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Annual Report 2001

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Mongolia

Economic performance

In 2001, Mongolia progressed in restoring macroeconomic stability. The budget deficit decreased from

7.5% of GDP in 2000 to 4.0% although the inflation rate reached 11.8% from 8.3% the previous year. Through extensive negotiations on macroeconomic policy framework, the Government and IMF agreed on a new restructuring program supported by the Poverty Reduction and Growth Facility (PRGF). Economic stability created a sound policy environment for the expanding private sector-led growth.

Despite two consecutive severe winters and the worsening terms of trade, Mongolia has maintained a moderate positive growth of 1.5% owing to the performance of manufacturing and mining subsectors, which grew by 23.0% and 10.0%, respectively. Still affected by adverse climatic conditions, agriculture sector output declined by 6.0%.

The current account deficit widened from $167 million in 2000 to $170 million in 2001 mainly due to declining international export commodity prices, particularly copper and cashmere. The balance of payments showed a $12.6 million surplus reflecting a substantive inflow of external assistance; international reserves increased from $190 million in 2000 to $208 million in 2001, or equivalent to 14 weeks of imports. The national currency, the togrog, remained stable.

Growing unemployment and a weak social safety net remain the country’s prime concern. About 36.0% of Mongolia’s population still lives below the official poverty line. The Government started formulating a comprehensive Poverty Reduction Strategy Paper, drawing on the framework of a partnership agreement on poverty reduction (PAPR) with ADB, scheduled for completion in September 2002.

ADB operations

Operational strategy: ADB’s operational strategy for Mongolia was reformulated in May 2000 in line with the PAPR framework. The innovative approach focused on poverty reduction by enhancing private sector potential. Accordingly, ADB’s operations covered initiatives aimed at bolstering the financial, agricultural, public, social, and urban development sectors. The transport sector—a potential contributor to poverty reduction—has also been targeted according to ADB’s operational needs and country guidelines.

Policy dialogue: ADB President Tadao Chino’s visit to Mongolia in August 2001 highlighted policy dialogue with the Government and provided focus and direction for further bilateral negotiations. ADB’s commitment remains strong in providing assistance to public sector reforms, promoting private sector-led growth, and giving further support to the privatization program in the financial and infrastructure sectors. ADB is actively working with the Government to improve project implementation and aid efficiency by reducing bureaucratic hurdles and reforming internal loan approval and ratification procedures. The first annual review of the PAPR took place in 2001, leading the Government and ADB to recognize that the country’s transition to a market economy can only be completed with a substantial reduction in the number of people living below the poverty line.

Loans and technical assistance: ADB approved four loans totaling $35.7 million in 2001. Two loans (policy and investment) went to the social security sector development program, one to the housing finance sector, and another to rural finance. Seven technical assistance grants totaling $3.8 million were approved in 2001 for establishing a central procurement monitoring office, improving social statistics, integrating development of basic urban services in secondary towns, intensifying crop production, strengthening policy for social security reform, preparing the second health sector project, and improving aid coordination and management.

Project implementation: Since joining ADB in 1991, Mongolia has received 29 loans, of which 15 were active at the end of 2001. Contract awards totaled $31.1 million, bringing the cumulative figure to $372.5 million. The contract award ratio was 24.3%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $30.4 million, bringing cumulative disbursements to $352.3 million. The disbursement ratio was 23.2%, higher than the ADB-wide average of 20.5%.

Further time-bound measures were agreed upon with the Government during the country portfolio review in September to expedite project start-up and enhance institutional capacity to improve the overall portfolio performance. Presentations were made to the Government and executing agencies on ADB’s project performance rating system. With the opening of the Mongolia Resident Mission, ADB is now in regular contact with the Government, executing agencies, and civil society, thus improving portfolio management.

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