Country Assistance Program Evaluation for Mongolia (2002)

Evaluation Document | 31 October 2002
This country assistance program evaluation (CAPE) aims to assess the contributions that ADB assistance made to the transition process of Mongolia.

ADB supported Mongolia's transition process for the last 11 years with investments worth $505 million and around $50 million in grants for technical assistance. Goals were ambitious: to support the transition from a command to a market-oriented economy and to stem increasing poverty levels. And assistance was spread across sectors as diverse as energy and education, transportation and health, and governance. OED evaluated ADB's assistance to Mongolia to assess:

  • Had ADB chosen the right priorities over the past decade
  • Were ADB's programs and projects well designed
  • And what did ADB contribute to the transition process

Evaluation approach

The country assistance program evaluation (CAPE) was designed using an evaluation matrix to generate detailed evaluation questions, indicators, data sources and collection methods, and to discuss issues of isolation, attribution, and synergy. In the design, 4 key issues for transition were identified and case studies designed to assess ADB's contribution to these issues. The evaluation had three components:

  • Country strategy assessment, including a document review of country strategies, country economic reports, sector strategies, and papers on governance issues and similar crosscutting issues.
  • Program performance assessment based on existing self-evaluation and internal monitoring reports.
  • Case studies on the 4 key issues of transition (capacity building, policy reforms, economic reorientation, and financial sector reform) and on the environment.

One international and one Mongolian consultant were hired for each case study, which involved interviews with stakeholders in Mongolia and ADB. Over 200 stakeholders from government, private sector, NGOs, academe, and other international agencies, were consulted individually or in group-discussions. The CAPE team visited project sites in 11 aimags (provinces) and discussed with people working in project facilities and benefiting from project improvements. The evaluation methodology, interim findings, and the final report were presented in workshops to stakeholders in Mongolia and at ADB.

Undergoing transition

When Mongolia joined ADB 1991, the trade and monetary system had broken down and financial transfers from the Former Soviet Union eroded. Transition required a transformation of institutions, policies, the economy, and the financial sector. The Government had taken first steps toward reform, but assistance was required to stabilize the economy and implement the transition process. Physical infrastructure, particularly power and heating supply, were on the verge of collapse. After a long period of complete isolation, officials lacked exposure and experience with market-oriented principles and faced enormous challenges in reforming Mongolia's system and managing daily crisis situations. External factors such as the Asian and Russian financial crises, and adverse weather conditions created further challenges to managing the transition process

ADB support

ADB supported Mongolia's transition process with loans worth $505 million approved between 1991 and 2001 for 25 projects in the agriculture, education, energy, finance, health, industry, telecommunications, transport, and urban development sectors. An additional $49 million was approved for technical assistance grants in the same sectors and in support of governance reforms. Overall the portfolio performed well, despite fiscal constraints that delayed implementation.

Taking aim: setting strategic priorities

ADB's country strategies were responsive and relevant to country needs. In the early years, this entailed quick-disbursing assistance and investments in ailing infrastructure sectors. In later years governance, environment, and poverty were correctly highlighted as the main development objectives of Mongolia. And: over the entire period, the country strategies were good at raising key concerns of transition, namely:

  • Capacity building
  • Policy reforms
  • Economic reorientation
  • Transformation of the financial system

But, the country strategies never translated these concerns into strategic frameworks to guide operations. Each project was left to address these issues individually. Assistance varied across sectors and issues, and was reactive to arising problems. The question of economic reorientation was never fully articulated; the hands-off approach trusted policy reforms would bring about necessary and sufficient changes.

Building capacities

Assistance for capacity building took place in difficult circumstances: roles, responsibilities, and structures of institutions needed defining, but staff changed with changing governments and faced the dual challenge of managing the transition process while building their own capacities.

Institutional diagnostics were conducted only in a few cases, resulting in capacity-building efforts designed on the basis of less information than would be desirable. Design and implementation were driven by inputs: training and consultants.

The fragmented approach to assisting the public resource management process achieved results in isolated areas (such as training for tax inspectors, planning, budgeting, and use and administration of funds), but lost sight of the key concerns of fiscal discipline (budget control) and a professional civil service, and of process improvements as a whole.

Sector management capacities were built in all sectors, but with considerable variations across sectors. In some areas, assistance was confined to addressing technical and financial issues, particularly during the early years when absorptive capacity was limited. In other sectors, such as education and health, capacity building has been extensive, involving central and local levels, administration, service delivery, and quality control functions.

Reforming policies

Policy reform assistance was all-encompassing.

Government programs for privatization were supported and resulted in a major change in ownership patterns; the private sector now accounts for over 75% of gross domestic product. But, professional management of privatized entities is still lacking in many cases. And, assistance focused on numerical targets rather than ensuring privatization of key areas such as cashmere industries and copper mining, which remain largely in state hands.

Major assistance was provided for creating a competitive policy environment by removing trade and price controls. Policy changes were in line with macroeconomic policy suggestions of the International Monetary Fund and World Bank, although the sequence of assistance could have been better. While import tariffs were reduced, domestic industries were subjected to higher taxes and thus disadvantaged vis-a-vis importers during the early years of transition when domestic industries were extremely vulnerable.

Assistance resulted in significant changes in trade and price policies and led to an improvement of the policy framework for private sector development. But, license regulations, tax policies, and high levels of social security contributions created disincentives for establishing or expanding businesses beyond a certain size, resulting in a large number of small and informal enterprises.

Reorienting the economy

The goal of reorienting and diversifying the economy was least well articulated, which possibly led the 2000 country strategy to assume that investments in the real economy had limited impact on private sector development and poverty reduction.

Loans to the productive sectors focused on policy reforms.

Transforming the financial system

The financial system received considerable grant assistance over the past 11 years for specific, crisis-triggered problems that needed resolving.

Financial sector reforms were supported with a program loan approved in 1996 to support Government's restructuring efforts. First improvements in the banking sector were short-lived: partly due to insufficient reforms (not resolving fundamental problem assets), partly reversed by the Asian and Russian financial crises that set in during the second half of the 1990s. Over the last 2 years, the sector has seen a recovery: the ratio of nonperforming loans has fallen, while the ratio of capital to assets for the banking sector rose above 10%.

Several of ADB's loans aimed to increase access to credit for specific target groups. The 2000 COS grouped the more recent projects under a financial sector strategy. However, during processing the potential impact of these projects on the financial sector seems to have been overtaken by concerns over access to credit of specific groups.

Results

ADB assistance made significant contributions to the transition process of Mongolia, helping to build capacities for sector management and public resource management, reform policies and liberalize the economy, and transform the financial sector. Some inroads were also made to reorienting the economy by laying the foundation for private sector involvement in some of the utilities. But, transition is not yet complete.

Poverty was recognized as a significant issue that required proactive assistance only since 2000. Some of the policy reforms supported by ADB contributed to the hardship that people faced, although the impact of ADB alone on poverty levels is hard to measure: the Asian and Russian financial crises and two recent harsh winters, which caused large losses in livestock, impoverished the poor.

The sector-by-sector approach was not well suited to identifying countrywide issues and developing structured programs that address systemic problems, and limited possibilities for sharing knowledge, experiences, and approaches across sectors was limited. Attempts to transplant ready-made solutions focused attention on learning tools rather than resolving underlying issues.

Program lending smoothed the transition period in times of serious cash-flow constraints. But, it arguably might have contributed to extending Mongolia's dependence on aid and postponing hard decisions about controlling public expenditure. Managing external debt appears to be a neglected area with external borrowing rising to $905 million (87.8% of GDP) by the end of 2001. Grace periods coming to an end, the economy will have to grow at an annual rate of 4-5% to sustain this level of debt and ensure loan repayments.

The importance of the environment was recognized early on. Capacities were built for environmental impact assessments, which exist but suffer from resource limitations and institutional conflicts between the main environmental agency and line ministries. They do not capture environmental impacts of the informal sector. The extent to which environmental issues were considered in other sectors varied; no quantification of impacts was attempted.

Contents 

  • Basic Data
  • Executive Summary
  • Background
  • Country Operations
  • Supporting Transition
  • Environment
  • Overall Assessment
  • Continuing Transition Agenda
  • Appendixes