Fiscal decentralization in Vietnam: Emerging issues

Transition to market economy in Vietnam calls for accommodating changes in policies and institutions for providing public services. The paper traces the evolution of fiscal arrangements, analyzes recent developments and identifies emerging challenges. Despite recent changes, the issues of incentives, accountability, autonomy and flexibility in decentralized provision of public services are yet to be addressed satisfactorily. The implementation of the new budget law provides a legal framework. It also clarifies the: roles of different agencies and levels of government. The stability in arrangements is expected to bring a measure of certainty. On the flip side, the budget determination process is predominantly "top-down" and local governments still do not have powers to raise revenues. Further, there are wide variations in the administrative capacity and building capacity poses another challenge. It is also necessary to introduce a simple and transparent formula based system of transfers to offset revenue and cost disabilities.