A More Sustainable, Structural, and Equitable Approach to Sharing Mongolia’s Wealth

October 10, 2013

Axel van Trotsenburg UB Post, NewEurope Online, KyrgyzstanNews.net

I recently had the opportunity to visit Mongolia for the first time and was able to grasp the impressive transformation that the country has undergone since the early 1990s. The results are particularly encouraging in terms of human development, where poverty has fallen steadily and dropped quickly over the last three years.

The current economic developments highlight what natural resource wealth can bring to a country and the consequent challenges. In my discussions with government officials, the private sector, and civil society, I was excited by the optimism over the country’s long-term growth potential. The World Bank shares the view that looking to the medium and long term is a powerful way of identifying major, strategic challenges and opportunities, as well as the policy options that would need to be debated and acted upon.

Drawing upon international experience, Mongolia’s challenge is to find the optimal mix in exploiting its natural resource wealth, fostering economic diversification, and ensuring that economic growth benefits the entire population and is environmentally sustainable.

Mongolia’s natural resource wealth holds the promise of boosting incomes. To do so will require an institutional framework that deals with market volatility in key commodity markets and distributes the benefits of natural resources over generations.

The World Bank recognizes that the country has taken an important step in establishing the institutional architecture by passing the “fiscal stability law” that envisages clear budget deficit targets, introduces a structural balance approach, taking into account business cycle fluctuations and setting debt to GDP target benchmarks that avoid over-indebtedness. Similar provisions were adopted by Chile (a major copper producer) and this has provided the country with a stable macroeconomic framework, effective management of market volatility, and an economic environment conducive to dynamic domestic and foreign investment. Key to Chile’s success was effective adherence and implementation of the fiscal stability framework.

Diversification of the economy will also be another challenge. Mongolia has the potential to build on its natural resources wealth and, at the same time, promote economic diversification – both in terms of products and services, as well as trading partners. A flexible and competitive exchange rate will be a key instrument in this regard. In addition, an investment-friendly business climate could significantly influence the speed and depth of the diversification process. In this context, the investment bill currently debated by the State Great Hural (Parliament) of Mongolia assumes heightened importance.

Strong growth should not only be measured in nominal terms, but also be felt by the entire population and the benefits of growth should be equitably shared - this is the notion of inclusive growth that has been often expressed by the government of Mongolia. We strongly advocate this idea of boosting prosperity equitably and making sure that particularly the poorer segments of the Mongolian population have a good chance of escaping poverty and joining the middle-class. For this to happen and to ensure that future generations benefit from the development of the country’s natural resource wealth, Mongolia could consider setting up a sovereign wealth fund, capturing a portion of the income generated from natural resource exports to re-invest in its people.

One of the best ways to ensure the possibility of providing all Mongolians an opportunity to become middle class is to provide access to education at all ages, from pre-school through primary, secondary and tertiary education. There also needs to be a strong focus on quality and standards to ensure Mongolian students gain the type of skills they need and this will require a commitment by the whole society to push the education agenda.

Finally, Mongolia, like all other countries, will need to bring its dynamic economic development in harmony with its environment. Air pollution, environmental degradation, and natural disasters call for actions going beyond the “business as usual” approach and require investments that ultimately will improve the quality of life of the Mongolian people.

The World Bank has been partnering with Mongolia to bring good education for young people, provide grants to herder communities for productive projects, and assisted with basic infrastructure. The Bank has been and will continue to be a long-term partner and strong supporter of the people of Mongolia by helping to bring them tangible benefits from investments in infrastructure, natural resources and human and social capital.

Axel van Trotsenburg is the World Bank Vice President for East Asia and Pacific.