World Bank continues co-operating with Vietnam in transportation infrastructure projects

The Ministry of Transport of Vietnam (MOT) has announced the US$10 billion investment in the 1,300-kilometer North-South Expressway connecting Hanoi and Ho Chi Minh City. The World Bank (WB) currently co-operates with Vietnam in five transportation projects worth about US$1.5 billion.

In the context of Vietnam facing the challenges of fiscal tension and growth pressures when the government has set the target of 6.7 percent GDP increase for 2017 while still harmonizing the huge expenditures for such transportation infrastructure system, Vietnam will need to take the appropriate steps.

TheLEADER had a talk with Sebastian Eckardt on this issue.

Recently, the Ministry of Transportation has announced the US$10 billion investment project in the 1,300-kilometer North-South Expressway. Do you have any comments on this project?

Sebastian Eckardt: The investment in the North-South Expressway clearly creates connectivity between the north and the south of Vietnam. Vietnam has two growth poles namely Hanoi and Ho Chi Minh City and other secondary cities in between, creating the important connectivity. I think the best way is to have an integrated plan that looks at different modes of transport and try to optimize the investment connectivity.

The Country Partnership Framework (CPF) released by the World Bank mentions the US$4 billion loans for Vietnam. Will WB continue work with Vietnam in the transportation projects like the North-South Expressway?

Sebastian Eckardt: Trade and investment connectivity is one of the priority areas identified in the CPF so WB already has a strong engagement with Ministry of Transport and Ministry of Industry and Trade on various aspects and we continue to work as a part of CPF, we definitely think that this is an important area for Vietnam given its reliance on trade as an engine of Vietnam’s economic growth.

In your opinion, how can Vietnam achieve the growth target while ensuring the fiscal balance as well as the transportation infrastructure, meeting the demand of people?

Sebastian Eckardt: There are two objectives in the fiscal strategy in Vietnam that need to be somehow brought together. One is the fiscal sustainability meaning lower deficit and lower debt and the other one is significant infrastructure investments not only in transportation but also in the power sector and urban sector with the large increasing population. 

It’s important to find a way to achieve these objectives at the same time. We think it’s very necessary to look at both the spending and the revenue because if you rely too much on the cutting investment, it may affect long-term goals prospects of the economy, and a lot of investments are needed for Vietnam to continue to grow. 

To improve the efficiency of spending in some indications in transport sector such as some deep sea ports having great potential in provinces, Vietnam should recognize that the fiscal space for investment is limited and therefore prioritize the important projects.

Vietnam currently greatly depends on FDI. Do you think that it will have any impacts on Vietnam’s economy?

Sebastian Eckardt: Vietnam has become an export champion worldwide in various labor-intensive manufacturing sectors. There is an opportunity to further increase the benefits of this economy by strengthening the linkages between the FDI sector and the domestic firms and by ensuring that Vietnam is centrally participating in global value chains not only through FDI sector but also through the domestic enterprises. It will increase the benefits of FDI in the short run and also allow domestic firms to learn and to gain access to technology and markets.

Vietnam, like many other regional economies, has provided tax incentives to FDI enterprises, attracting FDI firms. However, the implementation of those incentives must be transparent. Generally, granting tax incentives, of course, creates risks in the unlevel playing field in terms of the tax environment and especially in tax incentives that are provided to firms competing directly with domestic enterprises. Vietnam should ensure a level playing field, making sure that the tax burden is shared evenly between foreign and domestic enterprises in order not to harm the competitiveness.

What do you think about the growth projection for Vietnam this year? Do you think that Vietnam can gain the 6.7 per cent fiscal growth target?

Sebastian Eckardt: We actually have had 6.3 per cent GDP growth projection in the report in December last year. And we have not really changed the outlook for the economy with that strong momentum. Because there was a drop in the output of mining sector, 6.3 per cent seems to be the most realistic projection now. In the line of the very strong and unexpected performance in the Q4 2017, if that momentum is carried forward to the Q4, it is possible for Vietnam to achieve its fiscal growth target of 6.7 per cent. So we will have to see and update our projections in due time.

Vietnam currently is targeting high GDP growth in the short term. Do you think it would harm the long-term prospects?

Vietnam has rising public debt so the space for using these instruments to achieve short-term goals is increasingly limited and it actually is associated with amplifying existing vulnerabilities and risks which could harm long-term goals. The economy has very strong momentum and it’s a good time to rebuild some of the policies bases and focus on structural reform on the supply side to remove some of the constraints to productivity growth and thereby enhancing sort of medium-term potential.

Thank you so much!