Mongolia : Promoting Effectiveness of Development Cooperation

Public sector management / Public administration

This technical assistance (TA) will support the Government of Mongolia (GOM) in identifying pragmatic solutions to improve the effectiveness of managing development assistance resources, including relevant international best practices contained in the Paris Declaration (2005), the Busan Partnership Document (2011), and the recent Mexico High Level Meeting Communiqu (2014), and recommend priority actions. The TA will also support the capacity of the GOM to effectively manage development assistance resources through (i) drafting a development assistance policy, (ii) better coordination with a broad range of development partners, (iii) human resource development.

The TA is closely aligned with the Mongolia interim country partnership strategy (ICPS), 2014- 2016, which promotes good governance, and envisions a scale-up of ordinary capital resources to an annual amount of $200 million from $50 million, and is included in the Country Operations Business Plan (COBP), 2014- 2016. The TA is closely coordinated with relevant interventions by other development partners, in particular the World Bank (monitoring and evaluation of ODA) and UNDP (capacity building in development policy and planning).

The Mongolian economy, traditionally based on livestock herding, is experiencing a rapid transformation and economic growth due to the discovery of large mineral deposits and the development of the mining industry. While economic growth averaged about 10% over the past decade and has substantially boosted average incomes, about 27.4% of the population still lived below the national poverty line in 2012, largely as mineral-led growth has failed to generate substantial employment, with just 4% of the labour force engaged in this sector. In Ulaanbaatar, peri-urban informal settlements, or _ger areas_, are home to about 60% of residents and virtually not served by the city's heating, water supply, and sanitation network.

Hence, substantial public and private investment in infrastructure is needed to support economic growth, diversify the economy, and create jobs, while increasing access for all people to essential services like heat and power, health and education, housing, water, and sanitation. Mongolia''s ability to tap international financial markets in recent years is notable, but it continues to face serious challenges in project planning, processing, and implementation. Therefore, development assistance continues to play an essential role in alleviating poverty through job creation, social protection, environmental protection, and strengthened governance, especially to aid the country to manage burgeoning mining revenues. As the relative size and concessionality of official development assistance (ODA) is declining as Mongolia moves towards becoming an upper middle income country, the effectiveness and efficiency of these scarce resources and the government's ability to align development partners' assistance with its priorities becomes increasingly important in face of these remaining challenges (1).

Unfortunately, the government's aid management capacity has been affected by repeated government restructuring. The Ministry of Economic Development (MOED) was created in 2012. It became responsible for planning foreign aid and the formal counterpart for ADB in 2012, together with the Ministry of Finance. As an entirely new agency, however, MOED has struggled severely to build its capacity to plan and coordinate development assistance and develop new systems and mechanisms for coordinating with the Ministry of Finance (MOF), other agencies, development partners, and key stakeholders (2). On 7 October 2014, a bill was passed to reduce the number of ministries from 16 to 13. According to this bill, the MOED is to be abolished with its functions being transferred to the MOF and Ministry of Foreign Affairs and Economic Cooperation, with the former becoming in charge again of loan and aid policy. Early indications are that this will take place with a very limited transfer of MOED staff. The MOF now faces the major challenge to rebuild its aid management capacity and bring its development assistance policies and practices rapidly in line with international best practices.

The GOM is signatory of the Paris Declaration on Aid Effectiveness and has endorsed the Busan Partnership Document (the Declarations) establishing the Global Partnership for Effective Development Cooperation. A monitoring framework that tracks progress on the commitments agreed at the Fourth High Level Forum on Aid Effectiveness in Busan was recently discussed at the first ministerial-level meeting of the Global Partnership in Mexico. There are however no established implementation and coordination mechanisms in Mongolia to implement and monitor the commitments under the Declarations. For instance, Mongolia was not yet included in the list of countries assessed in the 2014 Global Partnership Monitoring Report.

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(1) Increased gross domestic product per capita in recent years has led development partners, including the Asian Development Bank (ADB), to substitute grant financing for lending with increasingly less concessional terms, leading the government to increasingly explore alternative sources of development finance, especially by tapping international financial markets, and making use of its own Development Bank of Mongolia. Several bilateral development partners are in the process of scaling or shutting down operations in Mongolia.

(2) For instance, key governmental-development partner coordination mechanisms have fallen into disuse, including the annual coordination meeting chaired by the government and the World Bank which was considered ineffective and discontinued in 2012. Successor arrangements are needed to ensure that development assistance is well targeted and effective.

Comprehensive aid management assessment against international best practices, including Mongolia''s commitments under the Declarations, prepared along with pragmatic recommendations for improvement.

Development assistance policy formulated.

Effective government-development partner coordination mechanisms established.

Skills of key government officials in development assistance management improved.

- The draft assessment was circulated to all the development partners and MOF for review. After the compilation of all the suggestions and comments, the TA consultants have further refined the assessment. The consultants have updated the ODA statistics according to the most-recent data captured by the relevant organizations and officials.

- The TA consultants prepared the draft Policy on Official Development Cooperation. The policy draft has also been circulated to all the development partners for their review and suggestions. In general, the development partners have provided positive feedback to MOF on its efforts to improve the aid management, and consulting with the DPs on the policy development. Based on the feedback received, the policy was revised and shortened. The number of monitoring indicators was also reduced from 28 to 16, and a detailed costing was undertaken with normative standards of the country. The draft policy emphasizes importance of the planning and monitoring of ODA with focus on achieving the expected results. The policy foresees two possibilities for implementation of grant-financed development projects: through the budget as in the case of loans, and through direct implementation by development partners. The revised policy draft is prepared in accordance with the Law on Development Policy and Planning. The TA consultants organized a consultative meeting with civil society organizations and its representatives on the proposed policy draft on 21 May 2018 to introduce and seek the views of the CSOs on the draft policy. The draft policy is finalized in June 2018, and now ready for the next stage which is an establishment of the multi-stakeholders working group that would refine the draft, circulate the policy draft to the government ministries, and submit to the cabinet secretariat for the final approval.

- The MOF organized a Donor Consultative Meeting in December 2016 reviving it after several years of interruption. The event was attended by over 40 development partners, government agencies, NGOs and other stakeholders. At the event the government introduced its Sustainable Development Vision 2030 and the priority sectors for the country's development; and urged to improve coordination between the Government Action Plan and the development partners partnership strategies.

- The prototypes of the government and donor coordination mechanisms were proposed by the TA consultants. The Concept Note on coordination mechanisms, and Operations Handbook for Development Cooperation Policy were prepared. The TA provided technical and financial support to organization of seven sector level donor coordination meetings in health, agriculture, urban development, legal and education sectors, a thematic meeting on the national program on Container and Packaging for Foods, and organization of the local level consultative meetings in Khusvgul and Bayankhongor aimags. The workshop on the donor coordination mechanisms was organized by the TA team in March 2018 among the line ministries.

- The MOF organized the Government and Development Partners Joint Portfolio and Procedure Review Meeting on 15 June. The meeting aimed to identify the systemic portfolio administration issues, and to discuss possible solutions. Moreover, the TA supported MOF to organize periodic briefings for development partners including a meeting on treasury accounting, discussions on the revisions to Regulations 176 on grants and 196 on concessional loans management.

- Since the TA inception, 14 capacity building training sessions were organized for the 250 MOF and other ministry and agency staff. The most notably, higher level officials of the ministry participated in the second and third ECOSOC forum for financing for development follow-up at UN Headquarters in New York. Also, the TA consultants organized the training titled _Proposed Development Cooperation Policy and Mechanisms_ on 9 March 2018 at the ministry with the assistance from the National Development Agency.