Moving to Middle-Income Status: Donors and Vietnam beyond 2010

Martin RamaThe World Bank in Vietnam

February 29, 2008

The Middle Income Squeeze

• Growth Slowdown– High income countries grew by 50% (1980-2000)– Low income countries grew by 150%– Middle income countries grew by 20%

• High Volatility• Strategic Uncertainty

– High income, high tech– Low income, low wage– Middle income, ???

An East Asian Exception?A second group of East Asian economies has caught up with Latin America

(Per capita income growth in East Asia and Latin America, 1900-2000)

0

5,000

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25,000

1900

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Upper Latin America 8 Low er Latin America 8 Upper East Asia 5 High Income

Low er East Asia 5 High Income Upper East Asia 5 Developing Low er East Asia 5 Developing

East Asia High Income 5

Latin America 8East Asia Developing 5

High Income

Low and Middle Income

Economies of Scale and Agglomeration Effects Dominate

• International integration permits specialization

• Specialization breeds innovation

• Innovation requires higher education

Economies of Scale and Agglomeration Effects Can

Breed Social Stress

• Urbanization

• Inequality

• Corruption

Cities and Congestion

• Facts– Cities have three times the productivity of rural areas,

reflecting agglomeration economies– East Asia is witnessing the largest rural-to-urban shift

in human history: 550 million over next 25 years– Large cities are coming under stress; secondary cities

are growing faster

• Implications– Urban growth will drive regional differences– Make large cities more livable – Improve connectedness and economic management

of smaller cities

Inequality in East Asia Has Increased, but not Everywhere

PHL

THA

CHN

IDN KORLAO

MYS

VNM

15

20

25

30

35

40

45

6 6.5 7 7.5 8 8.5 9 9.5 10

Log(per-capita GDP (constant 2000 PPP$))

Th

eil i

nd

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inc

om

e in

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ty

Challenges for Donors

• Move to non-concessional support

• Embrace country policy priorities

• Adapt flexibly to country systems

• Provide advice and capacity building

Adapt Flexibly to Country Systems

• More budget and program support

• Respect budget procedures

• Improve predictability of transfers

• Minimize special reporting requirements

• Use/strengthen country financial management, results, and M&E systems

Managing Risks: Corruption

• A nervous authorizing environment, catering to parliaments and taxpayers

• At one extreme: little oversight on budget support

• At the other: detailed (and increasingly demanding oversight on projects

• Abundant access to finance and the China effect

A Donor Questionnaire

• Sent to the entire donor community

• For now, answered by a dozen donors:

Asian Development Bank, Denmark, European Commission, Finland, France, India, Japan, Spain,

Switzerland, United Kingdom, and World Bank

• Accounting for much of ODA to Vietnam:For 2007, they pledged the equivalent of $426 million in

grants and $3,139 million in loans

Grant Volume in 2008-2010

0%

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50%

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-50% orless

-20% orless

Roughlyequal

+20% ormore

+50% ormore

Don'tknow

Unw eighted Weighted

Note: Weights based on 2007 pledges, measured in grant equivalent terms.

Grant Volume in 2011-2015

Note: Weights based on 2007 pledges, measured in grant equivalent terms.

0%

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-50% orless

-20% orless

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Unw eighted Weighted

Loan Volume in 2008-2010

Note: Weights based on 2007 pledges, measured in grant equivalent terms.

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-50% orless

-20% orless

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Don'tknow

Unw eighted Weighted

Loan Volume in 2011-2015

Note: Weights based on 2007 pledges, measured in grant equivalent terms.

0%

10%

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30%

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50%

60%

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-50% orless

-20% orless

Roughlyequal

+20% ormore

+50% ormore

Don'tknow

Unw eighted Weighted

Loan Terms in 2008-2010

Note: Weights based on 2007 pledges, measured in grant equivalent terms.

0%

10%

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IDA terms Below market Close to market Don't know

Unw eighted Weighted

Loan Terms in 2011-2015

Note: Weights based on 2007 pledges, measured in grant equivalent terms.

0.0%

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IDA terms Below market Close tomarket

Don't know

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Graduation Process

• Several donors have a formal graduation process, towards less concessional ODA

• They include ADB and World Bank, which are now in the “blending” process

• Their full graduation of Vietnam could be complete as early as 2012

• Several donors may discontinue Vietnam as a focus country in their program

Technical Assistance

Note: Refers to the share of technical assistance in ODA (unweighted), compared to 2007 pledges.

0%

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80%

None Less Same More Don't know

2008-10 2011-15

Investment Lending

Note: Refers to the share of investment credits in ODA (unweighted), compared to 2007 pledges.

0%

10%

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40%

None Less Same More Don't know

2008-10 2011-15

General Budget Support

Note: Refers to the share of general budget support in ODA (unweighted), compared to 2007 pledges.

0%

10%

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60%

None Less Same More Don't know

2008-10 2011-15

Sectoral Budget Support

Note: Refers to the share of sectoral budget support in ODA (unweighted), compared to 2007 pledges.

0%

10%

20%

30%

40%

None Less Same More Don't know

2008-10 2011-15

Through Non-Government Channels

Note: Refers to the share of support to NGOs in ODA (unweighted), compared to 2007 pledges.

0%

10%

20%

30%

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50%

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70%

None Less Same More Don't know

2008-10 2011-15

Support to Private Sector

Note: Refers to the share of private sector support in ODA (unweighted), compared to 2007 pledges.

0%

10%

20%

30%

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50%

None Less Same More Don't know

2008-10 2011-15

Sectoral Priorities

2008-10 2011-15

Infrastructure 6 4

Education/Health 6 5

Poverty/Social inclusion 7 4

Economic reforms/Business/Finance 6 3

Government/Natural resources 4 4

Agriculture/Rural development 8 4

Governance/Legal/Public administration 8 4