Mongolia

Overcoming the natural resource curse and transforming its mineral endowment into renewable assets for sustainable and broad-based development are Mongolia's most significant development challenges. 

The quality and competency of its economic policies and institutions will determine whether the country will exploit this opportunity, or succumb to the “resource curse.”

The local implications of the recent global economic downturn highlighted the importance of improving macroeconomic management. Improved management will reduce the impact of cyclical mineral prices on Mongolia’s increasingly mineral-based economy.

Government policies in recent years – including pro-cyclical fiscal policy, expansionary monetary policy, and an inflexible exchange rate –heightened the impact of the global economic downturn on Mongolia. 

Putting in place fiscal rules, which is well under way, (the Mongolian Parliament adopted the Fiscal Stability Law in June 2010) will assist the country in successfully navigating the after effect of the economic crisis and better cushion the country’s small economy from future shocks. These fiscal rules smooth expenditures through commodity cycles and improve the management of monetary policy and of the exchange rate.

A second challenge is to develop and maintain a competitive and stable regime for the mining and private sectors. A mining regime that attracts first-class global investors to develop key mineral reserves, while ensuring Mongolia obtains a fair share of mining revenues, is of utmost importance. 

A related challenge, in the medium-term, is to encourage economic diversification. 

Other key challenges will be to achieve more sustainable management of Mongolia’s rich natural and cultural resources.  This can promote economic growth (e.g., the fast-growing tourism industry) and reduce poverty and vulnerability of both rural and urban households.

Managing environmental impacts associated with mining and rapid urbanization, including severe pollution and poor energy efficiency, and improving management of rural pasture land, biodiversity, and water supply will be important for sustaining broad-based growth. 

Addressing the wealth disparity between rural and urban populations is also another challenge of Mongolia.  In making strategic trade-offs between rural and urban investments and expenditures, international experience suggests that the Government should adopt policies that accompany rather than attempt to offset the migration and economic concentration that is taking place in Ulaanbaatar. Addressing regressive subsidies that burden the poor (for heating, water) and strengthening the labor market can help to reduce disparities and boost competitiveness.  With over half of the population of Ulaanbaatar living in gers in difficult conditions, housing will be a serious development challenge for the Government. of pasture land, biodiversity and water supply will be important for sustaining broad-based growth.

Mongolia became a member of the World Bank Group in February 1991. To date, the Bank has provided US$563.7 million to Mongolia, of which US$52.2 million was on IDA grant terms and US$511.5 million was on IDA credit terms. Mongolia also has received an additional US$101.3 million from the global trust funds.

As of August 2011, there are 14 active IDA-supported investment and Technical Assistance operations with US$216.05 million in commitments, and 21 active recipient-executed Trust Funds in the portfolio with a total donor commitment of US$74.5 million.

With the discovery of large mineral resources since 2005 and the conclusion of the Oyu Tolgoi agreement, the Bank’s focus has shifted towards ensuring that mining revenue generated positive development outcomes for all of Mongolia.

This includes putting in place measures to avoid the resource curse, encouraging economic diversification, ensuring macroeconomic stability and sustainable infrastructure, regional and community development and strengthening governance across the mining value chain by promoting broader and more informed public accountability. Also the Bank supports and facilitates economic and mining policy debate between policy makers and stakeholders, with the aim of goal of creating more sustainable and development-oriented policies. 

In addition to the lending and grant operations, the Bank provides high-quality analytical and advisory work to Mongolia. An intensive program of Analytical and Advisory Activities (AAA) in 1992-2010 supported Mongolia’s medium and long term development objectives and provided an analytical input and capacity building for government’s reform strategy in key strategic directions. During 1992-2010, the main emphasis in the Bank’s analytical and advisory program was on: (i) public sector governance and economic development; (ii) urban and rural development; (iii) social sector; and (iv) financial and private sector developments. 

The World Bank Interim Strategy Note (from June 2009 till Dec 2010) provides assistance to Mongolia in dealing with the impacts of the Global Economic Crisis; a crisis that had a huge impact on the country’s poorest people.  The global economic downturn highlighted key areas of vulnerability and structural weaknesses in the Mongolian economy, particularly in the banking sector and policy regarding the management and use of mineral revenues.  This interim strategy laid out a program to manage effectively a mineral dependent economy, along with support for rural livelihoods and urban development.

A new Country Partnership Strategy 2012-2016 is been developed after series of consultations with the Government of Mongolia and various stakeholders in Mongolia.  The strategic direction of the new strategy will continue to address the areas covered by the Interim Strategy Note, which remain relevant today. 

The long term economic performance of the country will depend on how well structural and policy weaknesses are address, particularly regarding the management of mineral wealth.  Ensuring a sustainable contribution from the mining sector to economic growth, while avoiding the impacts of Dutch Disease will continue to be a challenge in the medium term.  Creating broad-based economic growth and diversification through the prudent investment of mineral revenues whilst avoiding subsidies and dependencies will continue to be a challenging area for Government.  Addressing income disparities and poverty in both rural and peri-urban populations will also require ongoing attention.   In order to encourage broad-based economic growth, significant attention needs to be given to developing the policy and regulatory framework for a more competitive and stable investment climate.  Cross cutting issues such as good governance and gender will also remain a major focus of the new Country Partnership Strategy. 

The strategic objectives that are formulated based on the consultations are:

1.      Increase Mongolia’s capacity to manage the mining economy sustainably and transparently

2.      Support the expansion of a diversified economic base through an open and accountable business climate

3.      Reinforce services and local initiatives to expand opportunities for all, specifically the poorest

Since 1991, IDA has supported rural development, education, improving the livability of Ulaanbaatar, ensuring sound management within the mining sector, sustainable infrastructure development in southern Mongolia, environmental protection, policy development and air pollution abatement measures.

The overall goal of the rural program has been to reduce the vulnerability of herders to pastoral risk as well as to protect and extend gains made to provide relief in cases of climate emergencies, micro-finance, telecommunications and social services to rural residents.  It is doing so through several projects.

The new livestock insurance regime is being scaled up nation-wide to protect herders from the vulnerability of natural and environmental risks. This project also improves the country’s risk management system. During 2006-2009, 15,802 herders were covered by the Index Based Livestock Insurance Program (IBLIP) in four pilot aimags (provinces) Bayankhongor, Uvs, Sukhbaaatar and Khenty. 3947 herders have received indemnity payments of approximately 770 million Togrog through the program.

As of March 2011, 39,389 microfinance loans have been disbursed by banks and non-bank financial institutions, benefiting 181,470 people directly or indirectly under the microfinance fund which is a component of Mongolia’s Sustainable Livelihoods Project (SLP). The SLP is supported by the World Bank and donor partners (European Union and the Japanese Government).

The SLP is also helping more than 127,287 herder families improve their pastoral management skills.

In the energy sector, the amount of overall system losses for electricity distribution companies continues to decline. The World Bank’s Energy Project has reduced technical and non-technical losses from an average of 31 percent to 22.7 percent in Ulaanbaatar (UB), and from 33.7 percent to 15 percent in six aimag centers. Overall system losses have been reduced to 25 percent, revenue collection ratio at aimag utilities has been increased to 94.5 percent while the targets are 20 percent and 90 percent respectively.

In the Information and Communications Technology sector, there has been a significant increase in the coverage and use of relevant ICT services among the rural population through an incentive program supported by the Bank’s Information and Communications Infrastructure Development Project . All soum (district) centers in Mongolia now have access to modern mobile telephony services and several rural soums centers have also access to Internet. 

In urban development, Bank programs support the construction of water systems within ger (nomadic tents) areas. By constructing new water kiosks, the number of persons per water kiosk has decreased to 892 from 1492 per kiosk.    

The basic education system has benefited from support provided under several Bank grant funds. The Global Education for All - Fast Track Initiative has (i) upgraded education quality at all levels of schooling; (ii) provided education services that can be accessed by children in all parts of the country, including rural areas, and by poor and vulnerable groups; and (iii) improved the management capacity of central and local educational institutions at all levels. 

The fast track initiative project has provided rural schools with lab tops, projectors and mobile teaching stations to increase skills and knowledge of teachers and also make learning more interactive.

The Community Initiative Funds under the SLP is also assisting in the development of the education sector. Within this project, the renovation of rural schools’ ceilings, doors, windows and heating systems have been funded, as well as to the renovation of school dormitories which allow more rural children from nomadic families to go to school full time.

Under Mongolia’s Rural Education and Development Project more than 3,800 rural primary school classrooms have received new libraries and books, and more than 4500 primary school teachers have received training in updated teaching skills.

In economic management and governance, the efficiency and effectiveness of governance processes in the management of public finances have been significantly improved by establishing Treasury management system and connection of GFMIS to all aimags and UB districts.  

In the financial sector, the focus has been on establishing and implementing a new risk management framework in participating banks. This ensures safe and efficient online transactions between end-users and their banks, improves access to new sectors/markets/business activities and increases term lending to support the private sector entities.