“Crossing the River by Feeling the Stones”: Vietnam's Experiment with Block Grant Budgeting

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Abstract
“We are crossing the river by feeling the stones.” — attributed to Deng Xiaoping on economic reforms in China Abstract In December 1999, Vietnam's leaders granted Ho Chi Minh City (HCMC) powers to pilot a remarkable budget management reform. This small-scale but radical experiment, launched in January 2000, has involved allowing the provincial finance department to approve and control budgets for 10 pilot spending units as “block grants” or “lump sums.” This review of the first two years of the HCMC block grants experiment suggests that such mechanisms may be useful in the developing country context. It also explores why Vietnam's decision to continue with pilots on a larger scale, rather than move immediately to full-scale rollout, may be an optimal reform implementation approach. The opinions expressed in this paper are those of the authors and do not necessarily reflect the positions or perspectives of the Mokoro Group or of the World Bank.

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