Agree up front with the GoV and other financial partners on a coordinated
accountability framework
The SP-RCC policy matrix provides an accountability framework for measuring progress of
25
results indicators and is annually approved by the Prime Minister.
The DPO policy matrix is an agreed subset of the SP-RCC policy matrix. WB’s involvement is
fully coordinated with other SP-RCC donors and includes regular joint monitoring missions.
Principle 3: Customize the accountability framework and modalities of World-Bank support to
country circumstances
The accountability framework and modalities of World Bank support blend into existing SP-RCC
processes and structures instead of setting up parallel ones.
The DPO policy areas are priorities defined by GoV and supportive of major national strategies.
Principle 4: Choose only actions critical for achieving results as conditions of disbursement
DPO3 prior actions have been strategically selected from the SP-RCC policy matrix and are
considered essential for the overall impact of the programmatic DPO series.
Principle 5: Conduct transparent progress reviews conducive to predictable and performance-
based financial support
Progress reviews are implemented through regular joint meetings with the GoV and SP-RCC
partners during each annual cycle (rather than just once upon operation completion). Aide
Memoires and action plans are jointly developed and agreed upon, with joint wrap up sessions
chaired by GoV leaders.
54. The above-named lessons were incorporated into the overall design of the DPO series.
More details on lessons applied to the initial design of the series are found in the DPO1 Program
Document. Listed below are a few specific elements that the team has further focused on for DPO3
since DPO1 and DPO2:
MONRE, the GoV lead agency of the SP-RCC, needs administrative, monitoring, reporting,
and coordination capacity to simultaneously administer the program, interact with DPs and
line ministries, promote quality policy and institutional dialogue, and report on progress and
results. MONRE’s capacity and leadership has significantly improved since DPO1and 2.
JICA has provided full-time TA to build MONRE’s capacity for the management of the SP-
RCC, which is complemented by the recipient-executed component of the VNCLIP. The SP-
RCC is now led by a MONRE DDG who is also the Head of the Standing Office of the
NCCC. The Program is very closely supported by a MONRE VM. The wrap up session of
the October 2013 Joint Monitoring meetings was chaired by the DPM.
Support across sectors to pursue the reform agenda and inter-ministerial coordination are
crucial to scale-up climate action across sectors. In this regard, targeted TA and advisory
services have been and will continue to be important to support reforms. Equally important is
clarity in responsibility and accountability between MONRE and line ministries (including
MOF and MPI), and between sector teams and SP-RCC focal points in each line ministries in
support of an integrated response to the NCCS and GGS.
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4.2 PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS
Table 3: Summary of DPO 3 Prior Actions (all 7 prior actions have been delivered)
Goal 1: Climate-resilient
development: Improving
the resilience of water
resources
Goal 2: Lower carbon
intensity: Exploiting
energy efficiency
potentials
Goal 3: Strengthening capacity and
preparedness to formulate, prioritize and
implement climate change action
Goal 4: Strengthening
the financing framework
to support climate
change action
National Action Plan on
Water Resources
Management approved by
Prime Minister
(Decision No 182/QD-
TTg dated January 23,
2014)
Implementation decree of
the new Law on Water
Resources approved by
Prime Minister
(Decision No. 201/2013
ND-CP dated November
11, 2013)
Circular guiding the
implementation of
energy efficiency
measures in the
chemicals sector issued
by MOIT Minister
(Circular No.
02/2014/TT-BCT dated
January 16, 2014)
Decision on the National Action Plan for
Climate Change issued by Prime Minister
(Decision Number 1474/QD-TTg dated
October 5, 2012)
Decision on Adaptation Prioritization
Framework for socio-economic
development planning issued by MPI
Minister (Decision No.1485/QĐ-BKHĐT
dated October 17, 2013)
Law on Natural Disaster Risk Management
and Reduction approved by the National
Assembly (Law No. 33/2013/QH13 adopted
on June 19, 2013)
Inter-ministerial Circular
to guide the
implementation of the
Mechanism to manage
the climate change
financial resources
jointly issued by three
Ministers (MOF,
MONRE, and MPI)
(Joint Circular No.
03/2013/TTLB-
BTNMT-BTC-BKHDT
issued on March 5,
2013)
Pillar A. Adaptation
Goal 1 - Climate-Resilient Development: Improving the Resilience of Water Resources
55. Goal 1 DPO 3 Prior Action: The National Action Plan on Water Resources Management
(NAP-WRM) as well as the Water Law Implementation Decree have been adopted by the
Prime Minister (January 23, 2014 and November 11, 2013, respectively). The NTP-WRM
document prepared earlier by the Government, and the 2012 LWR provide the basis for the
evolutions reflected in the NAP-WRM which sets out the specific directions, priority measures, and
funding for implementing IWRM through 2020. In addition to promoting climate resilience by
strengthening IWRM, the NAP includes specific priority activities that directly address climate
change. For example, the NAP mandates the development of scenarios including climate change, sea
level rise, and changes in upstream use for prioritized basins. This information will be used in
developing integrated river basin management. The Implementation Decree provides further
instructions for applying new concepts in the 2012 Law on Water Resources such as water user
consultations, water fees, and implementation of baseline water resources survey. These new
elements fill critical gaps and are all key for operationalizing the new IWRM approach of the
country.
56. Reform to Implementation and Results: GoV is committed to implementing IWRM as
reflected by the planned adoption of the Implementation Decree of the LWR and the adoption
of the NAP-WRM by the Prime Minister. The NAP-WRM itself presents a plan for
implementation, prioritizing both policy and investment actions. It also serves as a signal of
prioritized areas for additional support by DPs and for coordination. In addition, MONRE has
already begun implementing the LWR by developing dry season operating processes for reservoirs in
the Vu Gia-Thu Bon and Ba Rivers. Moving forward, MONRE is preparing to implement other key
elements of the LWR, including the establishment of a River Basin Organization in the Sesan-Srepok
river basin and issuing guidelines for establishing minimum flows in all river basins. The
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management of water resources following the river basin approach with the new RBOs playing the
coordination and monitoring role instead of province-based river management is a critical evolution
to address competing needs for water in the dry season and importantly operations of reservoirs
especially for flood control. The GoV will now implement the regulation for joint operation of inter-
reservoirs for small hydro power in the central region while MOIT is reviewing the modalities to
improve the operation of small hydro-power reservoirs with enhanced coordination with local
authorities to avoid causing adverse impacts and loss of life and assets due to water discharge.
Finally, MONRE has shown a commitment to the investments in data collection and analysis
mandated in the LWR through support from the World Bank funded Mekong Integrated Water
Resources Management Project (MKIWRMP – P124142) and the forthcoming ADB funded River
Basin Water Resources Management and Development Project. An assessment of the cumulative
impact and of opportunities for improved joint operation, of small-scale hydropower cascades in six
river basins in northwest Vietnam was completed where projects are financed under the World Bank
funded Renewable Energy Development Project. In the irrigation sector, MARD is now developing a
new Irrigation and Drainage Sector Law and a series of related reforms to improve management and
increase water productivity with support from the World Bank Irrigated Agriculture Improvement
Project (P130014). These evolutions come in addition to the approval by the PM on October 24,
2013 (No. 142/2013/ND-CP) of the Administrative Sanction Decree on water resources and minerals
which requires water users to carry out concrete measures to address adverse impacts that they cause.
Example includes carrying out treatment of waste water before discharge, applying for exploitation
permit etc. The levels of the sanctions have been significantly increased from several to dozen times
compared with the earlier fine levels. For example, the discharge of waste water exceeding from 10
m3/ day to under 50m3/day was penalized from VND 5 – 7 million, while the new sanction level is
VND30-50 million for not following discharge level as specified in the permit. The Decree to guide
the implementation of the LWR, now submitted to the PM for approval after extensive consultation
with stakeholders, provides detailed guidance on consultation with organization, community and
individual for the exploitation and the discharge of water resources. It explicitly specifies the scope
of the water related uses which require consultation, the timeframe to hold consultation and who to
be consulted, procedure for consultation from circulating the documents to collecting comments and
response. Baseline surveys on current status of exploitation, utilization and discharge, inventory of
water resources etc… are for the first time regulated in details in the Implementation Decree with
roles, responsibility and reporting lines of parties involved now defined, including Provincial
People’s Committee and Line Ministries.
Box 2: Achieving Goal 1 End of Program (EOP) Results
EoP Results: An IWRM-based legal and organizational framework for a programmatic, integrated and
adaptive approach to water resources management is operational.
Connecting Prior Actions to EoP Results and Indicators: As developed in the Water NTP approved by the
PM (but not by the National Assembly), (DPO1 PA), mandated in the 2012 LWR (DPO2) and the
implementation decree of the LWR (DPO3) provided Vietnam with a consolidated basis for the
implementation of IWRM. The NAP-WRM (DPO3) provides a roadmap and budget for the implementation
of these decisions, as well as an avenue for DPs and other public and private stakeholders’ engagement. In
addition to promoting IWRM, which is expected to result in greater adaptive capacity and resilience, these
policy actions also call for the implementation of specific activities. The establishment of minimum flows
and related operational rules in the Vu Gia –Thu Bon and Ba rivers (EoP indicator ii) as mandated in the
LWR is one evidence that the GoV is acting on the provisions of the 2012 LWR.
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Progress Towards EoP Indicators
End of Program (by Q 1 CY 2015) Current Status
i) Three new high level legal IWRM instruments are
operational with priority actions taken.
ii) Minimum flows established for the Vu Gia-Thu
Bon and Ba rivers and used to guide water
allocations decisions during the dry season.
i) In Progress. The 2012 Water Law is now
effective. The Implementation Decree of Water Law
and the NAP-WRM have been issued by the Prime
Minister. The Decree on Administrative Sanction
was issued by the PM on October 24, 2013.
ii) In Progress. The Prime Minister has issued an
instruction to develop an operation manual for
hydropower in the Vu-Gia Thu Bon and Ba Rivers
based on minimum flows and operating rules are
being developed. These are expected to be in place
by end of 2014.
Pillar B. Mitigation
Goal 2 - Lower carbon intensity development: exploiting energy efficiency potentials
57. Goal 2 Prior Action: The Circular guiding the implementation of energy efficiency
measures in the chemical sector was issued by MOIT Minister on January 16, 2014. MOIT has
issued the Circular on technical measures for energy saving and efficiency in the industrial
production sector with benchmark indicators and specific requirements for the chemical industry.
Enterprises are required to report and implement energy efficiency solutions to meet the energy
efficiency requirement provided in circular. The circular was consulted with enterprises and relevant
stakeholders during its development. It will be expanded to add technical measures and requirements
for other large energy consumption industries, including steel, paper, plastic and beverage. Provincial
Departments of Industry and Trade and the General Directorate of Energy are tasked to monitor and
provide guidance and support to enterprises for implementation of the Circular. Technical assistance
is provided to support the implementation of the Circular. The regulation guides the implementation
of good practice EE&C measures and investments in industrial enterprises and identifies areas for
financial support in large industrial sector, with a first application to the chemical sector.
Development partners (DPs) have provided expertise to MOIT for the preparation of the circular for
the steel, chemical and beverage sectors, particularly studies and analyses to assess EE potential and
develop plans for the adoption of efficient technologies and practices. Based on this upstream
analytical work, the government has information on good international practice that will enable it to
channel financial support to the most strategic and effective energy efficient technologies and
industrial sectors identified.
58. Reform to Implementation & Results: The ownership of the EE agenda is good and the
World Bank is closely involved in implementation. As of November 2013, more than 900 energy
efficiency plans and implementation reports of large energy end-users of the industrial sector have
been submitted to MOIT or provincial DOITs and more than 650 energy managers have been
certified to support energy efficiency practices in the industrial sector. The Distribution Efficiency
Project (DEP - P125996) aims to support Vietnam in increasing quality and reliability of electricity
services and in reducing GHG emissions, through efficiency gains and demand side response. The
third component of this project on technical assistance and capacity building to Electricity
Regulatory Authority of Vietnam (ERAV) and Vietnam’s Power Corporations (PCs) will build on
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the DPO supported policy actions, especially by supporting monitoring and evaluation of energy
savings and GHG avoidance achieved as a result of the project.
Box 3: Achieving Goal 2 EoP Results
Expected EoP Results: Practices to improve energy efficiency are implemented in large energy users of the
industrial sector with related operating capacity increased
Connecting Prior Actions to EoP Results: The enabling Decrees of the EE&C Law (DPO1) set the implementing
details and the authority to enforce obligations on large energy users and assign MOIT the role of setting up the
overall regulatory and monitoring framework, in particular for industry. With this authority, and to address lack of
skills, MOIT issued and implemented regulations on training to ensure adequate qualifications for the certification
of energy manager and energy auditors, and to prepare and submit EE&C action plans (DPO2). To enhance the
quality of action plans and track progress to disseminate best practices, MOIT has issued regulations on EE&C
measures for chemicals industry (DPO3, guidance on efficient technologies and practices to industrial and EE
stakeholders) and guidelines for M&E framework will be issued soon after. Combined with other VNEEP
activities, these reforms contribute to increased EE in industry and reduced carbon emissions compared to business
as usual.
Progress towards EoP Indicators
End of Program (by Q 1 CY 2015) Current Status
i) 4% energy savings by heavy industries compared
to baseline (forecast under business as usual scenario).
ii) 100 energy auditors completed training to support
energy efficiency practices in industrial sector, of
which 50 fully certified and 50 doing on-job training
to become fully certified.
iii) 1000 energy managers certified to support energy
efficiency practices in industrial sector.
iv) 1000 energy efficiency plans and 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.
i) In Progress. TA will be provided to MOIT to
determine 2014 savings based on data collected and
calculations.
ii) Achieved. MOIT reports that more than 160
individuals participated in energy audit training; of which
50 energy auditors have been certified, and the rest
undertaking on-the-job training.
iii) In Progress. As of November 2013, more than 650
energy managers have been certified.
iv) In Progress. As of November 2013, more than 900
energy efficiency plans and implementation reports of
large energy end-users of the industrial sector are
received by MOIT or provincial DOITs.
Pillar C – Cross-Cutting Climate Change Policies and Institutional Readiness to Formulate,
Prioritize, Finance, Implement and Monitor Cross-Cutting Climate Change Policies
Goal 3 - Cross-Cutting Strategic, Institutional, Methodological and Analytical Basis for Climate
Change Action
59. Goal 3 Prior Action: The National Action Plan for Climate Change (NAP-CC) was
issued by the Prime Minister on October 5, 2012. The NAP-CC is designed to implement the
targets and tasks from the NCCS (DPO 2). Examples of strategic priorities in the NAP-CC include
the significant scale-up of early warning systems and of responses to sea level rise through the
review of impacts and the development of planning with a geographic focus on the Mekong Delta,
Red River Delta and the Central coast. The NAP-CC emphasizes food and water security, forest
protection, and the reduction of GHG emissions through renewable energy and energy efficiency.
Strengthening institutional capacity, awareness raising and participation of all economic sectors in
response to climate change is identified as priority activities in the NAP-CC. The NAP-CC includes
30
an additional list and timeline for 65 specific programs, projects, and tasks through 2020, with some
already allocated funding, such as for flood control in HCMC.
60. Goal 3 Prior Action: On October 17, 2013, MPI Minister adopted an Adaptation
Prioritization Framework which serves as a tool to enable the national and sub-national levels
of the Government with sector line ministries and provinces to mainstream and prioritize
climate change adaptation action into their Socio-Economic Development Planning (SEDP)
process. The Adaptation Prioritization Framework seeks to institutionalize climate change
adaptation prioritization at strategic level through its integration into the SEDP cycles. As a decision-
making support tool prepared by MPI, it is designed to be applied in the planning, appraisal and
budget allocation processes under the SEDP. The tool supports the planners in allocating resources
for climate change adaptation by identifying and prioritizing projects on the basis of strategic climate
change objectives and through an assessment of the urgency and vulnerability reduction potential.
The tool was consulted with a wide range of stakeholders and tested with line ministries and
provinces in 2012. Line ministries and provinces have been very supportive of the development of
the tool and its implementation was included in the Guideline Framework for preparation of SEDP
2014 issued by MPI for sectors and provinces to develop their SEDP. This was followed by a series
of training on the application of the tool to provinces in June and August 2013 as part of MPI’s
implementation plan to support planners in preparation of annual SEDP. The World Bank is
providing support for capacity building through training on issues relating to climate-resilient
development, anticipatory adaptation, incorporating climate risks into design and appraisal of
development investment activities. MPI will monitor implementation and provide regular reports on
the use of the APRT in the context of the SEDP.
61. Goal 3 Prior Action: The Law on Natural Disaster Prevention was finalized and adopted
by the National Assembly on June 19, 2013. MARD submitted the law to the GoV after
comprehensive consultations with line ministries. The law strengthens the management of risks of
various climatic and weather-related hazards (e.g., storm, flood, landslide, drought, saltwater
intrusion, extreme cold, etc.) through a solid legal framework to guide actions and investments of
various actors, including government agencies, civil society organizations, private sectors, and
communities. In addition to consolidating disparate legal documents on DRRM, the Law provides
strategic directions to shift the disaster planning paradigm from disaster response to disaster risk
reduction, which encompasses development planning, disaster preparedness, forecasting and
prevention with a climate change adaptation lens, post-disaster recovery and reconstruction. The law
strengthens the DRRM institutional arrangement by requiring the establishment of a DRM agency at
both national and provincial levels responsible for disaster preparedness, prevention and recovery.
These agencies will also serve as an advisory body of the system of the Flood and Storm Control
Committee at central and subnational levels. In addition, the Law establishes coordination and
information sharing mechanisms for DRRM between government agencies at national and
subnational levels and civil society organizations, and between government and international
organizations. Furthermore, the Law mandates better management of budgetary resources as well as
a better tracking of the expenses for DRRM, including for post-disaster management. Thus, the
implementation of the Law will leverage support from DRRM/CCA from various stakeholders
(including international organizations and the private sector), to strengthen capacity, improve
coordination and information sharing, and improve transparency in DRRM/CCA.
62. As a follow up to a DPO 2 prior action, the GoV has demonstrated additional effort and
high level commitment to further operationalize enhanced coordination between Disaster Risk
Reduction and Management (DRRM) and Climate Change Adaptation (CCA). Under the
31
leadership of the Prime Minister and in the context of the NCCCC MARD and MONRE have jointly
organized a High level forum on DRRM and CCA with a major event held on October 16, 2013. The
purpose of the National Forum is to strengthen dialogue (including policy and technical subjects) and
actions on DRR and CCA in order to: (i) enhance multi-stakeholder collaboration and coordination
for DRR and CCA activities; (ii) foster an enabling environment for raising awareness, learning from
experience and advocacy on DRR and CCA between stakeholders, including government agencies at
national to subnational levels, non-governmental, international, and multi-lateral stakeholders, and
communities; and (iii) integrate DRR and CCA into development policies, planning, and programs.
The 2013 National Forum was another step forward towards enhancing coordination and partnership
amongst institutions and stakeholders involved in DRRM and CCA and towards ensuring that
climate and disaster data and experience are accessible and are used to inform the prioritization and
implementation of development programs. Coordination between DRRM and CCA is now part of the
annual work plan of the NCCC under the oversight of the Prime Minister as Chairman of the NCCC
and it is understood that the GoV will hold regular high level coordination forum, and report on
progress made.
63. From Reform to Implementation and Results: Goal 3 policy actions have equipped the
government with tools, strategies and plans that represent a major step forward for such a
novel agenda.
Box 4: Achieving Goal 3 EoP Results
EoP Results: Cross-cutting strategic, institutional, analytical, and methodological basis guiding the development
of priority actions and targets for climate change action are in place and used to guide decision making.
Connecting Prior Actions to EoP Results: The DRRM Provincial Plans (DPO1), the Coordination Platform
(DPO2), and the DRM law (DPO3) are expected to significantly contribute to advance the shift to DRR linked to
climate change adaptation. The provincial DRM plans mandated by the DRM strategy have been developed and
the first DRM Strategy implementation report was issued in May 2013. The APRF (DPO3) will help provinces
and planners allocate financing for adaptation. On a broader scale, the Climate Change Scenarios (DPO1), the
NCCS (DPO2), and the NAP-CC (DPO3) provide prioritized roadmaps for climate change action moving forward.
Progress towards EoP Indicators
End of Program (by Q 1 of CY 2015) Current Decision Meeting
i) An Adaptation Prioritization Framework is
operational within MPI SEDP annual cycles and initial
implementation reflected in MPI SEDP annual
guideline frameworks and budget reports.
ii) Provinces have disaster risk management and
reduction plans under implementation as reflected in
the Government Report on Evaluation of 5 years
implementation of the National Strategy for DRM.
iii) Comprehensive unified legal framework to address
climate hazards is operational.
.
i) In Progress.
ii) Achieved. DRM Strategy Implementation report
issued in April 2013 documents implementation
progress.
iii) In progress
32
Goal 4 - Cross-Cutting Promotion of Financial Resources Mobilization for Climate Change Action
According to Priorities and a Multi-Sector Allocation Process
64. Goal 4 Prior Action: The Inter-ministerial Circular guiding the implementation of the
SP-RCC Mechanism to manage the climate change financial resources for selected investments
in support of climate change adaptation and GHG emission reduction was jointly issued by
three Ministers (MOF, MONRE, and MPI) on March 5, 2013. The Circular provides detailed
guidance to operationalize the Financing Mechanism specified in Official Instruction No.
8981/VPCP-QHQT dated 10/12/2010. This Financing Mechanism applies only to investment
projects that meet the selection criteria defined in Prime Minister's Decision No. 1719/QD-TTg dated
October 4, 2011, including sector and geographic vulnerabilities and a typology of response to
climate change impacts and GHG emission reduction targets. Sixty-two investment projects have
been selected so far by an inter-ministerial evaluation council led by MONRE and approved by the
Prime Minister for financing in the context of this mechanism. However, only 16 projects have been
included in the SEDPs 2013 and 2014 given the Government’s budget constraints. Implementation of
these selected projects is expected to continue to be financed in the SEDP 2015. This new and
additional financing window within the GoV budget is to allow resources to be allocated to priority
CC-investments, in addition to the NTP-RCC, the Science and Technology and the General
Administrative budget, these covering mainly research, training, and recurrent costs related to
climate change. All together, they represent a foundation of the GoV climate financing approach,
although only limited amounts have been allocated in the 2014 budget (US$ 18 million). MPI, in
coordination with MONRE and MOF, maintains a list of the selected projects across Line Ministries
and Provinces and is expected to track and report on allocations and disbursement progress to the
NCCC. The list identifies the sources and the amounts of financing of the projects (split between the
share of the Financing Mechanism and local sources). The NCCC is playing a growing role in the
discussion and review of the Financing Mechanism.
65. From Reform to Implementation and Results: Prior actions under goal 4 have strengthened
the financing framework and contributed to the mobilization of dedicated financial resources for
climate action according to priorities and a multi-sector allocation process with increased
transparency and involving several LMs, and a close coordination between MONRE, MPI and MOF.
Box 5: Achieving Goal 4 EoP Results
EoP Results: Financial resources for climate change action are mobilized and planned according to priorities and a
multi-sector allocation process and reported subsequently.
Connecting Prior Actions to EoP Results: The guidelines on the Financial Mechanism issued by the PM (DPO1)
provided a basis to develop an inter-ministerial approach to scale up climate finance through the creation of a
dedicated additional budget for climate action guided by an inter-ministerial circular (DPO3). The Task Force on
Climate Finance (DPO2) supports the GoV in raising awareness and progressively leveraging a greater diversity of
financial sources for climate action, including some new work on market based mechanisms.
Progress towards EoP Indicators
End of Program (by Q 1 of Cy 2015) Current Status
i) Additional financial resources are mobilized for
climate action, planned according to priorities and a
multi-sector allocation process, and reported
subsequently
i) Financial Mechanism created and first year of budget
allocated.
ii) Climate public expenditure review under
implementation at the request of the Prime Minister
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66. The design of DPO 3 has benefited from a solid and growing knowledge base. DPO 1
and DPO 2 program documents provided a detailed outline of the strategic and analytical basis for
the DPO series. Table 4 summarizes the list of most relevant and recent analytical work.19 Since
DPO2, it is notable that analytical work has included improving downscaling of impacts and
analyzing vulnerability and sensitivity. New and interim analytical work has also become available
analyzing the options and co-benefits of low carbon growth.
Table 4: Linking the DPO Series with Recent Analytical and Strategic Work
Prior Actions Analytical Underpinnings
Pillar A: Adaptation. Climate-Resilient Development by Improving the Resilience of Water Resources (Goal 1)
Prior Action A1. Adopt the
National Action Plan on Water
Resources Management that
prioritizes actions and defines
responsibilities and timeline for
its implementation
Prior Action A2. Adopt the
Implementation Decree of the
new Law on Water Resources
2014 Draft WB “Climate Public Expenditure/InvestmentReview”. Analyzes the current
status of climate public expenditure and institutions in Vietnam to provide recommendations
for improvement of the alignment between planning and budgeting as well as ways to
improve execution and reporting.
2012 WB “Turn Down the Heat II”. Analyzes likelihood and impacts of 4o warming
globally with some specific consequences for Southeast Asia.
2011 WB “DPO PSIA Preliminary Research and Phase 2” Examines socially
differentiated impacts of DPO policy actions in the phase 1. Phase 2 focused on examining
the pro-poor aspects of the proposed financial mechanism (Goal 4). Preliminary research
informed overall DPO development. Phase 2 informed the development of the Goal 4, DPO
3 financial mechanism.
2011 WB “Gender and Climate Change 3 Things You Should Know”. Highlights the
importance of gender mainstreaming, both in climate finance and Official Development
Assistance. Echoed in the World Bank’s 2011 “Vietnam Country Gender Assessment.” The
study informed the overall DPO development and TA for Goal 1 DPO 3 NAP TA and Goal 3
DPO 3 DRM law TA.
2013 WB “Irrigated Agriculture Management”: Analysis of irrigated agriculture
management, water use and recommendations for ongoing national policy reform. Provides
an update since 2009 Water Sector Review. This study emphasized the importance of
performance monitoring, which will be furthered by the Goal 1 policy action.
2013 ADB “Vietnam Country Water Assessment (CWA)”. Provides an update since the
2009 Water Sector Review through a rapid assessment of water uses and challenges at a
national level. The Water Sector Review directly called for the Goal 1 DPO 2 policy action
of the new law on Water Resources. The follow-up CWA has informed the Goal 1 DPO 3
NAP-WRM
2012 MONRE “Update to Climate Change & Sea Level Rise Scenarios” Added a refined
understanding of the expected impacts on the provincial and district levels, including
projections of sea level rise using the regional climate model.20 Earlier versions of the
scenarios informed the overall DPO development, especially goal 1 and 3 (DRM) PAs. The
latest updates.
Pillar B (Mitigation): Lower Carbon Intensity Development by Exploiting Energy Efficiency Potentials (Goal 2)
19
See DPO 2 and DPO 1 PD for additional background analytical work 20 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.
34
Prior Action B1. Adopt the
Circular guiding the
implementation of energy
efficiency measures in at least
one key energy- intensive
industrial sector
See above.
WB 2014 Draft “Low Carbon Options Assessment” Guidance on specific policy and
investment measures to implement the Green Growth Strategy, including sequencing of
policy and investment measures, financing, and mainstreaming.
2011 GoV “Power Development Master Plan 7” (PDMP 7). States GoV objectives for
electricity supply and energy security and projections from 2011 to 2020. Includes focus on
enhancing efficiency of electricity pricing and demand-side measures.
Pillar C (Cross-Cutting): Cross-Cutting Climate Change Policies and Institutional Readiness by Capacity and Preparedness
to Formulate, Prioritize, Finance, Implement and Monitor Cross-Cutting Climate Change Policies (Goal 3 and 4)
Prior Action C1. Adopt the
National Action Plan for Climate
Change
Prior Action C2. Adopt the
Adaptation Prioritization Tool
Prior Action C3. Adopt the Law
on Natural Disaster Risk
Management and Reduction
See above.
2012 MPI “Feasibility Assessment of Low Carbon Options” Provides a rapid assessment
using Marginal Abatement Cost Curves to inform development of Vietnam GGS. Provides
recommendations for further work in low carbon assessment.
67. The body of knowledge outlined above underlines that targeted capacity building and
advisory services are important. Deepening analysis to capture co-benefits is key to prioritizing
policy, institutional support and investment decisions. Coordination of analytical and TA work is also
critical given the fragmented and sometimes contradictory conclusions of various studies. MONRE,
with support from the NCCC, is expected to continue to improve the coordination process to increase
efficiency, strategic focus and complementarity of the analytical and TA support provided through
different stakeholders. Implementation of the CC DPO series has been complemented by advisory
services and TA aligning resources from the World Bank and partners—particularly through the
VNCLIP supported by DFID, and JICA, AfD and Dfat as well as UNDP, CIDA, GIZ, the
Netherlands and Danida.
4.3 LINK TO CAS AND OTHER BANK OPERATIONS
68. Through strengthening climate resilience and low-carbon development, the DPO
contributes directly to Pillar II (Sustainability) of the WB FY2012-16 CPS. The CPS, which
supports the GoV’s 2011-20 SEDS and 2011-15 SEDP, is organized around three pillars: (i)
competitiveness; (ii) sustainability, including climate change adaptation and mitigation and DRM;
and (iii) opportunity. As outlined in Table 6, the DPO supports each of the three outcomes under the
sustainability pillar. Complementing the CPS pillars are three cross-cutting themes: governance,
gender, and resilience. The DPO policy actions on DRRM and for water sector resilience directly
support the third theme of resilience. The DPO policy dialogue has also supported the gender theme
through the preliminary PSIA and the policy dialogue on mainstreaming gender in disaster risk
management and in integrated water resources management. Given the strong linkages between
climate change and poverty, the DPO has the potential to contribute to reduce poverty while helping
the poor mitigate some climate change impacts. The reforms in water resources management and
climate change-related institutional and policy framework supported by the DPO 3 can help reduce
vulnerability of the poor and increase their resilience to climate-induced shocks. Climate change will
35
affect the poorest mostly due to their dependence on natural resources and ecosystem services for
livelihoods and because they have less financial, institutional, and technical capacity to adapt.
Climate change also impacts economic growth, thereby affecting poverty reduction efforts as
changing patterns of growth may reduce the growth elasticity of poverty. Poverty affects access to
resources and entitlements, and therefore increases vulnerability and sensitivity of livelihoods to
climate change risks (see details in section 5.1 below).
Table 5: Vietnam Climate Change DPO Support for CPS Objectives
CPS Pillar II: Sustainability SEDS Goal 11: Protect and improve Quality of the environment, Proactively and Effectively
Respond to Climate Change, as well as prevent and fend off Natural Disasters.
CPS Outcome
and WB Environment
Strategy Pillars
Relevant CPS Outcomes
Indicators Selected CPS Milestone Contributed by CC DPO
2.1 Improved Natural
Resources
Management
“Green”
Water Resources Management:
Increased water productivity in
pilot areas
DPO supports more sustainable water resources
management and improvements in water productivity in
irrigation
2.2 Strengthened
environmental
protection and
management
“Clean”
Climate Change Mitigation:
CO2 emissions reductions
compared to business as usual
scenarios associated with
investments
DPO supports enhancing energy efficiency in the industrial
sector and a low carbon growth assessment for Vietnam.
2.3 Enhanced
Preparedness for
natural hazards and
climate change
“Resilient”
Disaster Risk Management:
Targeted provinces & communes
with DRM plans
Climate Change Adaptation:
Coherent framework for
prioritization of climate change
adaptation action in key sectors
available.
DPO supports implementation and coordinating of DRM.
DPO supports adaptation in the water sector and greater
transparency and impact through adaptation prioritization
tool.
69. The DPO is aligned with the World Bank’s corporate and regional strategies on climate
change. The DPO is linked to the World Bank Environment Strategy’s call to transform growth
paths, leverage natural resources, and manage environmental risks. The DPO is also aligned with the
World Bank Green Growth Flagship, which promotes efficient, clean, and resilient growth. It is
consistent with EAP’s strategic directions, which include managing climate change and natural
disasters. Finally, it is in conformity with the conclusions of the 2010 World Bank study on Strategic
Directions on Climate Change for Vietnam and the current Climate Change and Disaster Risk
Management Engagement Note.
Relationship with Other Bank Operations
70. The operation is firmly based on, and supportive of, the broader World Bank
operational and analytical engagement in Vietnam, which is comprised of IBRD, IDA, Clean
Technology Fund (CTF), Carbon Fund (CF) and Global Environment Facility (GEF) operations as
well as analytical and advisory activities (AAA). The DPO programmatic series complements
ongoing and pipeline operations and serves as a platform for dialogue with the GoV, other
36
development partners and within the World Bank on climate change adaptation and GHG emission
mitigation. Table 7 summarizes related World Bank lending and AAA in Vietnam.
Table 6: CC DPO Series in the Context of the Vietnam World Bank Group Portfolio
DPO Goal Associated Bank Lending AAA/TA
1. Climate-resilient
development:
Improving the resilience
of water resources
IL on IWRM in the Central Highlands and
the Mekong Delta (P113949 and P124942)
IL on urban water supply and wastewater
(P073763 and P119077)
IL and P4R on rural water supply (P077287
and P127435)
IL on irrigation improvement (P130014)
VNCLIP TA for development of key
water resources legislation supported by
the DPO (P126889)
GFDRR TA for DRM capacity building
(P122619)
ESW on Irrigated Agriculture Reform
(P131190)
2. Lower carbon
intensity development:
Exploiting energy
efficiency potentials
DPO series on Vietnam Power Sector
Reform (P124174)
IL on Clean Production and Energy
Efficiency (116846)
IL on Renewable Energy Development
(P103238)
IL on Distribution Efficiency (P125996)
VNCLIP and ESMAP TA for Low
Carbon Assessment (P125358)
Vietnam Energy Efficiency and
Cleaner Production Financing
Program (IFC)
Green Buildings Advisory
Services(IFC)
3. Cross-Cutting
Strategic, Institutional,
Methodological and
Analytical Basis for
Climate Change Action
IL on managing natural hazards (P073361
and P118783)
Various GFDRR grants (P122619)
GFDRR TA for Can Tho urban
climate resilience (P122619)
VNCLIP & ESMAP TA for Low
Carbon Assessment (P126889)
4: Cross-Cutting
Promotion of Financial
Resources Mobilization
for Climate Change
Action According to
Priorities and a Multi-
Sector Allocation Process
Carbon finance operation linked to
renewable energy project (P110477 and
P103238)
Clean Technology Fund Financing for IL on
Distribution Efficiency (P125996)
InfoDev TA for Vietnam Climate
Innovation Center (P129222)
TA for Partnership for Market
Readiness (P128726)
VNCLIP TA for climate finance and
climate public expenditure review
(P126889)
PSIA on enhancing pro-poor aspects
of financial mechanism (P125598)
Climate Public Expenditure and
Institutional Review (P144625)
37
4.4 CONSULTATIONS, COLLABORATION WITH DEVELOPMENT PARTNERS
Consultations
71. The GoV has conducted numerous consultations with stakeholders including key
ministries, research institutions, civil society organizations, and development partners to
discuss the policy framework and specific policy actions under the SP-RCC. Through established
mechanisms for stakeholder and development partner coordination (e.g. the previous biannual
Consultative Group meeting and the successor annual Vietnam Development Partnership Forum), the
GoV has widened the consultations on important policy and analytical work to a broader audience,
including academic communities and provinces. NGOs have been invited and are taking a more
active part in the dialogue. Noteworthy consultations were held during the development of the
following prior actions: the National Climate Change Strategy, the Implementation Decree of the
new Law on Water Resources, the Green Growth Strategy, the Adaptation Prioritization Framework
(which specifically included extensive consultations supported by the World Bank with line
ministries and provinces) and the National DRRM and CCA Forum. For example, consultations for
the National Action Plan on Water Resources Management, supported by the VNCLIP, included all
Departments in three Regions. The twice-annual plenary meetings of the joint donor SP-RCC
missions are open to, and have benefited from, the active participation of non-SP-RCC bilateral
donors and civil society organizations. The Poverty and Social Impact Analysis (PSIA) in support of
the social dimension of DPO has also involved large consultations.
Collaboration with Other Development Partners
72. Donor collaboration and coordination remain good and include regular consultations
with a widening donor community to discuss strategy, progress, and action plans. The SP-RCC
is supported by Japan International Cooperation Agency (JICA), Agence Francaise de Developpment
(AfD), the World Bank, Dfat and Korean Eximbank in 2013. The total SP-RCC contribution parallel
to DPO3 is expected to rise to approximately $190 million USD. The Bank holds discussions with
other development partners as well on alignment of climate change initiatives, funding and TA in
particular within the framework of the SP-RCC. SP-RCC donors and others meet regularly to discuss
and coordinate policy dialogue and to update each other on their assistance to Vietnam. Meetings
usually include JICA, AfD, CIDA, Korea Eximbank, DFID, UNDP, ADB as well as Dfat, with a
broader group joining for the plenary meetings.
73. Policy actions of the DPO series are a sub-set of the SP-RCC policy actions and they are
common to all SP-RCC donors. Pillars and goals adopted in DPO1 are retained through DPO2 and
DPO3 under the programmatic approach. Any updates to the policy reform program are discussed
and agreed during joint GoV-donor consultations. The 2012 SP-RCC Policy Matrix was approved
on August 15, 2012 by Prime Minister Decision 1092/QD-TTg and the 2013 Policy Matrix was
approved on August 9, 2013.
74. Development partners provide coordinated advisory services, capacity building and TA.
The recipient-executed component of the DfID-funded VNCLIP, which aims at building capacity for
five major line ministries, is under implementation. Part of its aim is to enhance capacity in
formulation, implementation, monitoring, and evaluation of climate change policy and to improve
coordination amongst the line ministries. The SP-RCC policy dialogue also benefits from the work
financed by specific World Bank global partnerships such as the Global Facility for Disaster Risk
Reduction (GFDRR) and the Global Environment Facility (GEF).
38
5. OTHER DESIGN AND APPRAISAL ISSUES
5.1 POVERTY AND SOCIAL ASPECTS
75. Given the strong linkages between climate change and poverty, the DPO has the
potential to help the poor mitigate some climate change impacts and contribute to reduce
poverty. Climate change will affect the poorest mostly due to their dependence on natural resources
and ecosystem services for livelihoods and because they have less financial, institutional, and
technical capacity to adapt.21 Climate change directly impacts the poor through, for example, reduced
agricultural yields for low-productivity farming and repeated small-scale disasters and loss of assets.
This would severely impact the Mekong River Delta, which is Vietnam’s most productive
agricultural area and is essential for the country’s food security.22 Without adaptation measures to
counter unprecedented increases in saltwater intrusion and changes to seasonal flows and sea level
rise of the Delta’s water regime, rice production and shrimp cultivation could significantly decline,
placing a burden on the poor who are already exposed to other risks posed by the Delta’s increasing
population growth.23 Increases in food prices that result from the impacts of climate change would
disproportionately affect poor farmers and landless peasants as they would not be able to accrue the
increased production benefits that less poor farmers and landowners would. The poor often live in
informal settlements (41% in 200523) that are even more vulnerable to climate change given their
location (as they are often built on undesirable land that is available because of their exposure to
floods, landslides, or other risks), lack of basic infrastructure, and limited access to social protection
programs.24 Climate change also impacts economic growth, thereby affecting poverty reduction
efforts as changing patterns of growth may reduce the growth elasticity of poverty, for example
through slower agriculture growth, which is particularly efficient at reducing poverty. Even where
and when it does not threaten economic growth, climate change can still threaten the objective of
ending poverty because the destruction of assets and livelihoods of marginalized populations has no
effect on aggregated estimates of losses because this population is so poor. Poverty affects access to
resources and entitlements, and therefore increases vulnerability and sensitivity of livelihoods to
climate change risks. The reforms in water resources management and climate change-related
institutional and policy framework supported by the DPO 3 can help reduce vulnerability of the poor
and increase their resilience to climate-induced shocks.
76. The water resources management reforms that the DPO 3 supports (implementation of
the new 2012 law on WRM) have no foreseen adverse impacts on the poor at the Law level. The new Law, as a long-term strategy, aims to strengthen the management linkages between surface
water, groundwater and coastal waters, to support climate resilience through a strong focus on
addressing saltwater intrusion and sea level rise so as to bring about a positive impact − at a regional
level (e.g., river basin, coastal areas). However, at the micro level (community level), depending on
local spatial planning, agricultural production, socioeconomic plan, and water use plan, adverse
impacts might result, in an indirect manner, particularly for the poor people who are resource scare.
These impacts are typically site specific and as such the scope and nature of impacts should be
examined on the basis of site specific water use plan to avoid adverse impact, or where not avoidable,
aim to minimize, mitigate, or compensate for the adverse impact. Following the release of the WRM
Law in 2012, an Implementation Decree (Decision No. 201/2013 ND-CP dated November 11, 2013)
21 World Bank (2010). World Development Report 2010: Development and Climate Change 22
World Bank (2010). Economics of Adaptation to Climate Change: Vietnam’s Case Study. 23
World Bank (2013). Turn Down The Heat: Climate Extremes, Regional Impacts, and the Case for Resilience 24 ActionAid International and Oxfam (2012). Participatory Monitoring of Urban Poverty in Viet Nam: Five-year Synthesis
Report (2008-2012)
39
has been published by the Government to guide how the Law is translated into practice. With
MONRE designated as the key implementing and guiding agency, the Decree specifies how
consultation should be conducted with the potentially affected population - for a site specific water
use plan, to address the adverse impact. The Decree also includes a requirement for disclosure of
such plan before the site specific water use plan is approved by the Government at the local level to
ensure the potentially affected population, including the poor people, is consulted on the potential
impact to inform the design of mitigations measures.
77. The first PSIA (PSIA-I) developed with the preparation of DPO 1 concluded that the
proposed reforms are expected to have positive impacts on the poor and vulnerable groups.
PSIA-I was undertaken to assess (i) poverty and social impacts of climate change in select sub-
sectors; (ii) the capacity of key policy reforms under the DPO to address 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 of stakeholder groups. PSIA-I aimed to improve the GoV’s understanding of how
the policy reforms could contribute to building climate resilience of the poor. It contributed to
transparent and informed development through policy dialogue, consultations, and collaboration with
local scientific communities and civil society organizations. The initial assessment of all prior actions
and triggers, based on OP 8.60 review of “likelihood of significant effects,” identified potential
positive poverty and social impacts of key policies on poor and vulnerable groups. PSIA-I findings
were discussed and validated with stakeholders through several workshops. There was a strong
agreement with the findings of the PSIA-I and a particularly robust discussion regarding the need for
more participation on climate change planning by civil society.
78. The focus of the second PSIA phase (PSIA-II) in 2012 —identified by stakeholders—
has analyzed the mechanism for climate change funding with the aim to strengthen its
transparency, accountability, and pro-poor aspects.25 PSIA-II assessed the needs and gaps that are
still to be met to develop (pro-poor) climate change financing criteria consistent with sound public
financial investment and management principles in order to develop a set of recommendations to that
end, and propose some relevant monitoring indicators to capture poverty and social impacts of future
climate change investments. The overarching objective of this research was to contribute to the
GoV’s efforts to develop a comprehensive institutional mechanism and help leverage climate
financing sources while augmenting the positive distributional impacts of the future financing. The
PSIA-II findings were discussed with key policymakers, government agencies, development partners,
civil society and research organizations at the stakeholder workshop. The recommendations
supported the discussions on the development of the guidelines for allocating and reporting climate
change financial resources (DPO3 prior action). Overall, the GoV's understanding was enhanced as
to how the proposed policy reforms might help build climate resilience of the poor. And the
adjustments that need to be made to ensure that the reforms do not further exacerbate the changing
climate’s impact on vulnerable groups have been discussed and included in the policy dialogue.
79. Ensuring gender equality is a specific strategic objective under the National Climate
Change Strategy (NCCS) but gender mainstreaming in climate change response is still a
challenge. There is a growing analytical basis for mainstreaming gender in climate change response
in Vietnam, including works by the World Bank and other Development Partners. In addition, the
legal basis, particularly the Law on Gender Equality (2006) has provided an entry point for analysis
of gender and gender action plan for geographical areas, and sectors that are potentially affected by
25
For the purpose of the PSIA, the use of climate change funding is considered pro-poor if the ultimate outcomes of
the public spending benefit the poor.
40
the climate change. However, there is an overall inconsistence in awareness and actions towards
gender equality at the moment when it comes to implementation particularly the lack of guidance on
gender mainstreaming that is expected to be specific for site-specific program/projects. The PSIA 1
and 2 (done under DPO 1 and 2) suggested, for example, that women were more adversely affected
in water resources management and disaster risk management, particularly in geographical area
where women play a dominating role and participation in irrigation management, and/or protecting
their children/family (in the context of disaster). Lack of guidance on how gender analysis is done
and how an action plan could be prepared for these specific areas appears as a gap in the policy
implementation process which makes gender mainstreaming effort a challenge. Also, recently, as an
example at policy level, on gender and disaster risk management, the new Law on Disaster Risk
Management includes an article mandating gender mainstreaming in all DRM plans. However,
gender mainstreaming was not included at all in the ordinance that guides how gender mainstreaming
is implemented. At the community level, there is also still a lack of guidance on gender analysis and
gender action plan that should be specifically prepared to facilitate gender mainstreaming under
government’s DRM projects.
80. To address those gaps and challenges, plan is being prepared, and efforts will be made
to promote the gender mainstreaming effort, particularly in areas the PSIA has informed, and the
DPO 3 focuses, namely water resources management, disaster risk management, and energy
efficiency. At the moment, in the area of disaster risk management, gender analysis and gender
action plans have been completed, including M&E indicators (through the on-going VN-Haz) to
support gender mainstreaming. On water and cross-cutting climate issues, the TA for the NAP-WRM
included an analysis of gender and water issues and provided specific recommendations for
mainstreaming gender into the NAP-WRM. The knowledge product (Mainstreaming Gender in
Water Resources Management in EAP) – a case study for Vietnam, will also be used to expand the
analysis at the community level to develop gender action plan to enable practical gender
mainstreaming. On energy efficiency, the forthcoming TA under DEP will include analytic work on
the poverty and gender aspects of power distribution efficiency, which are expected to inform the
World Bank’s continuing support to the GoV on energy efficiency. The overall approach to gender
mainstreaming that DPO 3 adopted is to take advantages of knowledge/works that the Bank and other
donors have done, to do some additional work to fill the gaps and address challenges identified to
move fast and to recommend a plan of action for gender mainstreaming (sector and site specific) as
part of the NCCS. The gender work under the on-going VN-Haz (prepared during project
preparation) will be used a case study to exemplify and replicated in other area, including water
resources management (adaptation), and energy efficiency (mitigation).
5.2 ENVIRONMENTAL ASPECTS
81. The operation is considered to have significant positive effects on the environment.
Climate change heavily impacts environmental sustainability, so the enhanced climate resilience
sought by this operation represents a significant positive environmental effect.
82. Areas of policy intervention to be supported under this project are likely to have
specific positive effects on environment under DPO 1 and 2. Specific positive effects include:
Improvements in governance of water resources. The principal intent of these measures is
to ensure better water management during periods of increasing uncertainty about water
flows, precipitation and trends in salinization. These measures will ultimately be beneficial
41
for all uses of water (including conservation), as policies come into place to more rationally
and transparently manage this increasingly scarce resource.
Promotion of energy efficiency policy measures. These measures will also have positive
environmental impacts by reducing energy consumption relative to business-as-usual
scenarios. This in turn will result in relative decreases of pollution emissions from power
generation and energy use. Renewable energies and biofuels, which do have environmental
implications, are not targeted under the reforms of this project. Under the World Bank’s First
Public Implementation Reform Development Policy Loan, a Strategic Environmental
Assessment of the Power Sector was carried out as a policy action. This Strategic
Environmental Assessment is being used to develop new master plans to minimize
environmental impacts.
Promotion of low carbon growth strategy. This umbrella strategy encompasses energy
efficiency, but also considers a range of policy measures to reduce the country’s carbon
emissions. Such measures will ultimately benefit the environment by reducing overall energy
use beyond what it would have been otherwise.
5.3 PFM, DISBURSEMENT AND AUDITING ASPECTS
83. Public Financial Management. Vietnam’s PFM environment is considered adequate to
support this operation. The most recent 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’s PFM systems is assessed as moderate’. The Government has
maintained strong ownership of the PFM reform agenda and continues to lead a coordinated reform
program in consultation with the donor community. A Strategy for Finance Development of Vietnam
for the period 2011-2020 has been approved. The approved State Budget is published on the 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 Fiscal Year. Progress has been made to
implement a range of PFM reforms emanating from the CFAA recommendations (notably in the
areas of public debt management, external oversight, fiscal transparency, and the roll-out of the
Treasury and Budget Management Information System). However key legislative reforms, such as
the revision of the State Budget Law and the State Audit Law are still pending. 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 SAV 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 number of DPs are providing support to
the SAV for the implementation of its strategy to 2020, including the Bank, which is providing
technical assistance to modernize the SAV’s audit standards and methodologies in the area of
financial and compliance audits.
84. 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
42
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.
85. 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).
86. 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 directly to the Association. Amounts refunded to IDA shall be cancelled. The administration
of this Credit will be the responsibility of MOF.
87. 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 WB 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 the WB that all
withdrawals are for eligible expenditures; (iii) confirm to the WB 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.
5.4 MONITORING AND EVALUATION
88. The management of the DPO is fully aligned with Vietnamese government structures of
the SP-RCC, and is common to JICA, AfD, Dfat and Korea Eximbank. Implementing the SP-
RCC, and therefore the DPO, is under the supervision of the NCCC, which is the highest-level body
overseeing the country’s climate change agenda. With this management structure of the climate
change agenda, the policy and institutional reform program under SP-RCC and the DPO series is
subject to a broader scope of coordination with more strategic directions for cross-sector and regional
response to climate change. This oversight of the NCCC should ensure increased synergy of
outcomes and impacts of the policy program at the end of the DPO series.
89. MONRE leads the SP-RCC and collaborates with line ministries participating in the
program to coordinate the policy dialogue and provide overall accountability under the DPO
series, including monitoring and evaluating quality, progress, and effectiveness of the SP-RCC.
MONRE coordinates with other line ministries and stakeholders in formulating and confirming the
43
SP-RCC policy matrix of each SP-RCC cycle, based on goals, objectives and expected results.
MONRE undertakes regular reviews of the achievements of the program as well propose
improvements in consultation with line ministries. MONRE reports to the Prime Minister and to the
NCCC on behalf of participating ministries on implementation progress and results achieved so far.
As owner of the program, MONRE advocates for and facilitate coordination of technical assistance
that relate to the SP-RCC. DPs, rrecognizing both the importance and the challenges of monitoring a
multi-sector policy development agenda under the SP-RCC, have provided capacity-building
measures, for example the TA financed by JICA and the World Bank at MONRE (and in each of the
four other ministries involved in the DPO), to assist the GoV in strengthening the quality of the
monitoring and evaluation system.
90. The SP-RCC National Program Coordination Unit (PCU) serves as the key entity to
conduct monitoring and supervision, and assists the line ministries in synthesizing and
reporting on results. The PCU within MONRE is assigned as the focal point for implementing the
SP-RCC and therefore the World Bank DPO. The PCU is directed by the Deputy Director General of
DHMCC and staffed with officials from ICD, DHMCC and other full-time contracted experts.
MONRE co-chairs the SP-RCC technical meetings with line ministries and development partners at
least two times a year. The SP-RCC’s M&E reports are prepared by PCU in coordination with
participating line ministries and submitted to MONRE management, who then reports to the NCCC.
These reports mainly focus on progress toward delivery of the policy actions as per agreed upon
indicators. The PCU also shares the reports with development partners to keep them informed of the
implementation progress of the policy program. The Government has established a network of
climate change focal points in the line ministries that follow, coordinate and report on the status of
sector-specific climate change policy actions and benchmarks. Official communication related to
policy actions between MONRE and participating ministries is made at Vice Minister level via
normal internal reporting lines. JICA has made available a full time technical advisor to the PCU.
91. Line ministries are responsible for the delivery of selected policy actions under the
DPO. They lead sector technical discussion and take part in discussions during joint technical and
evaluation mission carried out between the GoV and DPs. They propose the selection of and report
progress on achievement of their respective sector policy actions. Reporting is made to MONRE as
owner of the program for consolidation and further reporting to the NCCC. The World Bank has
fulfilled its supervisory and monitoring role to review progress, as well as needed adjustments.
Following completion of the three operations, the World Bank will assess the program outcomes in a
final Implementation Completion Report. The World Bank will continue to participate in
supervision, technical assistance, and monitoring according to the SP-RCC cycle until the closing
date of the operation.
44
6. SUMMARY OF RISKS AND MITIGATION
92. Several risks have been identified which are addressed by a combined set of mitigation
measures as presented below. The operation overall risk rating is moderate.
a. Macroeconomic.
Risk 1: Although macroeconomic stability has been largely restored through
stabilization measures, a few critical risks remain: (i) foreign exchange
reserves, despite a steep recent rise, are at relatively low levels, covering just
under 3 months of imports; (ii) private sector demand remains sluggish and
highly susceptible to any further negative news; (iii) the authorities could
adopt expansionary monetary and public expenditure policies to offset weak
private sector demand; (iv) the momentum on structural reforms could further
slowdown, putting GDP growth on a lower trajectory and undercutting fiscal
sustainability; (v) and, the banking sector remains subject to sudden shifts in
depositor confidence and to further deterioration of balance sheets of the
more fragile banks.
Risk 2: The government is facing fiscal challenges due to slowing revenue
collection, which will likely persist over the medium-term due to counter-
cyclicality and tax breaks to stimulate economic activity. Fiscal space to
absorb potential shocks or fund a large restructuring agenda has diminished.
Risk 3: Delayed and weak implementation of structural reforms undercuts the
country’s competitiveness and is a source of risk for potential growth. The
government remains committed to a triple restructuring agenda – SOEs,
financial sector and public investment – but implementation has been
tentative and slow. On SOEs, there is a general concern on the lack of
decisive change. There are concerns over the quality and credibility of
restructuring plans being drawn up by GCs and SEGs. On banking sector
reforms, there are concerns about the effectiveness of some of the current
solutions proposed.
Mitigation: Mitigation measures include closer monitoring of macroeconomic
developments, and increased dialogue with the authorities in collaboration with
the IMF to ensure steadfast implementation of reforms already announced and to
prepare for new ones. To address fiscal challenges the Bank is supporting tax
administration reforms, and the government is implementing policies to
consolidate capital spending, increase efficiency of recurrent spending, and
significantly reduce overall spending growth. On structural reforms, the recently
completed Financial Sector Assessment Program (FSAP) by the World Bank and
IMF provides a comprehensive roadmap for financial sector reform. The
Economic Management and Competitiveness DPO series is part of the risk
mitigation strategy as it focuses on the above structural reforms.
45
b. Policies
Risk 3: Complexity and novelty of the development of some aspects of climate
policies at home can lead to a possible reduction of the political momentum if
limited progress on a global agreement on climate change.
Mitigation: The policy matrix is kept focused with TA provided in support of the
program reform agenda in the selected ministries involved. Analyses and
advisory services inform and enhance the quality of the policy formulation
dialogue with a focus on no regret options. Global knowledge and experiences
are shared with the GoV.
c. Institutions
Risk 4: There are institutional limitations due to difficulty to build effective
capacity to carry inter-sector dialogue. MONRE as lead agency still faces some
challenges to ensure effective inter-sector coordination.
Mitigation: Advisory services inform and enhance the quality of the institutional
dialogue across sectors with the Bank and other DPs bringing convening power.
The scaled-up involvement of the NCCC with increased oversight by DPM in the
past 12 months does facilitate institutional effectiveness and inter-sector
dialogue.
d. Implementation and sustainability
Risk 5: Delayed and limitations to the delivery of rapid results on the ground due
to slow implementation of policies or mobilization of the financing needed.
Mitigation: The DPO is supporting the development of a stronger environment
for climate action implementation and financing by the GoV and partners. The
DPO and the Bank’s lending portfolio are designed to link implementation and
policy dialogue. Close support with monitoring and evaluation and an ex-post
review will help ensure operational achievement.
46
ANNEX 1: POLICY AND RESULTS MATRIX
Prior Actions
Program Results Indicators
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery)
DPO 3 (FY 2014 Board / Delivery)
Prior Action delivered Prior Actions delivered Prior Actions delivered
Pillar A (Adaptation): Climate-Resilient Development by Improving the Resilience of Water
Resources (Goal 1)
Developed a National Target Program for water resources management based on the Water Sector Review Indicator: 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 No 2786/BTNMT-KH, July 28, 2010) (MONRE/DWRM)
Develop the New Law on Water Resources Indicator: New Law on Water Resources adopted by National Assembly (Law Number 17/2012/QH13 dated June 21, 2012 on water resources) (MONRE/DWRM)
Adopt the National Action Plan on Water Resources Management that prioritizes actions and defines responsibilities and timeline for its implementation Indicator: The Recipient, through Prime Minister, has issued Decision Number 182/QD-TTg dated January 23, 2014 adopting a national action plan for the period 2014-2020 on improvement of water resources management, protection and utilization, which plan prioritizes actions and defines responsibilities and timeline for its implementation. (MONRE/DWRM)
Adopt the Implementation Decree of the new Law on Water Resources
Indicator: The Recipient, through its government, has issued Decree Number 201/2013/ND-CP dated November 27, 2013 guiding the implementation of some of the provisions of the Law Number 17/2012/QH13
Expected end-of-program results (CY
2015) GoV has scaled-up, prioritized and initiated implementation of key IWRM actions in the context of the new legal and organizational framework for IWRM that allows a more programmatic, integrated and adaptive approach to water resources management in support of CCA Result Indicators Baseline: Insufficient legal and institutional basis for integrated water resources management needed for CCA Targets: i) Three new high level legal IWRM instruments are operational with priority actions taken ii) Minimum flows established for the Vu Gia-Thu Bon and Ba rivers
47
dated June 21, 2012 on water resources. (MONRE/DWRM)
and used to guide water allocations decisions during the dry season
Prior Actions
Program Results Indicators
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery)
DPO 3 (FY 2014 Board / Delivery)
Prior Action delivered Prior Actions delivered Prior Actions delivered
Pillar B (Mitigation): Lower Carbon Intensity Development by Exploiting Energy Efficiency Potentials
(Goal 2)
Submitted the Decrees to implement and to enforce the Law on Energy Efficiency and Conservation Indicator: 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. (Letter 1522/TTr-BCT, February 23, 2011) (MOIT/EECO)
Adopt regulations establishing qualifications and certification of energy auditors and energy managers Indicator: MOIT Circular on qualifications and certification of energy auditors and energy managers issued by MOIT Minister (Circular No. 39/2011/TT-BCT dated 28 October 2011) (MOIT/EECO)
Adopt the Circular guiding the implementation of energy efficiency measures in at least one key energy- intensive industrial sector Indicator: The Recipient, through its Ministry of Industry and Trade, has issued Circular Number 02/2014/TT-BCT dated January 16, 2014 guiding the implementation of energy efficiency measures in its industrial manufacturing including
the chemical sector. (MOIT/EECO)
Expected end-of-program results (CY 2015) Practices to improve energy efficiency are implemented in large energy users of the industrial sector with related operating capacity increased Result Indicators Baseline: i) 2010 (end of VNEEP 1) level of energy use by heavy industry (6,701 kToe BAU per JICA's "A Study on National Energy Master Plan)ii) No energy auditors or managers certified by the government Targets: i) 4% energy savings by heavy industries compared to baseline (forecast under business as usual scenario) ii) 100 energy auditors completed training to support energy efficiency practices in industrial sector, of which 50 fully certified and 50 doing on-job training to become
48
fully certified iii) 1000 energy managers certified to support energy efficiency practices in industrial sector iv) 1000 energy efficiency plans and 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.
Prior Actions
Program Results Indicators
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery)
DPO 3 (FY 2014 Board / Delivery)
Prior Action delivered Prior Actions delivered Prior Actions delivered
Pillar C (Cross-Cutting): Cross-Cutting Climate Change Policies and Institutional Readiness to
Formulate, Prioritize, Finance, Implement and Monitor Cross-Cutting Climate Change Policies (Goal 3 and 4)
Goal 3: Cross-Cutting Strategic, Institutional, Methodological and Analytical Basis for Climate Change Action Updated provincial level climate change scenarios
Indicator: MONRE has finalized a Report on Updated Climate Change Scenarios dated 2011 updating the Recipient’s climate change scenarios with an improved methodology
Developed provincial
disaster risk management
plans for all provinces
Indicator: The Prime Minister issued Official Instruction Number 1820/TTg-KTN dated September 29, 2009 endorsing the Implementation Plan of
Develop National Climate Change Strategy guiding GoV actions on climate change Indicator: Decision on National Climate Strategy issued by Prime Minister (Decision Number 2139/QD-TTg dated December 5, 2011) (MONRE/DHMCC) Authorize the establishment of the National Coordination Platform for Disaster Risk Reduction and Climate Change Adaptation Indicator: Decision on the establishment of the National Coordination
Adopt the National Action Plan for Climate Change Indicator: The Recipient, through Prime Minister, has issued Decision Number 1474/QD-TTg dated October 5, 2012, adopting its national action plan for climate change for the period of 2012 to 2020 (MONRE/DHMCC) Adopt the Adaptation Prioritization Framework Indicator: The Recipient, through its Ministry of Planning and Investment, has issued Decision Number 1485/QD-BKHDT dated October 17, 2013 adopting a climate change adaptation prioritization
Expected end-of-program results (CY 2015) GoV has improved its planning, prioritization and financing for climate change action Result Indicators Baseline: i) No agreed tool in place within the MPI SEDP process to plan and prioritize climate adaptation action ii) No Province has disaster risk management and reduction plans in place iii) Addressing Disaster risk hazards relies on dispersed and diverse
49
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 (Instruction Number 1820/TTg-KTN dated September 29, 2009) (MARD/DMC)
Platform for Disaster Risk Reduction and Climate Change Adaptation issued by the Office of the Government (Decision Number 6853/VPCP-QHQT dated September 4, 2012) (MARD/DWR, MONRE/DHMCC)
framework for socio-economic development planning (MPI/DSENRE) Adopt the Law on Natural Disaster Risk Management and Reduction Indicators: The Recipient, through its National Assembly, has enacted Law Number 33/2013/QH13 dated June 19, 2013 on natural disaster risk management and reduction (MARD/DWR)
legal frameworks iv) Disaster Risk Reduction and Climate Change Adaptation are related and coordinated on an ad hoc basis between GoV agencies, development partners, research institutes and NGOs Targets: i) An Adaptation Prioritization Framework is operational within MPI SEDP annual cycles and initial implementation reflected in MPI SEDP annual guideline frameworks and budget reports ii) Provinces have disaster risk management and reduction plans under implementation as reflected in the Government Report on Evaluation of 5 years implementation of the National Strategy for DRM iii) A comprehensive unified legal framework to address climate hazards is operational enabling a stronger focus on DRR.
DPO 1 (FY 2012 Board / Delivery)
DPO 2 (FY 2013 Board / Delivery)
DPO 3 (FY 2014 Board / Delivery) Program Results
Indicators Prior Action delivered Prior Actions delivered Prior Actions delivered
Goal 4: Cross-Cutting Promotion of Financial Resources Mobilization for Climate Change Action According to Priorities and a Multi-Sector Allocation Process Approved guiding principles related to the Financial Mechanism for using ODA for climate financing through budget support
Indicator: The Prime Minister issued Official
Develop institutional mechanism to promote climate financing sources Indicator: Decision establishing a long term task force on Climate Finance to guide decision making within MPI issued by MPI Minister (Decision
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 on the Financing
Expected end-of-program results (CY2015) Additional financial resources for climate change action are mobilized, planned according to priorities and
50
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 (Instruction Number 8981/VPCP-QHQT dated December 10, 2010)
(MOF, MONRE)
Number 505/QD-BKHDT dated April 25, 2012) (MPI/ DSENRE)
Mechanism Indicator: The Recipient, through its Ministry of Natural Resources and Environment, Ministry of Finance, and Ministry of Planning and Investment, has issued Joint-Circular Number 03/2013/TTLT-BTNMT-BTC-BKHDT dated March 5, 2013 establishing implementation guidelines for the Support Program to Respond to Climate Change financial resources management mechanism for the climate change actions consistent with Prime Minister’s Instruction Number 8981/VPCP-QHQT dated December 10, 2010 (MONRE/MOF/MPI)
a multi-sector allocation process and reported subsequently Results Indicators Baseline: i) No additional Financial Mechanism for allocating budget for climate change action ii) No government unit responsible for facilitation/awareness raising on access to climate change financing Targets: i) Additional financial resources are mobilized for climate action, planned according to priorities and a multi-sector allocation process, and reported subsequently
51
ANNEX 2: SIGNIFICANT GoV ACTIONS TAKEN TO
STRENGTHEN CLIMATE CHANGE RESPONSE Initiative Year Period Description and Status
National Action Plan on
Green Growth (GGAP)
2014
(expect
ed)
2014-
2020
To achieve the VGGS’s goals and tasks, the GGAP includes the following
contents: 1) Restructuring and improving the institutions to encourage
economic sectors consuming energy and natural resources more
efficiently and highly added values; 2) Studying and applying advanced
technologies for more efficient use of natural resources, GHG emission
reduction and effective response to climate change. 3) Improving people’s
living conditions through generating more jobs in sectors of green
industry, agriculture and services as well as building green infrastructure
and creating environmental friendly life style.
Communist Party
Resolution on
Responding to Climate
Change and Protection
of Natural Resources
2013
2013-20
vision to
2050
Summarizes the Party’s latest evaluation of the state of climate change
response and protection of natural resources and provides guiding policies
on, and directions for, climate change and for enhancement of
environment and natural resources protection. Includes objectives, focal
tasks, and main solutions. The Party and the National Assembly are
tasked with overseeing the implementation of the Resolution.
Support Program to
Respond to Climate
Change (SP-RCC)
2012 2013-16
Consists of an annual policy matrix developed jointly by GoV and DPs
forming a partnership program. SP-RCC policy matrix for 2014-15 aims
to align with NCCS and the GGS in support of a close implementation
coordination of both strategies and actions plans. The NCCC now
oversees the implementation of the SP-RCC.
Vietnam Green Growth
Strategy (GGS) 2012
2012-30
vision to
2050
Sets goals for sustainable economic growth; based on 3 pillars: (i) GHG
Emission Reduction, (ii) Greening Production, and (iii) Greening
Lifestyle & Consumption. An Inter-ministerial Coordinating Board is to
be established under the NCCC to oversee implementation. MPI is
assigned to lead implementation in close coordination with Line
Ministries.
National Action Plan to
Respond to Climate
Change (NAP-CC)
2012 2012-20
Outlines priority tasks for climate-change mitigation and adaptation,
builds on the NCCS. The NAP-CC tasks specific ministries with
implementation under the supervision of the NCCC.
National Climate
Change Strategy
(NCCS)
2011
2011-20
vision to
2050
Establishes guiding principles and specific objectives for climate change
action; emphasizes adaptation, mitigation, and roles of public and private
sector and civil society. The NCCS tasks the NCCC with assisting the
Prime Minister to oversee implementation.
Science and Technology
Program to Support the
NTP-RCC
2011 2011-
2015
Part of the national program for science and technology, the program aims
to (i) understand the scientific nature of climate change, (ii) propose
directions for technology, policy and measure for adaptation and
mitigation, and (iii) identify scientific foundation for integration of
climate change into the development strategies.
National Target
Program to Respond to
Climate Change
(NTP-RCC)
2008 2009-15
Capacity building and awareness program to integrate climate change
action into sector strategies, programs, and plans; directed primarily at
research and capacity-building to inform priorities; emphasis on
adaptation. The NCCS is tasked to oversee the implementation of the
NTP-RCC.
National Strategy for
Natural Disaster
Prevention, Response
and Mitigation to 2020
2007 2007-
2020
Brings together resources to implement disaster risk reduction, response
and mitigation in order to minimize the losses of human life and
properties, the damage of natural resources and cultural heritages.
52
ANNEX 3: LETTER OF DEVELOPMENT POLICY
53
54
55
ANNEX 4: IMF ASSESSMENT LETTER
VIITNAl\1- ASSESSUENT LETTER FOR THE WORLD BANK
Febmary 14, 2014
Rtttnt Dtvtlopmt nts nnd Outlook1
1. Gro"1h has stabiliz•d and inflation has •ased. Real GDP grew 5.4 percent in 2013, significantly below histot·ical rates. Growth is projected around 5\1, percent in 2014, supported by continued strong foreign direc.t inve~tment flows and manufactur·ing expotts, while the domestic economy is forecnst to rem.•in subdued owing to stmctural impediments from a WMk banking sector and inefficient state owned enterprises (SOEs). Headline inflntion fell to 5\1, percent in early 2014, and mny ri~e marginnlly with further administered price adj11~tments. The current account balance registered a strong stuplus again in 2013, but short-term capital outflows, partly reflecting residents moving out of local currency, impeded gross intemational resetve accumulation (expected around 2 months of impotis at December 2013). A slight narrowing of the surplus is projected for the coming year.
2. Risks to the outlook art mainly on the downside. Slow progress in banking system and SOE refotm could prolong sub-par growth and create self-reinforcing adverse feedback, possibly resulting in large contingent liabilities for the public sector, bringing public debt to unsustainable leveb. Futther delays in f1scal consolidation could pressw·e interest rates and the exchange rate and jeopardize deb\ sustainability. Protracted global economic and f1nancial volatility could lead to a weakening of an already low level of reserves in the absence of exchange rate flexibility.
Mncrotconomk Policits
3. Hscal policy should rtluru to a consolidation path. The. 2014 budget deficit is expected to t'ise to around 6\t, percent of ODP (GFSM 200 I) due to tax cuts and weak revenues, despite a reduction in spending and a public wage and hiring freeze. With the deficit deteriorating, public debt is projected to rise to 59 perc.ent ofGDP at end 2014. The authorities should aim to restore fiscal space to maintain matroeconomic and debt sustainability, and to provide room to address bank and SOE restructuring, essential for nnderpinning more robust sustainable growth. This would require restraining the deficit in 2014 to below budgeted levels, with further COI!Solidation in the medium-term. Fiscal consolidation should rely mainly on revenue enhancing measures.
1 Tbe 20U Ankle rv collsult:itio!l was cox.luded by tM IMP*s executive Bo31d o!l i'Ull@ 24,2013.
56
2
4. Monetary polky should mnain on hold in the near ttrm. Policy was loosened in the middle of last year reflecting declining inflation and weakness in the domestic economy. Conditions for tiu1her ea~g could arise. if inflation pressures continue declining and fiscal policy is tightened, but a cautious approach is warranted given the likely muted growth intpac.t of fmther inter·e~t rate. reduc.tions, due to intpair·e.d bank and corp¢rate balance sheets, and in light ofthe recent experience with capital outflows. Greater exchange rate flexibility would help absorb shocks and provide room for reserve accumulation over the medium term.
5. Banking sector reform continues to present an important challenge. Systemic liquidity concerns have been reduced, and the authorities have established the Vietnan1 Asset Management Company 0J AM C) in an attempt to address non-performing loans (NPLs). Efforts have also been made to r·e~tmc.ture banks and gradually open the sector to more foreign participation. However, the V AMC cun·ently provides banks only with the means to access liquidity support and time. to meet provisioning requirements, while foroearance continues and unsafe lending practic.es are being encow·aged.
6. Banking reforms are a priori!)' to minimize macroeconomic and financial risk and raise grotnb potential. The official (adjusted) NPL ratio seems to have ;tabilized around 8 percent, but the tme number is likely much higher. The capital adequacy ratio is officially reported to be 2 points above the minim1un of9 percent, but the implementation of tighter regulations and adjustments for the impact of multiple gearing and loan-financed capital would likely bring it below the regulatory minimum. The authorities are. begimling to develop an action plan ba.ed on reconunendatious from the recent Financial Sector Assessment. The foms should be first to move decisively on bank diagnostic assessments, and then to develop different options for resolving NPLs, recapitalizing viable banks and facilitating the orderly exit of non-viable banks, strengthening the V AMC, and intproving supe1visioo, financial r.afety nets, and crisis management systems.
7. SOE refonns need to be accelerated. There has been progress in the legal framework for SOE refomu, but implementation remains a challenge. Over the past year, important decisions have been taken to improve oversight and management, divest non-core assets, and intprove information disclosure .. Ne.vertheless, the. pace of actual reform has been slow and there. are significant legal and proc.edural challenges which ;till need to be. overc.ome.
57
3
Table 1. Selected Economic Indicators. 2009-1411
"L Pto'«tions ,.. 2010 20U 2012 20U ,.,. 2015
""""" Re:.IGOP(perceM ch.:lnge) « •• 6.2 S2 , . " S.7
Prices (percent chango)
CPl (period IIYt ragel ., 9.2 1&1 9.1 •• 6.l 6.2 CPl (end of pc-Jiod) .. I D I &I .. •• 6.3 .. Core int'.'ltion {end of period) .. 9 .• t-1.3 9< .. .. .. GDPdcfbtot <2 12.1 21.3 lo.9 ... u ,.
Gen~~n~l gowmm«~t fi:n.:..ncos (in pen:ent of GOP) 2/ Re.oti"W.IC .111'1d gr.ant= "'' 27.3 2<9 >2.9 >2.1 19.6 19.7
0 ( to.h'dr Oil t CYel'lue " " ••• ,. ,. 22 ,. f:xpenciilun: 31.6 , .. 2<9 ,. , .. ,.. 25.1
f::wpe~c 19.3 192 IU 2<15 ,., 1 .. 19.7
Nee acqlisitiOfl of nonfil'l:mcial .ass~ 12.3 108 •• 12 1J u .. Ncl lendirls f•l/b0rrov,;f9(•) 3/ ••• ·2.8 · U ... ~s.1 .... ..1
P\bk and publicly guwo¥~tted debt (end of period) 4<9 St.6 41.6 , .. ss• S9.2 ... Mont y • nd <r..:lit !pe«ent clwongo, ond of period)
lto:.d moM:Y (M2) 29.0 "' 12.1 .... ., .. 10 I1J
Credit 10 lhe economy 39.6 , . "' .., ., 101 I Ll
lntetort ratos (in porc•t. end of poriod]
No~W~dcnos.'c rate ~eholclsl 101 11.6 1<9 .. u .. No~ short term SerKfng t llllt (len th.lon one ye:u) 12.7 14.0 IU 12.9 12A ..
B.tlaM• o f ~onts {in pet~t of GDP, unless otbt rwin bldiut..:l)
Cwrenl :.c<OU"'I balance ('nclucf~ offici:.! tra~fen) ... ·3.8 02 .. 6.9 ~· •• f::wpom f.o.b. ,., 641 12.0 ,,. 112 ... . .. IITflo!U f..o.b.. "' ... 12.3 61J l<U 70 ,.,
C;,pit11.v!CI fina ncial ;,oeourn .. <S ••• , . •• •• 0.9
Gross ifllttl"'.l tional resc-J'Io'es 6n lrllio~ of u.S. dcO;,ts) 41 14.1 12A IH , . ,.,, 39.6 50.1
In months of p~ GNfS import: 1.9 1.4 .. " 22 28 32 Tou.l n'lc-m;ll de-bt (ttd of period) SJ ,., 39.9 31.9 11.9 18.9 ,.., 402
Nol'liNJ e~nac- t /lolt (donaN.S. dolbt, e-nd of nc-Jiod) lii.A19 19..098 2t.OOS """' 21,10S .. Nol'liNJ effec:iyc- Cfdl~~ongc- n :c- (e-nd of pe-riod) ... au w 67.9 l<U .. Rc-;,1 effed'.Ye c-xcblonse nr.e {end of pe-riod) 116.0 111.4 122.S 1215 U6.1 .. ..
Memorandum it ems:-GOP(ifl trillio~ of dong ;,1 current mw'blt ptkcs) 1,809 2. tS8 t780 "'" lSl4 l986 , .. 1
GOP(.-. bi'5oru o.f U.S. dolbts) 101.6 lll.8 13<.6 ISS< ""·' la<t 2<1U Per c.1opb GOP Cn u.S. dca;,rs) 1,.181 C297 I.S32 I ,W 2.004 2,163 tltS
~es;: V.ctNuncsc- ~~outhorirics; ard IMF suff CS1i!Nlcs ;,rd ptojec:io~.
l/ The- naional ;~CCOUMS hllos been re<b;lsed 1:10 2010 fro:n 1994 by the- au:nontc-s.
21 Follows lht forrr.:~ 1 of the-Gowrmwnt RMntc Sltlcis:!ics Honi.Vl 2001. lt £xw:ludcs ne-t ltl'llfn9 of~ \f~ewm Oe\ldop.•nen: &:INc.
41 £xw:ludcs goYtrnmc-rrt de-posh. S! Uses W.tttba r* c-xctw.ge ra~
58
ANNEX 5: GOVERNMENT OF VIETNAM UPDATE ON
MACROECONOMIC DEVELOPMENTS IN THE FIRST
FOUR MONTHS OF 2014
Thanks to great efforts of the Government in comprehensive economic reforms, Vietnam economic
development has gained significant progress, especially in recent months. Along with strengthened
and accelerated SOEs equitization with strong determination from the Government and positive
results of banking sector reform, especially weak bank resolution, macro-economy has achieved a lot
of encouraging and positive outcomes as the followings:
- Economic growth has a strong signal of recovery and remains stable. GDP growth
accelerated gradually quarter by quarter in 2013 (Q1/2013 – 4.76%, Q2/2013 - 5.00%,
Q3/2013 - 5.54%, Q4/2013 - 6.04%). The first quarter GDP growth in 2014 was 4.96% yoy
which is the highest compared to that of 2012 and 2013 (4.76% and 4.75% respectively).
This reaffirms the steady recovery acceleration trend.
- Inflation has been successfully subdued. While average CPI in 2013 was recorded the lowest
rate at 6.6% within a decade, y-o-y average CPI for the first 4 months of 2014 was 4.72% and
April CPI was 4.45%, record low level in last 4 years. This is a positive signal that CPI for
the whole year 2014 would lower than the targeted number (7%), and even as low as 5-6%.
- Exports continued to maintain growth momentum. Though commodity trade deficit in 2013
was about US$ 863 million, commodity trade balance became surplus at US$2.05 billion in
the first 4 months of 2014. Commodity trade surplus for only April 2014 reached US$ 810
million which is nearly equal to the trade deficit of 2013;
- Monetary market remained stable. Interest rates continue its declining trend, contributing to
solve difficulties for business and production activities. Exchange rate continues to stabilize.
Spread between exchange rate in interbank market and black market has been narrowed.
International reserves recorded the highest level at around US$ 35 billion by the end of April
2014, increasing by around 40% over last 6 months. Gold market continues to stabilize;
- NPL ratio reported by credit institutions continues its steadily declining trend, falling from
4.73% (10/2013) to 3.79% (12/2013) and down to 3.86% (2/2014). NPL problem is expected
to be solved basically in 2014 that would relieve pressure on liquidity for banking system.
Budget revenues in the first 4 months is encouraging at 36.9% of budget plan, increasing by
14% (y-o-y) while budget expenditure is 32.9% of budget plan, rising by 7.5%