Mongolia: Strengthening Public Resource Management, Private Sector Development, and Finance Sector Performance
The knowledge and support technical assistance (TA) will promote an enabling environment for inclusive, diversified, and sustainable economic growth in Mongolia. Achieving more diversified and resilient growth is a core priority of the Government of Mongolia and is reflected in Mongolia's Vision 2050. The TA will focus on supporting reforms and institutional development in three interrelated areas: (i) public resource management, (ii) finance sector development and performance, and (iii) private sector development.
Rosenkranz, Peter C.
East Asia Department
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|Project Name||Strengthening Public Resource Management, Private Sector Development, and Finance Sector Performance|
|Country / Economy||Mongolia
|Project Type / Modality of Assistance||Technical Assistance
|Source of Funding / Amount||
|Strategic Agendas||Inclusive economic growth
|Drivers of Change||Gender Equity and Mainstreaming
Governance and capacity development
Private sector development
|Sector / Subsector||
Finance / Finance sector development
Public sector management / Public expenditure and fiscal management
|Gender Equity and Mainstreaming||Some gender elements|
|Description||The knowledge and support technical assistance (TA) will promote an enabling environment for inclusive, diversified, and sustainable economic growth in Mongolia. Achieving more diversified and resilient growth is a core priority of the Government of Mongolia and is reflected in Mongolia's Vision 2050. The TA will focus on supporting reforms and institutional development in three interrelated areas: (i) public resource management, (ii) finance sector development and performance, and (iii) private sector development.|
|Project Rationale and Linkage to Country/Regional Strategy||
A key long-term development challenge for Mongolia is to transition to a more diversified economy that is less reliant on natural resource revenues. Mongolia's mining sector accounted for 23.3% of gross domestic product (GDP) and 92.0% of exports in 2020. The current economic structure makes Mongolia susceptible to swings in global economic and commodity price cycles, which increase the amplitude of Mongolia's business cycles, resulting in boom-and-bust cycles. For example, economic growth decelerated from a peak of 17.3% in 2011 to 1.2% in 2016 before rebounding to an average GDP growth rate of 5.9% from 2017 to 2019. In 2020, amid coronavirus disease (COVID-19), Mongolia's GDP contracted by 5.3%, with the contribution of the mining sector collapsing by 9.4%. These volatilities pose severe challenges for sustainable macroeconomic management and finance sector stability and undermine development progress. The mining industry is also highly capital intensive-the sector's labor share only stood at 3.9% in 2020-and thus the pass-through to the labor market and job creation remains limited.
The ongoing COVID-19 pandemic caused a deep contraction, with adverse implications for macroeconomic soundness and finance sector performance. The pandemic exacerbated existing challenges to the Mongolian economy and also reversed hard-won gains in fiscal and debt sustainability. A fiscal deficit of 9.5% in tandem with a considerable GDP contraction in 2020 resulted in a sizable increase in the debt-to-GDP ratio by 14.1 percentage points. It is critical to revert to a pre-COVID-19 fiscally sustainable trajectory, progress with finance sector development, and develop an ecosystem to support broad-based private sector development to fulfill the non-mining sector's full potential.
Mongolia's public resource management faces challenges and revenue generation is volatile. In 2016, the country's public debt-to-GDP ratio reached 109.1% after years of growth deceleration and a fiscal deficit of 15.3% in the same year, which triggered a request for International Monetary Fund (IMF) assistance in the form of an Extended Fund Facility (EFF) during 2017-2019. In these three years prior to the pandemic, there was strong progress in fiscal and debt management amid robust economic growth, budget surpluses and a buildup in foreign exchange reserves. The country's public debt-to-GDP ratio fell by 30.8 percentage points to 78.3% in 2019. Volatilities returned in 2020 as a reduction in GDP, declining revenues, and a fiscal deficit increased the debt-to-GDP ratio to 92.4%. While the current debt level is below the country's debt ceiling, it threatens to impede the government's ability to finance development priorities amid vast development gaps.
Mongolia's tax systems need efficiency enhancements to mobilize domestic resources. Amid rising debt levels, boosting domestic resource mobilization (DRM) will be important to finance the post-COVID-19 development priorities. Mongolia's tax systems need to be strengthened, including by eliminating opportunities for tax avoidance, raising tax literacy, enhancing tax collection systems, and leveraging digitalization to improve efficiency. Mongolia could benefit from relevant international experiences on boosting DRM, for example by participating in the Asia Pacific Tax Hub. This ADB-led initiative offers valuable opportunities to enhance Mongolia's DRM capacities by actively engaging in international forums on international tax cooperation and sharing international best practices on strengthening tax systems amid an accelerated digitalization of the economy.
Mongolia's finance sector lacks depth, stability, diversification, and innovation. The finance sector is highly dominated by banks and the banking sector's operations are exposed to mining-driven volatilities and characterized by low profitability and weak capital adequacy of banks. The pandemic added to challenges associated with banks' capital adequacy and credit quality, amid limited capacity to deal with nonperforming loans (NPLs). Finance to small and medium-sized enterprises (SMEs) represents a challenge. While COVID-19-induced relief measures were necessary to support banks and corporates, these temporary measures (such as regulatory forbearance) will need to be phased out. As a result, there exists a risk of an increase in NPLs, which can further impede banks' profitability and capital adequacy, and their capacity to effectively financially intermediate. This could undermine economic recovery and constrain financing sources for SMEs. Capital markets remain shallow and cannot offer a stable source of long-term finance needed to foster private sector development and diversification, and to attract international investors. A stable source of long-term finance would complement efforts to mobilize domestic resources. Innovative sustainable financing solutions-such as green and environmental, social, and governance finance-are nascent and could support in a significant way the long-term objective of economic diversification. Therefore, measures to enhance finance sector performance, innovation, resilience, and diversification are needed.
The non-mining private sector is not yet fulfilling potential. Mongolia has vast potential to develop non-mining sectors-such as agriculture, tourism, services, and renewable energy-to diversify the economy and reduce its susceptibility to swings in the global economic cycle and/or commodity prices. SMEs, which are the backbone of the economy, are often constrained because of a lack of finance, weak legislation, high regulatory costs, and lack of skilled workers. The private sector also plays a negligible role in infrastructure investment amid fiscal challenges and large development gaps. Public-private partnerships (PPPs) could play an important role as catalysts, but the related institutional framework and the government's capacity are still underdeveloped. In particular, the government must enhance its capacity to select, screen, prioritize, and monitor projects that increase resilience and competitiveness, while offering value for money. Efforts are needed to strengthen institutional and governance capacity to steer broad-based private sector development, PPPs, and attract foreign direct investment.
Inclusive, diversified, and sustainable growth achieved
Public debt management, financial sector inclusiveness and diversification, and business investment environment improved
|Description of Outcome||
Policies and institutions on domestic resource mobilization, financial sector performance and development, and private sector development improved
|Progress Toward Outcome||Resource persons have been engaged to deliver the outputs of the TA.|
|Description of Project Outputs||
Institutional and knowledge capacity on domestic resource mobilization enhanced
Government capacity and policies supportive of broad-based private sector development enhanced
|Status of Implementation Progress (Outputs, Activities, and Issues)||Resource persons have progressed delivering the outputs of the TA.|
|Summary of Environmental and Social Aspects|
|Stakeholder Communication, Participation, and Consultation|
|During Project Design||The Ministry of Finance, the Mongolian Tax Authority, Bank of Mongolia, Financial Regulatory Commission, and the National Development Agency were consulted on the scope, outputs, and activities of the TA.|
|During Project Implementation||Continuous consultation with the Ministry of Finance, Mongolian Tax Authority, Bank of Mongolia, Financial Regulatory Commission, and the Ministry of Economy and Development will ensure delivery of the the scope, outputs, and activities of the TA.|
|Consulting Services||ADB will engage the consultants following ADB Procurement Policy (2017, as amended from time to time) and its associated project administration instructions and/or staff instructions.|
|Procurement||Procurement of goods and equipment is not envisaged.|
|Responsible ADB Officer||Rosenkranz, Peter C.|
|Responsible ADB Department||East Asia Department|
|Responsible ADB Division||Public Mgt, Financial Sector and Regional Coop Division, EARD|
Ministry of Finance (formerly Ministry of Finance and Economy)
|Concept Clearance||13 Oct 2021|
|Fact Finding||14 Oct 2021 to 25 Oct 2021|
|Approval||09 Dec 2021|
|Last Review Mission||-|
|Last PDS Update||29 Sep 2022|
|Approval||Signing Date||Effectivity Date||Closing|
|09 Dec 2021||10 Dec 2021||10 Dec 2021||31 Dec 2025||-||-|
|Financing Plan/TA Utilization||Cumulative Disbursements|
|1,700,000.00||0.00||0.00||0.00||0.00||0.00||1,700,000.00||29 Sep 2022||14,562.85|
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|Title||Document Type||Document Date|
|Strengthening Public Resource Management, Private Sector Development, and Finance Sector Performance: Technical Assistance Report||Technical Assistance Reports||Dec 2021|
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|Tender Title||Type||Status||Posting Date||Deadline|
|Public-private partnership financial specialist||Individual - Consulting||Closed||12 Nov 2022||18 Nov 2022|
|Private Sector Development Specialist (IT and Data Analyst)||Individual - Consulting||Closed||12 Nov 2022||18 Nov 2022|
|Public-Private Partnership Specialist (Legal)||Individual - Consulting||Closed||13 Oct 2022||19 Oct 2022|
|Private Sector Development Specialist (Legal)||Individual - Consulting||Closed||13 Oct 2022||19 Oct 2022|
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