Regions and Countries

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p. 3 of 20 BACK | NEXT I. Country Performance Assessment A. Economic Performance Assessment B. Poverty Assessment C. Assessment of Socio-Environmental Performance D. Governance: Sound Development Management E. Implementation Assessment II. Country Operational Strategy III. Sector Strategies IV. Subregional Economic Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Mongolia : I. Country Performance Assessment

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B. Poverty Assessment

9. Poverty is a relatively new phenomenon for Mongolia, resulting from the loss of substantial economic transfers from the former Soviet Union (FSU) and the economic and social costs of transition from a centrally planned to a market economy in 1991. Poverty has resulted from the external shocks of 1991 (loss of capital inflows, export markets, and trading arrangements with the FSU); the process of transition to a market economy (including privatization, public sector restructuring, and price liberalization); economic contraction and hyperinflation (1990-1993); and the significant decrease in financing for social services, such as health and education. The number of people below the poverty line increased from 15 percent of the population in 1991 to 36 percent in 1996 and has since remained stable.

10. Transition and privatization brought with them increased—though often unregistered— unemployment, and the phenomenon of an increased number of orphans and street children. Increasing poverty is making access to health care and schooling difficult. In education, families cope by allowing girls to pursue higher education, while boys enter the labor market at a younger age. This is income-based deprivation, as opposed to lack of access. The Government has identified orphans, the physically handicapped, single household pensioners, female-headed households, households with more than four children, the unemployed, and small herders in remote areas to be particularly vulnerable to poverty.

11. Poverty is particularly severe among female-headed households although the situation is improving. In 1995, 63 percent of such households were poor. This ratio has decreased to 47 percent. In 1998, about 25 percent of the very poor households and 18 percent of the poor households were headed by women. Most of these households are in urban areas (44 percent of Ulaanbaatar’s poor households, and 53 percent of provincial centers’ poor households), rather than in rural areas (24 percent of the poor households).

12. In the urban areas, a decline in real wage has been the key factor leading to increased poverty. By 1996, real average wage was 40 percent lower than in 1991 and 20 percent lower than in 1994. Only agriculture showed a wage increase due to massive layoffs from the privatized farms. Public servants were particularly affected: wages for highly specialized health workers and doctors as well as those in public administration were 10-30 percent below the average formal sector wage.

13. In 1998, a higher portion of the poor lived in urban areas (57 percent in 1998, unchanged from 1995) than in rural areas (43 percent). Ulaanbaatar, with 27 percent of the country’s population, had 26 percent of the poor, and poverty incidence was slightly lower than the national average (34 percent, compared with 35 percent in 1995). Poverty was concentrated in the provincial urban areas, which account for 25 percent of the country’s total population, but 32 percent of the poor (raising the incidence of poverty to 45 percent, up from 42 percent in 1995). Rural areas together accounted for 48 percent of the population, but only 43 percent of the poor (lowering their poverty incidence to 33 percent, slightly lower than that in 1995).

14. Unemployment is strongly correlated with poverty in the urban areas, where 52 percent of the poor are unemployed (compared with 20 percent of the rural poor). Nationwide, 30 percent of the poor are unemployed. The high correlation between unemployment and poverty in the urban areas can be explained for the most part by the breakdown of the pre-1990 economic structure in which major industries were concentrated in urban areas; their closure after the transition left most of the workers without many alternatives for employment.

15. In the urban areas, the distribution of the poor is less skewed: 24 percent are in agriculture-related activities; 26 percent in health, education, and civil service; and 19 percent in hotel, restaurants, and other services. Only 9 percent of the poor are in the manufacturing industries. In the rural areas, some 90 percent of the poor are employed in agriculture (which does not provide year-round employment). Another 6 percent serve as health, education, and government workers.

16. Analysis of the nature and composition of poverty in Mongolia shows that:

1. poverty is income-based (i.e., the result of lack of employment and insufficient incomes), and not a result of education or health deprivation, social exclusion, or other forms of assetlessness;
2. poverty is mainly found in urban areas and the majority of the poor are the unemployed, households headed by women, civil servants, early pensioners, and small herders; and
3. although poverty at this time is not caused by lack of access to social services, inaction to resolve it could soon lead to the development of new forms of poverty based on health and education deprivation. Resolving these forms of poverty may not be simple.

17. An effective poverty reduction strategy needs to:

1. generate viable employment on a wide basis (because poverty is income-based) within the short to medium term;
2. generate this income and employment mainly in urban areas, particularly the aimag (provincial government) centers where the poor are;
3. rely mainly on the private sector to deliver the needed employment opportunities;
4. provide for a one-time intervention to put in place a strong safety net for the very poor who might be beyond the reach of self-help opportunities; and
5. while combating income-based poverty, maintain an active hand in keeping up social service delivery to avoid facing new forms of poverty at a later stage.

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