Regions and Countries

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p. 15 of 47 BACK | NEXT Developing Asia and the Pacific The global economy Newly industrialized economies Central Asian republics, Azerbaijan and Mongolia Kazakhstan Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan Azerbaijan Mongolia People’s Republic of China Southeast Asia South Asia The Pacific

Mongolia

Economic performance

Economic growth: Mongolia’s economy continued to perform below its potential in 2000, with marginal GDP growth, increased inflation, and deteriorating current account balance. Following a 3.5 percent average annual GDP growth from 1997 to 1999, GDP grew by only 0.5 percent in 2000. During 1999–2000, Mongolia experienced its most severe winter in three decades; as a consequence, nearly 10 percent of the country’s livestock were lost, affecting the livelihood of about 20 percent of the population.

Since 1995, the percentage of people living below the official poverty line has remained high at about 36.0 percent, while both the depth and the severity of poverty have increased. The poor, especially small livestock herders and the unemployed in urban areas, remain highly vulnerable to even minor external shocks, adverse climatic developments, and the difficulties involved in making the transition to a market economy.

Employment: The official unemployment rate is 10 percent of the registered workforce. Unemployment is strongly correlated with poverty in the urban areas, where 52 percent of the poor are unemployed, compared with 20 percent unemployed among the rural poor and 30 percent of the poor nationwide.

Inflation: Consumer price inflation, which had declined from 37.0 percent in 1997 to 7.6 percent in 1999, rose to 11.6 percent in 2000. The increase in food prices was particularly sharp, which had an adverse effect on the living standards of the urban poor who spend most of their income on food. To a large extent, excessive growth in money supply caused the resurgence of inflation in 2000. Money supply (M2), increased to about 32 percent in 1999, and rapid growth in money supply continued for most of 2000. During the first 10 months of the year, money supply growth averaged about 35.0 percent, although by December 2000, this had fallen to 17.6 percent.

Fiscal balance: The negative impacts of the severe 1999–2000 winter made macroeconomic management difficult. The Government’s response was to follow expansionary fiscal and monetary policies. The fiscal deficit imbalance was exacerbated by the run-up to the July parliamentary elections, reaching about 10.8 percent of GDP, which breached the 8.5 percent target for 2000 agreed under the International Monetary Fund’s Poverty Reduction and Growth Facility program.

External sector: A large fiscal imbalance and rapid monetary expansion contributed to the persistence of a current account deficit of nearly 15.0 percent of GDP in 2000. Large current account deficits in recent years have resulted in rapid accumulation of external debt, which nearly doubled from $532 million in 1996 to about $935 million in 2000, or from 46 percent of GDP to nearly 100 percent of GDP. About 53 percent of this debt is owed to multilateral institutions, 40 percent to bilateral donors, and the remainder to commercial lenders.

Domestic policies: The landslide victory of the Mongolian People’s Revolutionary Party in July 2000 ended the political instability that had afflicted the country since 1998. The new Government has targeted an annual GDP growth rate of 6 percent for the next four years. In addition, the new Government has emphasized the importance of deepening economic reforms, promoting an export-oriented economy, and improving governance and social equity in its action program for the next four years.

ADB operations

Operational strategy: Mongolia was the first DMC to enter into a Poverty Partnership Agreement with ADB. ADB’s operational strategy for Mongolia was thus revised in May. Since poverty in Mongolia is largely income-based and found in urban areas, the new strategy emphasizes employment-generating investments that will enhance the productive potential of the economy and create an enabling environment for the private sector. ADB operations over the medium term will focus on the financial, agriculture, public, social, and urban development sectors. Support to the transport sector will be planned to maximize its poverty reduction impact.

Policy dialogue: Policy dialogue with the Government focused on formulating the new operational strategy and resulted in the Poverty Partnership Agreement. ADB and the Government agreed to work together to reduce, at least by half, the proportion of people below the official poverty line by 2005. Extensive policy dialogue was undertaken in developing the financial and agriculture sector programs that were supported with lending in 2000. Support for reforms within specific sectors and subsectors continued.

Loans and technical assistance: In 2000, ADB approved four loans totaling $41.9 million: the Cadastral Survey and Land Registration Project, the Second Financial Sector Reform Program, and the Agriculture Sector Development Program (program and investment loans). ADB also approved five technical assistance grants totaling $3.6 million for preparing a rural finance project and a housing sector finance project programmed for 2001, strengthening the financial sector, building capacity in the agriculture sector, and assisting in a cadastral survey and land registration.

Project implementation: Since joining ADB in 1991, Mongolia has received 25 loans, of which 15 were active at the end of 2000. Contract awards totaled $36.4 million, bringing the cumulative figure to $340.5 million. The contract award ratio was 27 percent, higher than the ADB-wide average of 21 percent. Disbursements during the year totaled $32.9 million, bringing cumulative disbursements to $321.9 million. The disbursement ratio was 25.2 percent, higher than the ADB-wide average of 20.5 percent.

Despite fiscal constraints and institutional weaknesses, ADB’s ongoing loan portfolio in Mongolia was generally performing satisfactorily. Given the tight budgetary situation, adequate provision of counterpart funds to ADB-funded projects was a major concern. A time-bound action plan agreed between the Government and ADB includes measures to accelerate project start-up, use ADB’s advance procurement action procedures, enhance implementation readiness of new projects, release counterpart funds in a timely manner, and improve timeliness in submitting audited financial statements.

The Resident Mission in Mongolia, approved in August 2000, is expected to play a significant role in improving portfolio performance.

   

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