To strengthen municipal infrastructure financing as part of a larger urban development plan, Vietnam participated in an exchange with Colombia. The Vietnamese learned about the institutional, legal, regulatory, and operational frameworks of municipal development funds (MDFs). Thus, they gained skills to develop policy recommendations for a legal framework and an implementation approach for an MDF-type entity for Vietnam.

Challenge

To foster sustainable urban development and improve urban dwellers’ quality of life, the government of Vietnam sought to strengthen its framework and channels for financing municipal infrastructure. With urban population growth ensuing from rapid economic growth and urbanization, the demand for investing in and financing local infrastructure also became a major need.

To address this challenge, the Vietnamese government revised its State Budget Law, improving budget coverage, comprehensiveness, transparency, and its control of budget execution. It also sought to create a financing facility that would help local government access resources for infrastructure investment. To this end, Vietnam explored options to establish a Municipal Development Fund (MDF) to act as a second-tier lender for infrastructure development. However, the Vietnamese lacked the regulatory framework and expertise to develop the operational aspects of an MDF, and the ability to coordinate the many stakeholders needed to contribute to these efforts.

Solution

The central government requested World Bank assistance in organizing an exchange with Colombia, a country that has successfully developed an MDF, La Financiera de Desarrollo Territorial (FINDETER). Vietnam hoped to learn from the Colombia’s experience in developing the comprehensive legal and regulatory framework establishing FINDETER, its operational framework and role, and its long-term vision for urban infrastructure development.

Vietnam participants were senior officials from the Ministry of Finance (MoF), State Bank of Vietnam, Government Office, and Ho Chi Minh City. As part of the exchange, Colombia’s FINDETER facilitated a program featuring interactive sessions and meetings with their representatives and with those of the MoF, selected commercial banks, and municipal government. The exchange components were as follows:

• Study Visit to Colombia. During February 11-15, 2014, the Colombian MoF led a Vietnamese delegation to exchange experiences in financing municipal infrastructure development. Arranged by FINDETER, the visit included meetings with representatives of various Colombian public and private sector agencies. In addition to the MoF, other ministries included Foreign Affairs, National Planning, Water and Housing, and Transportation. Meetings were also held with Bancóldex, a private export-import and entrepreneurial development bank, and with the local administrations of Manizales and Pereira, in addition to visits to several infrastructure projects in these two municipalities.
• Expert Visit to Vietnam. Following the March 11-12 study visit, experts from FINDETER visited Vietnam to provide in-country knowledge via a workshop with Vietnamese agencies and policy makers.
• Knowledge Dissemination Presentations. Upon returning to Vietnam, participants presented lessons learned from the exchange as well as policy recommendations that could lead to the development of Vietnam’s own MDF model.

Results

The exchange helped Vietnamese government officials to gain a better understanding of the pros and cons of MDFs for financing municipal infrastructure, and increased their ability to develop and implement policies to strengthen the financing framework for local infrastructure development. These results were achieved by

• Raising the government's awareness of the importance of an enabling regulatory and operational environment for the adoption of an MDF operating model.
• Enhancing participants’ technical insight to recognize the importance of a comprehensive legal framework with long-term vision; clear and feasible strategies and objectives for an MDF agency; and specific execution principals and approaches. As a result, the Vietnam was able to prepare policy recommendations; these included developing a legal framework and approach to implement and execute an MDF-type entity that can thrive in its specific context.
• Enhancing participant knowledge about financing frameworks for municipal infrastructure development. As a result, the Vietnamese was able to recommend a model for the central management of capital mobilization and the allocation of credit risks for financing municipal infrastructure.

“With these lessons learned, the Ministry of Finance of Vietnam and relevant government agencies will carefully consider options for policy and regulatory reforms in Vietnam to strengthen the country’s financing framework for local infrastructure development.” – Study report

Lessons Learned

• Knowledge provider countries should follow up on study visits by sending an expert to the knowledge recipient’s country. This would provide opportunities for enhanced understanding of the development challenge and lead to revised, refined expertise that is context-driven.
• Knowledge exchange programs are not developed to provide a one-size-fits-all solution. Rather, they provide examples and expertise in a given technical field that can then be reviewed and tailored to the knowledge recipient’s specific context.

World Bank Group Contribution

The Bank’s South-South Facility provided US$40,967 to fund this exchange, and supported efforts of the Colombians (primarily FINDETER) who facilitated the meetings and activities during the site visit.

Partner

Colombian entities that provided knowledge during the exchange included:

• The Department of National Planning and the ministries of Foreign Affairs, Finance and Public Credit, Transport, Water and Housing
• Financial institutions: FINDETER, Bancóldex (export-import and entrepreneurial development bank), Bank Colombia (commercial bank)
• Municipal administrations of Manizales and Pereira
• Aguas de Manizales S.A. E.S.P. (Water Company - Manizales)
• Megabús S.A.
• Integra S. A. (Bus Operator – Pereira)

Moving Forward

The Government of Vietnam has significantly raised awareness of the pros and cons of MDF-model. The next steps are to adopt a model based on these lessons learned– one that best fits the Vietnamese context. It has already started this process based on policy recommendations made by exchange participants. The government is now moving toward an action plan and roadmap to adopt such a model that could lead to an MDF-type facility.

Beneficiaries/Participants

Vietnam

• Vice Minister, Ministry of Finance (MoF)
• Director General, Banks and Finance Department, MoF
• Chief, Ministerial Office, MoF
• Deputy Director General, State Budget Department, MoF
• Director, Financial Markets Division, Banks and Financial Markets Department, MoF
• Deputy Director General, General Economics Department, Government Office
• Deputy Director General, Foreign Economic Relations Department, Ministry of Planning and Investment
• Deputy Director, World Bank Division, Foreign Relations Department, State Bank of Vietnam
• Director General, HFIC - Ho Chi Minh  City Investment and Finance Company (formerly Ho Chi Minh  City Investment Fund for Urban Development)
• Deputy Director General, HFIC
• Vice Director, Ho Chi Minh City Department of Finance
• Deputy President, Ho Chi Minh City People’s Committee
• Chief Deputy,  Ho Chi Minh City People’s Committee's Office