The Asian Development Bank is working with Mongolia to support reforms needed to improve the management of social welfare services, such as food stamps and cash transfers for the poor. The project is helping the government maintain the funding needed to deliver programs for the poor during times of economic difficulties.
|Project Name||Social Welfare Support Program|
|Project Type / Modality of Assistance||Loan
|Source of Funding / Amount||
|Strategic Agendas||Inclusive economic growth
|Drivers of Change||Governance and capacity development
|Sector / Subsector||
Public sector management - Social protection initiatives
|Gender Equity and Mainstreaming||Some gender elements|
|Description||The program will provide budget support during the country's fiscal consolidation process for reforms to (i) improve fiscal policy management, and (ii) develop policies and regulations to support targeting and consolidation of social welfare programs. Through these reforms, the program will help sustain financing for social welfare programs.|
|Project Rationale and Linkage to Country/Regional Strategy||
Development problems and opportunities. Mongolia's vast mineral wealth, estimated at $3 trillion, has attracted significant foreign direct investment (FDI) to the country. FDI inflows averaged 40% of the gross domestic product (GDP) in 2011-2012, turning Mongolia into the fastest growing economy in the world in the same period. Accelerated economic growth made Mongolia a middle-income country in late 2011. Per capita income stood at $4,000 in 2013. Long-term prospects for the country are promising. Large ongoing mining projects are expected to turn the balance of the fiscal budget and the balance of payments into surpluses by 2020.
Due to limited economic diversification, Mongolia is highly dependent on the mining sector, which relies heavily on FDI inflows. This exposes the economy to external shocks, in particular swings in commodity prices and the economic cycles of its trading partners. The current unfavorable external environment, characterized by falling commodity prices and growth moderation in the People's Republic of China, is adversely affecting Mongolia's mineral production and fiscal revenue collection. This is compounded by plummeting FDI, which fell by 55% and 80% in 2013 and 2014, respectively, due to political instability and weak investor confidence, delaying the startup of large revenue-generating mining projects.
Against this background, GDP growth started to decline from its peak of 17.3% in 2011, prompting the government to launch expansionary fiscal and monetary policies in 20122013 to stimulate the economy. They failed to significantly spur growth but aggravated macroeconomic imbalances. Public debt increased from 32.7% of GDP in 2012 to 77.4% in 2014 to offset fiscal revenue shortfalls caused by falling commodity prices. Currency depreciation and large liquidity injections increased inflation eroding living standards, in particular those of the vulnerable and the poor. The central bank loosened the monetary stance and embarked on the provision of programs of quasi-fiscal policy loans to support diverse sectors in the economy. The largest program, the Price Stabilization Program, provided highly subsidized loans that were exempt from limits on large exposure and industry concentration, and kept off-budget. Through quasi-fiscal operations, the central bank injected liquidity equivalent to 20% of GDP, bringing credit growth up to 54% in 2013.
The expansionary fiscal stance adopted during 2012-2014 to arrest the economic downturn resulted in off-budget expenditures channeled through the Development Bank of Mongolia (DBM). The DBM was established as a state-owned entity in 2011 with the mandate to support the financing of major projects and programs for the country's development. However, the bank's lending activities have generated large additional fiscal deficits that were kept off-budget to circumvent the requirements of the Fiscal Stability Law (FSL). The Law caps fiscal deficit and public debt at 2% and 40% of GDP, respectively. The consolidated fiscal budget, including the off-budget expenditures of the DBM, stood at 11.6% of GDP in 2014.
The weakening growth momentum continues. GDP growth declined to 7.8% in 2014, and to 4.4% in the first quarter of 2015. Official labor market data does not yet reflect the economic slowdown, as many employers are responding by reducing working time and increasing unpaid leave rather than firing staff. These trends could slow down poverty reduction in Mongolia. The last World Bank figure puts poverty at 21.6% of the population as of year-end 2014, a significant decline from 38.8% in 2010.
Government action plan. The government, which assumed office in November 2014, has taken important steps to stabilize the economy and consolidate fiscal expenditure. Parliament approved the government's Comprehensive Macroeconomic Adjustment Program (CMAP) in February 2015. The CMAP covers 2015-2016, and contains a wide range of short- and medium-term policy actions targeting macroeconomic stabilization and structural reforms to lay the foundations for sustainable growth. In addition to actions for fiscal consolidation and improved debt management, the CMAP includes measures to strengthen social welfare, employment generation, and the investment climate.
Improved fiscal policy management stands at the core of the CMAP. Policy actions implemented to date include a budget amendment in January 2015 to reduce fiscal expenditure, downsizing of government ministries and agencies, postponement of civil servants salary increase, and reductions in capital expenditure. Efforts to boost revenue collection include an 80% increase in excise taxes for fuel in January 2015, which reported additional MNT228 billion ($118 million) to the budget. The FSL was amended to include off-budget expenditures from the DBM under its requirements ending a large source of off-budget expenditures.
The FSL was also amended to reflect the adoption of a medium-term fiscal framework targeting the gradual decline of the fiscal deficit and debt levels to 2% and 40% of GDP, respectively, by 2018. To mitigate the impact of the adjustment costs during fiscal consolidation, social welfare protection was prioritized in the budget amendment. Pensions and welfare programs were increased in January 2015 to offset the impact of inflation on purchasing capacity. In particular, resources for the Food Stamp Program, which is vital for the country's poorest, were augmented by 80%.
Fiscal gap. Despite government efforts, the short-term contractionary effect of the adjustment program, compounded by the persistent unfavorable external environment, has resulted in additional fiscal revenue shortages. The current fiscal gap amounts to MNT500 billion ($260 million).The size of the gap implies that in order to meet the requirements of the FSL for 2015, social welfare programs will have to be curtailed. It is thus essential to develop policy actions to ensure social welfare funding to protect the vulnerable and the poor during the country's adjustment program.
Social Welfare Programs. Social welfare in Mongolia is an integral part of social protection. Public expenditure for social welfare in 2015 amounts to MNT285 billion ($148 million). The Child Money Program contributed additional MNT246 billion ($127 million) in 2015. The combined funding amounts to 2.7% of GDP. Mongolia compares favorably against an average 1.6% of GDP in emerging economies, highlighting the government's commitment to welfare protection. Social welfare programs are generally pro-poor and a significant share of the benefits accrues to the poorest. It is estimated that 35% of the benefits reach the 20% poorest in Mongolia. This compares with about 20% of benefits in Thailand reaching the 20% poorest.
Welfare programs in Mongolia focus on the provision of social pensions, allowances, and services to citizens with special needs who are in poor state of health, lack family, and are not capable of living an independent life. Programs also support individual household members requiring social welfare assistance or care in order to meet their minimum needs. The Ministry of Population Development and Social Protection administers 71 social welfare programs, which can be grouped in seven broad categories. These programs reached about one third of the total population in 2014. Expenditures for all programs have been increased since 2010 to reflect demographic trends in an expanding population, and offset the impact of inflation on real incomes.
|Impact||Adverse effects of fiscal consolidation on the poor mitigated (Comprehensive Macroeconomic Adjustment Plan, 2015-2017).|
|Description of Outcome||Social welfare programs maintained|
|Progress Toward Outcome|
|Description of Project Outputs||
1. Fiscal policy management improved
2. Policies and regulations to support targeting and consolidation of social welfare programs improved
|Status of Implementation Progress (Outputs, Activities, and Issues)||The second tranche comprises seven policy actions focusing on two output areas: (i) improved fiscal policy management (to maintain social welfare during the fiscal consolidation progress); and (ii) improved policies and regulations to support targeting and consolidation of social welfare programs. The government has complied with the seven policy actions and submitted all the verification documents.|
|Summary of Environmental and Social Aspects|
|Stakeholder Communication, Participation, and Consultation|
|During Project Design|
|During Project Implementation|
|Responsible ADB Officer||Fernandez Lommen, Yolanda|
|Responsible ADB Department||East Asia Department|
|Responsible ADB Division||Urban and Social Sectors Division, EARD|
Ministry of Finance
Negdsen Undestnii gudamj-5/1
|Concept Clearance||18 Jun 2015|
|Fact Finding||10 Jun 2015 to 24 Jun 2015|
|MRM||12 Aug 2015|
|Approval||29 Sep 2015|
|Last Review Mission||-|
|Last PDS Update||30 Mar 2016|
|Approval||Signing Date||Effectivity Date||Closing|
|29 Sep 2015||28 Oct 2015||13 Nov 2015||31 Dec 2016||-||15 Jun 2016|
|Financing Plan||Loan Utilization|
|Total (Amount in US$ million)||Date||ADB||Others||Net Percentage|
|Project Cost||150.00||Cumulative Contract Awards|
|ADB||150.00||29 Sep 2015||150.00||0.00||100%|
|Cofinancing||0.00||29 Sep 2015||150.00||0.00||100%|
Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.
The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.
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|Title||Document Type||Document Date|
|Social Welfare Support Program (Second Tranche): Progress Report on Tranche Release||Progress Reports on Tranche Releases||Apr 2016|
|Loan Agreement (Ordinary Operations) for Loan 3297-MON: Social Welfare Support Program||Loan Agreement (Ordinary Resources)||Oct 2015|
|Social Welfare Support Program: Report and Recommendation of the President||Reports and Recommendations of the President||Sep 2015|
|Нийгмийн халамжийг дэмжих хөтөлбөр : Төслийн МэдээллийнТайлан||Translated PDS||Sep 2015|
|Social Welfare Support Program: Concept Paper||Concept Papers||Jun 2015|
Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.
|Title||Document Type||Document Date|
|Social Welfare Support Program: Potential Safeguard Impacts of Policy Reforms||Environmental and Social Impacts Matrix||Jul 2015|
Evaluation Documents See also: Independent Evaluation
None currently available.
None currently available.
The Public Communications Policy (PCP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.
Requests for information may also be directed to the InfoUnit.
Mongolia’s Social Welfare Programs to be Supported by ADB $150 Million LoanADB has approved a $150 million loan to support reforms needed to sustain and improve the management of social welfare services in Mongolia.