ULAANBAATAR, January 29, 2008 – The Government of Mongolia and external partners concluded a one and half day technical meeting today to discuss a draft of Private Sector Development Strategy and key issues for realization of the PSD vision of Mongolia. The bi-annual technical meeting, jointly organized by the Government of Mongolia and the World Bank, has become a regular platform to discuss Mongolia’s development priorities and intensify cooperation between the Government of Mongolia and its external partners in supporting those priorities.
The meeting was co-chaired by Minister of Finance Ch. Ulaan and David Dollar, Country Director for Mongolia, the World Bank. Participants included: Members of Parliament; the Cabinet Ministers; the State Secretaries; representatives of the Office of the President; heads of government agencies and authorities; members of the domestic and international business communities; the Mongolian Chamber of Commerce; other business associations, bilateral and international partners; and NGO representatives. S. Bayar, Prime Minister of Mongolia made closing remarks on the second day of the meeting.
The Government of Mongolia and also all parties have noted that Mongolia has made significant reforms in its economic structure and has built private sector based economy since the country shifted into market driven economy in 1990. They stressed the crucial role that the private sector plays in the economy, producing about 80% of GDP and employing 88% of the total labor force. “The Government has taken important measures to support private sector development including macroeconomic stability, a stable exchange rate, strong budget management resulting in a surplus over three consecutive years, amendments to the tax laws, reforms in social insurance and extensive infrastructure development.” noted by Ch. Ulaan, Minister of Finance. However, the Minister said that integrated policy direction was lacking, and as a result, the private sector has not been able to contribute to the full extent possible in processing of raw materials and in developing environmentally friendly extractive industries and knowledge intensive production.
“Mongolia is at a critical juncture. Having completed its transition to a market-oriented economy, the challenge now is to attain global competitiveness. This requires a concerted and coordinated effort among all stakeholders, private and public, domestic and foreign.” said by David Dollar, Country Director for Mongolia, the World Bank.
Despite robust growth in recent years, the economy remains dependent on a narrow band of exports and is vulnerable to external shocks, hence prudent policies, regulations and institutions are required to reduce vulnerability to external shocks. Despite many positive policy actions taken in recent years, growth has not led to much economic diversification and employment generation.
The Government's role is to establish and maintain a competitive, stable and predictable fiscal regime for mining, and a stable and transparent legal and regulatory framework to manage the development of its mineral wealth, protect the environment and ensure good corporate governance. With the right policies and legislation in place, and strengthened institutions, Mongolia should be poised to attract and retain world class investors who have the resources, management and technology to locate and exploit mineral deposits in a sustainable way.
Defining and implementing a shared vision among all stakeholders is critical and this requires a continuous dialogue between the government and the private sector, at all levels—national, soum and aimag emphasized the participants of the meeting.
Ministry of Finance presented the country’s current macro economic overview and it was commented by participants led by IMF. While acknowledging the rapid economic growth and the favorable fiscal and balance of payments situation in Mongolia in recent years, maintaining macroeconomic stability in Mongolia for private sector development is crucial important agreed broadly by the participants.
Looking ahead, the macroeconomic situation needs to be carefully monitored and prudently managed by the authorities given that the world economy is slowing and commodity prices (including copper) are declining. Government spending has also rapidly increased this year in terms of its share in GDP (especially capital spending by the government) due to domestic absorptive capacity constraints. The several rounds of recent civil service wage increases are putting pressure on private sector wages to increase as well. This is having an adverse impact on the costs of production for firms and their competitiveness, particularly for SMEs.
All participants welcomed the first draft of PSD and open dialogues on it that was initiated by the Government. External partners and private sector participants have suggested that the strategy and its general principles need to underpinning, its context should be linked to the objectives of the National Development Strategy, have greater clarification of the role of the Government specifying areas in which it should actively engage/intervene and those in which it should only facilitate for further refining of the draft of strategy. Issues such as environmental sustainability, further improvements in the investment and business environment in particular, tax reform, transparency in mining revenues management, more efficient financial intermediation, and labor market reforms, improvements in corporate governance and bringing accounting and auditing practices closer to international standards were also among suggestions. An Action Plan and timeline with separation of the short, medium and longer term objectives and their prioritization including implementation responsibilities and modalities for public and private sector entities should be clearly outlined.
By responding to the suggestions, the Government of Mongolia advised that the draft Strategy will be revised taking account of the ideas and views expressed.
The participants were divided into several working sessions to discuss on how to realize the vision of PSD that addressed issues such as public private partnerships (PPP); diversification and competitiveness; infrastructure; and mining and large industry.
During session on PPP , participants concurred that while PPPs may be complex to effect, they are worth the effort. PPPs should lead to win-win-win outcomes for the government, private sector and beneficiaries. Typically financing is not the key constraint but rather what is important is getting the PPP structure right. Interesting international examples of PPPs in social service delivery (education and water and sanitation) were presented and possible options for Mongolia for PPPs (civil aviation and sustainable energy) were elaborated. External partners and the private sector expressed willingness to join efforts with the Government to identify and implement partnerships.
At the session on economic diversification and competitiveness the participants suggested a need to take more attention on physical and also regulatory infrastructure, development of high technology based industries, skills training and bringing more know-how from western developed countries. Also issues to raise standard up to word class and produce value added products rather than processing raw materials and unclear property rights which hinder SME financing, a need to reduce red tape issue and better dialogue between the Government and PS etc have also strongly pointed out.
The session on infrastructure discussed on how to implement tariff reforms, which is critical for financing and maintenance of all infrastructure services, to strengthen legal and regulatory environment, so that innovative forms of partnership could be encouraged. And finally, have to prioritize investments in the infrastructure sector, which requires 8 billion USD over next 10 years.
On the second day, plenary session on mining and large industries was held. It was emphasized that the main priority is to decide what should be role of government in developing the minerals sector. And what kind of participation the Government should take. It was important to recognize that increase in government participation come with many risks. And it would be prudent to focus on government efforts for maximizing revenues and ensuring good regulations and empowering capacity so that the sector is developed in socially and environmentally friendly way. And here, an open, transparent process that involved communities closely would be appropriate.
At the final session, Government-external partner working groups reported on progress made in key sectors since the last technical meeting in April 2007. Working groups chaired by line ministries and lead donors were established by the Minister of Finance in late 2006 to accelerate work on sector-level development strategies and implementation of actions agreed.
At the conclusion of the meeting, the Government of Mongolia, represented by the Ministry of Finance and the World Bank jointly hosted a press conference to explain outcomes, and respond to questions. Local and international media have attended at this press conference.
