Countries and Regions

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p. 2 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2007–2009

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II. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

13. Progress towards MDG targets is similar to when the CSP was endorsed. However, the Government is making more efforts to direct development initiatives toward achieving the MDGs and targets. Mongolia is actively participating in the United Nations (UN) Millennium Project. UN and Government teams are working together in developing a MDG-based national development strategy and sector strategies aligned with MDGs. The first round of training and planning exercises has been completed.

B. Progress in the Country Strategy and Program Focus Areas

14. Of the outcomes in the CSP results matrix, progress has been marked in financial sector development, alignment of skills and education with market demand, better education opportunities, and lower geographical isolation. Important initiatives since the CSP have included the establishment of a financial regulatory commission, associated with an ADBfinanced program; the development of a secondary mortgage market, also stimulated by ADBsupported work; a program for vocational education jointly funded by ADB and German development cooperation through GTZ; the completion of a section of the road connecting the Russian Federation with the People’s Republic of China (PRC) through Mongolia and the commencement of work on other sections of the road; and the adoption of a heath sector master plan and initial steps to implement it. The most encouraging progress in ADB’s areas of strategic focus has been in the education sector, where the Government has developed a sector master plan. In 2006, an ADB TA project that aims to support the master plan and a sector-wide approach will be presented to the Board. Regional cooperation and integration will benefit from the central corridor highway, supported by project loans for the second and regional roads projects; a regional TA project (RETA) on HIV/AIDS prevention; and greater regional cooperation in the preparation of the Western Regional Road Development Project (Table A2.2).

15. However, progress in some other areas has been less encouraging. The new administration has reassessed its ger area development strategy, which has delayed progress. A proposed ADB project for 2006 was refocused to increase the pro-poor impacts of urban services through better harmonization with other funding agencies and this also led to delays. Progress toward an agriculture sector strategy has been slow but is back on track with ADB support and it is expected that the proposed 2007 loan for the Agriculture and Rural Development Project (Table A2.1) will be guided by the strategy. Also, while the CSP drew attention to the increased availability of rural finance, there has not been sustained progress in making available term finance for agricultural production and agro-enterprises. Progress in developing rural cooperatives under the Agriculture Sector Development Project (ASDP)⁵ has been mixed and the development of value chains and private rural enterprises has been less than satisfactory. These areas will receive renewed attention in the proposed Agriculture and Rural Development Project.

C. Private Sector Development

16. ADB continues to support the enabling environment for private sector development through both loan and TA operations. The Financial Regulation and Governance loan, approved in late 2005, will support the regulation and further development of non-bank financial institutions, improve corporate governance in commercial banks, and help to further develop Mongolia's capital markets. The Customs Modernization Project planned for 2006 will facilitate the flow of external trade, reduce corruption, and assist in improving the investment climate. The Agriculture and Rural Development Project in 2007 will assist the private sector to develop export markets and develop new instruments for private sector lending. Identification of potential projects for investment through the private sector window will continue to focus on the financial and infrastructure sectors to build on ADB's first private sector operation - an investment in Trade and Development Bank. SME financing and power generation projects for export of electricity are current areas of focus.

D. Highlights in Coordination of External Funding and Partnership Arrangements

17. All major external agencies have accepted the education master plan of the Government as the basis for future funding. The Government of Japan and ADB have submitted Mongolia’s proposal to the Education for All—Fast Track Initiative. Agreement has been reached with German development assistance (Deutscher Entwicklungsdienst) and GTZ over parallel financing for the proposed ADB-supported Urban Development and Housing Project and with GTZ for parallel financing for the Agriculture and Rural Development Project.

18. ADB’s cofinancing strategy will be guided by two recent developments: the potential availability of more grant funds and more government interest in financing infrastructure through external financing. Building on experience in the urban development and education sectors, ADB is identifying investments for which grants or private sector funding may be available and investment gaps that need to be funded by ADB. It is also designing ADB assistance so that it can serve as a platform for funding from other sources. ADB is assisting the Government in developing strategies for the education, agriculture, and transport sectors that could be the basis for aid coordination.

19. In responding to the Government’s desire to widen its funding sources, the first part of ADB’s strategy will be to assist the Government to identify appropriate areas for externally financed investments, such as an export-earning enclave project, probably in the energy sector. The Government has also expressed interest in issuing a sovereign bond. An ADB guarantee may help to reduce borrowing costs and ADB could provide such a guarantee if the use of proceeds can be mutually agreed. ADB will continue to advise the Government on its bond issuance plans.

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