Moving to Middle-Income Status: Donors and Vietnam beyond 2010 Martin Rama The World Bank in Vietnam February 29, 2008

The Middle Income Squeeze Growth Slowdown –High income countries grew by 50% ( )‏ –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?

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

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

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

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

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

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

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

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.

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

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

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

Through Non-Government Channels Note: Refers to the share of support to NGOs in ODA (unweighted), compared to 2007 pledges.

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

Sectoral Priorities