An increase in the incremental capital-output ratio (ICOR) should not be seen as a result of inefficient public investment, according to Deputy Prime Minister Vuong Dinh Hue.
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ICOR is used as a measure of the inefficiency with which capital is used. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital.
In his enquiry, Binh expressed concern over the low efficiency of public investment, as the ICOR increased from 3.5 in the 1991 – 1995 period to 6.15 in 2007 – 2008. The ratio once soared to 8 in 2009 and declined to 6.21 in 2018, however, is still higher than the World Bank’s recommendable level.
Comparing to regional countries, Vietnam’s ICOR is nearly double the average, indicating the efficiency of public investment is less than half of others, Binh continued.
According to Deputy PM Vuong Dinh Hue, the socio-economic impact of public investment has improved substantially in the 2011 – 2015 period, and Vietnam’s ICOR has been gradually decreasing.
Hue said ICOR is often measured in phases and depends on numerous factors, including changes in technologies and the proportion of labor and capital being used.
Vietnam’s ICOR takes into account public investment, state-run corporations’ investment, investment from the private and foreign-invested sectors, Hue added.
Over the past few years, the government has stepped up efforts to improve efficiency in public investment in a bid to reduce the ICOR. Evidently, the ratio of public investment to total social investment has been decreasing, while those of the private and foreign-invested sectors are increasing, he stressed.
In the future, Hue expected public investment would be concentrated on priority projects with significant impacts on Vietnam’s socio-economic development.
