World Bank Provides Assistance to Mongolia in Managing Its Current Economic Downturn

June 25, 2009

WASHINGTON DC, June 25, 2009 – The World Bank’s Board of Executive Directors has approved a development policy credit of US$ 40 million for the Mongolia Development Policy Credit (DPC) Program. The program is designed to assist the government of Mongolia manage the current downturn, which was triggered by the collapse of the copper price. The proposed operation has been processed under the International Development Association (IDA) Financial Crisis Response Fast-Track Facility to help the government meet urgent financing needs.

Mongolia has been hit hard by the recent global financial crisis and this downturn has been most immediately felt through the collapse of mineral prices, in particular that of copper. Given Mongolia’s reliance on copper revenues in the budget, the fiscal shock has been very large. Export proceeds are expected to fall by one third (about US$800 million) this year. Economic growth is projected to slow down sharply—it would fall from 8.9 percent in 2008 to a projected 2.7 percent in 2009.

“The economic crisis which hit Mongolia was deep and sudden. The need for the Bank to move quickly with a short-term response, while also developing a clear view on what can be achieved over the next few years, required immediate attention. We were impressed by the government’s strong response to the crisis and are happy to show our support.” James Adams, Regional Vice President, East Asia.

The DPC supports reforms in the four policy areas: (i) Fiscal policy and management, given the budget’s strong dependence on mining revenues; (ii) social protection, given the impact of the economic downturn on the poor; (iii) the financial sector, which was overheating when the global crisis hit, and which experienced a major bank failure in late 2008; and (iv) the mining sector, given the sector’s importance in driving the recovery.

“Mongolia has been affected severely by the global economic downturn, but it also exposed weaknesses in its domestic policies. This operation uses the crisis as an opportunity to put together a stronger policy framework going forward”. Rogier van den Brink, Lead Economist.

The program will support the Government’s efforts to: (i) improve capital budget planning and execution, and protect the maintenance of basic infrastructure; (ii) protect the poor during the downturn by retargeting existing social policies to the poor; (iii) strengthen confidence in the financial sector by preparing an action plan for the resolution of the failed bank, and enhancing contingency planning and systemic risk monitoring; and (iv) clarify the mining policy framework by adopting draft model investment agreements, which incorporate responsible mining practices, consistent with the Equator Principles; and finance the independent validation of Mongolia’s national EITI program.

“This program is part of a terrific partnership between the Mongolian government and its major development partners. We are pleased to be part of this concerted team effort.” Arshad Sayed, Country Manager.

On the back of US$224 million in balance of payments support provided by the IMF, the budget support to be provided in 2009 is expected to be US$ 130 million. The main contributors are Japan, the Asian Development Bank, Australia, and the World Bank.

Duration of the project is 18 months from July 1, 2009, until December 30, 2010.

Media Contacts
In Mongolia
Sunjidmaa Jamba
Tel : (976 11) 312647 ext-207
In Washington
Mohamad Al-Arief
Tel : (202) 352-4745