RISK OF POLICY PARALYSIS
All major international financial institutions – the International Monetary Fund, Asian Development Bank and World Bank – identify accelerating public investment as the key to faster economic recovery in the short- to medium-term.
But with Vietnamese officials extremely cautious to sign off on public investment decisions, disbursement of planned spending remains low. Only 22.3 per cent of the planned spending had been disbursed as of May this year.
This is becoming a bottleneck for attracting foreign investors. Multinational companies are increasingly looking for clean and reliable sources of energy, both of which are hot issues in Vietnam.
The sector saw high-profile resignations including a deputy prime minister and a minister for trade and industry following corruption allegations. Vietnam has the highest solar and wind generation in ASEAN, but infrastructure development has not kept pace.
Many energy infrastructure projects are behind schedule because of long administrative processes. Last year, the north experienced blackouts due to insufficient supply while solar projects in central and south Vietnam were asked to curtail production due to grid overload.
Multinationals are already reacting; last year Intel decided not to expand operations in Vietnam, citing reliable electricity supply as a concern. More will follow suit, or worse, move on if policy paralysis continues to impede the complementary public investments required. If that happens, Vietnam could miss its moment.
Ahmed Albayrak is a Research Associate in the Lowy Institute Indo-Pacific Development Centre, while Roland Rajah is Director at the same policy research centre. This commentary first appeared on Lowy Institute’s blog, The Interpreter.
