summary of doctoral thesis decentraliztion of state budget management in vietnam today

MINISTRY OF
EDUCATION AND TRAINING

HO CHI MINH NATIONAL ACADEMY
OF POLITIC AND PUBLIC ADMINISTRATION





NATIONAL ACADEMY OF PUBLIC ADMINISTRATION



LE TOAN THANG


DECENTRALIZTION OF STATE BUDGET
MANAGEMENT IN VIETNAM TODAY


Specialism:PUBLIC ADMINISTRATION
Code: 62 34 82 01

SUMMARY OF DOCTORAL THESIS





HANOI -2013

This work has been completed at: National Academy of Public
Administration

Scientific Instructor: Associate Prof.Dr. Do Van Thanh
Dr. Nguyen Phu Thai




Judge 1:



Judge 2:



Judge 3:









The Thesis shall be defended before the National Academic level

Thesis Assessment Council held at: Academy of Public Administration,
No. 77, Nguyen Chi Thanh, Dongda, Hanoi.
at………. hours,


The Thesis can be further referred to at: Academy of Public
Administration
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FOREWORD

1. THE NECESSITY OF THE THEME
Management decentralization is one of the basic issues of management. In the
state management activity, together with the social-economic development, with
the intervention requirement of the state into the market economy in order to
assure the targets of efficiency, stability and equality, the decentralization of
state management is the key content to ensure the participation of authority
levels into the execution of functions, duties of the State in the best effective
way.
State Budget is the financial resource of the State. In order to manage the
process of establishment and distribution effectively, the use of state budget is
the important and necessary issue of any nation in the world. State budget
management is a forming part of state management in socio – economic fields
and to be executed by the system of state management agencies from the central
to the local.
Theoretically as well as in the reality, decentralization of state budget
management is recognized as the important method to improve the efficiency of
state budget management.
Decentralization of state budget management resolves the relationship
between central and local in handling issues related to the operation of State

Budget. Decentralization of State Budget Management helps defining the
competence and responsibilities among budget management levels, ensuring the
timely settlement of state management tasks.
There are still gaps in the decentralization of state budget management in
Vietnam. For example, the initiative level of local budget is not high, the process
of state budget approval is quite complicated, takes time, and the state
management effect is not met with the requirement of socio-economic
development of the State. This indicates the need of having an objective and
comprehensive review on the actual situation of decentralization of State budget
management in Vietnam recently, pointing out the shortcomings to get the right
solution to perform decentralization of State budget management as the urgent
need.
For the theoretical and practical requirements of the decentralization of state
budget management in Vietnam, I would like to choose the theme
“Decentralization of state budget management in Vietnam today” for my
PhD thesis of Public Administrative Management, with the desire of giving
some scientific and practical recommendations to contribute to the process of
state budget reform, financial reform and the reform of the state administration
of Vietnam in the integration period.


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2. PURPOSE AND TASK OF THE RESEARCH
The thesis is based on hypotheses that current provisions on Decentralization
of State budget management in Vietnam today is not relevant and insufficient,
the effectiveness of State budget management is then not high. Therefore, the
researching purpose and task of the thesis is to gather information, prove and
find solutions for more appropriated decentralization of budget management in
Vietnam, bringing higher effectiveness in the management of State budget.

The thesis is aimed to achieve the practical purposes as follows:
- Systematize the theory on decentralization of state budget management.
- Analyze and evaluate scientifically about the reality of decentralization of
state budget management in Vietnam today. Analysis to clarify the advantages,
weaknesses of this work to address the researching issues in the decentralization
of state budget management
- Propose a number of solutions to strengthen decentralization of the state
budget management in Vietnam in the new period and conditions ensuring the
implementation of such solutions effectively.
Research tasks :
- Research to clarify issues related to the management of State budget, such
as: the concept of state budget, state budget revenues and expenditures,
principles and contents of state budget management.
- Analyze the rationale of decentralization of State budget management, such
as: the concept of decentralization of State budget, purpose, base and principle of
decentralization of State budget management, content of decentralization of state
budget management and influencing factors.
- Analyze and assess the current decentralization of state budget management
in Vietnam, raising assessments on advantages as well as shortcomings in the
decentralization of State budget management in Vietnam today.
- Forecast orientations and recommend some solutions on decentralization of
state budget management in Vietnam.

3. RESEARCHING OBJECT AND SCOPE
Researching object: The thesis focuses on study about the decentralization of
state management in the state budget management activity in Vietnam.
Researching scope: The thesis reviews contents of decentralization of state
budget management in Vietnam between the central budget and local budget.
The thesis focuses on four basic issues in the decentralization of state budget
management between the central budget and local budget. The specific contents

are as follows:
- Decentralization of authority for promulgating laws, policies, standards and
norms of the state budget
- Decentralization of revenue management, task of state budget spending
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- Decentralization of management for the implementation of the state budget
cycle.
- Decentralization in supervision, inspection, auditing of State budget.
Researching time: To assess the status of decentralization of state budget
management in Vietnam concentratedly, the thesis deeply analyzed the situation
of decentralization of state budget management in Vietnam in the period since
the Law on State Budget 2002. However, the thesis also referred to a number of
legal documents related to the activities of decentralization of State budget in
Vietnam in the previous stage.

4. RATIONALE AND RESEARCHING METHOD OF THE THESIS
Rationale: The thesis "Decentralization of State budget management in
Vietnam today" was conducted on the basis, the foundation of Marxist – Leninist
Theory about dialectical materialism and historical materialism. The author
interpreted problems of state management and decentralization of state budget
management in the objectively dialectical logic thinking and in connection with
other matters relating to the State budget management activity.
About the researching methods: In the researching process, the author used
the following researching methods:
- Method of analysis, synthesis: the author compiled to get in the review,
conclusion, and recommendation scientifically, consistent with the methodology
and practice of decentralization of state budget management in Vietnam.
- Comparative method: the author used the comparative method to clarify the
similarities and differences of the researching problem through the phases, from

which to have comments, assessments and recommend solutions for
decentralization of State budget management.
- Historical method: The author performed this method by approaching and
developing the issue of decentralization of budget management through different
historical periods.
- Forecasting method: This method was used to analyze and forecast trends
of decentralization activities of state budget management in Vietnam.
- The method of collecting suggestion from experts: It is to collect suggestions
from experts about the contents of the thesis to gather scientific issues for the
thesis.
In addition, the thesis also uses the researched results which were published
within Vietnam and in foreign countries relevant to the topic of the thesis.

5. NEW CONTRIBUTIONS OF THE THESIS
There are some new points that the thesis has reached:
- Based on the theory of public administrative management and state budget
management, the author studied and interpreted the decentralization of state
budget management.
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- Researched the experiences of decentralization of state budget management
from some countries in the world to draw some experienced lessons that can be
applied to the specific conditions of Vietnam.
- Assessed the real situation of decentralization of the state budget
management in the four specific contents, including: Decentralization of
authority for promulgating laws, policies, standards and norms of the state
budget; Decentralization of revenues management, tasks of spending state
budget; Decentralization to perform state budget cycle; decentralization in
supervision, inspection, and auditing of state budget.
- Proposed solutions on decentralization of state budget management in

Vietnam and conditions for implementing such solutions.

6. THEORETICAL AND PRACTICAL MEANINGS OF THE THESIS
- The researching results of the thesis will provide scientific arguments and
information on issues related to the theory of public administrative management,
public management and theory of decentralization of State budget management.
- The researching results of the thesis positively impact on the more
promotion of decentralization of state budget management between the central
and local.
- The researching results of the thesis may be a reference for researching
officers, students at the NAPA and the interested public officials.

7. STRUCTURE OF THE THESIS
The structure of the thesis consists of Foreword, Content and Conclusion.
There is also a list of references. Specifically as follows:

Foreword:
Content: This part concludes 3 chapters, which are:
Chapter 1: Scientific foundation of decentralization of state budget
management
Chapter 2: Real situation of decentralization of state budget management in
Vietnam today
Chapter 3: Orientation and solution of the decentralization of state budget
management in Vietnam
Conclusion:


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OVERVIEW OF THE RESEARCHING SITUATION AND ISSUES

RELATED TO THE THESIS
- Publication "Decentralization Briefing Notes" written by Jennie Litvack and
Jessica Seddon (2000), published by Institute of Research of the World Bank.
- The book "Serve and maintain: Improving Public Administration in a
Competitive World" by the World Bank, the National Political Publishing, 2003.
- The "Decentralization in East Asia, local authorities take effect" of the
World Bank published by the Culture and Information Publishing House in
2005, which has provided many theoretical issues about decentralization.
- The book "Empowerment in fact - from analysis to the implementation" of
the World Bank, published by the Culture and Information Publishing House (in
2006) referring to the empowerment-how to understand and apply in the reality.
- The theme: "Make good the decentralization between the central
government and local government" implemented by the Central Institute for
Economic Management (2005).
- The book "Decentralization of state management - theory and practice"
written by Ass. Pro. and Dr. Vo Kim Son, published by the National Political
Publishing House in 2004.
- The book "Decentralization of budget for local government - Reality and
Solutions" by Ass. Pro. & Dr. Le Chi Mai (2006) published by National Political
Publishing House.
- The book "Budget harmonization between the central and local" written by
Dr. Bui Duong Nghieu (Editor 2006) published by National Political Publishing
House.
Many research works relating to the state budget management conducted by
Budget – Financial Committee of National Assembly, Academy of Finance, and
National Economics University. The current researching results show that:
1. The scientific researching themes mentioned above mainly studied about
the decentralization of state management in general and on many different
aspects, not fully studied about the decentralization of state budget management.
2. The new research works focused on the solution system for innovating

budget management in general rather than focusing on solutions on
decentralization of budget management or only focusing on some contents of the
decentralization of budget management, if any.
3. A number of studies have examined the issue of decentralization of state
budget management, but mainly approached from point of view of legal
regulations on decentralization that was not deeply analyzing the implementation
of the provisions in reality.
Therefore, further study about the theory of decentralization of state
management and state budget management while building system of solutions to
strengthen decentralization of state budget management in Vietnam with specific
contents is very necessary.
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CONTENTS
CHAPTER 1: SCIENTIFIC FOUNDATION OF THE
DECENTRALIZATION OF STATE BUDGET MANAGEMENT

1.1. MANAGEMENT OF STATE BUDGET
1.1.1. Concept and System of State Budget
1.1.1.1. Concept of State Budget
Budget is an economic category associated with the creation and use of
monetary fund of a certain entity. The entity using monetary fund may be an
individual, a family, an organization, a locality or a nation.
Law on State Budget 2002 of the Socialist Republic of Vietnam also
affirmed: “The State Budget is the total revenues and expenditures of the State
decided by the competent State Authority and performed in a year to fulfill the
functions, duties of the State,”
State Budget usually includes: central budget and local budget. In Vietnam,
the State Budget includes central budget and local budget. The local budget
includes the budget of administrative units having organizations of People’s

Councils and People’s Committees. With the current organizational model of the
State of Vietnam, the local budget includes the budget from provinces, cities
under the jurisdiction of the central government (hereinafter referred to as the
provincial budget), the budget from districts, towns, cities under the provinces
(hereinafter referred to as the district budget) and the budget from communes,
wards, townships (hereinafter referred to as the communal budget).
1.1.1.2. System of State Budget
The system of State Budget is understood as the overall budget having
organic relationship with each other in the process of performing the tasks of
revenues and expenditures of each budget level.
State Budget levels are formed on the basic of state authority levels, in
accordance with the current organizational model of the state governmental
system. The system of State Budget includes the central budget and the local
budget.
1.1.2. Revenues and expenditures of State Budget
1.1.2.1. State Budget Revenues
State Budget Revenue is a process in which the State uses its power to
mobilize a valuable part of the social wealth to form the state budget fund in
order to meet the needs of the State spending.
State Budget Revenues include revenues from taxes, fees; revenues from
economic activities of the State; donations from organizations and individuals,
aids and other revenues stipulated by the State.
1.1.2.2. State Budget Expenditures
State Budget Expenditure is the process of distribution and use of State
Budget to carry out the duties of the State in each period. The expenditure
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contents are various and diversified, coming from the management role of the
State for the socio-economic development. State Budget Expenditures include
expenses for socio-economic development, spending for defense and security,

spending for the operation of State apparatus, spending for state debts, aids and
other expenses.
1.1.3. Principles of state budget management
1.1.3.1. Principle of unification, comprehension
Principle of unification: under this principle, revenues and expenditures of
any governmental authority must be included in a unified budget plan.
Principle of comprehension: State Budget must be inclusive. This means all
activities related to budget revenues and expenditures must be reflected in the
budget documents.
1.1.3.2. Principle of democracy, openness, transparency
Principle of democracy: With the participation in the society, each citizen is
involving in all phases of the budget cycle which is shown the principle of
democracy in the management of the state budget.
Principle of openness, transparency: Openness means to let everyone know,
without keeping confidentially. Transparency is making the openness content
clear, understandable, and unmistakable. A good budget management requires
following the principles of openness, transparency.
1.1.3.3. Principle of objectiveness, independence and responsibility
Principle of objectiveness and independence: Ensuring the objectiveness and
independence of State Budget is a necessary principle. Activities relating to
budget revenues and expenditures need to be checked, investigated and audited
by the competent state authorities.
Principle of responsibility: This principle ensures the responsibility of the
state agencies in using state budget. The State must be responsible before its
people about the process of state budget management, about the results of
receiving, spending state budget.
1.1.3.4. Principle of balancing state budget
Balancing state budget is one principle in the management of state budget.
Balancing State Budget, in addition to balancing the accounts, is the sensibility
in the structure of revenues and expenditures, among the fields of economy,

between the central and locality.
1.1.4. Cycle of State Budget
1.1.4.1. Concept of the state budget cycle
Budget cycle is the term used to refer to the entire operation of a budget from
the start until the end switching to the new budget. A budget cycle consists of
three successive phases that are budgeting, budget execution and budget
finalization.


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1.1.4.2. Phases of State budget cycle
Budget cycle consists of three phase that are budgeting, budget execution and
budget finalization.
Budgeting is the process of analyzing, evaluating, collecting, estimating in
order to define the targets of budget revenues and budget expenditures of the
State reachable in a budget year, as well as to define the key measurements on
economy – finance to ensure the well execution of assigned budget targets.
Execution of State Budget is the process of generating economic, financial
and administrative measurements to turn the targets of revenues, expenditure
noted in the year budget plan into reality.
Finalization of State Budget is the final phase of a budget cycle. The purpose
of balancing state budget is to generate and evaluate the whole process of
revenues, expenditures in a budget year. The balancing of state budget provides
full information about management and operation of revenues, expenditures of
state budget for the competent state authorities such as: National Assembly,
People’s Council, Government, sponsors, people,… from which to learn about
the advantages, disadvantages and the experiences for the next budget cycle.
1.1.5. Content of state budget management
Management, in general, is interpreted as the impact of management subject

affecting to the managed object through the use of appropriate tools and methods
to achieve the defined objectives.
Management of State Budget is the activity of subject managing state budget
through the use of appropriate management tools and methods to affect and
operate activities of state budget to achieve the defined objectives.
Content of state budget management is interpreted as a job that competent
state authorities carry out to manage state budget effectively, to meet the
requirement of social – economic development of the country. The management
of state budget is relating to the activities of receiving, spending state budget.
Management of State Budget is reflected in the following aspects:
- Issue laws, policies, regulations, norms on state budget
- Manage receiving, spending state budget
- Manage the execution of state budget cycle
- Supervise, investigate and audit the implementation of state budget
1.1.5.1. Promulgation of laws, policies, standards and norms of state budget
The promulgation of laws, policies, standards, regulations and norms of state
budget is the first activity in the management of state budget. Any country has
its own law on the formation and use of budget and regulations are generally
enacted in various forms associated with the authority of central and local state
agencies.
1.1.5.2. Management of receiving, spending state budget
Management of receiving, spending state budget is an important content in
the management of state budget
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Management of receiving state budget is understood as the action of the
agency in charge of state budget revenues to the state budget revenues by
making plans, organizing the collection and coordination of testing, assessing the
process of receiving state budget.
Management of spending state budget includes the issuance of policies on

spending budget, making plans, operating budget expenditure and checking,
supervising state budget expenditures.
1.1.5.3. Management of the implementation of state budget cycle
Budget cycle is understood as the entire operation of a budget from the start
until the end moving to a new budget. A budget cycle consists of three phases
that are state budget estimation, budget execution and finalization of the state
budget.
There are many subjects participating in the budget cycle with specific rights
and duties specified in the phases of a budget cycle.
1.1.5.4. Supervision, inspection, auditing of state budget
In the management of state budget, supervising, inspecting and auditing the
use of state budget are very important. This job causes effects to the efficiency in
managing the use of state budget to reach the national social - economic targets.

1.2. DECENTRALIZATION OF STATE BUDGET MANAGEMENT
1.2.1. Concept of decentralization of state budget management
Decentralization of state budget management is the delimitation of the scope
of responsibilities and powers of state agencies at each level in the process of
management and execution of state budget.
The concept of decentralization of state budget management as stated
above shall be construed in this thesis as follows:
First, decentralization of budget management includes the budget deciding
competence and budget managing competence.
Second, decentralization of budget management focuses on power,
responsibility decentralization among agencies related to the budget deciding
competence and budget managing competence.
1.2.2. Aims of decentralization of state budget management
Decentralization of state budget management is aimed at:
First, increase the efficiency of using state budget: A reasonable
decentralization of state budget management shall increase the efficiency of

budget management for the process of national social-economic development.
Second, promote the local initiative: The locality shall be able to increase the
efficiency of using state budget when they are proactive on budget in providing
public services as well as the economic welfare for its local people.
Third, encourage providing public commodities efficiently: Aim of
decentralization of state budget management is to encourage locals spending
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budget for significant and long term valuable public commodities such as
education, health,
Fourth, strengthen the management capacity of the various government
levels: Better budget decentralization will contribute to the increased capacity of
state management of the central and local government thereby increasing budget
management results.
Fifth, create conditions for monitoring the state budget: budget
decentralization explicitly, transparency will facilitate the monitoring of the use
of budget of the functional authorities more effectively.
1.2.3. Bases of decentralization of budget management
First, the legal system on decentralization of budget management: To
effectively manage the budget, the government has enacted a system of statutory
regulations related to the organization and management of the state budget,
including the specific provisions on decentralization of budget management.
Second, the specific characteristics of the state budget system: budget system
of each country is usually classified into levels corresponding to the state
apparatus system. Normally, the system of state budget is divided into the central
budget and local budget.
Third, the characteristics of the state management activity: this is represented
in the countries where state power is highly centralized, the budget revenues are
mostly from central level while a small hierarchy of revenues is from the local.
In the countries where the state power is more decentralized, the local has
relatively independent rights to enact and enforce many decisions on local

budget.
Fourth, the efficiency of providing public goods: In the management of the
state, central government and local government have to both ensure the state
management function and supply of public commodities. The supply of public
commodities directly spent by the conducting level will make the state budget
spending more efficiently.
1.2.4. Principles of decentralization of state budget
First, decentralization of state budget must be consistent and synchronized
with the decentralization of state management: state budget is the financial
instrument of the State to serve the activities of the state apparatus. If the state
management is much decentralized for local in the field of administration,
economics and society, the budget management must also be more decentralized.
Second, ensure the leading role of the central budget and give the local
budget the relative independent position in the state budget system: The central
budget keeps the leading role as the budget holding important revenues which
are enough for the State to perform well its duties and regulate the state budget
system. The relative independent position of the local budget means that the
local has certain autonomy on the local budget. The central creates conditions
for the local to implement such autonomy.
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Third, ensure the effectiveness: The effectiveness of state budget
decentralization is embodied in two aspects which are general effect resulted
from regulations on decentralization of budget management (shown in the
delimitation of receiving – spending task) and the effect when considering
expenses in the process of decentralizing budget management
Fourth, ensure the fairness: fairness in decentralization of budget
management is in place because among locals in a country there are different
natural, social characteristics and different economic development levels.
Regulations on decentralization of budget management simply applied to all
provinces equally will likely lead to the inequities.

Fifth, ensure strengthening the efficiency of state budget management and
control: To ensure strengthening the efficiency of budget management, budget
control, it is needed to build a budget control institution with higher degree of
independence, as well as with competence in handling violations in budget
management.
Sixth, enhance the management capacity, accountability of the local: When
deciding on the level of decentralization of budget management for the local the
central needs to review on the local management capacity. The local budget
management capacity includes: decision making capacity, implementation
organizing capacity, monitoring capacity and capability to explain the budget.
1.2.5. Content of decentralization of state budget management
In reality in Vietnam, decentralization of state budget management is
considered on the four main contents which are as follows:
- Decentralization on the authority to issue laws, policies, standards and
norms of state budget.
- Decentralization of revenue management and duties of spending state
budget.
- Decentralization in the implementation of the state budget cycle.
- Decentralization in supervision, inspection and audit of state budget
1.2.5.1. Decentralization on the authority to issue laws, policies, standards and
norms of state budget
In the management of state budget, regulations on laws, policies, standards,
norms of state budget play an important role. Regulations on laws, policies,
standards, norms of state budget are not only the key bases to set up budget
estimates, fiscal control, but also one of criteria assessing the quality of state
budget management and operation of the central and local levels.
1.2.5.2. Decentralization of revenue management and duties of spending state
budget
Decentralization of revenue management and duties of spending state budget
is an important content in the regulations on decentralization of state budget

management. Specifically, it is the task defining what items the central budget
and local budget are collected and what specific expenses they carry out in the
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process of state budget management. Decentralization of revenue management
and duties of spending state budget is a complicated and difficult issue when
conducting decentralization of budget management. The difficulty is originated
in the uneven development, the difference in natural, economic and social
conditions among localities.
1.2.5.3. Decentralization in the implementation of state budget cycle
Decentralization of state budget management shows the relationship among
the budget levels in a budget cycle including periods of budgeting, budget
execution and budget finalization. In these phases, specific competence of the
state management agencies in central, local and professional authorities
represents the nature of the decentralization of state budget management in the
entire budget system.
1.2.5.4. Decentralization in supervision, inspection and audit of state budget
Decentralization in supervision, inspection, audit of state budget means the
determination of tasks and powers of each state agency in the implementation of
the rights on monitoring, inspecting and auditing the state budget in order to
manage the state budget to achieve its proposed objectives.
1.2.6. Factors affecting the decentralization of state budget management
1.2.6.1. The organizational structure of the state apparatus: Form and structure
of the state decides the organizational structure of the state apparatus into
governmental levels. Each governmental level is mounted with a specific
geographical territory and jurisdiction and often requires financial means to
enforce its functions and duties, which impact on the process of organization and
implementation of decentralization of budget management.
1.2.6.2. The degree of decentralization of state management between central
and local levels:
Method for determination of competence of budget management between the

central and local levels cannot happen arbitrarily but it depends on the degree of
decentralization of the state management on economy - society between the
central and local levels. The degree of decentralization of state management is
reflected in the specific regulations between central and local in the state
management activities.
1.2.6.3. Natural, economic and social features of the local: In the
decentralization of budget management, local peculiarity such as natural,
economic and social features should be taken into account which led to the
distinctive characteristics in the content of decentralization of state budget
management.

1.3. EXPERIENCES ABOUT DECENTRALIZATION OF STATE BUDGET
MANAGEMENT FROM SOME COUNTRIES
The thesis has considered the experiences about decentralization of budget
management from Philippines, China, the Republic of France and Sweden. By
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studying the experiences from these countries, there are some experiences that
can be applied to the specific conditions in Vietnam.
Firstly, Sweden and the Republic of France are highly developed
countries with comprehensive and complete legal system, applying macro-
economic framework in the medium term for the economy and budget
management, applying appreciate budget spending and forecast of budget
revenues and expenditures from one to three years is the good experience for
Vietnam.
Secondly, about the power of National Assembly in the field of budget:
National Assembly has the sole discretion on budget and may change the budget
revenues, expenditures, deficit or surplus presented by the government.
Thirdly, the countries are conducting administrative reform and budget
reform. The governmental system consists of three levels: (I) the central level
(National Assembly, Government, and central agencies); (ii) the regional level;

(iii) the urban level. Therefore, there are budgets for the regional level and the
urban level.
Fourthly, the central budget supports the local budget in the state budget
system.
Fifthly, the autonomy of the local government is heightened.

Summary of Chapter 1

Chapter 1 has explained the scientific foundation of decentralization of state
budget management through the analysis of theoretical issues on decentralization
of state budget management and the practical foundation through experiences of
some countries in the world. Specifically, the author has focused on clarifying
the following contents:
Firstly: Analyzing and systemizing issues of state budget management
Secondly: Analyzing the concept of decentralization of state budget
management and review the decentralization of state budget management in the
relation with decentralization of state management and contents of state budget
management.
Thirdly: Drawing some experienced lessons through the study of
decentralization of state budget management in several countries around the
world.
By studying the theoretical issues and practical experiences from some
countries, Chapter 1 set up a scientific foundation for analysis and assessment of
the real situation of decentralization of state budget management in Vietnam (in
Chapter 2) and the proposal of solutions to strengthen the decentralization of
state budget management in Vietnam (in Chapter 3).


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CHAPTER 2:

THE REAL SITUATION OF DECENTRALIZATION OF STATE BUDGET
MANAGEMENT IN VIETNAM TODAY

2.1. THE PROCESS OF DECENTRALIZATION OF STATE BUDGET
MANAGEMENT IN VIETNAM
2.1.1. Decentralization of State Budget Management in Vietnam before the
issuance of Law on State Budget 2002
During this period, the state budget system was organized under the unified
model with two levels: central budget and local budget, in which the local
budget concluded the provincial budget, the district budget and the communal
budget. The specific feature of budget was highly centralized. The central
decided all budget revenues and perform the majority in budget expenditures.
2.1.2. Decentralization of state budget management in Vietnam from 2002
up to now
State budget concludes central budget and local budget. The local budget
concludes the budget of administrative units at all levels having People’s
Council and People’s Committee in accordance with the provisions of the Law
on organization of People's Councils and People's Committees. Decentralization
of revenue sources, expenditure tasks and relationship between the central
budget and local budget is executed under the following principles:
- The central budget and local budget are decentralized from specific revenue
sources and expenditure tasks.
- The central budget is to ensure the implementation of the strategic,
important tasks of the nation and support the local with unbalance budget.
- The local budget is decentralized from revenues to ensure proactive in
implementing the assigned tasks.
- Duties of spending budget under any budget level shall be paid by such
level.
- Make division by percentage (%) for the revenues divided among budgets at
all levels and additional grant to the local budget from the central budget to

ensure fairness, balanced development among regions and localities.
2.2. REAL SITUATION OF DECENTRALIZATION OF STATE BUDGET
MANAGEMENT IN VIETNAM
2.2.1. Real situation of decentralization of authority to promulgate laws,
policies, norms of state budget
2.2.1.1. Real situation of decentralization of authority to promulgate laws,
policies, norms of state budget
Central jurisdiction includes the jurisdiction of the National Assembly, the
Government and the Central Ministries.
Local jurisdiction includes the state agencies such as provincial People’s
Councils and People’s Committees
15
In fact, the decentralization of state budget management shows that the
promulgated Law on State Budget 2002 has had a great progress in clearly
defining the jurisdiction of state agencies (National Assembly and Government
at the central level, People’s Council and People’s Committee at the local level)
in promulgating policies, management mechanism, decision on estimation and
allocation of state budget, supervision of state budget, thereby neutrality in the
management, decisions on estimations have been reduced dramatically and
highly focused on the overall decision on state budget carried by the National
Assembly.
2.2.1.2. Real situation of decentralization of authority to promulgate norms of
state budget
Norm of state budget includes the norm of decentralization of state budget
and norm of spending state budget. Norm of decentralization of state budget is a
foundation to set up and allocate budget to ministries, ministerial-level agencies,
governmental agencies, other agencies in the central and localities. Spending
budget is the mode, the standard as a basis to implement budget spending and
control of budget spending.
- The Prime Minister decides budget allocation. The provincial People’s

Council decides to allocate its budget in the locality.
- The Government decides the allocation of state budget spending which is
important and in large sphere of influence, relating to the implementation of
socio-economic tasks of the nation such as: wage regime, social welfare, regime
for people with meritorious services to the revolution, the proportion of budget
spending for education and training, science and technology in total state budget
expenditures.
- Prime Minister decides the regimes, standards, norm of state budget
spending in accordance with the particular traits of the locality. Prime Minister
regulates the norm frame of budget spending and assigns the provincial People’s
Council to decide the specific method.
- Minister of Finance decides the regimes, standards, norm of budget
spending for industries, fields after discussing with the managing ministries.
- The provincial People’s Council decides the regime of budget spending in
accordance with the real situation in the locality.
2.2.2. Real situation of decentralization of revenue source, budget spending
management
2.2.2.1. Real situation of decentralization of state budget revenues
The allocation of revenue sources among levels is divided into sources; and
each level enjoys 100% and the revenues are divided in proportion. In other
words, the state budget revenues are divided into three groups: revenues of
100% central budget, revenues of 100% local budget and general revenues
(divided at the rate of central budget and local budget)
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Revenues of central budget: the revenues of central budget include revenues
that central budget enjoys 100% and revenues divided by the percentage %
between the central budget and local budget.
- Revenues 100% enjoyed by the central budget include 9 items
- Revenues divided by the percentage between the central budget and local
budget include 5 items.

Revenues of local budget include 100% revenues of local budget, revenues
divided by the percentage between the central budget and local budget,
additional revenue from the central budget, revenue from mobilization of
investment capital for infrastructure projects.
In the specific regulations of Law on State Budget 2002, there were some
points we need to pay attention to which are as follow:
- Regulations on increasing or decreasing some specific revenues for each
budget level, including central budget and local budget.
- Law on State Budget 2002 only regulated revenues of central budget, local
budget and handed only the authority to the provincial People’s Council to
allocate the specific revenue sources to budget levels in the locality. This gave
much more autonomy to the local, particularly the provincial People’s Council.
Mechanism defining the distribution rate of general revenues.
Add State budget
When the total revenues are not sufficient to cover the assigned expenditure
tasks, the localities are additionally allocated the budget by the upper level.
Adding budget by upper level to lower level including two kinds that are
balancing supplement and targeting supplement. This supplement is the revenue
of local budget.
2.2.2.2. Real situation of decentralization of state budget spending
Allocation of budget spending is defined and specified in the legal
documents, the spending tasks of each budget level. In the relation between the
central budget and local budget, allocation of the budget spending is to identify
and specify tasks for central budget and local budget.
Tasks of spending central budget: the tasks of spending central budget
include 7 basic expenditures as follow: (1) spending for investment and
development; (2) regular expenses: (3) payment for principal and interest of
loan by Government; (4) expenses for aids; (5) Loans; (6) expenses for
additional financial reserves of the central; (7) expenses for supplement local
budget

Tasks of spending local budget: including 5 tasks as follow: (1) expenses for
local development; (2) regular expenditure of the local budget; (3) payment for
debts mobilized for local investment; (4) expenses for additional provincial
financial reserves; (5) additional expenses for lower level budgets.
In general, the decentralization of state budget expenditure under the Law on
State Budget is assessed as “consistent with the theoretical principles in budget
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expenditure task. The assignments at the governmental levels commensurate
with the geographic area and the beneficiaries” according to the report of
expenditure review of the World Bank in Vietnam.
2.2.3. Real situation of decentralization of management for implementing
state budget cycle.
The state budget cycle usually commences before the fiscal year and ends
after the fiscal year. All three phases of a budget cycle are taken place in a fiscal
year, including budget execution of the current budget cycle, budget finalization
of the previous cycle and budgeting for the next cycle.
Decentralization of management in the implementation of budget cycle in
Vietnam is considered through the budget cycle, central budget cycle and local
budget cycle.
2.2.3.1. Cycle of State budget and central budget
The cycle of state budget and central budget includes three phases: the
estimation of state budget and central budget, execution of state budget and
central budget, finalization of state budget and central budget.
First phase: Estimation of state budget and central budget
The preparation, establishment, verification and approval of estimation of
state budget in Vietnam nowadays to be done in eight steps.
Second phase: Execution of state budget and central budget
Budget execution is the main job of the state agencies. The supervising role
of National Assembly in this phase is mainly done through the provisions on
sequences and procedures of budget execution prescribed by National Assembly

in the State Budget Law. In addition, to serve the needs of budget supervision,
National Assembly also uses periodic reports as well as the monitoring results.
Third phase: Finalization of state budget and central budget
Nowadays, in Vietnam, finalization of state budget is made from the bottom
up. Ministry of Finance evaluates the finalization of budget revenues,
expenditures of ministries, ministerial-level agencies…. using central budget and
finalizing local budget; generalizes and estimates state budget to submit to the
Government to present to the National Assembly for approval.
2.2.3.2. Local budget cycle
Local budget cycle is built and implemented according to a cycle consistent
with the general state budget cycle. The stages includes: (i) estimation of local
budget; (ii) execution of local budget and (iii) finalization of local budget.
First phase: estimation of local budget
Second phase: execution of local budget
Third phase: finalization of local budget
2.2.4. Real situation of decentralization in supervision, inspection, auditing
of state budget
2.2.4.1. Real situation of decentralization in supervision of state budget
About the content of supervision:
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National Assembly as the highest powerful state organ, performs its functions
in supervising state budget on the followings: (i) supervising the annual budget
estimation; (ii) supervising the allocation of central budget and the supplement
from the central budget to local budget; supervising the allocation of budget
revenues, expenditures for ministries, central agencies, provinces and cities
directly under the central government; (iii) supervising the execution process of
state budget; (iv) supervising the approval of budget estimations.
People’s Council shall supervise the execution of local budget estimation,
allocation of local budget, additional allocation from the upper level to the lower
level (in locality) and approval of local budget estimation; supervising the

implementation of Resolutions of the People’s Council in the field of finance –
budget and legal documents of upper level in the area.
About the supervising object
The supervising object of National Assembly is the law enforcement
agencies, including Government, Ministries, Central agencies and provincial
governments, the units using state budget (in which, Ministry of Finance is the
agency collecting and classifying reports on state budget to present Government
to submit to National Assembly for consideration and decision).
The supervising object of the People’s Council is the People’s Committee and
other state agencies in the locality in management and operation of local budget
(in which, Financial Department is the agency collecting and classifying reports
on local budget to present People’s Committee and submit to People’s Council
for consideration and decision).
About the form of supervision
According to the Law on supervision of National Assembly, applying in the
field of state budget, the forms of supervision in the field of state budget
conclude: listening to the report, organizing general supervision and specialized
supervision, assigning team member to organ, organization to review and define
the issues on finance – budget, organizing research, making report and
considering proposal for the budget – financial management
Tools to carry out supervision of state budget
One of the important tools to carry out the supervision of state budget
effectively is the operation of State Auditing Agency, Government Inspector,
Financial Inspector, People’s Procuracy, People’s Supreme Court (for National
Assembly), provincial People’s Procuracy, provincial People’s Court (for
provincial People’s Council) to serve the supervision of state budget.
2.2.4.2. Real situation of decentralization in inspection, auditing of state
budget
Annually, Government Inspector conducts inspection activities relating to the
management and use of state budget.

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The State Auditing Agency undertakes the audit of financial statements, audit
of compliance and performance of budget beneficiaries; inspection and
supervision of state budget.
2.3. ASSESSMENT ON DECENTRALIZATION OF STATE BUDGET
MANAGEMENT IN VIETNAM
2.3.1. Advantages
Firstly, Decentralization of state budget management is an obvious trend in
Vietnam. Particularly, there is much decentralization for the local on the revenue
source and budget spending in the decentralization of state budget management.
Secondly, The provincial People’s Council serves the right to decide the
decentralization of revenue sources and specific spending tasks for the lower
levels, decide some regimes, standards, norms of spending local budget
according to the allocation of the central level.
Thirdly, In the area of budget spending for investment and development, the
local is more and more decentralized in deciding the capital construction projects
from the state budget funds.
Fourthly, decentralization of state budget management is more and more
based on the scientific foundation.
Fifthly, decentralization process of budget management in Vietnam has given
the local larger initiative in managing their respective budgets, enhancing the
budget management capacity of the local.
2.3.2. Shortcomings
Firstly, decentralization of budget management in Vietnam still follows the
management method depending on the inputs; the effective use of state budget,
therefore, is not high, which is shown through the use of norms system of state
budget.
Secondly, regulations on decentralization of state budget management are not
embraced the scale of state budget.
Thirdly, budget-managing competence of the local is increased, but the

budget deciding competence is still belonging to the central government.
Fourthly, the allocation of revenue sources and budget spending tasks
between the central budget and local budget is not in accordance with the reality.
Fifthly, correlation between revenues and expenditures of the local is not
commensurate with each other.
Sixth, inadequacies in provisions on decentralization of implementing state
budget cycle
Seventh, supervision of state budget is not met with the real requirements.
2.3.3. Reasons:
Firstly, System of state budget in Vietnam is integrated
Secondly, the local authorities have only been increasing organizational
implementation and management of the budget, while the deciding competence
is still under the jurisdiction of the central government.
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Thirdly, decentralization of state budget in Vietnam is still under the
traditional method of budget management, also known as budget management
under the inputs list
Fourthly, some other reasons: Fiscal year is a principle in traditional budget
management. Lack of close linkages between the medium socio-economic
development plans and resources in the state budget estimation
There are regulations on public budget, but no regulations on assessment
of public data, which leads to the lack of transparency.
At present, State Auditors only participate in auditing finalization reports;, the
auditing efficiency is not high.

Conclusion of Chapter 2

This Chapter deeply analyzes the real situation of decentralization of state
budget on the four basic contents as follow:
- Decentralization of authority of promulgating laws, policies, standards

and norm of state budget.
- Decentralization of revenue sources, budget spending tasks
- Decentralization for management of budget cycle
- Decentralization in supervision, inspection, auditing of state budget

When analyzing the real situation of decentralization on each content, the
author has considered based on the legal documents on decentralization and
evaluated the implementation of decentralization in practice.
Since then the author has evaluated the advantages and limitations in the
decentralization of budget management in Vietnam today and pointed out the
reasons of limitations. The evaluation on the actual situation, especially the
reasons of limitations in the decentralization of State budget management is the
real basis for the author to propose solutions to promote decentralization of state
budget management in Vietnam in the coming period.

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CHAPTER 3:
ORIENTATION AND SOLUTION OF THE DECENTRALIZATION OF
STATE BUDGET MANAGEMENT IN VIETNAM

3.1. ORIENTATION OF DECENTRALIZATION OF STATE BUDGET
MANAGEMENT IN VIETNAM
Based on the specific elements and principles of decentralization of state
budget management, forecasts related to decentralization of budget management
in the coming period in Vietnam may be:
Firstly, the scale of state budget increases along with the economic growth.
Secondly, the trend of administrative reform in the direction of
decentralization becomes clearer.
Some orientations of decentralization of state budget management in
Vietnam in the coming period:

Firstly, there is a separation between the central budget and local budget
Secondly, the local authorities are given more autonomy in decision and
management of revenue sources
Thirdly, decentralization of budget management is not in accordance with
the outputs in the medium-term budget plan.
Fourthly, strengthening the transparency and accountability in the state
budget
3.2. SOLUTION OF THE DECENTRALIZATION OF STATE BUDGET
MANAGEMENT IN VIETNAM
3.2.1. General solution of the decentralization of state budget management
in Vietnam
3.2.1.1. Amendment of legal regulations relating to the decentralization of
state budget management
"National Assembly decides the financial policy, the national currency, the
estimation of central budget, central budget allocation, approval of central
budget finalization; regulations, amendment or repeal of taxes ".
Amend the competence of National Assembly for the budget allocation:
amend regulations on the competence of National Assembly in defining the
priority targets in allocating estimation of budget spending accordingly.
3.2.1.2. Decentralization of state budget management in the direction of
outputs in the medium term budget plan
Decentralization of Budget management in the direction of outputs is to
determine the final results of the supply of goods and services from state
agencies from central to local levels. The connection of these results with costs
on budget and organization activities reflects the effects and effectiveness of the
supply of public services.


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3.2.2. Specific solution of the decentralization of state budget management

in Vietnam
3.2.2.1. Solution for decentralization of competence in issuing norm of state
budget
Decentralization of competence in issuing norm of state budget spending: it’s
divided into norm groups of state budget spending under the authority of the
central and to be implemented through out the country. The norm group of state
budget spending is specifically decided by the local within the norm framework
specified by the central; the local decides the norm group of state budget.
Innovation of methodology for allocating the state budget: Using more
criteria to calculate for more reasonable budget allocation.
3.2.2.2. Solution for decentralization of budget revenues, spending tasks
management
Increasing the deciding competence of spending budget for the local
- Clearly defining that the local serves the right to spend budget on whatever
decentralized works
- Decentralization of budget spending tasks for the local is subjected to the
allocated revenues.
- Promulgating specific regulations on competence of spending for
investment and development for the local.
Innovation of mode allocating budget revenues between central and local
- Allocate the revenue sources more properly between central budget and
local budget
- Improve the definition of allocating rate in the general revenue sources.
Innovation of methodology defining the supplement to the budget
3.2.2.3. Solution for decentralization of implementation of state budget cycle
The decentralization of the implementation of the budget cycle should be
directed to the separation between the central budget and local budget.
Performing budget cycle must be based on the principle that National Assembly
decides the estimation of central budget, allocation of central budget, finalization
of central budget detailing for each ministry and central agency; decisions to

supplement the local budget from the central budget. The local should be given
more autonomy in deciding and operating local budget, finalizing local budget.
3.2.2.4. Enhancing competences of National Assembly and People’s Council
Enhancing the competence of members of National Assembly and People’s
Council: to be presented in the competence of reviewing estimation, deciding
state budget, supervising the execution of state budget and finalization of state
budget in the decentralization of state budget.
Strengthening the supervision of National Assembly: through out the
establishment of specific regulations on the scale, object, supervision of using
state budget; innovating the mode and form of supervision of National Assembly
and People’s Council.
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3.2.2.5. Innovation of organization, enhancing the quality of state auditing
Auditing plays an important role in state budget management. State auditing
focuses on the fields: auditing budget of provinces and cities directly under the
central, auditing the national programs, auditing budgets of estimation units at
various levels, auditing capital and assets of the state in the state-owned
enterprises, capital construction works.
3.2.2.6. Increasing public transparency and accountability in decentralization
of state budget management
Strengthening the decentralization of budget management can only reach the
higher effect when strengthening the public, transparency and accountability in
state budget management activities.
3.3. RECOMMENDATIONS
3.3.1. Clearly assign duties, authorities of the central and the local budget
3.3.2. Re-organize the time of preparation, construction of budget
estimations
3.3.3. Enhance the legality of Resolutions of National Assembly on state
budget

Conclusion of Chapter 3

Based on the theoretical foundation on decentralization of the state budget
management, experienced lessons about decentralization of budget management
in some countries and the assessment on the current decentralization of state
budget management since 2002, the author has proposed solutions to strengthen
decentralization of the state budget management in Vietnam in the coming
period.
The author has proposed solutions from overall to specific one in order to
strengthen the decentralization of the state budget management. The overall
solutions are from the completion of the legal system of the State budget
management in order to create a strong legal framework in defining the authority
of the central and local government in state budget management.
The specific solutions are to strengthen the decentralization of the state
budget management, which is proposed by the author to associate with the
clarification of the contents in budget management. They are: decentralization of
authority for promulgating laws, policies, standards and norms of state budget;
decentralization of revenue sources, tasks of budget spending; Decentralization
in implementing the state budget cycle and decentralization in supervision,
inspection, auditing of state budget.
In addition, the thesis also proposes some recommendations to implement
solutions for strengthening decentralization of State budget management
effectively in reality.