Keynote address by Ashok Lavasa, ADB Vice President (Market Solutions), at the Mongolia Economic Forum 2023: “Welcome to Mongolia”, 9 July 2023, Ulaanbaatar, Mongolia
Honorable Prime Minister, Deputy Prime Minister, distinguished guests, ladies, and gentlemen.
I am honored to join you today for this Opening day of the Mongolia Economic Forum. This is my first visit to Mongolia as Asian Development Bank’s Vice President.
I want to take this opportunity to appreciate your strong leadership to achieve remarkable change over the last decade since I visited your beautiful country in June 2010.
Mongolia’s GDP now stands at over USD 16.8 billion, more than four times greater in real terms than at the turn of the century. And GDP per capita has also jumped dramatically, rising to $4,864 per person in 2022, compared to $485 in 2000.
Yet, despite commendable progress, poverty remains stubbornly high, with about 28% of the population still living below the poverty line.
Under COVID-19 and geopolitical challenges, we witnessed vulnerability. The economy and fiscal position are exposed to swings in commodity prices and reliance on just two major trading partners.
Mongolia is also at the center of the climate crisis, with the growing threat of desertification, storms, forest fires, droughts and severe winters, which can devastate livestock. Energy security and the need for clean energy is a pressing concern.
We consider our engagement with Mongolia to be of the highest importance. As Mongolia’s long-term development partner, ADB will support Mongolia in its development vision (Vision 2050) to become a “dynamic and modern economy with a thriving middle class by 2050”. Supporting the New Recovery Policy and its six priority areas being the near-term priority (recovery in ports, energy recovery, industrial recovery, urban and rural recovery, green recovery, and recovery in public productivity).
ADB now sees the Mongolian economy as firmly on a path of recovery and in a period of post-pandemic expansion. ADB’s growth forecast for 2023 is 5.4%, and 6.1% for 2024. This trails a solid 4.8% seen in 2022, sluggish growth of 1.6% in 2021, and a contraction of 4.6% in 2020. With exports recently buoyed by higher commodity prices, things are looking brighter for Mongolia. However, vulnerabilities remain.
Supporting the Mongolian economy to be more resilient, diversified, and inclusive is a key objective of ADB. ADB’s overall engagement in Mongolia is guided by our Country Partnership Strategy which identifies three priority areas: First is to support inclusivity. This is found in our engagements in health, education, social protection and financial inclusion. Second is to build infrastructure, supporting overall economic diversification. And third is to build overall resilience, including support for the environment and climate.
Advancing gender equality is a further priority theme that cuts across all of ADB’s operations, and 91% of ADB’s ongoing operations in Mongolia feature gender-inclusive designs. Overall, ADB’s support since Mongolia joined ADB in 1991 has totaled more than $4 billion, and today, our active portfolio stands at over $1.5 billion. ADB’s portfolio peaked in 2020 at close to $2 billion, as we scaled up support to assist Mongolia in its COVID-19 response, including the provision of urgent assistance for social and health needs.
Urban infrastructure, transport, regional integration, energy, health, education, agriculture and natural resources, and public sector management are all sectors in which ADB is active in Mongolia.
Financing public infrastructure is at the heart of ADB’s operations. While Mongolia has made significant progress in building public infrastructure, faster growth continues to be held back by a major infrastructure gap.
As we look at the map of Mongolia, ADB is financing the construction of 300 kilometers of highway in Mongolia’s Western Region, connecting the region to the People’s Republic of China and the Russian Federation. While in another project, ADB is financing the rehabilitation of the main highway from Ulaanbaatar northwards to Darkan, and maintenance of the road further north to the border.
At border points, ADB is improving transport corridors, border crossing infrastructure, and logistics facilities, modernizing customs, improving sanitary and phytosanitary systems, and developing economic cooperation zones, thereby strengthening regional trade, connectivity, and economic integration.
And in urban centers, including Ulaanbaatar, ADB is working to upgrade and improve the densely populated Ger areas, by building roads, improving sanitation and water supply, supporting better air quality, and building business incubator and training centers, affordable housing, kindergartens, and shelters for victims of domestic violence.
Yet public sector financing can only stretch so far. Governments throughout the world are increasingly fiscally constrained and debt levels can only rise so far. Finding ways in which to attract private sector financing is therefore critical. As ADB’s Vice President overseeing Private Sector and Public-Private Operations, I am focused on developing the enabling environment for private sector participation and expanding private sector financing to meet growing investment needs for inclusive growth and climate action.
Indeed, it is the private sector that plays a vital role in lifting people out of poverty and which is the largest engine for growth and change. In Mongolia, we see that the private sector constitutes about 80% of GDP and 75% of employment.
In the last three days that I have spent in Mongolia before the Forum, I have met many entrepreneurs and visited several projects and have been impressed by their dynamism and vigor. ADB is committed to supporting private enterprise and working with the government in creating a conducive environment to further boost private investment.
ADB is currently undergoing an organizational change which places greater emphasis on expanding its own greater mobilization of private sector resources. Our goal is to scale up private sector operations to one third of all operations in the coming years.
The goal of ADB’s private sector operations is not to compete with or crowd-out commercial financing, but to crowd-in investment and financing and to close market gaps, with a cofinancing target of $2.50 for every $1.00 of our own private sector financing.
ADB’s Trade & Supply Chain Finance Program is a good example of how ADB works to close market gaps. Since 2010, over $350 million of financial support was provided through the program in the form of guarantees and loans to Mongolian SMEs, through over 760 transactions. This financial support was largely assuming bank risk and country risk that external counterparties were unable to take. Further, the program sells risk onwards to international insurers, helping them to gain experience and assume risk in unfamiliar markets like Mongolia.
Other support for the financial sector includes long-term loans to commercial banks and microfinance institutions to reach out to micro, small-and-medium sized enterprises, and in particular women-led businesses.
As we look at the financial sector here in Mongolia, we now see more opportunities for green and social financing. Green and social bonds, including gender bonds, represent an emergent opportunity for developing countries to tap international private sector capital searching for responsible investments.
Food security is a priority area of ADB & the Mongolian government and one that was exposed as a vulnerability during the COVID-19 pandemic. Under ADB’s private sector operations, we were able to respond during 2020 by extending liquidity support to sustain businesses during a period of tight credit.
Mongolia has a huge potential to leverage renewable energy technologies, especially wind and solar, which could fully meet the power demand in the country and form the basis of an export industry.
ADB announced a partnership at COP26 to launch an Energy Transition Mechanism (ETM) to accelerate the transition from coal to clean energy. ETM combines concessional and competitively priced market funds as a low-cost financing package that incentivizes early retirement or repurposing of coal-fired power plants. ADB is already engaging with Indonesia and the Philippines on this initiative, and has begun ETM-related efforts in Kazakhstan, Pakistan, and India. We aim for this to be a new model for acceleration of coal plant retirement across the region, with the goal of a massive reduction in carbon dioxide emissions.
A just energy transition is one important part of our collective response to climate change. Mongolia is targeting a reduction in greenhouse gas of 22.7% under the Paris Agreement (Nationally Determined Contributions) by 2030 (compared to business as usual), and the investment needed for this has been estimated at $11.5 billion (of which $6.3 billion are required for mitigation and $5.2 billion for adaptation). Urgent action is needed for Mongolia to meet these targets. As Asia and the Pacific’s Climate Bank, ADB’s own ambition is to provide up to $100 billion in climate finance by 2030 across all countries that we operate in. Globally, there are now huge sums of capital looking to support clean energy and climate finance, and Mongolia can take advantage of such capital.
Governments’ resources are constrained, and we need to be more creative in identifying partnership models between the public and private sector which bring the desired developmental outcomes.
PPPs can actively support energy transition in terms of renewable energy generation, but also in terms of energy efficiency and this is where private sector innovation and the long-term nature of PPP contracts can add significant value through whole-life cost efficiencies.
Numerous analyses and reports show PPPs deliver value for money, not just for energy, but also more widely. Studies from the United Kingdom indicate that government departments that implemented PPPs registered cost savings of between 10 and 20 percent.
ADB has been actively looking to support Mongolia with building its PPP pipeline despite challenges. The environment to enable PPPs is advancing positively. The Law on Public–Private Partnership was approved by the Parliament in December 2022 (with the help of ADB and other partners), and next, the government plans to make this law effective, followed by operationalization of its PPP center. Experience shows that these are critical reforms necessary to galvanize PPP transactions. ADB looks forward to continuing to support the development of PPPs by identifying a suitable pilot project that can be used to test the new PPP law.
Creating an attractive investment environment remains paramount. Improved infrastructure is just one part of this. Mongolia is making concerted efforts to strengthen its investment and governance environment and this is welcome. We have recently seen ongoing reforms to the investment law. The introduction of dispute settlement mechanism is to be commended, along with simpler registration procedures for foreign-owned entities. Government is also making efforts to improve oversight of state-owned enterprises.
Finally, let me emphasize the need for sustained investment in digital technology. The banking and financial sector in Mongolia has led the way in its digital transformation, and the public sector has made tremendous in-roads with the launching of the e-Mongolia platform, which has transformed public service delivery. ADB will continue to support the government and private sector in advancing digitalization, seeking to apply solutions in our operations, including in trade, fintech, education, health, and agribusiness.
In closing, let me reaffirm ADB’s strong commitment to Mongolia. ADB is just one of many development partners, but I think I can speak for all of us in saying that we are truly grateful and appreciate our strong work and collaboration with such a dynamic country, government, and people. ADB looks forward to a continued upward trend for Mongolia and we look forward to supporting the country further on its growth trajectory and supporting increased investment. Supporting greater private sector participation and investment and responding to the climate challenge are just some of the many goals we share.
I thank the government of Mongolia for inviting ADB to participate in this Mongolian Economic Forum. I convey my good wishes for the continued and accelerated progress of the country and for the happiness of its people.
Thank you and Happy Naadam