The Government of Mongolia - External Partners Cooperation Intensified

October 10, 2006

ULAANBAATAR, October 10, 2006 – The Government of Mongolia and external partners concluded a two-day technical meeting today to discuss progress in the country’s economic and social development.   The bi-annual technical meeting, jointly organized by the Government of Mongolia and the World Bank, is a platform to discuss Mongolia’s development priorities and the role of external partners in supporting those priorities.  The meeting was attended by The Finance Minister, The Minister of Education, the Minister of Environment and other infrastructure ministries, numerous parliamentarians, and almost all of Mongolia’s external partners.  The Prime Minister delivered closing remarks.

The meeting was broadly positive on Mongolia’s recent economic developments, and noted that Mongolia’s economy continues to grow at about 7 percent per year.  Finance Minister N. Bayartsaikan, co-chair of the meeting, explained: “Supported by higher commodity prices, strong growth in services and construction, and some exceptionally good years in agriculture, Mongolia’s GDP per capita is above the level it was before the transition” Mongolia’s current GDP per capita is 950 USD.   On the back of strong fiscal performance, macroeconomic stability has been settling in, whereas trade and current account deficits have disappeared.

Despite recent successes, many felt that major challenges still remain for Mongolia’s economic and social development. David Dollar, Country Director for Mongolia, the World Bank said: “Mongolia is at interesting point in its economic and social development history”.  Since the 1990s Mongolia has done well in creation for foundation and growth to support a market based system.   These are “first generation” reforms. “Now Mongolia needs to go to the next step which is “second generation” reforms targeted at increasing competitiveness, strengthening market institutions, increasing transparency and accountability” Arshad Sayed, Resident Representative and Country Manager, the World Bank in Mongolia said.

Mongolia’s considerable success has to some extend been built on a resource boom, and on prices for the country’s natural resources that according to the IMF are unlikely to last over the medium term. Prudence is therefore required, not just in management of the current extraordinary revenues, but also in projecting current high growth rates into the future.  Some participants noted that the Government may wish to reconsider its medium-term budget forecasts in light of the new fundamentals, and adjust its budget projections for next year accordingly.

Minister N. Bayartsaikan reassured that Mongolia’s commitment to the private sector remains very strong, noting that private sector is engine of the Mongolia’s development where it makes over 80 percent of the economy.   “We do not want to go back, and there is no diversion from private sector led growth in Mongolia.”   He also noted that while concessional financing will remain the mainstay for Mongolia’s financing, direct financing to the private sector such as from the European Bank for Reconstruction, and the private sector arms of World Bank and ADB, which does not create government debt, will play a bigger role in Mongolia’s financing.

Partners welcomes the Government’s plans for a National Development Strategy (NDS), long term vision and plan for Mongolia’s development based on its development priorities. All agreed that NDS can be a powerful tool in shaping the country’s further development, and many partners expressed their willingness to support the development and implementation of the strategy. Elements that could make the strategy successful, include: broad-based consultation, realism in goal setting, grounding in thorough analysis, an appropriate role for government, and a process by which the strategy could link with the government’s MTBF, SEGs, and budget.

Donors welcomed the progress the Government has made on the governance agenda over the last 6 months.  An Anti-Corruption Law was adopted during the spring parliamentary session that provides for setting up a new anti-corruption council and instituting an asset and income disclosure system, which has proven to be an effective tool against corruption in other countries. An anti-money laundering law was also passed.  The Government announced that it had also initiated a one-stop shop for business approvals and that now on-line copies for all applications can be obtained by businesses.  Furthermore, a step-by-step process of review of key laws and regulations in tax, customs, environment, and other inspections is under way with the aim to reduce regulatory burdens and opportunities for corruption.  The working group on private sector noted that changes in the law on tax administration are needed to rebalance the power of tax inspectors versus private enterprises, and that lack of clarity and transparency about government regulations hinders businesses.

Partners congratulated the Government on the adoption of a comprehensive and participatory Education Master Plan.   Mongolia was also accepted to Fast Track Initiative (FTI) partnership that could get Mongolia up to USD 29.5 million in grants for education.  Participants noted that while progress has been made, significant challenges remain in education, including high drop-out rates, mismatch between curriculum and labor market demand, and the need to increase capacity to complete the transition to a 12 year basic education.

During the meeting the parties had a very good discussion on environmental issues facing Mongolia.   As the donor working group statement submitted to the meeting rightly observed, Mongolians, and especially many among the poor, rely on the environment for their livelihoods. Participants noted that good environmental management is important for economic growth as well as for poverty reduction, and that Mongolia can develop ecologically-friendly products which could find niche markets internationally.  It was quite striking that expenditures on environment account for only 0.5% of GDP, although the contributions of the environment and natural resources to key sectors like livestock, tourism, and mining are considerable.  Participants noted the need for a better estimate of the monetary contribution of the environment and environmental services to the Mongolian economy. They also noted that mechanisms have been developed in other countries to channel budget resources to local communities to provide environmental services, and these could work in Mongolia too.

The Government provided the meeting with the emerging themes and conclusions from the ongoing infrastructure review, which the Government announced will be in completed in February.  The Government noted that the main purposes of the review, namely to establish a common understanding of the main cross-sectoral issues affecting the infrastructure sector; to outline key strategic options to address the identified investment and institutional development gaps; and to do so while taking into account the distributional or affordability impact.

It was widely recognized that Mongolia, supported by donors, already made a tremendous effort in developing infrastructure, with annual investments of about 10 percent of GDP. The Government expressed the need for an investment level of about 15 percent of GDP, which it recognized was not possible without further reforms in the sector, and much more private involvement including through privatization.   One key bottleneck for higher financing, public and private, is that much of Mongolia’s infrastructure services are heavily subsidized.  The Government has been reluctant to raise tariffs on water, electricity, heating, and transport to protect the poor.  But, as one participant noted, “the result is that the poor are excluded from public services, whereas the rich get all the subsidies.”  The meeting encouraged the government to move quickly on the investments that would allow “lifeline pricing” to protect the poor, and then increase other tariffs to recover the cost of service

In closing, David Dollar, World Bank Country Director for Mongolia, noted that “ We –all partners and the Government of Mongolia had a widespread agreement that the meetings served an useful role in better aligning donor programs with the government’s priorities, and that they also served to get better coordination among the donors.” 

The meeting, held at the Ulaanbaatar Hotel from 09 to 10 October, is the second technical meeting, regular six-monthly joint dialogue between the Government and its external partners on key issues for Mongolia’s development. The meeting brought the collaboration mechanism to next stage that it became more operational focusing on improving the management of development results and actions. The Government-external partner cooperation is also intensified towards to development priorities and better align the external supports with National Development Strategy and real demand.

Over 200 people from the Government of Mongolia represented by the Parliament, Ministry of Finance, relevant ministries and the Government implementing agencies; and practically all of Mongolia’s external partners including representatives of civil society, private sector attended in this two days technical meeting in Ulaanbaatar. 

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