Kherallah, Mylène, and Goletti Francesco, April 2000. Public Expenditure Review. Input on the Agricultural and Rural Sectors.

This paper considers the level, composition and distribution of public expenditures in the agricultural sector. The study was conducted as part of the Public Expenditure Review undertaken jointly by the Government of Viet Nam and the World Bank in 2000. Despite tremendous achievements in the agricultural and rural sectors, improvements to Viet Nam's public expenditure management could lead to even stronger performance. In addition to the long term needs of enhancing the budgetary process, fiscal transparency, coordination between ministries, and targeting of public expenditures to poorer provinces, there are three important issues that the country could tackle in the agricultural sector immediately:

1. Reallocate public spending from investment in private goods such as marketing and processing into public goods such as agricultural research and extension. Many loss-making SOEs in the agricultural sector are imposing a large budgetary burden on the government as well as crowding out private sector investment. The government could identify a few agricultural loss-making SOEs (e.g. some in the sugar industry) and reallocate the state subsidies, transfers, and investment that went to these companies to finance new extension centers and re-organize the agricultural research system. It could start by doubling the extension budget and increasing the agricultural research budget to reach about 2 percent of agricultural GDP. this reallocation could be reflected in the new 2001-2005 PIP and the 2001 annual budget. The reallocation should be accompanied by mechanisms to ensure strong linkages between research and extension, private sector participation in the provision of these public services, accountability to the farmers, and priority to public services for the poorest communes.
2. Base the irrigation water fee on consumption. Currently, the water fee in Viet Nam is based on paddy production levels rather than volume of water used. This results in excessive water use, problems in collecting water fees, and insufficient recovery of operation and maintenance costs. Before increasing the water fee to improve cost recovery, some local authorities could implement new mechanisms to measure water use, and charge a water fee depending on consumption. This has already been successfully implemented in some localities in Viet Nam and could be extended to other areas.
3. Extend pilot projects to develop water user associations. The benefits of water user organizations in terms of water use efficiency, cost recovery, and improvement in service delivery have been proven in Viet Nam and elsewhere. The government could extend the pilot programs developed in Tuyen Quang Province, North Nghe An and Son Chu to other areas within the next two or three years. Eventually, the whole irrigation system in Viet Nam could be managed by water user associations.

Keywords: public expenditures, agriculture, irrigation, Viet Nam.

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last updated: July 18, 2000