Document of The World Bank FOR OFFICIAL USE ONLY Report No. 67567-MN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR MONGOLIA FOR THE PERIOD FY2013-2017 China, Mongolia and Korea Country Management Unit East Asia and Pacific Region International Finance Corporation East Asia and Pacific Region Multilateral Investment Guarantee Agency Last Country Interim Strategy Note: May 21, 2009 (Report No. 48311-MN) CURRENCY EQUIVALENTS (as of April 2, 2012) Currency Unit: Mongolian Tugrik (MNT) US$1.00 = MNT 1,317 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities IMF International Monetary Fund ADB Asian Development Bank ISN Interim Strategy Note AMC Asset Management Company JICA Japan International Cooperation Agency CAE Country Assistance Evaluation JSDF Japan Social Development Fund CGAP Consultative Group to Assist the Poor MCC Millennium Challenge Corporation CPI Consumer Price Index M&E Monitoring and Evaluation CPPR Country Portfolio Performance Review MDF Microfinance Development Fund CPRT Country Portfolio and Results Monitoring Tool MDGs Millennium Development Goals CPS Country Partnership Strategy MDTF Multi Donor Trust Fund CSO Civil Society Organization MIGA Multilateral Investment Guarantee Agency DIME Development Impact Evaluation Initiative MSME Micro Small and Medium Enterprise DP Democratic Party MSTA Mongolia Multi-sector Technical Assistance EBRD European Bank for Reconstruction and Project Development MTDS Medium Term Debt Management Strategy EGSPRS Economic Growth Support and Poverty NDIC National Development and Innovation Reduction Strategy Committee EITI Extractive Industries Transparency Initiative NGO Non Governmental Organization ESW Economic and Sector Work NLP National Livestock Program EU European Union NSO National Statistical Office FM Financial Management OBI Open Budget Index FSAP Financial Sector Assessment Program OCR Ordinary Capital Resources, ADB FSL Fiscal Stability Law ODA Official Development Assistance FY Fiscal Year PFM Public Financial Management GAFSP Global Agriculture and Food Security Program PPP Public Private Partnership GDP Gross Domestic Product PRI Political Risk Insurance GEF Global Environmental Facility RAMP Reserve Asset Management Program GIZ German Society for International Cooperation READ Rural Education and Development Project GNI Gross National Income RETF Recipient Executed Trust Fund GPF Governance Partnership Facility ROSC Reports on Observance of Standards and Codes GPE Global Partnership for Education SDR Special Drawing Rights HDF Human Development Fund SIP Small Investment Program IAAC Independent Authority Against Corruption SLP Sustainable Livelihoods Project IBL Integrated Budget Law SME Small- and Medium Enterprise IBRD International Bank for Reconstruction and TA Technical Assistance Development UB Ulaanbaataar ICT Information and Communication Technology UNDP United Nations Development Programme ICR Implementation Completion Report UNFPA United Nations Population Fund IDA International Development Association UNICEF United Nations Children’s Fund IDF Institutional Development Fund WBI World Bank Institute IEG Independent Evaluation Group WHO World Health Organization IFC International Finance Corporation IDA IFC MIGA Vice President Pamela Cox Karin Finkelston Izumi Kobayashi Director Klaus Rohland Sergio Pimenta Kevin Lu Task Team Leader Coralie Gevers/Lasse Melgaard Hyun-Chan Cho/Tomoko Suzuki Paul Barbour FY2013-2017 COUNTRY PARTNERSHIP STRATEGY FOR MONGOLIA TABLE OF CONTENTS Executive Summary ................................................................................................................................ i I. Mongolia – A Country on the Verge of an Unprecedented Mineral-Led Transformation ................. 1 A. Managing Revenues and Investing Them For Today’s and Future Generations .......................... 1 B. A Unique Opportunity To Build on Past Development Progress and Address Remaining Challenges .......................................................................................................................................... 3 C. Economic Context ......................................................................................................................... 7 D. Political, Institutional and Governance Context ............................................................................ 9 II. Lessons Learned From Past World Bank Group Engagement in Mongolia ................................... 12 III. The Government’s Development Priorities and How The World Bank Group Will Support Them .............................................................................................................................................................. 15 A. Mongolia’s Medium-Term Priorities .......................................................................................... 15 B. Resources that the World Bank Group Can Provide To Support Mongolia’s Development Priorities ........................................................................................................................................... 17 C. Strategic Areas That The World Bank Group Will Support And Expected Results ................... 20 IV. Implementation Modalities and Risks ........................................................................................... 26 A. Implementation and monitoring of the Country Partnership Strategy ........................................ 26 B. Managing Risks ........................................................................................................................... 27 V. Attachments .................................................................................................................................... 30 Mongolia: CPS FY2013-2017: Results Matrix ................................................................................ 30 Worldwide Governance Indicators for Mongolia (2010, 2005, 2000) ............................................. 37 Mongolia CAS and ISN Completion Report ................................................................................... 38 World Bank Group Financial Products for IBRD Clients................................................................ 73 Development Partners Matrix (Financial and Analytical Assistance) ............................................. 74 Standard CAS Annexes .................................................................................................................... 76 Map of Mongolia: IBRD No. 33449R1 iii Boxes: Box 1: Progress in Achieving the Millennium Development Goals (MDGs)…………………….4 Box 2: The Tale of A Mining-dependent Economy……………………………………………....8 Box 3: Client Survey……………………………………………………………………………..17 Box 4: Using WB Programs to Engage Other Development Partners and Generate Greater Impact..…………………………………………………………………………………………..20 Tables: Table 1: Mongolia: Medium Term Forecasts……………………………….……………………9 Table 2: Indicative CPS Program………………………………………………………………..21 iv EXECUTIVE SUMMARY Over the past 20 years, Mongolia has transformed itself from a socialist country to a vibrant multi- party democracy with a booming economy. Mongolia is at the threshold of a major transformation driven by the exploitation of its vast mineral resources and the share of mining in GDP today stands at 20 percent, twice the ratio of a decade ago. The economy grew by 17.3 percent in 2011, compared to 6.4 percent GDP growth in 2010. GDP is expected to grow at a double digit rate over the course of the Country Partnership Strategy (CPS) period. This economic growth has translated into some benefits for the people of Mongolia. Poverty has been on a downward trend over the past decade. Most recently, it decreased from 39.2 percent in 2010 to 29.8 percent in 2011. Substantial progress has also been made in regard to several Millennium Development Goals (MDGs) at the national level, though significant regional disparities prevail. To ensure sustainable and inclusive growth, Mongolia will need to strengthen institutional capacity to manage public revenues efficiently and limit the effects of Dutch Disease; allocate its resources effectively among spending, investing, and saving; reduce poverty; and offer equal opportunities to all its citizens in urban and rural areas. It needs to do this in a manner which protects the environment and intergenerational equity. In 2008, Parliament approved the MDG-Based Comprehensive National Development Strategy of Mongolia. The document sets a 14-year development path: the first phase (2007-2015) will focus on achieving the MDGs and actively developing the country’s economy; the second phase (2016-2021) will be dedicated to transitioning to a knowledge-based economy. The World Bank Group’s CPS is aligned with Mongolia’s Comprehensive National Development Strategy. It identifies three areas which the World Bank Group will support over the next five years (FY13-FY17):  Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently. There are two outcomes: (i) supported the country in developing a regulatory environment, institutional capacity, and infrastructure for world-class mining, and (ii) supported the Government in designing and implementing policies and systems for a more robust, equitable, and transparent management of public revenues and expenditures.  Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas. There are two outcomes: (i) enhanced the investment climate and financial intermediation, and (ii) created more opportunities in the rural economy for enhanced livelihoods.  Address Vulnerabilities through Improved Access to Services and Better Service Delivery, Safety Net Provision, and Improved Disaster Risk Management. There are three outcomes: (i) worked with the Government on the design, adaptation, and implementation of a comprehensive social protection system that supports the poor, (ii) supported better delivery of basic services (education, health, justice, and infrastructure), and (iii) reduced vulnerability of households exposed to natural hazards and pollution. i The CPS incorporates the lessons identified by the CAS/ISN Completion Report: (i) build in flexibility to take account of transitions and emerging priorities, (ii) ensure alignment, focus on fewer outcomes and ensure a clear results framework, (iii) design programs/projects to minimize implementation challenges, (iv) take a programmatic approach to AAA, and (v) consider the longer- term role of the Bank in Mongolia and ensure flexibility of the Bank’s engagement as the country graduates from IDA to IBRD. The CPS period (FY13-17) spans across two IDA replenishment periods: IDA16 (FY12-14) and IDA17 (FY15-17). The indicative IDA16 allocation for FY12-FY14 is SDR64.8 million. SDR22.7 million has already been firmly allocated for FY12 and IDA16 allocation for FY13-FY14 (SDR42.1 million) is indicative only. During this CPS period, Mongolia will start accessing IBRD resources. A pipeline of projects that could potentially be financed with IBRD funds is being developed, and initial ideas have been included in the lending program. In delivering its program, the World Bank Group will continue to establish platforms for engagement with Development Partners in areas of strategic relevance to its program. They contribute to enhancing donor coordination and aid harmonization and reducing transaction cost. The Bank will continue playing an active role in formal donor coordination forums by co-chairing meetings of the Government and Development Partners. As Presidential and Parliamentary elections will take place early on during the CPS period, the World Bank Group will maintain flexibility in its program to adjust to new Government priorities. It will also focus on helping the Government prepare for potential risks such as a slowdown in the global economy, deterioration in governance, and shocks from natural disasters. ii I. MONGOLIA – A COUNTRY ON THE VERGE OF AN UNPRECEDENTED MINERAL-LED TRANSFORMATION A. MANAGING REVENUES AND INVESTING THEM FOR TODAY’S AND FUTURE GENERATIONS 1. Mongolia has gone through 20 years of democratic transition and market-based economic reforms. Since the end of socialist rule in early 1990, the people of Mongolia have made great strides towards transforming the country into a stable multi-party democracy in which civil society is playing an increasing role and openly calls for greater transparency and accountability. The classic range of post-socialism economic reforms have also been adopted and implemented. 2. It is now experiencing a rapid economic transformation that is generated by mineral discoveries. The economy has traditionally been based on livestock herding. Starting in the past decade, a boom in mining exploration confirmed the existence of large mineral deposits – notably copper, uranium, coal, iron ore, and gold. Investments are turning these into world class mineral projects: Oyu Tolgoi will become one of the five largest copper and gold mines in the world; the Tavan Tolgoi mine, which the Government is currently negotiating with investors, will supply high- quality coking coal for more than 100 years. The share of mining in GDP today stands at 20 percent, twice the rate of a decade ago. In recent years, the mining sector has contributed around a third of total government receipts, through royalty payments and direct and indirect taxes. In 2011, the export share of minerals reached its highest level yet, 90 percent. 3. In 2013, copper and gold output from Oyu Tolgoi will commence, instantly trebling national output of these minerals and resulting in more than a quadrupling of GDP within a few years. By 2016, the mining sector is expected to contribute more than half of the GDP. The export share of minerals may hover around 95 percent. When other mines will be developed, notably Tavan Tolgoi, the mining sector share of GDP and of exports will rise even further. The depth of dependence will soon place Mongolia alongside the most highly dependent mineral-rich economies, with Mongolia’s economy more alike with one of an oil-rich state. 4. The mining boom carries with it all the well-known risks associated with mineral- dependency. These range from the “Dutch Disease� – with its exposure to commodity price volatility, an appreciating currency and inflation, and unemployment in the non-mining sector – to the “natural resource curse�, with rising corruption, deepening inequality, and social disruptions or even conflicts. 5. Mongolia is on a cusp of a transformation and has the unique opportunity to overcome many of the development challenges it has faced in the past and to take a path towards sustainable and inclusive growth. How can it manage public revenues efficiently? How can it allocate its resources effectively among spending, investing (in infrastructure and human development), and saving? How can it reduce poverty and offer equal opportunities to all its citizens – be it in urban or rural areas? How does it balance the needs of today’s generation with the aspirations of future generations? How does it do so in a way that will respect the environment? Such decisions – and more critically, their implementation – will require a higher level of institutional capacity more in line with other middle-income countries. 6. More specifically, mining rents will need to be efficiently and transparently captured by the state as revenues. This will depend on the capacity of several public sector institutions, ranging from the mining cadastre to tax administration. So far, Mongolia’s performance in these areas has been 1 satisfactory and it is working on further needed improvements. For one, fighting corruption will require greater attention, if only for the sheer magnitude of the rents and resource flows involved. 7. The mining revenues will need to be proactively and sustainably managed to avoid an appreciating currency, inflation and credit risks. This implies adopting counter-cyclical fiscal policies, and avoiding over-borrowing and over-spending. Mongolia has adopted a set of fiscal rules which would achieve these goals under the Fiscal Stability Law (FSL) of 2010 and the Integrated Budget Law (IBL) of 2011. Adhering to the spirit and letter of these laws will be critical for Mongolia to limit the effects of Dutch Disease on the economy. A corollary is to apply the same principles to the private sector, in particular the sectors likely to fall prey to the pro-cyclical trends of a mining-dependent economy (e.g., banking sector, construction). Mongolia scores relatively poorly in this area, based on past and current practice. 8. The mining sector, its associated infrastructure, and the upstream and downstream economic sectors will need to be supported in order for the current high growth to continue without running into capacity constraints. Given the size of the necessary investments in infrastructure and services, its effective delivery will depend in great part on the soundness of the public expenditure management systems – planning, budgeting, procurement, private financing – and the speed at which the Government can strengthen these systems. 9. In the presence of a mining sector which will tend to command priority access to the economy’s scarce resources (i.e., capital and skilled labor), the non-mining sectors will face the formidable challenge of being the source of livelihood for a substantial part of the population. Successful diversification, often elusive for mineral-dependent economies, will be one of the keys to meeting the objectives of full employment and poverty reduction. Success will depend on providing the type of infrastructure and policies that will reduce the cost of doing business across a range of sectors and maximize the chances of successful innovation. 10. It will also depend on improving education services so that a trained labor force can be employed in the mining and non-mining sectors. While the expansion of the mining sector will create many opportunities, it is highly unlikely that there will be a seamless shift of workers from the low-skilled agricultural sector, which accounts for nearly 40 percent of total employment, into the expanding ones (mining and private non-tradable sectors such as transportation, construction, financial and retail). Indeed, there are already growing concerns that the ongoing mining boom is fuelling inequality by placing a premium on skilled labor. Investments in quality social services can be both growth- and equity-enhancing, but policy and institutional frameworks and delivery systems which use incremental resources efficiently will be essential. 11. As the economic benefits of growth will not be shared equally, the country will need to develop its own approach towards inclusive growth for today’s and future generations. Concerns about inequality are increasing rapidly, with growing demands for a wider and quicker redistribution of mineral wealth. The impact on public policy is shown in the rising share of universal cash handouts in government expenditures in recent years. While this approach may be satisfactory in the short term, it is fiscally unsustainable and ineffective. It also raises an issue of inter-generational equity: natural resources are depleted to support immediate consumption instead of being invested for the benefit of future generations. It will be important to ensure that some of the mining revenues are invested in human capital, sustainable social protection and population health in a way that enhances equality of opportunity and avoids increased social segmentation. Recent reforms of the social assistance system to replace the untargeted and inefficient cash transfers with a poverty targeted benefit represent a positive step into this direction. 2 12. The present social services system is characterized by structural weaknesses that undermine equity in financing and delivery. Channeling huge incremental mineral revenues into these systems risks exacerbating inequalities, and policy and structural changes are needed to ensure that they are equitable, efficient, and of good quality. Reforming the pension system to create a more equitable system across cohorts that takes into account the needs from the older population will be an important part of the policy agenda. The socio-economic prospects of the transformation which is currently taking place depend on how well the process is managed. 13. In recent years, Mongolia has studied the experience of a range of mining-rich countries to learn from their achievements and mistakes – including Chile, Canada, Botswana, Norway, and Australia. As a result, policymakers are highly aware that turning the mining wealth into sustained prosperity for all Mongolians will require a more developed policy and institutional framework that can address multiple challenges. B. A UNIQUE OPPORTUNITY TO BUILD ON PAST DEVELOPMENT PROGRESS AND ADDRESS REMAINING CHALLENGES 14. Mongolia is a country with a rich nomadic culture that faces a range of natural constraints. It is the least densely populated country in the world with 2.75 million people inhabiting a territory three times the size of France. About 1.2 million people live in the capital Ulaanbaatar and the rest are spread across small urban centers and vast steppes where they herd cattle, sheep, goats, horses, yaks and camels. It is the second largest landlocked country in the world, with two giant neighbors that are strong economic locomotives. Living conditions – particularly in rural areas and in poor urban areas – are harsh, and infrastructure services are limited at best. Wintertime temperatures often dip below -30 degrees Celsius, growing and construction seasons are short, and natural productivity is low with arable land constituting only 1 percent of the total area. 15. The recent economic transformation has brought significant benefits to the population. The GNI per capita went from US$480 in 2004 to US$1,890 in 2010. Progress has also been made in regard to several Millennium Development Goals (MDGs) at the national level, though it masks significant regional disparities (see Box 1 and At-A-Glance table in CAS Annex A2). The National Statistical Office (NSO), which estimates poverty through nationwide household surveys, found that poverty remained stagnant around 35 percent between 2002 and 2008, went up to 39.2 percent in 2010, and dropped to 29.8 percent in 2011. Poverty remains higher among the population in rural areas (33.3 percent in 2011) than in urban centers (26.6 percent in 2011). It is worth noting that the national poverty line between 2002, 2008, and 2010 was raised in real terms, but was kept constant between 2010 and 20111. If the poverty line had been kept constant in real terms throughout the period, one would have observed a significant reduction in poverty between 2002/2003 and 2008/2009. Improvements in standard of living can also be seen in other measures of wellbeing. For example, the number of heads of livestock per households increased significantly during the same period, in particular among the poorest households. 16. Strong economic growth may translate into a further reduction in poverty. Yet, inequality in opportunities and outcomes may rise as the economy increasingly relies on the mining sector. Measured through the Gini coefficient, inequality in household per capita consumption increased from 32.9 in 2003 to 35.8 in 2008. Emerging evidence of such divergence can be seen in the rapid increase in salaries of skilled workers juxtaposed to a decline of real wages in the informal sector. 1 The change in the real poverty line up to 2010 allowed NSO to reflect changing preferences and consumption patterns in a rapidly growing economy but with the consequence that these data are not comparable over time. 3 Appropriate social policies that promote equality of opportunity in access to basic services, targeted and sustainable social welfare programs to improve secondary income distribution, and other labor and social protection policies would mitigate further increase in inequality. Box 1: Progress in achieving the Millennium Development Goals (MDGs) Mongolia has made significant progress towards achieving a number of MDGs, but is off track on meeting certain key goals. It has achieved targets for child mortality (MDG 4), and has high primary education enrolment (MDG 2). It has made strong progress on maternal health (MDG 5), though it will have to further accelerate efforts to achieve the goal by 2015 and will need to reverse the downward trend in women’s political empowerment. Mongolia has made mixed progress towards MDG 7 on Ensuring Environmental Sustainability. Access to safe drinking water has increased but the proportion of the population using improved sanitation facilities has not changed from 1995 levels. And while progress has been made in integrating sustainable development policies and programs – including an increase in protected water sources – these successes have also been accompanied by worsening environmental degradation in some areas, including increased urban air pollution and desertification. 17. School enrolment rates are high for girls and boys at all levels, but significant disparities in educational outcome by location and overall system quality remain a concern. The result of the 2008 national assessment showed that sampled Grade 5 students on average scored below 41 percent correct in reading and 32 percent correct in mathematics. The challenge of improving the quality of basic education is compounded by the fact that many children who begin Grade 1 are not ready for school. Currently, 24 percent of those aged 2-5 do not have access to early childhood education due to lack of kindergarten facilities – the vast majority of them from disadvantaged communities. Overall, developing a skills base to support the development of a middle-income country will require sustained reform across all levels of the education and training system, including in partnership with the private sector where appropriate. 18. Despite good achievements in health relative to Mongolia’s income level, the health system can be improved. Mongolia has reached several of the health-related MDGs. However, health care utilization and outcomes are increasingly characterized by large inequalities, both geographic and socioeconomic. There are wide disparities across the country in maternal mortality and child health. Adult mortality rates are on the rise, driven by a rising incidence of non-communicable diseases. The availability and quality of social services in rural areas is hard to maintain and will take on new dimensions with the proposed decentralization of primary health care. Underlying are systemic problems with health services financing and delivery. Social health insurance lacks a long-term strategy for achieving universal coverage. A strategic priority in the health sector is to reorient the system towards a greater reliance on primary care. This will require capacity and systems to monitor quality, and promote greater coordination of care across levels of the health system. 19. Much has been achieved in improving gender equality in education and health. Education gaps have been reversed at all levels of education and girls now account for more than half of the students in tertiary education. Fertility rates stand today at 2. Maternal mortality was reduced from 130 per 100,000 live births in 1990 to 65 in 2009. However, violence against women remains alarmingly high with almost 20 percent of women surveyed by the National Statistical Office in 2009 4 reporting to have been subjected to physical violence by a husband or partner 2. The gender gap in life expectancy is also widening due to a worrying increase in adult male mortality. 20. There are persistent inequalities in economic opportunities for women. Although labor force participation remains adequate at 56 percent in 2010, average remuneration is lower for women. According to a recent analysis by the World Bank, women tend to retire early and are completely absent in some economic sectors: they continue to be over-represented in unpaid or low- paid jobs and under-represented in lucrative sectors such as transport. Under current policies, women are allowed to retire five years earlier than men, although women live on average seven years longer. 21. There has been a marked decline in women’s opportunities to express their political voice, but Parliament has recently been taking action in support of women’s participation. The proportion of women elected to the State Great Khural gradually fell from 23 percent in 1990 to 4 percent today. However, 2011 also saw the passage of two important legislations. A Gender Equality Law was developed with broad consultations and was adopted by Parliament in 2011. The Parliament also recently prescribed a 20 percent quota for women’s participation on party lists starting with the 2012 parliamentary elections. 22. The rapid mining-driven economic growth also has a significant environmental footprint that is unsustainable. Much of the country’s growth is derived and will continue to be generated from its natural capital (around 58 percent of country’s wealth consist of minerals, forest resources, cropland and pastureland). Some 80 percent of the land area is grassland, representing the largest remaining contiguous area of common grazing in the world, with large herds of migratory gazelles and the world’s largest population of wild ass. In the past two decades, a combination of human actions and natural causes has led to a significant decline in grassland quality: 70 percent of Mongolia’s grasslands are affected by desertification, and the forest area has decreased by 25 percent. Human actions include changes in conventional livestock husbandry leading to overgrazing, and poor management of mining activities. 23. Major issues are emerging in water resources management, with growing competition for water use for mining, livestock, conservation flows and human consumption. Water resources are rapidly declining and the quality is believed to be deteriorating quickly. The on-going and planned mining developments in southern Mongolia will require significant quantities of groundwater. The impact of abstracting up to 350,000 cubic meters of groundwater per day on local communities and herders are as yet unknown. Their livelihood depends on groundwater from wells and springs. 24. Mongolia is highly vulnerable to climate risks because of its geographic location, extreme weather and fragile ecosystems. Climate risks in the country pose serious burdens on its development with an array of interrelated consequences for every sector of the society. They can affect peoples’ living standards both short and longer term. According to Mongolia’s National Action Program on Climate Change, the future climate scenarios project: (i) increased air temperature (2.1- 3 Celsius and 3.1-5 Celsius by mid and end century respectively), the rate of increase is 2-3 times higher than the global average; (ii) increased precipitation in some areas; and (iii) reduction of water resources and arable land as potential evapo-transpiration increases would be 6-10 times higher than precipitation increases. Melting of permafrost, which covers more than 60 percent of the territory of Mongolia, will have adverse impacts on agriculture, water resources and infrastructure development. Agriculture and livestock, which are already heavily exposed to climate risks (such as dzuds - 2 “Gender Based Violence in Mongolia – overview of studies and preventive actions�, 2010/11, UNICEF, UNDP and UNFPA jointly with the National Committee on Gender (NCGE) and Center for Excellence in Social Work. 5 extremely harsh winters in which livestock is unable to find fodder under the snow cover), will continue to remain vulnerable, and large shocks will affect Mongolia’s society and overall economy. 25. Agriculture employs about 40 percent of the workforce, but contributes less than 15 percent of GDP. Livestock constitutes 63 percent of the assets of rural households. Still, almost half of the herders live on incomes below the national poverty line. The majority of herders have fewer than 100 heads of livestock, which is considered too few to provide sufficient income to support a household. The effects of dzuds –– and consequent high levels of livestock mortality -- have had a major impact on rural poverty. A series of dzuds between 1999 and 2002 were unprecedented but have been surpassed by events in 2009/10, as a result of which close to 10 million of the country’s estimated 44 million livestock perished. While there is no scientific evidence that climate change is leading to more frequent or severe dzuds, there are fears that such events will become more frequent and/or severe while the country is also getting warmer and drier. The devastating loss of livestock as a result of these climate events has prompted a large number of herders to move to urban areas in search of employment. 26. In addition to having to contend with climatic risks, the development of the livestock sector is limited by its lack of integration into global supply chains, and lack of higher value-added production. Herders are increasingly exposed to shocks in international commodity, specifically cashmere, prices. Cashmere, considered a luxury good, is particularly volatile and sensitive to economic turndowns in consumer markets. In addition, livestock sector management is not meeting international standards of production that would enable it to export on a large scale to international markets. Furthermore, Mongolia’s livestock sector is vulnerable to infectious diseases which could be better controlled. Diseases such as foot and mouth and brucellosis are prevalent despite substantial but not prioritized public spending on disease prevention. Over the longer term, the risk remains that “Dutch Disease� may erode the competitiveness of the agricultural sector as it would be unable to raise its prices in response to rising domestic input prices. 27. Mongolia’s rapid urbanization adds pressure to urban services, particularly in Ulaanbaatar and small cities close to mining sites. An increasing share of the population has moved to urban centers in search of better economic opportunities and social services. Ulaanbaatar has seen its population doubled to 1.2 million3 in just two decades and it is expected to reach 1.9 million by 20304. Most of Ulaanbaatar’s in-migrants settle in unplanned peri-urban “ger areas�. These informal settlements currently comprise 60 percent of the city’s residents and 90 percent of its administrative area. Until recently they were viewed as temporary and did not benefit from the city’s development planning or investments. Most urban infrastructure was constructed in the 1970s, and utility services, such as water supply, heating, and electricity, have reached capacity limits. As a result, residents in ger areas suffer from limited or no access to public services. Over 95 percent of roads are unpaved. They become impassible due to rain or ice and in the summer, rising dust also contributes to air pollution. Ger area residents suffer from higher rates of unemployment and rely more heavily on the informal sector for their livelihoods. 28. The urban environment, in particular air quality, is fast deteriorating causing significant health problems. To heat their homes in winter and cook, nearly 85 percent of urban residents rely on wood- or coal-burning stoves that are highly polluting. On a cold winter day, the concentration of particulate matters in Ulaanbaatar’s ger areas can be up to 35 times higher than the WHO standards, leading to a high incidence of respiratory diseases, especially for children, and cardiovascular 3 According to 2010 Population and Housing Census, the population of UB city is 1.16 million. 4 JICA, the Study on City Master Plan and Urban Development Program for Ulaanbaatar City. (2007). 6 diseases. A recent World Bank study5, undertaken with the cooperation of the Ministry of Health, estimated that 1,600 people die prematurely every year due to high air pollution. In winter, Ulaanbaatar is not only the coldest capital in the world; it is also the most polluted. 29. An increasing number of people are exposed to natural disasters in urban areas. Poorly maintained storm water management facilities, low quality housing in hilly areas, degradation of land water retention capacity, and desertification in watershed areas have meant that Ulaanbaatar is becoming increasingly prone to flash floods. In addition, Ulaanbaatar is also situated in one of the most seismically active parts of the world, experiencing 30 to 50 quakes above 5.0 on the Richter magnitude scale on an annual basis. The Government has prioritized the protection of the population against natural disasters, and it recently approved policies and strategies to improve the legal environment for disaster management. Nevertheless, flash floods in 2009 and the 2010 dzud showed how much further work is still required to reduce people’s vulnerability to disasters. 30. Finally, connecting people, services, and businesses across the vast land is a challenge. While there are nearly 50,000 km of roads throughout the country, 90 percent are earthen or gravel. Of the paved network that is more than 10 years old, less than 30 percent are considered to be in good condition. The main transport artery for goods is the Trans-Mongolian Railway that links to China and Russia. The biggest task is for Mongolia to build a transport and energy infrastructure to support the extraction, processing, and exportation of minerals. A World Bank study estimated the investment needs at US$5 billion in Southern Mongolia only. On the positive side, Mongolia has been able to facilitate the development of a telecommunications network across the country. Today, all soums are covered by cellular phone services and they are increasingly accessing the internet. In 2008, 67 percent of the population owned cell phones and today’s numbers will be significantly higher. Mobile telephony is opening a range of possibilities for delivering better and faster services – such as banking, weather information, or other government services – to the most remote parts of the country. C. ECONOMIC CONTEXT 31. The economy grew by 17.3 percent in 2011, compared to 6.4 percent GDP growth in 2010, and well above the average 9 percent seen during the previous mining boom in 2004-08. The fastest growing sector was wholesale and retail trade, which expanded by 43 percent during 2011 and contributed 4 percentage points to overall growth in 2011. Meanwhile, mining and manufacturing expanded by 8.7 percent and 16 percent during 2011. Agricultural output, which had contracted sharply during 2010 due to a dzud, was flat in 2011. 32. Inflation pressures continue to build, reflecting expansionary fiscal policy. Consumer price increases also remained in double digits during 2011, reflecting the effects of an expansionary fiscal policy stance in an already booming economy. 33. Government spending in 2011 was 56 percent higher than the previous year, and the 2012 budget seeks to ramp up spending further by 32 percent. The increased spending reflects pre- election year pressures and efforts to make good on earlier political promises for large cash handouts and increases in infrastructure spending. Revenues in 2011 were 43 percent higher than in 2010 thanks to growing receipts from royalties and dividends. As a result, the 2011 overall deficit amounted to only 3.6 percent, albeit a deterioration from the balanced budget achieved in 2010. Since 2011, the budget has been based on estimates of structural (i.e., long-term) mineral revenues as 5 World Bank, Air Quality Analysis of Ulaanbaatar: Improving Air Quality to Reduce Health Impacts, 2011. 7 required by the Fiscal Stability Law, with the difference between actual revenues and structural revenues (around 2 percent of GDP) saved in a Fiscal Stability Fund. By this measure, the 2011 structural deficit (structural revenues less actual expenditures) stood at 5.8 percent. The structural deficit budget is forecast at 3 percent of GDP for 2012. 34. To control inflation, monetary and fiscal policies need to work in tandem. The Bank of Mongolia raised the benchmark rate three times and the banking sector reserve requirement ratio to 11 percent. In order to contain inflation, it is important to pace government spending to avoid a wage-price spiral if higher inflation expectations become entrenched. 35. Recent history is a reminder that Mongolia’s economy can go through boom-and-bust cycles. For instance, between 2004 and 2008 the economy grew at 9.1 percent on average annually, but growth plummeted to minus 1.3 percent in 2009 when global commodity prices collapsed. It had dire consequences for the Mongolian economy, including its banking sector. (See Box 2) Box 2: The tale of a mining-dependent economy – the 2008 bust and the adoption of the Fiscal Stability Law The macroeconomic situation deteriorated sharply during the latter half of 2008 due to plummeting global copper prices and the global economic downturn. The fiscal shock was large, causing the overall government balance to shift from a surplus of 2.9 percent of GDP in 2007 to a 5.4 percent deficit in 2009. Similarly, the external balance swung from a surplus into a deficit as export proceeds fell by one quarter in 2009. Inflation, which had peaked at 34 percent (year-on-year) in August 2008 due to large increases in domestic spending, loose monetary policy, and a de facto fixed exchange rate, turned negative for a brief period in the latter half of 2009 as the economy contracted sharply. Economic growth, which had been averaging 9.1 percent per year, came to a grinding halt and real GDP declined by 1.3 percent in 2009. The bust was compounded by the international economic crisis and a harsh winter “dzud� in 2009-2010. The banking sector was particularly hard hit by the economic slowdown as the significant vulnerabilities accumulated during the prior period of economic boom were exposed. The unhedged foreign currency, and heavy credit concentrations in construction and mining sectors, resulted in dramatic deterioration of loan quality and erosion in banks' capital positions. In parallel, the abrupt drying up of external funding combined with chronic maturity mismatches led to pressures on liquidity. With the system's non-performing loans reaching 20 percent, the credit mechanism came to a virtual standstill and public confidence in the banks eroded rapidly. Two medium sized banks had to be put into bankruptcy in late 2008–2009 following a run by depositors. Only the introduction of a blanket deposit guarantee by the authorities, as well as the rapid economic turnaround, helped prevent the continued deposit outflow and more bank failures. The Government reacted by adopting a strong legal foundation for a sound macroeconomic and fiscal framework. Three complementary fiscal rules form the basis of the Fiscal Stability Law (FSL) which passed with overwhelming majority in Parliament in June 2010. Under this law, the budget framework adopts a structural balance and saves the mineral revenues, which are the result of mineral prices higher than the long-term price projections, in a stabilization fund, following the example of Chile. The fiscal rules put strict limits on the structural fiscal deficit, public expenditure increases, and public debt. However, the essence of the FSL kicks in only in 2013, when a structural fiscal deficit of no more than 2 percent of GDP needs to be adhered to. If implemented fully, the FSL will go a long way to minimize strong currency appreciation and excessive public spending and borrowing. The combination of strong policy action, supported by balance of payments and budget support from key development partners, together with a rebound in the copper price and the successful negotiation of the Oyu Tolgoi mining project, successfully stabilized the economic situation. The country successfully concluded an 18-month Stand-By Program with the IMF in October 2010. 8 36. Mongolia’s economy is expected to grow at a double-digit rate over the CPS period. As significant investments are required to extract Mongolia’s mineral resources and transport them to markets, large multiplier effects on related sectors, particularly infrastructure, transport and utilities are expected. (see Table 1) For example, an estimated US$5 billion is needed in the Southern Mongolia region by 2015 for investment in railways, electricity, towns, and water, a substantial financial injection into the economy. 6 Table 1 - Mongolia: Medium Term Forecasts 2009 2010 2011 2012f 2013f 2014f 2015f 2016f Real GDP (% yoy change) -1.3 6.4 17.3 15.2 20.5 15.7 9.0 15.5 CPI (% yoy change, eop) 1.9 14.3 11.1 12.0 7.0 5.0 5.0 5.0 Copper Prices (2005=100)* 140.5 205.0 250.3 241.5 241.5 241.5 241.5 241.5 Government expenditures (as % of GDP) 35.2 36.6 44.2 39.1* 31.5 28.0 32.4 35.1 Government revenues (as % of GDP) 30.2 36.6 40.6 38.1* 32.1 31.2 33.5 34.9 Government balance (% of GDP) -5.0 0 -3.6 -1.0* 0.5 3.2 1.1 -0.2 Structural govt balance -6.8 -2.8 -6.3 -6.5 -2.0 1.8 -0.1 -0.5 Current account balance (% of GDP) -9.0 -14.3 -35.0 -13.6 1.9 6.0 12.0 12.2 Foreign exchange reserves, net (US$m) 1,145 2,091 2,274 4,127 4,452 4,601 5,399 6,136 (In months of next years’ imports of goods 3.7 4.3 5.1 5.6 8.8 8.8 8.8 8.8 and services) Sources: NSO, IMF, World Bank. * 2012 estimates are from the 2012 budget. 37. Looking ahead, Mongolia is better equipped today to face a potential international financial crisis. It has adopted a fiscal framework scheduled for full implementation starting in 2013. Although it has not implemented a complete banking sector reform, the Bank of Mongolia is better positioned to exert its supervisory role over banks. Finally, the Social Welfare Reform Law ensures that basic social protection will be provided to the poorest. D. POLITICAL, INSTITUTIONAL AND GOVERNANCE CONTEXT 38. Since the end of socialist rule in early 1990, Mongolia has built a multi-party democracy. Two leading political parties, the Mongolian People’s Party (MPP, previously known as the Mongolian People’s Revolutionary Party) and the Democratic Party (DP) have ruled in alternation – at times at a rapid pace. Transition from one Government to the other was for the most part peaceful but the Parliamentary elections in June 2008 were marred by claims of voting fraud. The next parliamentary elections are scheduled for June 2012 and the presidential election will take place in 2013. 39. The political landscape is characterized by open and free public debate. Parliament actively and openly debates new laws. The opposition is vocal and able to get its views heard. The President of Mongolia has increased the involvement of civil society organizations and citizens’ groups by 6 World Bank (2009) 9 organizing regular Citizens’ Halls to debate matters of importance for the country. Civil society would gain further influence if it had the capacity to organize itself into a powerful force for change and accountability. There is an abundance of media outlets (i.e., written press, TV channels) representing different affiliations and opinions, often highly influenced by the interests of the media owners. Journalists can attend and report on Parliament’s meetings and parliamentary decisions are all posted on the internet within a short period of time. Most recently, the country passed a milestone by enacting a Law on the Right to Information. 40. As Mongolia becomes a middle-income country, it faces a range of complex institutional challenges. (i) a scaling up of existing institutions particularly in public expenditure management to manage the mineral wealth and invest in the considerable infrastructure to develop and benefit from the new mines; (ii) the development of a new set of institutions that would enable it to access international markets and develop a range of financing products; and (iii) structural reforms of service delivery systems to ensure an efficient institutional base for effective deployment of incremental public resources. 41. Public sector institutions have already gone through a first phase of transformation during the market-based reforms but they will need to evolve further. While budget execution and treasury management have improved significantly at the central level and are undertaken by competent staff, Mongolia still has to tackle a series of limitations: unpredictable budgets, little long term planning, poor public investment management, insufficient capacity in line ministries to forecast needs, relatively low civil servant salaries at the senior level, and the difficulty to attract people to public sector positions in the countryside. 42. The country recently decided to decentralize core services. This is bringing decision-making closer to the people, but also raises a range of implementation issues in the short and medium term. Decentralization offers a host of opportunities for greater civic participation in priority setting and oversight of services and can significantly improve governance and transparency. Yet, decentralization of social services also requires common national standards and systems, and effective equalization of basic services across the country. Getting the decentralization process right is instrumental to staving off discontent on the part of rural and poorer urban populations and ensuring that equality of opportunity to basic services is assured. Global experience suggests that the risks in achieving an effective decentralization are substantial and offer many lessons for Mongolia to avoid pitfalls in its own reforms. 43. Mongolia fares better than many comparator countries in setting up the regulatory and institutional framework for greater transparency. In 2006, it adopted a new Anti-Corruption Law and established an Independent Authority Against Corruption (IAAC) that is still in nascent stage. Mongolia adhered to the Extractive Industries Transparency Initiative (EITI) in 2005 and became EITI compliant in the span of five years. All civil servants and elected officials have to file Income & Assets Disclosure forms annually. Thanks to work undertaken in the past few years to improve public financial management – in particular on the quality and quantity of public budget information – Mongolia stands out for its remarkable progress on the Open Budget Index (OBI): between 2006 and 2010, the OBI increased from 18 to 60, placing Mongolia second behind South Korea in East Asia. Per the revised Public Procurement Law, civil society groups are mandated to participate in public procurement, specifically in bid evaluation and ex-post monitoring of government contracts. 44. Many difficulties remain concerning corruption, conflicts of interest and political fragmentation. Patronage links within a small population are embedded in political parties, regional networks, and business conglomerates. For example, many financial institutions have significant 10 shares in non-financial companies and vice-versa which has led to distortions in the allocation of credit. Such problems have led to the recent adoption of a law on Conflicts of Interest that will require (i) agencies to adopt and enforce a code of ethics and (ii) public servants to register private interests with the IAAC starting from July 2012. In addition, channels for citizen accountability in service delivery have been piloted but still remain to be institutionalized as part of the broader governance framework. 45. The mining boom is increasing opportunities for greater corruption and could drive policymaking towards more populism and patronage. As mandated by the Anti-Corruption Law, the IAAC developed a Corruption Index based on qualitative and quantitative indicators, including households, experts, and businesses perceptions of corruption, as well as agency self-assessments. The perceptions survey revealed that 13 percent of respondents claimed to have paid a bribe to a public official in the preceding 12 months. Transparency International’s Corruption Perceptions Index ranks Mongolia 120 out of the 183 countries measured. The Worldwide Governance Indicators reflect a deterioration of all indicators over the past decade, except in regulatory quality (see Attachment 3). According to Transparency International’s 2010 Global Corruption Barometer, 73 percent of the population surveyed in Mongolia reported that corruption had increased in the previous three years; only 7 percent thought that corruption had decreased. They perceived political parties, Parliament, the judiciary, and police as the most corrupt. Half of the respondents considered the Government’s actions in the fight against corruption to be ineffective. 46. Significant vulnerabilities and opportunities for corruption exist across Mongolia’s government agencies. To date, many government agencies lack proper resources, including specific routines for internal checks, internal and external auditing, and efficient processes that limit corruption. Poor performance in the public management system is also caused by the absence of effective performance measuring systems. 47. Despite greater efforts at transparency, the country is struggling to establish a culture of accountability. While an adequate policy framework is in place, there appears to be a gap between enacted rules and actual practices. In part with Bank support, Mongolia has successfully implemented “first generation� public financial management (PFM) reforms – including the establishment of a consistent legal framework and effective systems for budget execution, monitoring and reporting. Public revenues from mining will increase exponentially over the next few years. A stronger sense of transparency and accountability at the national, local and corporate levels will be vital to secure the transformation of non-renewable mineral resources into renewable assets. 48. Although outspoken, media and civil society have a limited capacity to serve as a check on Government. As of early 2010, there were 3,840 media practitioners in 383 media outlets throughout Mongolia with 1,709 journalists and contributors. This large number notwithstanding, most media is controlled by the business-political elite and rigorous investigative journalism is scarce and often under pressure. Similarly, the capacities of civil society organizations to report, track and follow up on corruption and mismanagement are limited. 49. Mongolia is facing typical circumstances of countries with small populations and these need to be better reflected when addressing governance and anti-corruption issues. Small countries are exposed to a higher vulnerability to corruption since the small size of the population translates into a close interface between the public and private sectors. People are related, are friends, have gone to school together. This closeness influences government operations and actions. On the other hand, in a small knit community it is also difficult to hide corruption and other mechanisms can come in to control unethical behavior. Further efforts to curb corruption need to build on these particular 11 challenges especially by promoting government transparency and accountability, allowing for controlled flexibility in hiring and other public-private engagements, and by creating a better understanding of the cost and societal impact of corruption. II. LESSONS LEARNED FROM PAST WORLD BANK GROUP ENGAGEMENT IN MONGOLIA 50. Today, IDA net commitments in Mongolia stand at US$220 million, compared to US$136.6 million in FY05, and are provided through 14 projects. The IDA net commitments include grants and credits. The majority of the projects support infrastructure development, economic governance and institutional strengthening of the mining sector. A Country Portfolio Performance Review (CPPR) in 2011concluded that the portfolio is well aligned with government priorities. 51. Mongolia has also benefited from considerable trust fund support that is closely aligned with the country’s priorities. Contributions from donors increased to US$74.5 million in FY11, up from US$23.55 million in FY05. A total of 42.5 percent of the donor resources in the active trust fund portfolio have been provided as co-financing of IDA operations. 52. IFC’s committed investment portfolio in Mongolia currently stands at US$131.2 million. This includes equity, loans, convertible loans, and trade finance lines. In FY11, IFC achieved a record-high level of investment committing US$83 million in seven projects. It also secured important donor funding to provide advisory services in Mongolia, allowing it to increase significantly its programs. Currently, its three advisory services programs focus on (i) Investment Climate (Business Inspections Reform); (ii) Corporate Governance; and (iii) Access to Finance (trade finance, leasing, credit information, mobile banking). IFC, in close coordination with the Bank, is also exploring advisory services to support the Government of Mongolia’s effort to form Public- Private Partnerships, mainly in the infrastructure sector. 53. Past engagement in Mongolia was guided by the Mongolia Country Assistance Strategy (CAS) FY05-FY08 and the Interim Strategy Note (ISN) 2009-2010. These were discussed by the World Bank Executive Directors in April 2004 and May 2009 respectively. Both strategies were fully aligned with government strategies, including the Economic Growth Support and Poverty Reduction strategy (EGSPRS) as well as the subsequent Government Action Plan (2008-2012) and the National Development Strategy (2008-2021). 54. The CAS FY05-FY08 was built around the five main pillars of the Government’s Economic Growth Support and Poverty Reduction Strategy. These were (1) ensuring macro- economic stability and public sector effectiveness; (2) supporting production and exports and improving the environment for private sector-led development; (3) enhancing regional and rural development and environmentally sustainable development; (4) fostering sustainable human development, and (5) promoting good governance, and implementing and monitoring the strategy. Within these pillars, the CAS was organized around three main objectives, namely (i) consolidating the transition; (ii) reducing vulnerabilities, and (iii) strengthening the alignment of policies and resources around results. A results framework was designed around these objectives in clusters of key results areas and 20 outcomes. The progress towards the achievements of these outcomes was to be monitored through multiple indicators and milestones. 55. The CAS implementation was rapidly affected by two external events. First, a period of political uncertainty followed the 2004 elections and the ensuing Governments did not have a program of reforms that could be supported through a series of budget-support operations as earlier planned. Second, the CAS had not foreseen the speed at which the mining boom would occur and the 12 range of new development challenges that it brought about. The team thus re-adjusted its approach to consolidating the transition and reducing vulnerabilities and initiated a series of mining-specific work. This work was later reflected in the ISN 2009-2010. 56. The ISN 2009-2010 was formulated with a view to supporting the Government’s efforts to restore economic stability in the aftermath of the economic crisis that affected the country during the latter half of 2008 and 2009. The ISN outlined Bank Group support in the following areas: (i) improving macro and fiscal sustainability in a mineral-based economy; (ii) protecting the poor and vulnerable; and (iii) encouraging transparent and prudent mining investment and a more competitive and stable medium-term business investment climate. A results framework included these goals and related outcomes and milestones. 57. Under the CAS and ISN, the Bank Group’s analytical and advisory activities (AAA) provided substantial support to operations, and informed the Government’s reform path and response to the economic crisis. The Bank is generally considered by the Government, development partners, and other national stakeholders to have strong comparative advantage in analytical and policy work, including bringing in global innovations and best practice. Examples of the analytical and policy work undertaken in recent years include the Mining Sector Review (2006), the Country Economic Memorandum (2007), Public Expenditure and Financial Management Review (2008), ROSC Accounting and Auditing Review (2008), Livestock Sector Study (2009), South Gobi Infrastructure and Environment (2009), Civil Service Reform (2009), Public Investment Management Review (2010), Banking Restructuring Program (2010), and Poverty Assessment Policy Notes (2010). The Bank also produces regular Economic Updates that are well received by stakeholders. IFC significantly increased its advisory services in Mongolia to help develop the business and investment climate and support financial markets. 58. Strong alignment of IFC and the Bank’s strategic priorities created critical synergies. IFC and the Bank maintained a strong working relationship in both investment and advisory services in the areas of mining and infrastructure, financial markets, agriculture, corporate governance and SMEs. For example, during the CAS and ISN periods, IFC made a number of investments and provided advisory services supporting banking consolidation, including a variety of new investment products and advisory work to improve risk management and spread best practice lending and environmental and social standards, which complemented the Bank’s program following the 2008 banking crisis. IFC’s approach to mining and infrastructure sector is also fully aligned with the Bank’s strategic priorities. 59. The CAS and ISN Completion Report (Attachment 4) rated the performance of the CAS as moderately unsatisfactory and the ISN as satisfactory. The overall rating of both the CAS and the ISN was moderately satisfactory. 60. From an implementation perspective, the portfolio performance has been satisfactory. The disbursement ratio for FY11 was 29.3 percent, above the regional average of 22.4 percent. There is one problem project that is being restructured. All 13 projects which exited the portfolio in the past decade have been rated moderately satisfactory or satisfactory by IEG. 61. The CAS and ISN completion report identified the following key lessons with implications for the design and implementation of the FY2013-FY2017 CPS: 13  Build in flexibility to take account of transitions and emerging priorities. Alignment of the country strategy with national priorities and development plans is integral, but flexibility to accommodate emerging and unforeseen developments must be incorporated.  Ensure alignment, focus on fewer outcomes and ensure a clear results framework. The results agenda should: (i) be aligned with selected national development priorities, (ii) take into account activities of development partners, (iii) engage in areas with strong client demand where the Bank Group has a comparative advantage; (iv) be simple and only have a few selected outcomes and clearly monitorable indicators; and (v) link directly with proposed activities.  Design programs/projects to minimize implementation challenges. Given capacity constraints, simplification of project designs should be a priority, though this should not prevent the Bank to work with the Government on pioneering innovative approaches. Greater reliance on country systems should be explored in conjunction with capacity strengthening.  Take a programmatic approach to AAA. The Bank should consider multi-year programmatic ESW and TA programs in key areas (e.g., public expenditures, governance, service delivery and decentralization) while continuing with responsive policy notes and advisory pieces.  Consider the longer-term role of the Bank in Mongolia. Ensure flexibility of Bank’s engagement as the country graduates from IDA to IBRD and while continuing to provide strong analytical and advisory services, focus resources on “piloting� new approaches and improving the implementation capacity of the Government. Mongolia will become less reliant on ODA, and some donors may reorient their support to other low-income countries, affecting the ability to mobilize Trust Fund resources. 62. In preparation for this FY2013-2017 Country Partnership Strategy, the World Bank team also undertook specific reviews of its portfolio from three perspectives: overall performance, integration of gender, and furthering of governance objectives. The World Bank Institute has also undertaken a case study on the World Bank’s overall effectiveness in supporting Mongolia’s mining transformation as part of its learning series on Governance and Extractive Industries. 63. The Country Portfolio Performance Review (CPPR) undertaken in 2011 provided a range of recommendations to improve portfolio performance further. Among others, the CPPR recommended more disciplined supervision reporting and recording, better integration of non- blended trust funds in the overall portfolio, and pointed to the opportunity cost associated with the prevailing pattern of extending projects beyond their original closing date. The review also pointed to the need to systematically ensure the involvement of safeguard specialists in the operations in the country. 64. The portfolio of lending and advisory work was also analyzed as to the integration of gender considerations in key Bank projects and policy recommendations. Specifically, the review assessed four aspects:  Overall adequacy of the attention to gender issues;  The identification of gender issues during preparation of projects and AAA;  The inclusion of specific measures to ensure gender inclusion in program benefits during implementation or in analytical work; and,  The adoption of mechanisms to monitor gender impacts. 14 Key findings were that the Bank could achieve much greater impact through better mainstreaming of gender considerations, particularly in key sectors such as mining, rural livelihood, urban infrastructure, and social protection. While the Bank recently undertook analytical work specific to gender (e.g., women and the labor market) and systematically monitors the benefits for women in certain projects (e.g., Enhanced Access to Justice, microfinance component of the Sustainable Livelihood Program), it could do so more consistently. The Bank should consider at the concept stage of each project or analytical work if there are gender dimensions that could be addressed and monitor these throughout implementation. In addition, the review flagged that the World Bank could take a more active role in disseminating the recently approved Law on Gender Equality. 65. Finally, the Bank reviewed how it could strengthen its engagement in governance and anti-corruption. Mongolia is one of the C-GAP pilot countries that benefits from support from the Governance Partnership Facility in the East Asia and Pacific region. The Bank has helped advance a series of institutional reforms under the CAS and ISN, working closely with the IAAC, the Ministry of Finance, Parliamentarians, CSOs and media. GPF grant funding proved critical to the Bank undertaking outreach and advocacy for reform. Going forward, Bank support will be required not only to advance the design of reforms but also to strengthen their implementation. III. THE GOVERNMENT’S DEVELOPMENT PRIORITIES AND HOW THE WORLD BANK GROUP WILL SUPPORT THEM A. MONGOLIA’S MEDIUM-TERM PRIORITIES 66. Over the past few years, the Government has developed and adopted a series of strategic documents outlining its development goals. In 2008, the Government defined the Millennium Development Goals-Based Comprehensive National Development Strategy of Mongolia which was approved by Parliament. The document sets a 14-year development path “aimed at promoting human development in Mongolia, in a humane, civil, and democratic society, and developing intensely the country’s economy, society, science, technology, culture and civilization in strict compliance with global and regional development trends.� The objective is “to protect and strengthen Mongolia’s sovereignty, and develop it into a middle-income country through achieving its MDGs attaching high priority to promoting private sector-led dynamic economic growth, human development including education, healthcare, as well as sustainable development of science, technology and environment, strengthening intellectual development and human capacity; creating knowledge-based economy sustained by high technology, which respects environmentally friendly production and services; fostering a democratic system of governance, which serves its citizens, protects human rights and freedoms, and is free from corruption and red tape.� The Strategy covers two phases: the first phase (2007-20015) will focus on achieving the MDGs and actively developing the country’s economy; the second phase (2016-2021) will be dedicated to transitioning to a knowledge-based economy. 67. Progress towards the Millennium Development Goals is being assessed regularly by the Government, with the support of the United Nations Development Program. The most recent report “Third National Report on the Millennium Development Goals Implementation� was released in 2011. The report is forthcoming in its assessment of progress and attempts to provide policy recommendations to accelerate progress, in particular regarding the three MDGs identified as lagging by National Statistical Office data – i.e., poverty7, gender equality, and environment. 7 When adjusting the national poverty line to new consumption patterns over time, it appears that the poverty level between 2002 and 2008 as measured by the NSO remained stable. 15 68. Although the Comprehensive National Development Strategy sets a broad framework, it does not spell out a specific action plan. Some sectors – such as health, agriculture, and environment – have come up with strategies that are more specific. However, the Government often lacks the capacity to translate those strategies into concrete action plans with clear allocation of accountabilities around which ministries, agencies at the national and local level, private sector, civil society and development partners can plan and coordinate actions. 69. The lack of a national actionable plan does not prevent the Government – and policymakers in general – to give a sense of the directions in which they would like the country to head. Based on public statements and policy decisions, key objectives can be described as follows:  to be a world-class mineral-led economy. There is a shared conviction that mineral resources present a unique opportunity for Mongolia to rapidly become a middle-income country. There is also a shared understanding that for the mining wealth to materialize, an appropriate regulatory framework – covering not only mining financial aspects but also labor, social and environmental dimensions – needs to be in place, infrastructure to facilitate the mining exploitation is to be planned and built, and a labor force has to be trained.  to diversify the economy by building on the non-mineral economic basis (e.g., agriculture, tourism). As of now, the Government has adopted different schemes that rely mostly on subsidies of various forms for specific industries (e.g., Small and Medium Enterprises fund, cashmere and meat bonds, national livestock program).  to share the mining wealth among the Mongolian population. There are strong expectations among the population that the benefits extracted from the land will be shared among all. During the 2008 elections, political parties committed to distribute the equivalent of US$1,500 per person during their government tenure. The Government is now making good on its promise by channeling mining royalties, dividends and prepayments into a Human Development Fund (HDF) and distributing them in the form of (i) a universal cash transfer of about US$16 per person per month, (ii) stipends, and other universal benefits; and (iii) a scheme to distribute shares of Erdenes MGL, the state-owned enterprise which regroups all strategic mining assets. While well intentioned, the HDF approach is fiscally unsustainable, accounting for around 10 percent of total public spending. It would be more efficient to use mining revenues to reduce poverty if it was targeted at the poorest families. Therefore, as part of the preparation for the 2012 elections, political parties have committed to refrain from making cash promises and to discontinue universal HDF cash payments from July 2012 onwards. In its place, Parliament adopted in January 2012 a social welfare reform that is based on a redistribution system that targets the poorest. The national debate is now about making growth inclusive.  to continue strengthening the country’s democratic tradition by involving civil society and local communities in decision processes. The institutional framework in Mongolia allows for the open involvement of civil society in public decisions and was further advanced by the recently approved Integrated Budget Law.  to develop a modern financial capability in line with Mongolia’s middle-income status. The country is equipping itself with financial instruments that would help it fund its development needs in a more flexible way over time. In addition to requesting IBRD and 16 OCR status with the World Bank and Asian Development Bank, it recently established the Mongolian Development Bank which will focus on financing infrastructure projects. The Government is issuing domestic treasury bonds and is considering issuing foreign- denominated bonds. Finally, as part of an ambitious strategy to develop domestic capital markets, the Government has signed a partnership agreement with the London Stock Exchange to build capacity at the Mongolian Stock Exchange. 70. Based on a range of consultations undertaken with stakeholders (including an anonymous client survey – see Box 3), these goals are broadly shared across the population. There is of course diversity in the ordering of the priorities among groups – for example, some put greater emphasis on the development of the rural economy while others focus more on developing infrastructure in mining areas. Civil society in particular conveyed the need for the World Bank to continue supporting the country in building institutions of accountability, not only in the mining sector but in the broader economy. Box 3: Client Survey In June and July 2011, 538 stakeholders of the World Bank in Mongolia were invited to provide opinions on the Bank’s assistance in a country survey. Stakeholders included Members of Parliament, officials from government ministries and agencies, provincial officials, project staff, civil society organizations, NGOs, private sector, media, trade unions, the judiciary and members of the academic community. The response rate was 58 percent. The survey pointed to the following lessons:  Respondents valued the Bank’s policy and economic advice most, followed by its technical assistance;  Governance/government effectiveness were considered the key development priority in the country, and private sector growth, mining, and basic infrastructure development were seen as critical elements to poverty reduction and economic growth;  Respondents indicated that the Bank was most important in strengthening infrastructure development and in encouraging greater transparency in governance, and believed that most focus should be on government effectiveness and improving basic infrastructure, and to a lesser degree on private sector growth and investment, education, poverty reduction, growth and improving natural resource management. Nearly half of all respondents indicated that the Bank should be more involved in Mongolia’s development strategies;  Respondents indicated that the Bank should work more closely with NGOs, the private sector, local Government and academia;  A number of stakeholders believed there is not enough public disclosure of the Bank’s work; and,  The survey also indicated a perceived decline in the Bank’s efficiency and speed with which funds are disbursed, as well as more cumbersome procurement requirements. Across all respondents, the Bank’s overall effectiveness and the perception of an institution that plays a relevant role in Mongolia’s development received a mean rating of 7 on a 10 point scale. B. RESOURCES THAT THE WORLD BANK GROUP CAN PROVIDE TO SUPPORT MONGOLIA’S DEVELOPMENT PRIORITIES 71. This Country Partnership Strategy lays the foundation for Mongolia’s access to IBRD resources. In the span of six years, Mongolia’s GNI per capita has nearly quadrupled from US$480 in 2004 to US$1,890 in 2010, a level well above the 2010 cut-off mark set for low-income of US$1,005 per capita. In light of its economic advancement, the Mongolian Government has requested the World Bank to change the country’s status from “IDA-only� to “Blend� enabling access to resources on a non-concessional basis as well as concessional resources. While balancing 17 the number of positive developments that have taken place in the past two years in Mongolia with the risks associated with the development of a mineral-rich economy, the World Bank has decided to declare Mongolia creditworthy for IBRD lending. 72. A key element for consideration when deciding on IBRD’s exposure to Mongolia is the country’s management of its public debt and how it is expected to evolve in coming years. The establishment of the Fiscal Stability Fund and the issuance of government guarantees to the Development Bank imply a need to gradually expand the focus from the public debt, to the risk exposure of the overall balance sheet of the Government, i.e., monitoring and managing risks related to direct and contingent assets and liabilities, and to exogenous shocks. Both the World Bank and the IMF are committed to continue providing guidance and share experiences with the Mongolian Government in this critical area and the authorities are receptive to such work. 73. Mongolia will benefit from a full IDA allocation under IDA16 (FY12-FY14) as a blend country. The CPS period (FY13-17) spans across two IDA replenishment periods of IDA16 (FY12- 14) and IDA17 (FY15-17), The indicative IDA16 allocation for the FY12-FY14 period is SDR64.8 million8. Out of this IDA16 allocation, SDR22.7 million has been firmly allocated for FY12. The IDA16 allocation for FY13-FY14 (SDR42.1 million) is indicative only, and the actual allocation will depend on: (i) total IDA resources available, (ii) the country’s performance rating; (iii) the performance and assistance terms of other IDA borrowers; (iv) the terms of IDA's assistance to country (credit and blend terms for Mongolia) and; (v) the number of IDA-eligible countries. As Mongolia will now be a “Blend� country, the borrowing terms that will apply to IDA resources are the following: a 25-year maturity, a 5-year grace period, and a 1.25 percent interest charge. 74. The Blend status not only increases resources to Mongolia, it also expands the types of financial products and services. In addition to a full IDA allocation for the period of FY12-FY14, Mongolia will gradually start accessing IBRD resources that would be used for investment operations. At this stage, a pipeline of projects that could potentially be financed with IBRD funds is being developed. Initial ideas have been included in the lending program. Once the IBRD lending program is firmed up, it would be presented as part of the CPS Progress Report or with the first IBRD-funded operation, whichever comes first. 75. IFC can play a critical role in assisting Mongolia to address its private sector development needs on multiple fronts. IFC offers three lines of services: Investment Services, Advisory Services, and through its Asset Management Company (AMC). IFC’s investment services provide a broad suite of financial products including loans, equity, trade finance, structured finance, risk management products and syndicated loans in all sectors and enable companies to manage risk and broaden their access to foreign and domestic capital markets. IFC advisory services offer advice in a broad range of topics aimed at private sector development, from helping the Government implement reforms to improve their business environment, to promoting sustainable business practices at firm level, advancing good corporate governance practices, building the capacity of small firms and small-scale farmers, advancing women in business, promoting higher environmental and social standards, and engaging the private sector in climate-change solutions. IFC also promotes access to finance both through investment services and advisory services. IFC’s AMC, a wholly owned subsidiary of IFC, was created to channel the resources held by sovereign funds, pension funds and other institutional investors to investment opportunities in developing countries. In this process, IFC expands its development reach by “crowding in� commercial investors by demonstrating the financial benefits and growth opportunities as well as the development impact of investing in these markets. IFC is 8 Equivalent to about US$101million as of February 2012. 18 exploring future investment opportunities in the financial markets, manufacturing, and agriculture sectors, and is committed to enhancing its program during the new CPS period. 76. In addition to IFC’s investment programs, IFC has significantly increased its advisory services with over US$1.5 million projects funded by IFC, two donors (Japan and Netherlands) and clients to develop the investment climate and support financial markets. In April 2011, existing advisory programs received an additional US$2.5 million from Japan, bringing the total funding to nearly US$ 4 million. 77. Mongolia is a strategic priority for the Multilateral Investment Guarantee Agency (MIGA) and it is exploring opportunities related to the mining sector. MIGA's other strategic priorities are South-South transactions, complex infrastructure projects, and supporting financial sector institutions to enhance access to finance. MIGA's focus in Mongolia will be to support sustainable development of the mining sector, associated industries and also enhance financing for infrastructure. 78. MIGA can provide support and incentives for foreign investors looking at entering the Mongolian market. Through its Political Risk Insurance (PRI) product, MIGA offers reassurance for investors concerned about political interventions or disruptions which might affect their returns. MIGA’s main covers offer protection against Transfer or Convertibility Restriction, Expropriation and Breach of Contract risk, War and Civil Disturbance risks. With uncertainty in the political, economic or regulatory environment, these guarantees offer protection for investors unsure about counterparty risk with the Government or about how more conventional political disruptions and civil disturbances might cause physical damage or disrupt their operations. In the Mongolian context, MIGA’s guarantee product could support the mining sector through supporting investors, and buffering the reform of the sector to encourage new exploration and socially sustainable development. The reassurance offered by MIGA guarantees would potentially be particularly useful for investors uncertain about further Government interventions and policy changes in the sector. 79. More recently, MIGA has launched a new cover, guaranteeing the Non-Honoring of a Sovereign Financial Obligation, a coverage which provides credit enhancement in transactions involving sovereign and sub-sovereign obligors. Again, this may fill a local need, as the primary beneficiaries here would be commercial lenders that provide loans to public sector entities for infrastructure and other productive investments. Finally, MIGA offers a more streamlined product under its Small Investment Program (SIP) where it offers the standard basic covers to smaller investors entering a foreign market. 80. In addition to providing resources, the World Bank Group’s programs can be platforms for engaging with other Development Partners on strategic priorities. At US$74.5 million, the Recipient Executed Trust Fund (RETF) portfolio is equivalent to more than one third of Mongolia’s IDA portfolio. In fact, half of the RETFs co-finance IDA projects, successfully leveraging resources from donors for the benefit of the client. The World Bank will continue its practice of establishing platforms for engagement with Development Partners in areas which the Bank has determined as strategic for its program and in which it has established a comparative advantage through its analytical work. An example of such approach is the ongoing rural program (see Box 4). Such approach has the benefits of further enhancing donor coordination and aid harmonization, reducing the transaction cost of receiving overseas development assistance on the part of the Government, and increasing the impact of the work of the Bank. 19 Box 4: Using WB programs to engage other Development Partners and generate greater impact The Sustainable Livelihoods Program (SLP) was launched in 2002 to address poverty and vulnerability, primarily in rural areas, by developing mechanisms to support the livelihoods of rural citizens. This is a long term objective, to be achieved through a three phased Adaptable Program Loan, during which the approaches would be piloted, then scaled up and ultimately embedded in policy and institutions, with capacity and tools in place for sustainability. In addition, a separate project, the Index-based Livestock Insurance Project (IBLIP), was spun out of SLP to provide an innovative and market-based tool for rural risk management. The core financing for the program has come from IDA with, to date, a total of US$63 million for SLP (first and second phases) and US$18 million for IBLIP (including Additional Financing). However, trust fund support has been equally important. Trust Funds amounting to US$25 million – from Japan (PHRD and JSDF), FIRST, Swiss Development Cooperation, European Union, and Korea – have supported the initial (often innovative) design work, have financed the costs of high caliber international technical assistance, have supported the capacity of local institutions and the improved focus on results, including M&E systems and impact assessment. Development Partners have increasingly recognized the Government’s preference to use the Bank’s rural portfolio (SLP and IBLIP) as a platform for support to rural Mongolia and have aligned around the themes of promoting innovation, supporting community based approaches to local development, and creating opportunities for sustainable livelihoods. In some cases, such as for the European Union, the support is its largest single commitment in Mongolia. The TF support has therefore helped partners increase their visibility in the country while enabling IDA to leverage additional funds to push forward innovation and capacity building and ultimately increase the impact of IDA resources. 81. Finally, the World Bank Group will continue to support the economic development of Mongolia through a range of Analytical and Advisory Activities. As Mongolia becomes a middle- income country that can rely more and more on its own resources to finance its development, the World Bank’s key contribution to Mongolia’s development will increasingly take the form of knowledge, in-depth analyses, experience sharing with other countries, and the facilitation of training activities. Such activities will be organized around programmatic areas that are aligned with the development priorities of the country. They will take the form of core economic and sector work, just-in-time policy notes, technical assistance, and South-South exchanges. The World Bank Group will continue to invest in reaching out to policymakers in Government, Parliament, private sector companies, academia, civil society and media while developing these products. C. STRATEGIC AREAS THAT THE WORLD BANK GROUP WILL SUPPORT AND EXPECTED RESULTS 82. The strategic areas that the World Bank Group will support reflect the country’s development challenges and government priorities, and builds on the priorities outlined in the ISN 2009-2010. Extensive consultations with key stakeholders reveal a strong desire for the World Bank Group’s program to continue along the lines outlined in the Interim Strategy Note 2009-2010. The World Bank Group will continue to support the country’s efforts to transform its economy into a world-class mining economy, to support economic development in urban and rural areas, and to address vulnerabilities. But there will also be an increased emphasis on economic diversification, decentralization, and equitable access to social protection and basic delivery so that growth is more inclusive. The widened focus in the program will not translate automatically into additional projects but rather will be achieved by adapting ongoing projects (e.g., Multi-Sector TA), designing planned projects to the new needs (e.g., SLP3), and by providing analytical support depending on the Bank Group’s comparative advantages. 83. The proposed activities are well aligned and complementary to the priorities and projects of other Development Partners. (See Attachment 6). Development Partners’ ongoing commitments to Mongolia stand at US$3.2 billion. The largest ODA contributors are: JICA, the People’s Republic of 20 China, ADB, the Millennium Challenge Corporation, and the World Bank. JICA invests heavily in infrastructure (particularly urban) and education; PRC has ramped up its support in the areas of transport, housing development, manufacturing and agricultural processing; ADB focuses on energy, transport, water and other municipal services, education, and health. MCC has selected five areas for engagement, the most important ones being land rights, transport corridors, vocational education, air pollution, and health. In areas where there is joint interest, efforts are made to focus on different sub- sets. For example, in the education sector, ADB is the lead donor and strongly supports improvements in secondary and tertiary education; MCC, GIZ, EU, and UNDP focus on technical and vocational training; JICA, UNICEF and the World Bank support early childhood education and primary education. In the area of gender, the World Bank participates in the in-country UN Gender Thematic Group; UNDP, UNICEF and UNFPA have a comparative advantage in advancing women’s political representation and fighting against gender-based violence, while the World Bank will work more on the gender dimensions in economic development (e.g., labor restrictions, pension reform). The Bank plays an important overall donor coordination role through its co-chairing with the Government of the annual Meeting of the Government of Mongolia with Development Partners. Table 2: Indicative CPS program CPS US$ CPS US$ Ongoing Projects Pillar M Indicative Financing Program Pillar M Energy Sector (FY01) 2 42.0 Ulaanbaatar Clean Air Project (FY12) 3 15 Economic Capacity TA (FY03) 1 7.5 E-Government Project (FY13) 1 15 Ulaanbaatar Services Improvement (FY04) 3 18.0 Sustainable Livelihoods 3 Project (FY13) 1,2,3 >30 Index-Based Livestock Insurance (FY05) 3 17.8 Third Ulaanbaatar Services Improvement Project (FY13) 1,3 20 Governance Assistance (FY06) 1 14.0 SME Access to Finance Project (FY14) (IDA-IBRD) 2 15 Information and Comm. Infrastructure Devt. (FY06) 2 8.0 E-Health Project (FY14) 3 15 Rural Education and Development READ (FY06) 3 5.0 AF – Mining Sector Institutional Strengthening (FY15) 1 IDA Sustainable Livelihoods II (FY07) 3 44.0 AF – MONSTAT (FY15) 1 IDA Renewable Energy for Rural Access (FY07) 2 3.5 Transmission Line Project (FY15) (IBRD) 3 50 Renewable Energy for Rural Access-GEF(FY07) 2 3.5 District Heating Project (FY15) (IBRD) 3 50 Mining Sector Institutional Strengthening (FY08) 1 9.3 Social Protection Administration Project (FY16) 3 IDA Enhanced Justice Sector Services (FY08) 3 5.0 Index-Based Livestock 2 Project (FY16) 2,3 IDA MONSTAT (FY09) 1 2.0 ---------- Multi-Sector TA (FY10) 1 12.0 Note: AF = Additional Financing Mining Infrastructure Investment Support (FY11) 1 25.0 Items in italics are indicative IBRD financing CPS US$ Major Ongoing Trust Funds (RETFs) Pillar M Key Ongoing and Indicative Nonlending Program FY EC TF: Sustainable Livelihoods 2 2,3 14.00 Reserves Assets Management Program (TA) 1 Cont Education for All – Fast Track Initiative 3 29.40 Financial Sector Assessment Program (ESW) 2 12 EITI Grant (outreach) 1 0.25 Programmatic Social Protection (ESW) 3 12-13 GPE: Global Partnership for Education 3 10.00 Programmatic Agricultural Policy Review (ESW) 2 12-13 Korea TF: Index-Based Livestock Insurance 2,3 0.70 Programmatic Financial Sector Monitoring (ESW) 2 12-13 Korea TF: MONSTAT 1 1.40 Programmatic Mining Sector (TA) 1 12-13 Korea TF: Multi-sector TA 1,2,3 0.50 Programm. Municipal Financing for Ulaanbaatar (ESW) 1 12-13 MN-FS: Renewable Energy for Rural Access 2,3 6.00 Programmatic Poverty Analysis (ESW) 3 12-13 PHRD TF: Sustainable Livelihoods 2 1,2,3 3.90 Debt Management Strategy (TA) 1 12-13 Programmatic Economic Policy/Qtrly Updates (ESW) 1 12-14 Major Indicative/Planned Trust Funds Finan. Literacy and Consumer Protection Assessmnt (TA) 2 13 AusAid TF: Groundwater Mgmt in South Gobi 1 6.00 Poverty and Inequality Study (ESW) 3 13 AusAid TF: Mining and the Environment 1 Tbd Gender Action Plan (ESW) 3 13 FIRST Initiative: Financial Sector Stability 2 0.20 Programmatic Accountability/Service Delivery (ESW) 3 13-14 GAFSP: Livestock-Based Livelihoods Improvement 2 11.00 [Admin. Courts/Executive Accountability (ESW)] 3 14 GFAHI MDTF: Avian and Human Influenza 2 2 2.50 Procurement Assessment (TA) 1 14 JSDF: Primary Educ. Vulnerable Rural Children 3 2.60 Disaster Preparedness (TA) 3 14 SDC (Swiss): Participatory Planning/Decentralizatn 3 0.60 Notes: Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy sustainably and transparently Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas Pillar 3: Address Vulnerabilities through Improved Access to Services and Better Service Delivery, Safety Net Provision, and Improved Disaster Risk Management. 21 84. In designing and implementing projects and providing advice, particular attention will be paid to enhancing the capacity of institutions so that they can manage more effectively and transparently. In particular, the Bank will support Mongolia’s anti-corruption efforts through specific project work and by mainstreaming good governance and anti-corruption mechanisms in Bank operations. As it is feasible, the Bank will seek to support enhancements in lead agency operations (i.e., enhancing agency structures and operations for greater transparency and accountability) in various sectors the Bank is working with (i.e., Mining, Environment, Health, Justice, etc.). The Bank will seek to support the Government’s efforts to create stronger government institutions and to engage a broader stakeholder group to develop more effective citizen engagement to generally develop greater government and societal resilience to corruption. PILLAR 1: ENHANCE MONGOLIA’S CAPACITY TO MANAGE THE MINING ECONOMY SUSTAINABLY AND TRANSPARENTLY 85. Through its ongoing program and new activities, the World Bank Group will support the Government, private business and civil society (i) in developing a world-class mining environment that takes into account social and environmental considerations, and (ii) in strengthening its management of public revenues and expenditures. In doing so, the World Bank Group will aim to bring greater transparency and accountability to the entire mining value chain through better policies and institutional capacity building. The programs of the World Bank, IFC, and MIGA will be tightly coordinated. 86. Outcome 1.1 – Support the country in developing a regulatory environment, institutional capacity, and infrastructure for world-class mining.  Improve regulatory environment and strengthened environmental management capacity. Building on the work undertaken so far, the World Bank Group will rely on the ongoing Mining Sector Institutional Strengthening Technical Assistance Program (MSISTAP) to provide advice and technical assistance, which will include a focus on environmental and social safeguards.  Possible “good practice� investments by IFC and MIGA. IFC is leading an international consortium together with EBRD for a debt financing of US$3.6 billion for the Oyu Tolgoi copper mine development. MIGA has been asked to provide a guarantee for the participating commercial banks.  Better planning of critical infrastructure in support of the mining sector and neighboring communities. The Mining Infrastructure Investment Support project (MINIS) supports the preparation of regional infrastructure investment plans that examine infrastructure needs comprehensively. Some of these projects may be developed as Public Private Partnerships with the support from the various WBG institutions (IBRD, IFC, and MIGA).  An institutional set-up for greater transparency and accountability. Mongolia’s reporting systems will be further enhanced with World Bank support. EITI Mongolia will continue to improve the scope and quality of the revenue data, look into legislating mining revenue transparency, and expand outreach among civil society, Parliamentarians, and the population. The World Bank will continue to use GPF resources to generate greater demand for good governance in the sector. 22 87. Outcome 1.2 – Support the Government in designing and implementing policies and systems for a more robust, equitable and transparent management of public revenues and expenditures  Continued implementation of fiscal, economic and monetary management policies that aim to mitigate the impact of Dutch Disease. The World Bank will focus on supporting the Government in implementing the Fiscal Stability Law and the Integrated Budget Law through the ongoing Multi- Sector Technical Assistance Credit and through analytical and advisory services. Through the Reserve Asset Management Program (RAMP), the World Bank is also making available to the Bank of Mongolia a structured program of training opportunities and tools to enhance its management of reserve assets.  Improved implementation of planning, budgeting, procurement, expenditure management, financial reporting, auditing, assets and liabilities management policies through continued technical assistance and advice. Building on past and ongoing efforts (ECTAC, GAP, and MSTA projects) to improve the planning and budgeting capacity of the Government, the World Bank will work closely with the National Development and Innovation Committee (NDIC) and the Ministry of Finance to improve its capacity in assessing and planning public investments.  Roll-out of the decentralization plan for a more participatory and equitable budget that reflects local needs and priorities. Regulations will be developed with MSTA support and implementation and capacity building will be supported through the third Sustainable Livelihoods Program. This will be undertaken in partnership with the Swiss Development Cooperation and in coordination with other Development Partners.  More transparent and citizen-oriented public management through better data and e- Government. NSO has been implementing successfully a statistical capacity building project (MONSTAT). The World Bank will also explore the possibility of developing an e-Government project, closely synergized with an Open Data Initiative. This would be in line with Mongolia’s commitment to participate in the Open Government Partnership. PILLAR 2: BUILD A SUSTAINED AND DIVERSIFIED BASIS FOR ECONOMIC GROWTH AND EMPLOYMENT IN URBAN AND RURAL AREAS 88. The World Bank Group will support the Government’s efforts to diversify the economy and generate employment by (i) enhancing its overall competitiveness and (ii) strengthening the competitiveness of the agricultural sector. 89. Outcome 2.1 – Enhance the investment climate and financial intermediation  An improved investment climate. IFC will continue to build on its business inspections project to raise the competitiveness of Mongolian firms, especially SMEs, by making business inspections more efficient, effective and transparent.  A deeper, more efficient and stable financial system. The Bank will employ a range of analytical and lending instruments to support the authorities in: (i) identifying, monitoring and addressing the existing and new vulnerabilities in order to make the sector more resilient to possible future shocks; (ii) improving access to credit for the MSME sector and general population, including in rural and remote areas, and strengthening financial literacy and consumer protection; and (iii) 23 expanding the range and quality of financial products provided by non-bank financial institutions, including the development of the domestic capital market. IFC will continue to support the financial markets in Mongolia by introducing more complex and innovative financial products, working closely with Khan Bank and XacBank, in which IFC is a shareholder.  Better corporate governance through the deepening of accounting, reporting and auditing reforms. Through its FIRST initiative and the MSTA technical assistance, the World Bank will assist entity-level implementation of internationally recognized financial reporting standards and internal control systems in major public-interest entities, and facilitate the introduction of simplified and effective financial management practices in small and medium-sized enterprises (SMEs). 90. Outcome 2.2 – Create more opportunities in the rural economy for enhanced livelihoods  A more productive, healthier and sustainable livestock sector. The Bank will provide investment and analytical activities including implementation of the Livestock-based Livelihoods Improvement Project, financed by the Global Agriculture and Food Security Program (GAFSP) and evaluated for its impact with DIME support. The World Bank will also undertake a follow-up project to the successful ongoing AHI project.  Higher quality and higher value agribusiness through a combination of IFC investments and business advisory. IFC’s recent investment in Suu JSC’s dairy company will help to expand its network of raw milk herders from 2,500 to 4,000. IFC will continue to assist agribusiness modernize production equipments, raise food safety standards, develop supply chains and address working capital needs. Complementing the World Bank’s work on animal health, IFC is also assisting the Government in the drafting of a Food Security Law to bring food safety inspections to international standards.  Greater outreach and innovation in microfinance products in rural areas. The Bank has had a long and successful engagement in microfinance development in rural areas since the establishment of the Microfinance Development Fund (MDF) under the Sustainable Livelihoods Program. The Bank will continue to support the increased access to financial services in rural economies, through continued support for the MDF (under the Sustainable Livelihoods Program 3), including support for new financial products (such as loan guarantee funds to address collateral shortfalls) and for the use of ICT for rural finance. PILLAR 3: ADDRESS VULNERABILITIES THROUGH IMPROVED ACCESS TO SERVICES AND BETTER SERVICE DELIVERY, SAFETY NET PROVISION AND IMPROVED DISASTER RISK MANAGEMENT 91. In addition to promoting employment creation through economic diversification, the country is trying to reduce poverty and vulnerability by: (i) decentralizing more authority to local Governments and urban districts, including the delivery of health, education and social welfare services; (ii) implementing the reformed social assistance system that supports first and foremost poor people and possibly reforming health insurance as well as the pension system to promote more equitable, efficient and sustainable social insurance programs; (iii) improving living conditions for the people of ger areas through infrastructure investments, housing expansion, and better service delivery; and, (iv) acting on several sources of vulnerabilities that have traditionally affected Mongolia: climate risks in rural areas, disaster risks in urban areas 24 92. Outcome 3.1 – Work with the Government on the design, adoption and implementation of a comprehensive social protection system that supports the poor  A better understanding of poverty and inequality, including its gender dimensions. The World Bank will continue its cooperation with NSO and will support them in their analysis and dissemination of poverty data.. Following the recent series of policy notes on poverty, it will enhance analysis of inequality and policy responses such as safety net reform, as well as strengthen the focus on labor market and employment dynamics as structural change deepens. In those analyses, the World Bank will look specifically at the gender dimension of poverty and inequality. It will also disseminate a series of policy notes around “women and the labor markets� and “women and mining�.  A successfully implemented poverty-targeted safety net. The World Bank will continue to provide support to the Government as it moves towards a more targeted and transparent system, under the social protection component of the Multi-Sector Technical Assistance (MSTA) project and technical assistance financed by a Korean Trust Fund. The Bank will also explore a possible Social Protection Administration Implementation support operation once the MSTA support winds down. 93. Outcome 3.2 –Support better delivery of basic services (education, health, justice, and infrastructure)  More responsive and accountable local service delivery through a strengthening of participatory processes. Under the Sustainable Livelihoods Program, participatory methods have demonstrated the effectiveness of community engagement to plan and deliver local development projects. This approach is being adopted as government policy and the Bank will continue to support the Government at all levels and communities to operationalize the emerging policy framework.  Expanded opportunities for early childhood education and more efficient systems for health services. With funding support from the Global Partnership for Education (GPE), the World Bank will support the Government’s efforts to increase the provision and quality of early childhood. An E- health project – developed in partnership by the Ministry of Health, Korea and the World Bank – would help improve access to secondary and tertiary level clinical services through strengthening of the referral process between hospitals. It will work closely with other development partners already involved in the sector such as ADB.  Better infrastructure planning and prioritization of investments in poor neighborhoods of Ulaanbaatar. Ulaanbaatar Services Improvement Project 3 (USIP3) will aim to support the prioritization of infrastructure investments in ger areas through an integrated district level planning system and targeted investments in selected areas. The World Bank will also explore with the Government how it can encourage affordable and energy-efficient housing development.  Greater consistency in judicial decisions and greater predictability of the judicial system. Issues relate to lacking capacities of judges and prosecutors, increasing allegations of corruption, lack of access to justice in rural areas, and limited public trust in the justice sector. In addition, lack of access to relevant information is at the core of ineffective management and opacity of operations. The Bank provides support to strengthen these areas through the ongoing Enhanced Justice Sector Services Project. 25 94. Outcome 3.3 -- Reduce vulnerability of households exposed to natural hazards and pollution  Cleaner air in Ulaanbaatar. A platform for cooperation among several development partners (e.g., ADB, EBRD, GIZ, MCC) has been developed to assist the Government’s coordinated efforts to improve air quality in Ulaanbaatar. The Clean Air Project provides financing for a combination of short-term and medium-term measures. The project may also lay the foundation for a World Bank investment in the expansion of the electricity transmission system or a modernization of district heating during this CPS period, possibly with IBRD resources.  A comprehensive approach to risk management in the livestock sector. The Bank will build on the ongoing SLP – where the Pastoral Risk Management component supports herders and local authorities to better plan and prepare for winter – and the Index-based Livestock Insurance Project (IBLIP) which provides a tool for herders to protect themselves from asset loss.  A city better prepared to manage disaster risk. Technical assistance funded by GFDRR will be provided to improve the disaster preparedness of the Municipality of Ulaanbaatar. Based on assessment of hazards and vulnerability, a disaster risk management plan for Ulaanbaatar city will be developed in close coordination with JICA. JICA will focus on earthquake risks, while the Bank team will look into flood risks in the city. IV. IMPLEMENTATION MODALITIES AND RISKS A. IMPLEMENTATION AND MONITORING OF THE COUNTRY PARTNERSHIP STRATEGY 95. The Bank will work towards greater use of country systems in the CPS period. This will be pursued by moving towards full financial management of projects within the Government’s Public Financial Management systems, and by moving towards managing project funds through the Government’s Treasury Single Account System. The use of the Treasury Single Account System and the Government Financial Management Information System will be rolled out to all Bank-financed projects by the end of the CPS. Furthermore, projects will eventually be audited as part of the overall audit of the government accounts by the Mongolia National Audit Office. 96. The Bank will strengthen the implementation of the portfolio and increase the focus on results. The quality of portfolio implementation continues to be satisfactory, as evidenced by the review of ICRs by IEG, yet there is scope for improvement, particularly as it relates to timely project completion. Institutional capacity strengthening at national and sub-national level will remain a core area of focus during the CPS period. At the initiative of the Ministry of Finance, emphasis will be placed on grouping Project Implementation Units around key sectors so that they are better aligned with Ministries and can implement multiple donor-funded projects. 97. The Bank will invest in measuring the impact of Bank-funded projects and in sharing lessons. During the CPS period, the World Bank will undertake impact evaluations of projects that are considered innovative and have potential lessons for Mongolia as well as other countries. Specifically, it will evaluate the ongoing Rural Education and Development (READ) project, the ongoing Index-Based Livestock Insurance Project, and the new Livestock-based Livelihoods Improvement Project. 26 98. The Bank will also pay greater attention in ensuring that projects that will be developed during this CPS period are gender-informed. In line with the IDA16 commitments, projects and analytical products that may have an impact on gender – such as the Sustainable Livelihoods Program, the Ulaanbaatar Services Improvement Project, and the Social and Environmental Assessment of mining – will take such impact into consideration starting from the design stage and will integrate gender-differentiated results in their monitoring and reporting system. Such work has already been initiated for several of the projects under preparation. 99. The CPS Results Framework will be the key instrument for monitoring progress of the Bank’s program of support. The framework is embedded in the first phase of the MDG-based Comprehensive National Development Strategy of Mongolia (2007-2015), and narrows down the range of outcomes to those that the Bank can demonstrably influence over the CPS period. Use of the Country Portfolio and Results Monitoring Tool (CPRT), a web-based system for monitoring CPS progress, will be explored. The Bank will also conduct regular Country Program Portfolio Reviews (CPPR). 100. The Bank will strengthen the Government’s ability to manage donor financed development projects. The Bank will support the Government’s decision to establish result-oriented Monitoring and Evaluation (M&E) systems with a focus on effective and efficient delivery of intended results of development projects, strengthening M&E capacity and enhance the quality and accessibility of information for decision makers and stakeholders. In the shorter term, this will increase the Government’s ability to monitor the implementation of ODA projects, in the long run it will be an important instrument to design and manage investment programs supported by the Government's own budget. 101. Mongolia will have access to incremental resources and will be eligible for IBRD financing with the presentation of this CPS to the World Bank Board of Executive Directors. The Bank Treasury will provide training to government officials early in the CPS period to ensure that Mongolia can take full advantage of the range of IBRD financing instruments. 102. The Bank will prepare a CPS Progress Report in FY14 to evaluate progress towards the outcomes outlined in this CPS and make adjustments as required. The Progress Report will consider any changes required to respond to the policies of the incoming Government. Any changes to the program will be reflected in the project results framework. In particular, the Progress Report will include a firm IBRD lending program for the remainder of the CPS period. 103. The World Bank Group will also invest in greater outreach. The World Bank is upgrading its website and is committed to disclose all documents, in line with its Access to Information policy. It will continue to make use of the GPF resources to facilitate dissemination and encourage dialogue around key policy documents prepared with World Bank support. B. MANAGING RISKS 104. The World Bank Group may need to address several risks during the implementation period of the CPS. They range from an unstable global economy with uncertain future prospects, domestic macroeconomic stability and management, to political uncertainty as both Parliamentary and Presidential elections will take place during the CPS period. Natural disasters such as the increased frequency of severe dzuds pose particular risks to the rural parts of the population who remain especially vulnerable to climate risk and variability. 27 105. Slowdown in the global economy. Mongolia’s economic outlook is dependent on global macroeconomic factors, in particular commodity prices. Should China’s economy be significantly affected by a global economic downturn, it would have major consequences for Mongolia. Dialogue with the Government on macroeconomic fundamentals, in close consultation with the IMF, will remain a key priority during the next CPS period. Regular monitoring and analysis of the macroeconomic and financial indicators, including debt sustainability analysis and banking supervision, will be continued in the next CPS period. 106. Medium term prospects are bright, but in the near term the country remains at risk of repeating the boom-bust cycle of the past decade. Public sector spending remains strongly pro- cyclical. The Bank of Mongolia has been quick to raise policy rates and reserve requirements. Its efforts to control rising inflation could be more than offset if extraordinarily large fiscal injections for 2012 materialize as currently considered. Lack of management of public debt could be destabilizing as the country is exploring new avenues to raise significant resources to finance the pressing infrastructure needs. The establishment of the Fiscal Stability Fund and the issuance of government guarantees to the Development Bank, among others, shift the focus from public debt to the risk exposure of the overall balance sheet of the Government. The World Bank will continue to work with the Ministry of Finance, the Bank of Mongolia and the National Development and Innovation Committee to strengthen its capacity, making available its Medium Term Debt Management Strategy (MTDS) toolkit. 107. Other external risks include climate change, weather variability and its impact on international prices for agricultural goods. Dzuds, droughts and unexpected temperature fluctuations are likely to increase as climate variability becomes more pronounced. The Bank will work closely with the authorities to reduce vulnerabilities of herders and increase the resilience of ecosystems, both through investment operations and AAA work. 108. Rising inequality and social perceptions. Global experience suggests that the risks of further increases in inequality are real and may create social tensions if left unmanaged. The Bank will work with the Government and other partners, first to understand the dynamics and drivers of inequality, and also to support public programs to promote greater equality of opportunity and mitigate the possible negative distributional effects of the resource-driven growth model. 109. Political risk in Mongolia, in particular the commitment to sustaining the reform agenda, is driven by upcoming elections. Parliamentary elections are scheduled for June 2012 and the Presidential election will take place in 2013. Broad consultations undertaken in preparation of this CPS point to general support for its key strategic objectives across the aisles of Parliament. Some differences among political parties and stakeholders in resolving trade-offs between some of these objectives exist, of course. Thus a different order of priorities may emerge depending on the outcome of the 2012 elections. The World Bank Group will inform the choices of the current and future Governments through good and timely analytical and advisory work. But it will have to remain flexible in its approach as highlighted by the experience with the CAS 2004-2008. 110. The inflow of large amounts of financing for the mining sector poses the risk of increased corruption, including in World Bank-funded projects. The World Bank will continue to advocate for better governance and to work closely with the Independent Authority Against Corruption. From an operational perspective, it will use its projects to promote greater transparency and accountability. In particular, it will organize a preventive training workshop on corruption and ethics for all staff from the Project Implementation Units and from key Ministries, with the strong support of the Ministry of Finance. 28 111. The World Bank Group may also expose itself to potential reputational risk by getting associated with the Oyu Tolgoi copper mine project development. The Oyu Tolgoi management and the sponsor are set on making the mine development exemplary and sustainable from a technical, social, and environmental perspective. However, due to its sheer size, the complex nature of mining development and the economic impact to the country, the Oyu Tolgoi carries a significant importance and may attract strong public attention and criticism. The World Bank Group’s overall strategy is to have a close coordination among the various institutions involved (Bank, IFC, MIGA) so that the Group takes a balanced and comprehensive approach towards the mining sector which should help manage risks better. 112. Capacity of the Government in implementing an increasing number of projects may be lagging. While there is a great desire to implement a series of investments, these projects are often more complex in nature – from an institutional as well as financing perspectives – than past investments. The World Bank Group will continue to invest resources in implementation support and will undertake regular portfolio reviews jointly with the Ministry of Finance to identify and address potential problems early on. 113. As the country demands more complex products from Development Partners, the World Bank Group will need to focus on attracting and retaining competent staff. With the mining boom, the local labor market is evolving rapidly and the WBG will need to be attentive to maintaining its competitiveness. 114. Finally, the transition to non-concessional lending should also lead to a more active involvement from the Ministry of Finance in determining the overall World Bank program, and from other non-concessional financiers, in Mongolia. In many middle-income countries, the Ministry of Finance is a key coordinating agency across Ministries and determines the activities for which the country will borrow, based on its financing capacity and the development needs. The WBG will work with the Ministry of Finance to enhance its coordinating and management function for international development financing. 29 V. ATTACHMENTS Attachment 1 Mongolia: CPS FY2013-2017: Results Matrix9 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently Be a world-class mineral- - Mining policy and Outcome 1.1 Supported the  Completed consultative Ongoing Financing: led economy regulatory country in developing a process to develop new  Mining Sector Institutional CNDS10 Goal: “Exploit environment still regulatory environment, mineral law Strengthening TA Project (FY08) mineral deposits of evolving with key institutional capacity, and  Prepared new mineral law  Mining Infrastructure Investment strategic importance, tests ahead such as infrastructure for world- and model mineral Support Project (FY11) generate and accumulate new mineral law class mining investment agreement  TF EITI (Extractive Industries savings, ensure intensive - Implementation Indicator 1: Number of appropriate for responsible Transparency Initiative): Grant and high economic growth, challenges for weak public/PPP mining-related mining development Indicative Financing: and develop modern and poorly infrastructure assets ready for  Enhanced corporate  Additional Financing – Mining processing industry.� coordinated public tender governance of state-owned Sector Institutional Strengthening institutions Baseline: 0 (FY12) mining interests Project (FY15) CNDS Goal: “Protect - Capacity Target: At least 2 (FY17)  Prepared regional  IFC: Oyu Tolgoi Project Finance nature and environment in constraints on rate Indicator 2: Number of infrastructure investment  MIGA Guarantee: Oyu Tolgoi mining sector and maintain and pattern of infrastructure feasibility plans to holistically  TF AusAid: Strengthen the ecological balance.� growth of the sector studies carried out financed by support mineral Groundwater Management in (e.g., transport and the WBG development Southern Gobi Continue developing the power bottlenecks Baseline: 0 (2012)  Sustained Responsible  TF AusAid: Mining and the mining sector in a and suboptimal Target: 8 (FY17) Mining Initiative tripartite Environment sustainable and responsible solutions; local skill Indicator 3: Aimag-wide dialogue Key Ongoing and Indicative AAA: way shortages) management and monitoring  Enhanced government  TA Programmatic Mining Sector - Risk of mining plans for groundwater use capacity to assess and (FY12-13) sector commanding prepared and in use prepare investments in priority access to (cumulative) infrastructure scarce local capital Baseline: 0 (2012)  Pilot institutional structure and skilled labor Target: 2 aimags (FY17) for groundwater creating challenges management established for non-mining and functioning with sectors to provide appropriate staffing livelihoods  Completed Strategic 9 The program for the second half of the CPS will be further defined during the mid-term review and presented in the CPS Progress Report. 10 CNDS: Comprehensive National Development Strategy of Mongolia: 2007-2015 (Phase 1) 30 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles - Unsustainable use Environmental and Social of natural resources, Assessment (SESA) especially focusing on the mining groundwater in sector including gender southern Mongolia dimensions Share the mining wealth -Need to capture Outcome 1.2: Supported the  Implemented Fiscal Ongoing Financing: mining rents government in designing and Stability Law: (i) structural  Economic Capacity TA Project Manage public revenues in efficiently and implementing policies and deficit of less than 2% of (FY03) a transparent and transparently by the systems for a more robust, GDP by 2013; (ii)  Governance Assistance Project accountable way and invest state as revenues, equitable, and transparent government expenditure (FY06) them effectively to enhance and sustainably management of public growth limited to non-  MONSTAT Strengthening the today’s growth as well as managed to avoid revenues and expenditures mineral GDP growth by National Statistical System save for rainy days and currency Indicator 1: Time over-runs in 2013; and (iii) Net Present Project (FY09) future generations appreciation, public investment projects Value of debt to GDP ratio  Multi-sector TA Project (FY10) inflation, and debt (sample of road projects) of 40% by 2014  TF EITI (Extractive Industries buildup Baseline: 70% (2010)  Improved EITI Mongolia’s Transparency Initiative): - Growing Target: Less than 70% scope and the quality of Implementation Support and Civil inequality and (FY17) revenue data Society Organization Outreach demand for wider Indicator 2: Percentage of  Expanded EITI’s outreach  TF KTF (Korea): MONSTAT and quicker citizens satisfied with the to civil society and  TF KTF (Korea): Multi-sector TA redistribution of mechanisms and outcomes of parliamentarians Indicative Financing: mineral wealth Community Initiative Fund  Enhanced management of  E-Government Project (FY13) -Scaling up existing investment reserves by Bank of  Third Ulaanbaatar Services institutions, Baseline: (FY12) Mongolia through the Improvement (District Planning) particularly in Outcomes: 85% Reserves Advisory and Project (FY13) public expenditure Mechanism: 86% Management Program management Target: (2013 end of SLP2)  Sustainable Livelihoods 3 Project (RAMP) (FY13) - The Human Outcomes: Remains above  Improved NDIC’s capacity Development Fund 80%  Additional Financing - in assessing and planning MONSTAT Strengthening the approach fiscally Mechanism: Remains above public investments unsustainable 80% National Statistical System  Municipality of Project (FY15) - Municipality of Indicator 3: Local Ulaanbaatar adopts an Ulaanbaatar’s Development Fund indicator Key Ongoing and Indicative AAA: improved budgeting  ESW Programmatic Economic budgeting formats and target to be identified system lack transparency during the preparation of the Policy (Quarterly Economic Third Sustainable Livelihoods Updates) (Continuous) Project  TA Reserves Assets Management Program (Continuous) 31 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles  TA Debt Management Strategy (FY12-13)  ESW Programmatic Municipal Financing for Ulaanbaatar (FY12- 13)  TA Procurement Assessment (FY14) Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas Diversify the economy - Threat of “Dutch Outcome 2.1 Enhanced the  Established movable Ongoing Financing: CNDS Goal: “Intensively Disease� investment climate and collateral registry  Multi-sector TA Project (FY10) develop export-oriented, - Continued financial intermediation  Adopted action plan for  IFC Advisory Services: Corporate private sector-led, high appreciation of the Indicator 1: Average number consumer protection in the Governance technology-driven Tugrik of days to comply with financial sector  IFC Advisory Services: Inspection manufacturing and - Level of financial business regulations  Improved corporate Services services, with particular intermediation low Baseline: 12.6 (FY12) governance of IFC bank  TF KTF (Korea): Multi-sector TA focus on information, - Critical Target: 10 (FY17) investments Indicative Financing: communication infrastructure gaps  Implemented International  Small and Medium Enterprise development, transit and poor Financial Reporting Access to Finance Project (FY14) transportation, logistics, management and Standards in some of the  TF FIRST (Financial Sector financial mediation delivery of public public-interest entities Reform and Strengthening) services, deeper processing services supported by IFC Initiative: Improving Financial of agricultural products, Sector Stability and create a sustainable,  IFC knowledge-based Key Ongoing and Indicative AAA: economy.�  ESW: Financial Sector Assessment Program (FSAP) CNDS Goal: “Enhance Development Module (FY12) banking and financial  ESW Financial Sector Monitoring system and services.� and Policy Dialogue (FY12-13)  TA Financial Literacy and Consumer Protection Assessment (FY13) National Livestock - Half of the herders Outcome 2.2 Created more  Reviewed agricultural Ongoing Financing: Program (NLP) Goal: “To live on an income opportunities in the rural price support and subsidy  Index-Based Livestock Insurance develop a livestock sector below the national economy for enhanced policies Project (FY05) that is adaptable to climate poverty line livelihoods  Supported new financial  Information and Communications change and social - Development of Indicator 1: Number of loan products including loan Infrastructure Development 32 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles development and create an livestock sector beneficiaries from the guarantee funds to address Project (FY06) environment where the limited by lack of Microfinance Development collateral shortfalls  Sustainable Livelihoods II Project sector is economically integration into Fund at soum level and below  Increased use of ICT for (FY07) viable and competitive in domestic and global Baseline: 29,133 (2008) rural finance  Renewable Energy for Rural the market economy; to supply chains and Target: 39,330 (2013)  Drafted Food Security Law Access Project plus GEF provide a safe and healthy weak provision of Indicator 2: Household Component (FY07) food supply to the productivity income generated from  TF KTF (Korea): Index-Based population; to deliver enhancing services agricultural production and Livestock Insurance quality raw materials to (animal health, processing in pilot soums  TF EC (European Commission): processing industries; and animal breeding and under the Global Agriculture Sustainable Livelihoods II to increase exports.� nutrition) and Food Security Program  TF MN-FS: Renewable Energy - Herders are supported livestock project for Rural Access Address vulnerabilities increasingly Baseline and target to be  TF PHRD (Policy and Human affecting certain segments exposed to shocks determined during project Resources Development): of the population in international preparation Sustainable Livelihoods II commodity prices,  IFC Advisory Services: Food and specifically to Safety cashmere prices. Indicative Financing: - Access to finance  Sustainable Livelihoods 3 Project in rural areas (FY13) limited by high  TF GFAHI: Avian and Human costs of borrowing Influenza 2 Project  TF GAFSP (Global Agriculture and Food Security Program (GAFSP): Livestock-Based Livelihoods Improvement Project  IFC Investments in agribusiness  Index-Based Livestock 2 Project (FY16) Key Ongoing and Indicative AAA:  ESW Programmatic Agricultural Policy Review (FY12-13) Pillar 3: Address Vulnerabilities through Improved Access to Services and Better Service Delivery, Safety Net Provision, and Improved Disaster Risk Management CNDS Goal: “Implement a - Half of the Outcome 3.1 Worked with  Analyzed and disseminated social welfare policy workers in the the government on the poverty data Ongoing Financing: primarily targeting low informal sector do design, adaptation, and  Disseminated policy notes  Multi-sector TA Project (FY10) 33 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles income and vulnerable not earn enough to implementation of a on women and labor  KTF (Korea): Multi-sector TA groups.� meet basic needs comprehensive social markets, and women and Indicative Financing: - Fragmented protection system that mining  Social Protection Administration Address potentially multiple social supports the poor  Completed Gender Action Project (FY16) growing perceptions that welfare benefits are Indicator 1: Proportion of Plan Key Ongoing and Indicative AAA: all are not afforded the not targeted and poverty-targeted benefits  Assessed gender  ESW Social Protection (including same opportunities – nontransparent going to poor households dimensions of poverty and pension reform) (FY12-13) between rural and urban - Unsustainable Baseline: 0% (FY12) inequality  ESW Programmatic Poverty areas, between rich and universal cash Target: >80% (2014)  Introduced a poverty- Analysis (FY12-13) poor transfer system targeted social assistance  ESW Poverty and Inequality -Risks of vulnerable benefit, a new targeting Study (FY13) groups being further mechanism, and more  Gender Action Plan (FY13) marginalized integrated beneficiary - Building information management connectivity  Developed options for between people, pension reform that services, and balance fiscal and social businesses is a concerns (including gender challenge due to size of country CNDS Goal: “Achieve the - Significant Outcome 3.2 Supported  Completed study on Ongoing Financing: MDGs and provide for an disparities in better delivery of basic accountability of service  Ulaanbaatar Services all-round development of educational and services (education, health, delivery in a decentralizing Improvement Project (FY04) Mongolian people.� health outcomes by justice, and infrastructure) government focusing on  Rural Education and Development location and socio- Indicator 1: Number of fixed health and education (READ) Project (FY06) CNDS Goal: “Strengthen economic groups ECE facilities/ kindergartens  Improved Ulaanbaatar  Information and Communications government institutions - Substantial built under Bank-supported municipality infrastructure Infrastructure Development and improve legal challenges of projects planning and investment Project (FY06) environment to ensure building efficient Baseline: 0 (2012) prioritization with  Sustainable Livelihoods II Project transparency and and accountable Target: 37 (2014) community participation (FY07) accessibility of public delivery systems for Indicator 2: Number of  Identified key challenges  Renewable Energy for Rural services.� social services in a children attending new mobile for efficient functioning of Access plus GEF Component decentralizing ger kindergartens Municipality of (FY07) environment, Baseline: 0 (2012) Ulaanbaatar’s budgeting  Enhanced Justice Sector Services especially at local Target: 1,500 (FY17) system Project (FY08) levels Indicator 3: Access to legal  Expenditures for key  TF EC (European Commission): - Weak capacity of information and advice across services are reflected in the Sustainable Livelihoods II the court systems all Ulaanbaatar districts and municipal budget  TF EFA-FTI (Education for All 34 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles and lack of access to aimags  Utilized justice sector data Fast-Track Initiative) Catalytic TF justice in rural areas Baseline: No value related as part of a framework for  TF MN-FS: Renewable Energy - Lack of access to information available; no court administration, for Rural Access judicial information paralegals available; no budgeting, and planning Indicative Financing: - Infrastructure information in minority  Applied IT solutions to  Third Ulaanbaatar Services investments in ger languages available (2012) enhance access to justice Improvement Project (FY13) areas not fully Target: 60% of Ulaanbaatar information including use  Sustainable Livelihoods 3 Project prioritized districts and aimag centers of websites and mobile (FY13) - Rapid urbanization distribute legal information in phones  E-Health Project (FY14) putting pressure on central community locations;  Transmission Line Project (FY15) urban services paralegals providing advice in  District Heating Project (FY15) 60% of aimag centers, soums,  TF Multi-donor TF: Global and horoos; 10 laws available Partnership for Education in minority languages (FY17)  TF JSDF (Social Development Indicator 4: Number of people Fund): Improving Primary in pilot ger areas with access Education Outcomes for the Most to an all-season road within a Vulnerable Children in Rural 500 meter range Mongolia Baseline: 25,000 (2012)  TF SDC (Swiss Development Target: 60,000 (FY17) Cooperation): Participatory Indicator 5: Number of people Planning/Decentralization Support in pilot ger areas provided with access to regular solid Key Ongoing and Indicative AAA: waste collection  ESW Programmatic: Baseline: 0 (2012) Accountability and Service Target: 69,000 (FY17) Delivery in a Decentralized Indicator 6: Number of sub- Environment (FY13-14) projects identified through the  [Possible ESW Administrative district planning process Courts and Executive launched Accountability (FY14)] Baseline: 0 (2012) Target: 8 (FY17) CNDS Goal: “Create a - Dzud events Outcome 3.3 Reduced  Agreed on roadmap for Ongoing Financing: sustainable environment remain a threat to vulnerability of households transitioning index based  Index-Based Livestock Insurance for development by livelihoods exposed to natural hazards livestock insurance Project (FY05) promoting capacities and - Herders exposed to and pollution institutional structure  Sustainable Livelihoods II Project measures on adaptation to climate-related risks Indicator 1: Percentage of  Explored ways to provide (FY07) climate change, halting that can affect living herders participating in the universal coverage for  TF KTF (Korea): Index-Based 35 Country Development Issues and CPS Outcomes Milestones WBG Program Goals Obstacles imbalances in the country’s standards Livestock Risk Insurance uninsurable catastrophic Livestock Insurance ecosystems and protecting - Severe winter air scheme losses to those herders not  TF PHRD (Policy and Human them. pollution in Baseline: 9.13% (FY12) already holding insurance Resource development): Ulaanbaatar Target: 15% (2014) policies Sustainable Livelihoods II Implement policies and - Populations Indicator 2: Coverage of  Extended Livestock Early Indicative Financing: strategies to improve the vulnerable to targeted households without Warning System and  Ulaanbaatar Clean Air Project legal environment for disaster risks eligible stoves linked to disaster (FY12) disaster management - Increasing number Baseline: tbd based on management agencies  Sustainable Livelihoods 3 Project of urban migrants consultations with donors and  Principal recommendations (FY13) are exposed to Ulaanbaatar City and action plan developed  Transmission Lines Project natural disasters, Target: 60% of targeted by the Ulaanbaatar Clean (FY15) including seismic households (FY16) Air Project for selected  District Heating Project (FY15) events Indicator 3: Number of people medium-term abatement  Index-Based Livestock 2 Project in pilot ger areas protected measures approved by (FY16) from inundation relevant counterparts Key Ongoing and Indicative AAA: Baseline: 0 (2012)  Developed disaster risk  TA GFDRR: Disaster Target: 19,000 (FY17) management plan for Preparedness (FY14) Ulaanbaatar (earthquakes and floods)  Developed hazard and vulnerability database for Ulaanbaatar 36 Attachment 2 Worldwide Governance Indicators for Mongolia (2010, 2005, 2000) 37 Attachment 3 Mongolia CAS and ISN Completion Report MONGOLIA CAS AND ISN COMPLETION REPORT FINAL - 3/19/2012 Date of CAS (FY05-FY08): April 5, 2004 (Report No. 28419-MOG) Date of Interim Strategy Note (CY09-CY10): April 20, 2009 (Report No. 48311-MN) Period Covered by the Completion Report: July 1, 2004 to June 30, 2011 Summary of Evaluation Ratings Program Performance The Completion Report combines a moderately unsatisfactory rating of the achievements of the FY05-FY08 Country Assistance Strategy (CAS), and a satisfactory rating of the Interim Strategy Note (ISN) programs into an overall conservative rating of moderately satisfactory. Important differences characterized the performances of the two strategies, with the ISN providing timely and flexible support to Mongolia in the aftermath of the global financial crisis, drawing on important lessons learned in the implementation of the CAS, which faced challenges adjusting to changing political realities. The CAS was strongly aligned with the Government’s growth and poverty reduction strategy (Economic Growth Support and Poverty Reduction Strategy, EGSPRS), set an ambitious set of outcomes at the time it was designed, and defined a results framework against which progress would be monitored. The CAS also envisaged launching a PRSC series that would support the reform process in the country and underpin much of the work of the Bank. However, the reform agenda as identified in the CAS was not implemented as other priorities emerged following the 2004 general elections, including the growth of the mining sector and expansion of public expenditures boosted by high mineral prices. The Bank found that the CAS had relied too heavily on the PRSC as the choice of instrument, as also reflected in the various indicators identified in the results matrix. When circumstances prevented these from going forward, the Bank embarked on a re-alignment of its program with the development of new projects (e.g., Extractive Industries Transparency Initiative (EITI), Mining Technical Assistance, the Governance Assistance Project, etc.) and a strengthened focus on governance, supported by an extensive political economy analysis of the country and in particular its mineral resources sector. While the program performance of the CAS in light of the above is rated as moderately satisfactory, much of the work undertaken during this period was instrumental in setting the stage for considerably more flexible and aligned Bank support during the ISN 2009-2010. The formulation of the ISN took place at a critical time, with the onset of the global financial crisis in 2008, plummeting copper prices, and a domestic macro-fiscal crisis, and attention focused on adopting a sustainable fiscal management framework, including a prudent assessment of revenues and more targeted and better planned expenditures. Support was provided in the form of technical assistance (funded through projects as well as the Governance Partnership Facility, GPF) as well as budget support (including allocation from the IDA Crisis Window). This re-alignment of the program meant that some projects under preparation were dropped. The Bank also mobilized the support of other donors in the country, 38 building consensus around a coordinated platform of assistance to Mongolia. Moreover, it ensured the support of the new coalition government, which was keen to take decisive action to address the impact of the crisis. The comparative success of the ISN was enabled in part through lessons learned in the implementation of the CAS, but is also the result of a design that was more flexible and nuanced, providing vital support to the country at a turbulent time. For this reason, the rating of the ISN is satisfactory. CAS and ISN outcomes and milestones in key areas were fully or partially achieved (supported by Bank instruments), such as the enactment of fiscal regulations, stronger public financial management, improved mining sector management and governance, reduction of vulnerabilities, and expansion of mobile telephony and internet coverage and access. In addition, the Bank was able to introduce community participatory processes in several of its activities to enhance their effectiveness and transparency. Bank’s Performance The Bank’s performance in supporting the delivery of the Mongolia CAS and ISN results is considered to be moderately satisfactory. After a period of adjustment following the 2004 elections, the Bank was able to adjust nimbly to changing circumstances and deliver a substantive portion of the envisaged CAS program (albeit with some delays, adjustments, and the addition of some new operations) that exceeded the IDA commitment targets. Through activities that were already under way, including adjustments to ongoing and planned operations and technical assistance (TA), the Bank responded rapidly to the authorities’ request for support during the crisis including two key budget support operations which provided the cornerstone of the interim strategy. The Bank continued to support the program with relevant AAA and TA, and helped mobilize Trust Funds (e.g., education, environment, governance) aligned to the objectives of the CAS. The completed and ongoing operations are all rated satisfactory or moderately satisfactory for outcomes, development objectives, and implementation progress by the Implementation Completion and Results (ICR) reviews, Implementation Status and Results (ISR) reports, and Independent Evaluation Group (IEG) evaluations. Nevertheless, weaknesses in the design of the strategy, in part exposed when it became apparent that the envisaged PRSC series could not move ahead, are a key factor in the moderately unsatisfactory rating. During the CAS and ISN periods, the International Finance Corporation (IFC) made a number of investments in Mongolia totaling US$152 million and provided advisory services in key areas to complement the Bank’s strategy by promoting the private sector development. IEG’s evaluation on one of the IFC investments conducted in FY10 was rated “Mostly Successful�. I. Introduction 1. The Bank Group’s FY05-FY08 CAS for Mongolia was discussed by the Board in April 2004, just before parliamentary elections scheduled for June 2004. The CAS was aligned with selected priorities of the EGSPRS (discussed by the Bank’s Board in September 2003 along with the Joint Staff Assessment Note). Even though the risks of such timing were known, the Bank proceeded with the formulation and presentation of the CAS as the commitment to the EGSPRS reform agenda was expected to be maintained regardless of the election outcomes. In view of the broad consultations undertaken by the Government, the possibility of weakening commitment to the EGSPRS was assessed by the Bank’s Mongolia Country Team as a minor risk. Furthermore, the Bank’s Mongolia program had operated without a CAS for the preceding three years: the previous CAS covered FY99- 39 FY01 and the next one was held back pending the finalization of the EGSPRS so that the Bank’s strategy could be aligned. 2. No single party won a clear majority in the June 2004 national election, leading to an extended period of political change and a series of coalition governments. Some aspects of the EGSPRS implementation lost momentum after the departure of its main supporters following the change in government. While there was still overall commitment to the poverty reduction agenda with broad ownership of the program, the frequent political changes led to a fragmented and shifting development agenda as well as a shorter-term focus. The June 2008 elections gave the Mongolia People’s Revolutionary Party (MPRP) a majority but perceptions of voter fraud triggered protests. These turned violent, with five people killed. After these traumatic events, the MPRP formed a coalition government with the Democratic Party to mend fences. 3. With the end of the FY05-FY08 CAS coverage, and in response to the Government’s request for immediate support in the face of the unexpected and severe economic downturn precipitated by falling mineral prices and the global financial crisis, the Bank prepared an ISN in April 2009 for the next 18 months through the end of CY201011. The ISN reflected the major initiatives, analysis, and dialogue that were already underway (such as improvements in the mineral regulatory framework) and emerging priorities (e.g., social protection in face of the crisis, and fiscal management). The Country Partnership Strategy (CPS) that was under preparation was postponed given the uncertainties about the length and depth of the downturn. This Completion Report covers both the FY05-FY08 CAS and the CY09-CY10 ISN. II. Progress towards Mongolia’s Long-term Development Outcomes 4. The Mongolia EGSPRS (issued by the Government of Mongolia in June 2003) was viewed as a comprehensive document which aimed to foster development and human welfare and reduce poverty by accelerating private sector-led and broad-based equitable growth, and improving the efficiency of public expenditures. The EGSPRS articulated key development challenges and priority actions organized around five main pillars: (i) ensuring macroeconomic stability and public sector effectiveness; (ii) supporting production and exports and improving the environment for private- sector-led development; (iii) enhancing regional and rural development and environmentally sustainable development; (iv) fostering sustainable human development; and (v) promoting good governance, and implementing and monitoring the strategy. The joint Bank-Fund staff assessment noted its strengths as aligning national development goals – including the Millennium Development Goals (MDGs) – with sector strategies and programs; shifting the poverty strategy from income transfers and safety nets to growth and sustainable human development; and the potential to align donors and stakeholders with the strategy. It also noted important areas for improvements: addressing weaknesses in the underlying sectoral and thematic strategies; fitting programs in areas of agreement with budgetary resources; and undertaking more diagnostic analysis. 5. The 2004 coalition government, with the strong support of the President, adopted the Government Action Plan (GAP, 2008-2012) and National Development Strategy (NDS, 2008-2021) based on the MDGs. The ambitious NDS agenda emphasizes (i) achieving the MDGs (reducing poverty, promoting gender equality, environmental sustainability, improving health and education 11 A draft CAS Progress Report was initiated in early 2007, but then shifted to preparation of a full four-year CPS at the Government’s request. However, the draft CPS was delayed following an unexpected change in government in late 2007, and again by the June 2008 parliamentary elections. (Source: Mongolia ISN, 2009, p.15, paragraph 51) 40 services, and strengthening human rights); (ii) developing an export-oriented, high-tech, knowledge- based economy; (iii) exploiting strategic minerals to build savings, growth, and modern processing industry; (iv) developing regions and infrastructure to reduce urban-rural disparities; (v) halting ecosystem imbalances; and (vi) consolidating political democracy and an accountable system free from corruption and red tape. However, while the GAP, NDS, and socio-economic development guidelines were fully integrated with the MDGs, they were not prioritized, costed and linked to financing sources and a Medium-Term Expenditure Framework (MTEF). 6. Until 2008, the economy performed strongly, due in part to favorable weather and high mineral prices for copper and gold. Rising global mineral prices sparked a boom in mineral exploration and contributed to rapidly rising government revenues. With improved economic performance, the poverty incidence declined to 35.2 percent in 2007-8 from 61.1 percent in 2002-3. However, the macroeconomic situation deteriorated sharply during the latter half of 2008 with the global economic downturn and plummeting global copper prices. Growth fell and inflation reached 34 percent (year-on-year) in August 2008 due to a combination of expansionary fiscal and monetary policies and a de facto fixed exchange rate. The economy has since rebounded strongly from the sharp drop in outputs in late 2008 and early 2009, largely as a result of policy actions taken by the Government during the crisis. Estimates suggest real GDP grew by 6.1 percent (year-on-year) in 2010, after declining 1.3 percent in 2009. A balanced budget was achieved in 2010, reflecting underlying improvements in the economy and the recovery in commodity prices. A recent major achievement was the passage of the Fiscal Stability Law (2010) which greatly strengthens the medium term fiscal framework. 7. While the country has reached or will reach many of the MDGs at an aggregate level by 2015, there are strong disparities across the country. The EGSPRS aimed to reduce under-five mortality by two-thirds from 87.5 per 1,000 births in 1995 to 29.2 by 2015. It also set the goal of halting and reversing the spread of TB. Primary education enrolment rates were set to increase from 91 percent in 2000 to 100 percent by 2015. Mongolia has done well in extending access to basic education and early childhood education. The gross enrollment ratio in primary education reached 99 percent in 2010, and 76 percent for early childhood education, well ahead of schedule. However, learning achievement is low, particularly in rural areas. Under-five mortality (U5MR) fell to 23.8 in 2008, already below the target set for 2015, reflecting significant historical health sector investments. However, there are large rural-urban disparities in the U5MR and infant mortality rates. Adult mortality rates are on the rise and are linked to the rising incidence of non-communicable diseases. Available data on access to curative health services, although incomplete, suggest that high levels of out-of-pocket payments (about 90 percent spent on outpatient care and medicines) constitute a significant financial burden to households. The Ministry of Environment and Tourism prepared a Strategy on Environmental Policy Reform (2011- 2021) that covers a wide range of priority areas, and will be supplemented by the development of a national environmental action plan. III. Program Performance 8. The FY05-FY08 Mongolia CAS focused on five sets of development challenges: (i) ensuring macroeconomic stability and public sector effectiveness; (ii) supporting production and exports and improving the environment for private sector-led development; (iii) enhancing regional and rural development and environmentally sustainable development; (iv) fostering sustainable human development; and (v) promoting good governance and implementing and monitoring the strategy. In response to these challenges, the World Bank Group’s support was organized along three main objectives: 1) consolidating the transition; 2): reducing vulnerabilities; and, 3) strengthening the 41 alignment of policies and resources around results. A results framework was designed around these objectives in clusters of key results areas and 20 outcomes. Progress towards achieving outcomes was to be monitored through multiple indicators and milestones. (Attachment 1 provides details of the overall status on the progress and achievement of the outcomes as well as the indicators and milestones.) IFC’s strategic priorities in Mongolia are to complement the World Bank Group’s strategy by promoting the private sector development. Specifically, IFC’s support was focused on three key areas through investments and advisory services to help Mongolia position itself for sustainable growth and support job creation: (i) support stability and foster the development of financial markets; (ii) contribute to the sustainable development of the mining sector and associated infrastructure sectors; and (iii) support the development of industrial and agribusiness sectors with a particular focus on small and medium enterprises. Crisis response, business and investment environment, climate change mitigation and food security were important themes within these key strategic areas. 9. The CAS program targeted systemic and institutional reforms viewed as important to achieving overarching EGSPRS objectives. It focused on private sector-led growth, reform of the public sector, and reducing household vulnerabilities and proposed annual, single-tranche Poverty Reduction Support Credits (PRSCs) to support the implementation of priority EGSPRS objectives. The PRSCs were intended to (i) provide a framework for the Bank’s analytical work, dialogue and lending and to leverage Bank resources with other donors around a medium-term reform program; and (ii) be sequenced over the four-year CAS period based on readiness (e.g., PRSC I would focus on public sector reform, PRSC II on private sector development, and PRSC III on the social sectors). Selective lending operations and TA were also envisaged to build institutional capacity, implement reforms (e.g., public expenditures, infrastructure), and to pilot new approaches (e.g., Sustainable Livelihoods Project). During the course of CAS implementation, the program evolved to address emerging priorities and circumstances. The ongoing portfolio and lending program were adjusted to meet challenges, while some other operations, such as budget support credits, were deferred. 10. The ISN (CY09-CY10) was presented to the Board against the backdrop of government efforts to grapple with the economic crisis during the latter half of 2008. The Government was focused on restoring economic stability moving away from the populist but unsustainable policies pursued during the boom years. The ISN identified overcoming the natural resource curse as the most significant medium-term development challenge. It also identified the need for policy adjustments to address the economic crisis, protect vulnerable groups from the impact, stabilize and restore confidence in the financial sector, as well as the need to urgently develop crisis management capacity. The ISN embodied the Bank Group’s existing strategic policy directions and activities in support of the Government’s actions to address the short and medium-term challenges. Accordingly, the ISN proposed Bank Group support in the key strategic areas of (i) improving macro and fiscal sustainability in a mineral-based economy; (ii) protecting the poor and vulnerable; and (iii) encouraging transparent and prudent mining investments and a more competitive and stable medium- term business investment climate. A results framework included these goals and related outcomes and milestones (see Attachment 1 for recent status). CAS Objective 1: Consolidating the Transition 11. To deepen the transition to a market economy, the CAS focused on removing the remaining barriers to effective public service delivery and private sector development. It prioritized support to reforms geared towards building a more performance-oriented public sector. Specific reforms goals 42 included a better alignment of public expenditures with policies, an improved investment climate, sustainable infrastructure investments, and increased sustainability of social sector financing. 12. Strengthened systems and capacities to align public resources with policy priorities. The objective of consolidating reforms for a more performance-based public sector was partially achieved with the establishment of a functional Treasury Single Account (TSA) and Government Financial Management Information System (GFMIS), as well as greater public access to budget information. While the goal of aligning a comprehensive (including donor financed projects and recurring investment costs) MTEF/EGSPRS priorities and costed sector plans was not achieved, progress was made on aligning the public investment program with national and sectoral priorities. This included requiring the completion of feasibility studies before an investment project enters the budget. These institutional improvements were supported by policy triggers under the Development Policy Credits (DPCs I and II) and are now included in the draft of the new integrated budget law, expected to be passed by Parliament in 2011. The fully functional GFMIS is an important achievement for Mongolia, particularly compared with the experience of such projects in other countries. On the downside, the goal of establishing an incentive-based civil service has had limited achievements. There has only been minor broadening of the salary range and the staffing mix is still not in line with MTEF/EGSPRS objectives. Such civil service reforms have proven to be difficult to implement effectively in many parts of the world and Mongolia is no exception. Bank-supported projects contributed to the outcomes and AAA pieces were effectively used to bring greater realism to the agenda. 13. Improved policy, regulatory, financial environment for PSD. The establishment of a sound enabling environment for the private sector, including deepening financial intermediation, was partially achieved but was negatively impacted by the macroeconomic and financial downturn in 2008. While the Investment Climate Assessment (ICA) and Sources of Growth Country Economic Memorandum (CEM) identified the major impediments to stronger private sector development, the overall investment climate is still challenging (e.g., Mongolia’s declining relative ranking in the Doing Business ratings), though progress was made in some selected sectors (e.g., mining and agriculture). Both IDA and IFC teams closely coordinated their activities and collaborated in such areas as corporate governance and Doing Business, and maintained a dialogue regarding the development and the potential for private sector engagement in mining and other infrastructure sectors. The national PSD strategy is still to be endorsed by the authorities, though many recommendations of the background technical note are being implemented. The Private Sector Development Credit II, Legal and Judicial Reform Project, and the Financial Capacity Development Project supported the strengthening and effective implementation of reforms to facilitate PSD. Most of the indicators and milestones for improving the financial environment for PSD were met, but the severe banking crisis exposed acute vulnerabilities in the sector, arising in part from inconsistent enforcement of sound supervisory practices. The two DPCs supported more consistent enforcement of bank supervision, resulting in a bank-by-bank supervision action plan. 14. Strengthened policy and institutional framework to support cost-effective and sustainable infrastructure investments. Mongolia’s recent experience with the mineral price boom- bust cycle and resulting fiscal crisis exposed weaknesses in the public spending framework, the Public Investment Program (PIP) process, and the role of short-term political economy incentives, particularly related to infrastructure expenditures. However, corrective measures, including legislative reforms, are being phased in to smooth future public revenue windfalls and expenditure policies. These measures were linked to the development partner-supported reform program triggered by the crisis of 2009. There was progress in improving the financial performance of the energy sector 43 and improving electricity access in rural areas. The Bank was actively engaged in energy through projects and AAA such as Infrastructure Strategy and South Gobi Infrastructure and Environment. To improve road infrastructure, the Transport Development Project (FY01-FY08) aimed to strengthen the planning and asset management capacities of road sector entities. However, in light of limited accomplishments, the World Bank opted for phasing out of the road sector. Meeting the CAS outcome of increased ICT (Information and Communication Technology) access and coverage in Mongolia has been particularly successful. With World Bank financed subsidies combined with private sector subsidies from the Universal Service Obligation Fund (established with support from the Global Partnership on Output Based Aid), all 335 soums have been provided with access to reliable and affordable mobile voice services, with an additional 34 soum centers now equipped with broadband internet access for public and private users. Schools are connected at discounted rates, there is wider access to internet cafés, and a network of over 170 satellite public telephones serve herders in remote areas beyond the reach of the mobile networks. The partnership with the private sector to promote these services has been instrumental in contributing to the sustainability of the outcome. 15. Strengthened social service financing and institutional capacity. There was limited progress in improving the financial sustainability and targeting of the pension and social insurance program due to modest Government interest in advancing such reforms at that time. More recently, there has been renewed interest in Bank technical assistance on various pension system reform areas. The Bank has been providing advice to the Government on issues related to the Poverty Targeted Benefit (PTB) scheme and the Social Welfare Law (SWL) as part of the key reform areas initiated during the crisis and supported by two DPCs from the Bank’s side. In this context, the Bank supports the Asian Development Bank (ADB) in the implementation of the second phase of the Proxy Means Testing (PMT) survey and through the social protection component in the Multi-Sectoral TA Project. Other ministries (health and education) have also expressed interest in using PMT to target beneficiaries. Progress was made on education sector outcomes to improve the delivery of services by better linking needs with spending. The Bank facilitated the education outcomes through: (1) the Education for All Fast Track Initiative (EFA FTI) Catalytic Fund grant that supports the improvement of education access and quality, particularly for herders’ children; (2) an IDA grant for the Rural Education and Development (READ) Project which provides classroom libraries and teacher training to raise the literacy skills of students in Grades 1-5; (3) and additional IDA financing to support the use of net-books to improve learning. The major impact has been an improvement in the learning environment and facilities, which in turn has laid the foundation for improvement in reading skills in rural schools. Although Mongolia received an Education Program Development Fund (EPDF) grant to participate in the international assessment of the Trends in International Mathematics and Science Study (TIMSS) and Program of International Reading Literacy Study (PIRLS), the Ministry of Education, Culture and Science (MECS) decided not to implement the full scale survey in 2011. Meanwhile, Mongolia has applied for an EFA FTI Graduation Grant to finance the building of kindergartens. For higher education, the accreditation system is being improved thanks to Bank analytical work being implemented under an ADB education project. As part of CAS selectivity and in light of the strong involvement by ADB in this sector, Bank support to the health sector was at the margin through small grants. However, the client and partners value the Bank’s role in global best practices, knowledge and innovation (e.g., AAA on output-based budgeting in the health sector funded by seed grant from the Results Based Financing Trust Fund). CAS Objective 2: Reducing Vulnerabilities 44 16. As part of the CAS, the Bank set the objective of increasing support to efforts aimed at reducing risks to vulnerable populations, particularly in rural areas, and to improve the delivery of services. It would support innovative and pilot initiatives (such as livestock insurance), better natural resource management, sustainable regional development and stronger municipal governance and urban services including for ger areas. 17. Strengthened risk management and growth to reduce rural vulnerability. Under this results area, the twin CAS objectives were (i) strengthen systems that reduce risk and improve service delivery to vulnerable populations, and; (ii) address the key sources of rural vulnerability by expanding support. Both the Sustainable Livelihoods Project (SLP) and the highly innovative Index- Based Livestock Insurance Project (IBLIP) helped to address risk and vulnerability, with the latter providing livestock insurance coverage to 14 percent of targeted herders, a rate higher than originally envisaged. Based on its early success, IBLIP is now being expanded nationwide to protect herders from the vulnerability of natural and environmental risks and to improve the country’s risk management system. Almost 36,000 sub-loans, for a total of US$30.4 million, have been disbursed by banks and non-bank financial institutions under the micro-finance component of the SLP, benefitting almost 164,000 people directly or indirectly. The project has made major contribution to decentralization in the country, first and foremost by piloting a model of community participation in public investment at local level, with lessons from the project incorporated in the integrated budget law. SLP is also helping more than 176,000 herder families improve their pastoral management skills, emphasizing winter preparedness and a reduction in the vulnerability of livestock. The targeting of community level infrastructure projects (e.g. renovation of school dormitories) also seem to be succeeding with high satisfaction rates among beneficiaries. 18. Strengthened environmental and natural resource management. The Bank supported efforts to improve national and community level environmental governance and natural resource management (NRM), which has obvious linkages to vulnerability. The Bank-administered Netherlands-Mongolia Trust Fund for Environmental Reforms (NEMO 1 and 2) helped generate a range of activities and analyses to advance environmental protection and the sustainability of NRM, including through improvements in environmental laws and standards. Also under NEMO, the Steppe Forward Programme produced the Mongolian Biodiversity Databank, and the legal framework for NRM was revised. A series of studies were carried out to deepen the understanding of environmental issues such as ground water resource and managing the mining impact on the environment. Public consultations and access to information on Environmental Impact Assessments (EIA) were actively promoted. The publication of all existing EIAs on the internet was further supported by DPC2. The CAS outcome for piloting community-based NRM systems in selected soums was indirectly supported through the Sustainable Livelihoods Projects. 19. Improved municipal service delivery for Ulaanbaatar peri-urban residents. Progress was made in improving service delivery to vulnerable groups in the peri-urban areas of the capital. Provision of water supply and kiosk operations improved gradually, directly benefiting the low- income ger households. Under the Bank-funded Second Ulaanbaatar Services Improvement Project, about 280 water kiosks and 100 individual connections for water and sanitation have been made in the ger area of Ulaanbaatar. As a result, the number of people per water kiosk has been nearly halved to 892 with approximately 300,000 benefitting. The service performance of the Water Supply and Sewerage Authority was improved by reducing unauthorized water and electricity consumption. Operation costs were also reduced, while water and wastewater tariffs were increased over the past three years. However, the water utility’s financial sustainability of has still not been achieved. 45 20. Improved viability of initiatives to reduce rural-urban disparity. The CAS proposed to inform the Government’s regional development strategies (which aimed to reduce disparities and included large infrastructure investments) with analytical work, analysis of options, and the study of cross-country experiences with such efforts. However, the post-2004 government had less interest in regional development strategies, except in South Gobi where most of the mining boom is happening. The Bank thus undertook a large piece of AAA, the Southern Mongolia Infrastructure Strategy which looked at the institutions and investments needed to support the growth potential of Southern Mongolia. CAS Objective 3: Strengthening the Alignment of Policies and Resources Around Results 21. In alignment with a key pillar of the EGSPRS, the CAS aimed to strengthen the national institutional framework and capacities to design, implement, and monitor the country’s poverty reduction strategies and programs in close coordination with other development partners. Supporting the government efforts to formulate and implement the related sector strategies and building consensus would be important as well as the coordination and harmonization of donor procedures. After the EGSPRS was adopted, the country priorities evolved and the EGSPRS could no longer be used as a platform for coordination and development effectiveness. The Bank adjusted to these new realities and focused on enhancing donor coordination and ensuring results within the Bank-funded activities. 22. To support stronger aid coordination and harmonization, the Bank assisted the Government in moving from the Consultative Group mechanism focused on pledging aid to the more operational biannual Technical Meetings (TM) and Sector Working Groups (SWG). The TM mechanism was particularly effective in coordinating support to the Government in addressing the 2008-2009 economic crisis. The World Bank played the coordinating role with the IMF, the ADB, JICA, and USAID in mobilizing the budget support needed to support the Government’s action plan. The combination of strong policy actions and adequate external resources played a major role in the country’s ability to mount a quick turn-around, and laid the foundation for a significant improvement in its medium to long-term development strategy. The Bank adjusted quickly to the crisis by reallocating two-thirds of its IDA envelope to development policy lending, supported by existing or restructured TA projects and just-in-time AAA. Donor coordination in sectors such as education (e.g., sector-wide approach around the Fast Track Initiative) and mining has been useful. 23. While some progress has been made on the harmonization agenda, leadership in coordinating aid at all levels by the Government needs further strengthening. Official Development Assistance (ODA) is now included in the budget (with the Bank setting good practice), but there are still issues with lack of transparency and limited dissemination of aid-related statistics and information. The Government is now moving towards partnership relations with the donors that are more in line with its emerging middle-income country status, signaling its desire to rely more on its own resources rather than on aid. ISN Objectives 24. Under the ISN, the Bank sought to support the authorities’ urgent response to the crisis and associated reforms to improve medium-term economic management, with a particular focus on the economy’s mineral dependence. The 2008 severe economic downturn gave an opportunity for the Government to revisit its financing mechanisms and management of mineral resource revenues. The 46 Bank, through the Economic Capacity Building TA and the Governance Assistance Project as well as policy dialogue, had already been actively working with the Government to strengthen pro-cyclical fiscal management, investment planning, and the linkages among the various strategies and policy documents such as the Government Action Plan (GAP), the Medium-Term Budget Framework (MTBF), and the Socio-Economic Guidelines (SEG). While the crisis exposed substantial policy weaknesses, it also provided the opportunity to correct these and initiate a series of significant reforms in key areas. The ISN formalized this reform agenda and articulated the program for CY09- CY10 under three strategic areas. 25. ISN Strategic Area 1: Improve Macro and Fiscal Sustainability in a Mineral-Based Economy. The crisis provided the opportunity to support major policy reforms which had been stalled for a long time. These reforms were supported by an IMF-led stabilization package, with budget support being provided by the ADB, Japan, Australia, the US, India, and the World Bank. The 2010 Fiscal Stability Law (FSL) was the centerpiece of these reforms and its implementation is currently being phased in. The 2011 budget available for current expenditures is already based on smoothed-out mineral prices, with the balance being saved in a stabilization fund. However, the structural balance rule that caps the deficit to a certain level of GDP will only start being applied in 2013. While the Bank, in order to avoid cross-conditionality, did not include passage of the FSL in the DPCs, it supported the drafting of the legislation and organized an intense outreach program to Parliament with the view of building consensus around the law. The Bank’s crucial role is widely acknowledged. Similarly, improvements to the PIP were given important momentum during the crisis and have now been included in the new integrated budget law. In the banking sector, the supporting program met the original objectives of restoring confidence in the banking system, although it did not fully address the problem of underlying financial sector vulnerabilities, which continue to make the system prone to future crisis. 26. ISN Strategic Area 2: Protect Poor and Vulnerable Groups. The ISN outcome of retargeting social assistance to the poorest has gained traction with the development of a methodology for Proxy-Means Testing (PMT) and the roll-out of the survey to build the national beneficiary database. The official implementation of the PMT-based Poverty Targeted Benefit scheme is pending the enactment of the Social Welfare Law. In the meantime, the universal Child Money Program (CMP) has been replaced by universal cash transfers from the Human Development Fund. The Sustainable Livelihoods Project, in particular through its Community Initiatives Fund component, addresses the vulnerability of rural populations. It has supported the community-led investment projects, including renovation of dormitories and schools, improved healthcare facilities, improvements in local infrastructure (from public bath houses to street lighting), and increased economic opportunities (e.g., through the construction of hay storage facilities and water points for cattle). The Index-Based Livestock Insurance Program is already available in 15 aimags and addresses pastoral and disaster risk management. Bank support for reducing vulnerabilities in urban areas aimed to enhance municipal planning capacity and urban services with a focus on ger areas. Key analytical and diagnostic pieces have already been completed and are informing policies and providing clear cost-benefit choices. Additional financing for the Energy Project is improving the reliability and financial sustainability of electricity distribution companies. The performance of these outcomes is satisfactory as many of them are partially or fully achieved and each outcome addressed the urgent needs of the Ulaanbaatar municipality. 27. ISN Strategic Area 3: Encourage Transparent and Prudent Mining Investments and a More Competitive and Stable Medium-term Business Investment Climate. The program has been successful in pursuing objectives aimed at improving the management of the sector, although 47 the remaining challenges are substantial. The legislative framework for mining is evolving and should soon reach a stable stage more consistent with international good practices. Establishing a balanced and sustainable fiscal regime for the mining sector remains the greatest challenge. Constantly changing provisions, with sometimes aggressive taxation, discourage investments in exploration and development by reputable companies and encourage corruption and tax evasion by less credible companies. The repeal of the windfall profits tax was well received but was then somewhat replaced with a high royalty regime supported by government-fixed commodity prices. Bank engagements that are making significant contributions include the Mining TA Project, the DPCs, and the Governance Assistance Project. Ad hoc fiscal regime changes are a strong disincentive for investment and should remain a major focus of future efforts for dialogue and engagement. Since the opening of Oyu Tolgoi, one of the world’s largest copper mines, and Tavan Tolgoi, a six billion ton coal resource, the Bank has focused on support to ensure that mining revenues are translated into positive development outcomes. These efforts have included strengthening governance across the mining value chain by promoting broader and more informed public accountability. Key achievements included the EITI compliant designation received by Mongolia in 2010 and improvements in the transparency of the mining cadastre. Understanding the long term importance of Oyu Tolgoi as a critical growth source for the development of the country, IFC, in close coordination with the Bank, has been working closely with the private developer and partner banks with a goal to arrange a multi-billion US$ debt financing package for the sustainable development of this world class mine project, as well as actively engaging in technical, environmental and social due diligence and advisory services initiatives including community development program. 28. Throughout, the World Bank placed a strong emphasis on encouraging greater transparency and accountability. Starting with an in-depth political economy analysis, the Bank aimed to foster public dialogue around key development issues anchored in facts and informed by other countries’ experiences. It did so on both the supply and demand sides of governance, the latter thanks to the support of the Governance Partnership Facility (GPF). For example, in addition to advancing greater transparency in the allocation of mining licenses through the reform of the mining cadastre, the Bank also initiated the establishment of an independent think tank and supported the training of Mongolian journalists in economic and mining matters. IV. Bank’s Performance 29. The Bank did well to adapt to the evolving circumstances soon after the 2004 CAS was discussed. In September 2005, the Bank agreed with the new government to refine the CAS priorities and deliverables. With the PRSC series stalled, the Bank reformulated its approach to focus on key planned investment lending often modified to meet emerging challenges (e.g., Private Sector Development Credit II, Rural Education Development), additional operations to meet new priorities (e.g., Governance Assistance Project, Renewable Energy for Rural Access, Enhanced Justice Sector Services), technical assistance (e.g., Mining Sector TA), and non-lending technical services aimed at achieving the key development goals and outcomes that had been identified in the CAS. It was also successful in raising grant resources to address the country’s needs, with resources for recipient executed trust funds more than tripling from US$23.55 million in FY05 to US$74.5 million in FY11. Moreover, the Bank mobilized resources from donors to co-finance a range of IDA operations, facilitating strengthened donor collaboration and coordination at the sector level. Examples of this include, among other, EU support for SLP2, its largest commitment in Mongolia, Swiss and Korean support for IBLIP, Japanese support for project preparation and the Ulaanbaatar Services Improvement Project, and support from the Netherlands for NEMO and the Renewable Energy 48 Project, etc.. As the 2008-2009 economic crisis deepened, the Bank Group deferred the approval of the next CAS and instead adopted an 18-month ISN to support the Government’s urgent priorities. The ISN incorporated major Bank initiatives that were already underway (e.g., the focus on the mining sector) and framed the Bank’s program around key priority areas needed to stage a quick recovery and form the basis for an improved medium-term policy agenda. 30. Two DPC budget support operations provided the cornerstone of the interim strategy and accounted for US$70 million of the indicative ISN FY09-FY11 IDA envelope of US$90 million (actual IDA commitments over FY09-FY11 now stand at US$131 million). In addition, components of several ongoing operations were reoriented to support the DPC policy areas. The DPCs were designed to help the Government manage the economic downturn triggered by the collapse of copper prices and helped meet urgent financing needs. The single-tranche DPC-1 supported reforms in the areas of fiscal policy and management, social protection, the financial sector, and the mining sector. Collaboration among key partners (e.g., IMF, ADB, Japan, US) was close and effective given the urgency of the situation and the short time span for preparation. DPC-2 supports the significant reforms that the Government has undertaken since the economic crisis in 2008 including sustaining the economic recovery and developing a stable fiscal framework through improved fiscal policy and management; designing a social protection system that supports the poorest people through economic downturns; preparing a framework for a sounder financial sector; and maintaining an attractive investment climate for mining. The ICR review rated DPC-1 as being satisfactory while the IEG rating, which was provided one year after the approval of the DPC and before the passage of the Fiscal Sustainability Law, was moderately satisfactory. 31. Overall, the Bank has been able to make substantial progress in assisting the Government in key areas selected for support under the CAS and the ISN (strengthening public financial management and fiscal and public investment policies; addressing the needs of poor rural residents; supporting infrastructure development, with particular success in the ICT sub-sector; improving the alignment of resources with policies; and moving towards greater clarity of the mining sector policies and safeguards. In some areas where the Bank did not have substantial IDA allocations, it was able to leverage other resources, co-financing, and TFs, and also provide support through AAA and global cross-country experience sharing. The approval of a GPF for Mongolia was a key pillar of the increased outreach to stakeholders undertaken by the Bank to support the Government’s response to the crisis and the increased appetite for demand-driven initiatives to improve accountability in public service delivery. However, there was slower traction in other areas such as designing and launching the MTEF, civil service reforms, social welfare reform, and restructuring of the banking sector. 32. Lending Volumes. Over the FY05-FY08 (CAS) period, the Bank approved 10 projects worth US$99.6 million (of which US$50.1 million as IDA credits, and US$49.6 million as grants). Under the ISN, the Bank approved an additional US$130.7 million of IDA financing (Mongolia is currently not eligible for IDA grants) during FY09-FY11 with the approval of seven projects, including two DPCs for US$69.7 million. (See Attachment 2). During the FY05-FY08 CAS period, IFC committed US$57.6 million of debt and equity financing in eight projects; during the ISN period, IFC provided additional US$94.4 million in 14 projects. FY11 saw a record level of commitments in a given FY with US$83.3 million and seven projects. 33. IFC’s Performance. During the CAS and ISN periods IFC made a number of investments in Mongolia, which were strongly aligned with the WBG and IFC strategy. In the financial markets sector, IFC’s investments supported banking consolidation; increased banks’ lending volumes to target underserved segments, and expandED product and service offerings in the market. These 49 investments also included institutional strengthening and advisory work to improve risk management and spread best practice lending standards. IFC has successfully established trade finance lines with five local banks. IFC’s involvement and advisory services support to Mongolia’s Credit Information Bureau helped develop the country’s financial markets infrastructure. IFC is also enhancing the investment activities in the real sector with a focus on local corporations with diversified portfolios, which in FY08 led to a US$30 million investment in MCS Holdings LLC, one of Mongolia’s leading private companies diversified across such sectors as food and beverage, cashmere, and real estate. FY11 became a record year for IFC in Mongolia in terms of its investment activity (investments have been made in seven projects worth US$83.3 million, including US$50.0 million for the construction of the first Shangri-la hotel in Mongolia, US$20.0 million sub-debt in Khan Bank, US$7.0 million in the first private equity fund specialized in SMEs, and US$2.0 million in Suu Dairy, the largest dairy company in the country). During the same period, IFC significantly increased its advisory services in Mongolia with over US$4 million in projects funded jointly by IFC, the governments of Japan, Netherlands and clients, to help develop the business and investment climate and support financial markets. There are three ongoing advisory projects in Mongolia focused on Investment Climate (Business Inspections Reform), Corporate Governance and Access to Finance (trade finance, leasing, credit information, mobile banking). IFC, in close coordination with the Bank, is also exploring PPP advisory services to the Government of Mongolia. 34. Analytical and Advisory Activities. The CAS planned an ambitious AAA program for Mongolia and placed strong emphasis on collaborative efforts, more effective implementation, policy linkages, consensus-building, and dissemination. (See Attachment 3). Key AAA delivered to the client include major reports on mining, cashmere, and the enabling environment for social accountability; infrastructure strategies; assessments of poverty, the investment climate, and the financial sector; public expenditure reviews; a report on public investment planning; and an extended series of Netherlands-financed reports on Mongolia’s environment. ESW products focused mostly on economic and public sector governance followed by infrastructure, rural development, finance, and social sectors. Many of the completed tasks offered the Government and development partners the much-needed basis to advance the policy and sector dialogues. The individual elements of the DPC policy matrices, for example, were identified from, and supported by, previous analytical work, including in the banking sector where the results from a recent Financial Sector Assessment Program (FSAP) and other diagnostic work were extremely relevant and timely. The Multi-Sectoral TA Project is addressing accounting and auditing weaknesses identified by the AAA Report on the Observance of Standards and Codes (ROSC). The Bank’s quarterly, and then, from April 2009, monthly, Economic Updates played an important role in disseminating the rationale for, and progress on, reform measures, along with updates on the impact of the crisis on the macroeconomic, financial and corporate sectors. A QAG review of 11 tasks (over FY02-FY06) found that despite an unfavorable political and institutional context, the Bank’s AAA program was satisfactory in its strategic relevance, quality, and dissemination. 35. Results Framework. The analysis of the challenges in the CAS underestimated the political economy realities, and the proposed strategy was somewhat complex and ambitious. The strategy was predicated on robust macroeconomic management, strong adherence to the poverty reduction objectives of the EGSPRS, and continued commitment and implementation of the reform programs including substantive institutional changes. Events were overtaken first by the uncertainties subsequent to the 2004 election, and then by the windfall earnings from mineral exports and the impact of the natural resource curse. They were further exacerbated by public expenditures and 50 policies which were dominated by short-term perspectives and “pork barrel� political economy considerations. In retrospect, the design of the results framework was overly intricate with too many outcomes, indicators and milestones (some of which were not amenable to clear monitoring). Outcomes and indicators described in the text and text tables did not match the matrix and there were overlaps among some of the outcomes. The ISN results matrix is relatively simpler and outcomes are better aligned with proposed Bank Group instruments, including the planned DPC prior actions. V. Key Lessons and Recommendations 36. The lessons and recommendations for the next Country Partnership Strategy (CPS) draw upon the evaluation of the performance of the CAS and ISN, as well as feedback received from various stakeholders. Most counterparts viewed the Bank’s comparative advantage as an effective convener, especially in donor coordination, and as a major global institution guided by a strategic focus on results and analytical strength with the ability to create significant and effective knowledge products. However, some who worked with the Bank during the CAS period saw the EGSPRS as a complex Bank-Fund instrument that was needed to facilitate the allocation of significant amounts of concessional funds to Mongolia. 37. Some key lessons and suggestions for the next CPS include:  Build in flexibility to take account of transitions and emerging priorities. While the alignment and synchronization of the Bank’s country strategy with selected national priorities and development plans are the correct approaches to ensure broad ownership and commitment, efforts should be made to build in flexibility to accommodate government and electoral transitions as well as emerging and unforeseen developments. Undertaking consultations of proposed CPS priorities and instruments with wider segments of stakeholders, including parliamentarians and political entities in the opposition, could also reduce risks. Maintaining flexibility, alternative programming, and strong dialogue on strategic priorities across key ministries, parliamentary committees, and civil society will be essential. This will be particularly critical as the Mongolian economy is expected to grow rapidly over the next five years and its needs may change rapidly too.  Focus on fewer outcomes and ensure a clear results framework. The last CAS had an ambitious and complex results framework with multiple outcomes, indicators, and milestones. The next CPS should have a results agenda which (i) is aligned with selected national development priorities, (ii) takes account of the activities of development partners, (iii) engages in areas with strong client demand where the Bank has a comparative advantage and track record of performance in the country, but at the same time supports innovation by bringing in global experience; (iv) is simple and has only a few selected outcomes and clearly monitorable indicators and milestones; and (v) links directly with proposed instruments and activities. In fact, the CPS results framework should adopt existing and proposed project-level outcomes and indicators to the extent possible. Benchmarks and monitoring mechanisms should be set up as early as possible.  The advancement of sound development policies – be it through investment lending, budget support, and AAA – is the most sustainable impact of the Bank in Mongolia. Over the past seven years, policies and innovations have been introduced successfully through investment lending (e.g., ICT project, IBLIP) as well as budget support operations (e.g., the FSL through DPC-1). 51 These were supported by quality analytical work and had strong ownership within the Government. The crucial importance of understanding the political economy context for policy reforms also needs to be underscored.  Design programs/projects to minimize implementation challenges. Given capacity constraints, simplification of project design should be a priority in Mongolia. This does not, however, imply that projects should not be innovative. Mongolia has, in fact, proven that it can implement innovative and technically complex projects with significant policy impact (e.g., IBLIP). Furthermore, to reduce the implementation costs, greater reliance on country systems for procurement processes and financial management could be explored in conjunction with capacity strengthening as warranted. Repeater projects, programmatic lending (for example in urban development, direct poverty support, Public Financial Management), and additional financing operations can also reduce costs.  Take a programmatic approach to AAA. Given the longer-term nature of the engagement in Mongolia and the fact that Mongolia will increasingly value the Bank for its knowledge contributions, the Bank should consider multi-year programmatic ESW and TA programs in key areas (e.g., public expenditures, governance, civil service reforms) while continuing with responsive, just-in-time policy notes and advisory pieces, and systematic follow-through on AAA findings and recommendations.  Consider longer-term role of the Bank in Mongolia. The role of the Bank in Mongolia will need to adjust as the country graduates from IDA to IBRD status during the period of current CAS. Mongolia will become less reliant on ODA, and some traditional donors may reorient their support to other low income countries, which in turn may affect the ability of the Bank to mobilize Trust Fund resources. This will require strategic selectivity and emphasis on areas where the Bank has a comparative advantage. 52 CAS/ISN Completion Report Attachment 1 Summary of Mongolia CAS (FY05-FY08) and ISN (CY09-CY10) Programs Self Evaluation [3/14/2012] Financing CAS Outcome/ (Lending and Cluster of Outcomes Status and Evaluation Summary Grants) and Non- Key Lessons and Suggestions for the New CPS Outcome Indicators lending Activities (baseline and targets) that Contributed to the Outcome12 CAS Objective 1: Consolidating the Transition Results Area A: Strengthened systems and capacities to align public resources with policy priorities Outcome 1: The Financing: Government effectively Fiscal Accounting targets and manages TA (FY98-FY06; expenditures to support ICR=S; IEG=MS); national development Economic Capacity priorities Building TA (FY03); Outcome indicators: Governance Assistance Project Comprehensive MTEF Not achieved. Sector ceilings are currently not enforced and there is (FY06) The MTEF goal was not achieved because, as has been the aligned with EGSPRS no comprehensive MTEF based on bottom-up sector priorities. common experience in many countries, the reform was too priorities and costed, However, program classification was introduced in the chart of Non-lending: complex given the capacity on the ground. A less ambitious prioritized sector plans with accounts starting in 2009. Public Expenditure approach, with embedded advisors providing technical ceilings updated based on and Financial assistance to the Government on phased implementation, M&E feedback Management should have been pursued. Review (FY08); Strengthened financial Achieved. Functional TSA and Government Financial Information Public Expenditure GFMIS was funded through three projects: the Fiscal TA management and System (GFMIS) have greatly improved expenditure payments and Tracking Survey (now closed), ECTAC, and GAP. It succeeded due to close procurement systems; cash management. (PETS) Education Bank supervision, and sound project management on the 100% of all public accounts (FY07); Improving ground. included in TSA; deviations Public Investment between planned and actual Planning and spending decrease by 50% Budgeting (FY10) General public including Achieved. Mongolia’s score has improved from 18 (out of 100) in NGOs have access to all 2006 to 60 in 2010 in the International Budget Partnership’s Open budget and parliamentary Budget Index (OBI) ranking. Mongolia is now ranked among the 12 For projects, years in parentheses refer to FY of approval, and if closed, also FY of completion. Implementation Completion and Results (ICR) and Independent Evaluation Group (IEG) ratings are provided where available. S: Satisfactory; MS: Moderately Satisfactory. The most recent Implementation Status and Results (ISR) ratings of Development Outcome (DO) and Implementation Progress (IP) for ongoing projects in the portfolio are provided in CAS Standard Annex B8. For AAA, the year in parentheses refers to the FY of delivery to the client. 53 documents on a timely countries that make significant fiscal and budget information public. basis Intermediate indicators: By 2006, MTEF includes PIP does not include donor-financed projects or recurrent investment comprehensive, costed PIP costs including donor financed projects, recurrent investment costs GFMIS fully operational in GFMIS, operating across the country at the central, aimag, and soum central agencies and at levels, has greatly improved payments and cash management. aimag level; procurement processes streamlined Detailed functional and The frequency and volume of budget information published have economic allocation of increased considerably, and now include the Executive Budget budget, at national /local Proposal, monthly and year-end budget execution reports, and audit levels, available to public reports within 6 months of completion Outcome 2: Improved Financing: civil service capacities and Economic Capacity systems to manage for Building TA development results (FY03); Governance Outcome indicators: Assistance Project (FY06) The relative lack of progress on civil service reform is not Decompression of civil Not achieved. Pay compression was 3.1 in 2008; bonuses are not surprising given the World Bank’s general experience (see servant salaries from about linked to performance evaluation. Salary raises in Mongolia have been Non-lending: 2008 IEG evaluation). The Bank was too ambitious in this 2.74 in 2001 to about 5 in across-the-board and have not addressed pay compression. However, Civil Service Policy regard, with a large (US$0.9 million) QCBS contract with a 2007; bonuses linked to civil service pay, on average, is not unattractive when benefits and job Note (FY09) consulting firm to design a civil service reform strategy performance evaluation security are factored in. (Towards a High which resulted in hundreds of pages of reports of variable Performing Civil quality that could not be implemented. The Bank’s Staffing mix at sector levels Not observable. There is no functional MTEF that would guide Service) approach to the HRMIS was also weak, with insufficient consistent with MTEF and staffing mix at the sector level. upfront analytical work to understand the HR arrangements EGSPRS goals in Mongolia and the challenges that developing such a system would entail. Once the ESW report was completed Intermediate indicators: in 2009, and the challenges recognized, the approach was changed and currently a much more modest HRMIS is Adoption and There has been no progress to rationalize the wage bill or to revise the under development. implementation of Civil civil service pay scales. There was some progress in simplifying the Service Reform Strategy pay structure for teachers through merging of several allowances in and action plan to 2007. 54 rationalize wage bill in line with PRSCs; civil service pay scales revised Civil Service Council The Civil Service Law was amended in 2008 in line with some of the capacity, authority recommendations of the Civil Service Reform Strategy. Notable strengthened to manage changes include increased autonomy of the Civil Service Council personnel planning, giving it responsibility for determining the classification, ranking, and deployment, control; grading of civil servants, and for annually benchmarking civil service HRMIS in place pay with private sector comparators; and giving it increased authority in dispute resolution. Comprehensive HRMIS is not in place. The bidding was cancelled three times and the scope of the project has been reduced. Currently, a scaled-down HRMIS is under development. Results Area B: Improved policy, regulatory financial environment for PSD Outcome 3: Improved Financing: The WBG’s engagement has proven to be most effective enabling environment for Legal and Judicial when policy advice and TA were complemented by an private sector-led growth Reform Project investment loan (LJRP). The impact of analytical work (FY02-FY08; such as the ICA and Country Economic Report chapter has Outcome indicators: ICR=S; IEG=S); been more limited, partly because it was not systemically Enhanced Justice followed through by the Bank team due to the need to direct Government, donor Achieved. Investment Climate Assessment (2006) and Sources of Sector Services limited internal resources to more urgent work in the resources aligned to Growth Country Economic Report (2007) identified a set of concrete Project (FY08); financial sector. Although interventions at the sectoral level prioritized reform agenda to recommendations aimed at promoting private sector activity and Development Policy (e.g., mining and agriculture) have resulted in an improved support PSD, including greater integration with the global economy in a way that leads to job Credit 1 (FY09- enabling environment in relevant industries, the overall mining, livestock, other creation, broad-based growth and poverty reduction. A number of FY10; ICR=S; investment climate for private firms is still challenging, as sectors these recommendations have been since implemented by the IEG=MS); shown by Mongolia’s slipping in Doing Business rankings authorities, including streamlining of foreign trade procedures, and Development Policy in recent years. In particular, regulations for opening and reduction of tax burden. Work on simplification of the inspection Credit 2 (FY10) closing a business, trading across borders, and getting credit regime and corporate governance reform (including overhaul of the result in costs to business that are higher than in most other company law) is currently underway. Lines of credit from the Bank IFC: East Asian economies. Prompt and consistent enforcement and other donors facilitated access to finance by private SMEs. In Mongolia Corporate of regulations is also an issue. Going forward, it would be addition, significant progress has been made in improving the Governance Project; advisable for the WBG to agree with the authorities and investment climate and business environment in specific sectors Reforming Business other donors on a time-bound plan for dealing with the including mining and agriculture. Inspections Project identified impediments to private sector operations, and allocate commensurate TA and lending resources in support Non-lending: of the plan implementation. In view of the anticipated Public, including Achieved. Access to legal and judicial information was improved by Investment Climate mining boom, it is particularly important to focus on businesses, able to easily creating a virtual legal information portal and allowing for more (FY06); CEM enhancing competitiveness of private firms working in other access all laws, regulations, efficient dissemination of laws and other legal information among Sources of Growth sectors in order to maintain a degree of economic policies, and their drafts; government ministries and agencies through the creation of the (FY07); ROSC diversification. citizens able to appeal electronic United Information Network (UIN) in the National Legal Accounting and administrative decisions Center (NLC). As a result, the NLC provided (i) legal and judicial Auditing Review There needs to substantial and sustained effort to maintain information to 30 government organizations, agencies and ministries; (FY08); Corporate and expand the web portals and the UIN and to publicize the and (ii) facilitated public access to this information via two websites Governance ROSC existence and utility of this database in order to ensure an containing the laws of Mongolia, court decisions, decrees of ministries Assessment (FY09); increase in the number of public users of these internet sites. 55 and government agencies, and court commentaries. The success of Trade Facilitation Increasing information sharing among agencies and these websites was illustrated by 2007 survey results which showed a and Integration ensuring optimal public access and utilization of the new 100% increase in public access to information about the courts system (FY10); Annual justice system services would also depend on strong through the internet, a year after the websites were fully activated. In Doing Business capacity building efforts within the system and public addition, the Bank supported the establishment of the newly created Reports (regular); information strategies and campaigns by the court and administrative courts and the new Supreme Court Chamber for PSD Technical Note broader justice system. administrative cases. These courts are functioning well and citizens (2008) have ready access to the appellate level. The new CPS should build on the foundations created by the Intermediate indicators: LJRP and the follow-on Enhanced Justice Sector Services Project (EJSSP), currently under implementation. The Development/adoption of In 2008, the Bank prepared a PSD technical note at the request of the EJSSP is supporting important interventions in the PSD strategy which Government with the aim to provide the authorities with the analytical development and implementation of comprehensive legal includes clearly articulated foundation for a country PSD strategy. Although many education reform (strengthening of law professors, public policy agenda for recommendations from the above report have since been taken into development of standards of legal clinics, development of private sector growth account by the authorities, the national PSD strategy was not adopted student handouts), and a bilingual public information formally due to the onset of the financial crisis in late 2008. strategy. While the ISN did not highlight the justice sector as a focus area, the proposed CPS could link the ongoing National legal information The national legal information center was established, including a project to the cross-cutting theme of Building Capacity to center has full library and comprehensive library of laws and regulations. The legal information Manage the Crisis and Improve Governance in the Medium- database of laws and website was set up and is being maintained. Administrative courts Term. As the extractive industries grow, the need for regulations; administrative have been staffed and trained. The establishment of the NLC allowed individuals and the business community to understand their courts staffed, trained, and for the creation of a new legal institution in Mongolia capable of rights and how to access the justice system rises, and with it opened providing the MOJHA, the judiciary and the legal profession with the need to ensure that the system can respond. research and training capacities. In combination with the UIN’s legal and judicial databases, connected electronically to 30 government ministries and units, and provision of access to the public at large through on-site free computer use and library facilities, increased efficiency and transparency in providing access to the full corpus of Mongolian law and court decisions to end users were accomplished. Outcome 4: Increased Financing: banking sector stability Financial Capacity reduces risks, costs of Development credit Project (FY02- FY09; ICR=MS; Outcome indicators: IEG=MS) The severity of the 2008-2009 banking crisis in Mongolia Private Sector has shown that strengthening of the financial sector remains Enforcement of Partially achieved. The NPLs decreased to 5.3%, but this Development Credit a critical part of the development agenda. The main lesson strengthened financial improvement masked significant vulnerabilities in the banking system 2 (FY05); Index- emerging from the Bank’s engagement in the financial sector regulatory which became exposed in late 2008 when Mongolia felt the impact of Based Livestock sector is that the AAA and TA tools are not sufficient for framework: reduction in the global financial crisis. The weak credit risk management by banks Insurance Project dealing with deep-seated and politically sensitive issues. NPLs from 8% of assets to combined with the lax supervision regime resulted in NPLs reaching (FY05); While diagnostic work and TA are important, they need to below 5% by 2007; 25% in 2009, although the number has dropped to 10% by late 2010. Development Policy be complemented by policy-based lending that would improved rating for The assessment of Basel Core Principles conducted during the last Credit 1 (FY09- support implementation of lasting reforms in the sector. It compliance with Basel FSAP found that banking supervision is relatively well developed in FY10; ICR=S; is important that the new CPS gives adequate attention to Core Principles for comparison to other countries at Mongolia’s stage of transition. IEG=MS); the dual objectives of improving the scope and cost of 56 effective banking However, the banking crisis has demonstrated that enforcement of Development Policy financial intermediation while making the system more supervision existing regulations needs to be improved. Credit 2 (FY10) resilient to possible future shocks. Strengthened legal and Achieved. The Insurance Law was revised in 2004 and enabled the IFC: regulatory environment for development and selling of index based insurance. The Bank is now IFC Leasing livestock insurance and working with the Government on a separate index based livestock Development leasing industry insurance law (currently in draft). The Law on Financial Leasing was Project enacted in 2006, making leasing activities much more attractive for investors, both foreign and domestic. Mongolia also amended its tax Non-lending: legislation to create favorable tax treatment for leasing and encourage Financial Sector investment in fixed assets. Mid-Term Review Intermediate indicators: (FY06); Financial Sector Implementation of updated Separate strategies were developed in 2006-2007 for the banking sector Assessment medium-term financial and non-bank financial institutions, but the implementation got side- Program (FSAP) sector strategy; tracked in 2008 due to the severe banking crisis. The PRSC operations (FY08); Analysis of strengthened legal and did not take place, but substantial improvements in legal and regulatory the Banking Sector regulatory framework as framework were made during the crisis period. In 2006, Mongolia Vulnerabilities specified in the PRSC passed an AML/CFT law (Law on Combating Money Laundering and (FY09); Financial policy matrix, adoption of Terrorist Financing) and established a Financial Intelligence Unit. Sector TA (FY08) AML/CFT Law Since then, Mongolia has made significant progress on the AML/CFT agenda, including amending the criminal code, strengthening the supervision of banks and further building the capacity of the FIU. Adoption of Insurance Law Following the series of revisions in 2004, there were no other substantial changes in the Insurance Law Results Area C: Strengthened policy and institutional framework to support cost effective and sustainable infrastructure investments Outcome 5: Well costed Partially achieved. Mongolia’s Public Investment Plan (PIP) remains Lending: The combination of AAA, TA, and the DPCs has been and prioritized PIP, poorly aligned to national and sector strategies, and contains a majority Development Policy important for the progress achieved to date. The AAA aligned with the MTEF, of projects that have not gone through a proper appraisal or sound Credit 1 (FY09- diagnostic work identified the deficiencies and the areas for allocates resources across costing. However, some institutional and organizational reforms are in FY10; ICR=S; reform. The ECTAC and GAP TA projects provided the infrastructure sectors process that, if implemented well, should improve the PIP. These IEG=MS); consultancy support and overseas training and study tours to reforms include: (i) the Fiscal Stability Law (passed in 2010) that Development Policy try to implement some of the recommendations, and to Intermediate indicators: strengthens the MTFF and smoothes and limits public expenditure Credit 2 (FY11); expose Mongolian policy-makers to good international growth (pro-cyclical expenditures are one of the reasons for a poor Economic Capacity examples. The overseas exposure was particularly Integrated infrastructure PIP); (ii) changes to the legal framework (currently in the draft stage) Building TA important for the passage of the FSL. The DPC strategy supports for planning and budgeting (the Integrated Budget Law and the Law on (FY03); conditionality on removing projects without feasibility prioritization of Development Policy and Planning) that would strengthen the PIP; (iii) Governance studies not only helped improve the 2009 and 2010 PIPs, investments and policy and the establishment of the NDIC as the agency responsible for strategic Assistance Project but more importantly, gave prominence to this issue among institutional reform agenda planning and appraisal of large infrastructure projects, thereby (FY06) Mongolian parliamentarians. elevating the priority of this area and partially addressing the capacity gaps in the MoF; (iv) the preparation, by the NDIC, of draft project Non-lending: appraisal and project evaluation guidelines for projects to enter the PIP; Infrastructure and (v) rationalization of the PIP in 2009 and 2010 to remove some Strategy (FY07); projects that did not have appropriate technical drawings or were not South Gobi 57 well-costed. Infrastructure and Environment (FY09); Improving Public Investment Planning and Budgeting (FY10) Outcome 6: Improved Lending: financial sustainability Energy Sector With the implementation of REAP, the Government’s and efficiency of energy Project (FY01); “100,000 solar ger� program will be completed by the end sector Renewable Energy of 2011. There are still about 60,000 households in rural for Rural Access areas without any electricity access. More analysis of key Outcome indicators: Project (REAP) constraints and options for improving access is needed. It (FY07); GEF will be important to further promote the policy dialogue on Inter-company arrears Not achieved. Despite periodic write-offs and decisions to reduce Renewable Energy renewable energy and the regulatory framework. ESW on settled; reduction in energy interest rates of sovereign guaranteed loans, the inter-company arrears for Rural Access infrastructure and financial performance (including tariffs) quasi-fiscal activities from keep increasing. As of the end of 2010, inter-company arrears between (FY07); Energy of the sectors could further promote the policy dialogue and 1% of GDP in 2003 energy companies were still high (receivables Tg 25.3b and liabilities Sector Additional the strengthening of regulatory capacity in energy and other of Tg 29.3b). The receivables and liabilities in energy sector stand at 2 Financing (FY10) infrastructure sectors. The Bank should continue to support - 2.4% of GDP in 2010. Various reasons, including low tariffs, which these areas with other donors (e.g., USAID). Mongolia is do not allow companies to fully recover operational expenses, Non-lending: entering a crucial stage where the mining sector will drive imperfect power market structure and financial structure, and Infrastructure rapid economic development and significant financial incomplete energy sector restructuring contribute to increasing arrears. Strategy (FY07); resources are needed to support mining infrastructure. Ulaanbaataar Air Within the Mongolia Mining Infrastructure Investment Rebalanced tariffs recover Not achieved. After several price adjustments since 2007, the retail Pollution Support Project (to be effective) more pre-investment as full cost of providing tariffs for electricity has reached US 6 cents per kWh. Discussion Note well as feasibility studies for electricity generation can be electricity, but maintain (FY09); Rural undertaken. access for poor and rural Energy Project TA groups (FY08); Urban Heat Donor coordination within the Ulaanbaatar Clean Air Pricing and Program (UB CAP) has proven to be very effective resulting Ulaanbaatar electricity Partially achieved. Ulaanbaatar electricity distribution losses were Regulation (FY09); in the mobilization of substantial funding and the Bank distribution losses is reduced from 34% in 2003 to about 21% in 2010. Energy Project PIU Improving Public should scale up this approach. reduced from 34% in 2003 and Ulaanbaatar Electricity Distribution Network (UBEDN) estimated Investment Planning to less than 20 % by 2007 that additional revenues of about Tg 7b were collected due to reduced and Budgeting losses and increased collections. The UBEDN could not meet the (FY10); Energy target fully because the influx of migrants from rural areas is Efficient Heating in continuing and there are still areas with high non-commercial losses. Poor Peri Urban Areas of Public-Private partnerships Not observable. Because of the economic crisis and the shift of the Ulaanbaatar in place (including Bank program to emphasize Development Policy Credits (DPC), the (FY09); Mitigation financing arrangements) to priorities have shifted from long-term to short-term activities (e.g., Sector Reform and implement sector covering budget deficit). Tariff Adjustment investment program (FY10); South Gobi Infrastructure and Government, donors Achieved. The Bank financed the Renewable Energy for Rural Environment resources aligned to energy Electricity Access Project (REAP), and supported the Government’s (FY09) 58 strategy, including further “100,000 solar ger� program along with other donors (e.g., Japan, development of strategy for China, and GEF). The proposed “UB Clean Air� program served as a access platform for coordination of donor activities for air pollution reduction in Ulaanbaatar. Major donors included ADB, Millennium Challenge Account (MCA), JICA, EBRD and GIZ. Intermediate indicators: Adoption of main elements Account receivables for Ulaanbaatar Electricity Distribution network of financial restructuring of has reached 42 days. energy enterprises including account receivables to less than 45 days by 2007 Transitional measures The Energy Regulatory Authority (ERA) introduced lifeline tariffs for articulated to mitigate low-income people. social impact to vulnerable groups Pre-investment work There are several PPP projects, such as Power Plant #5 and Tavantolgoi completed to facilitate power plant. Though the Bank and IFC offered due diligence and private-public partnerships transaction advice for Power Plant #5 in Ulaanbaatar in 2008, the client in new heat and electricity (at that time the Ministry of Fuel and Energy) did not take the advice. generation Analysis completed of key No activities were planned or undertaken during the CAS period. constraints and options for Within the REAP, there will be surveys on the current status of improving access electrification in rural areas, which will be implemented during summer 2011. Outcome 7: Strengthened Lending: A more robust prioritization process should be instituted institutional capacity to Transport with greater consideration on economic rates of return when manage the road network Development considering new road investments. Mongolia’s road to meet objectives of Project (FY01- engineering standards and materials requirements, equitable growth, service FY08; ICR=MS; especially for pavement, are dated and in some cases delivery, and rural access IEG=MS) inadequate to accommodate the country’s harsh climatic conditions. Adequate supervision and testing of materials Outcome indicators: Non-lending during construction is essential. One permanent road lab Infrastructure and several basic mobile road labs are not sufficient. Stronger linkage of Partially achieved. The Ministry of Roads, Transport, Construction Strategy Consideration should be given to creating additional mobile transport ODA with widely and Urban Development (MRTCUD) has prepared a five-year (Foundation for road labs and stationing them on-site during large road agreed policy and investment plan for the road sector, which includes prioritized Sustainable works projects, or to establishing small road labs in key institutional reform agenda investments. Most of the large projects are centered on supporting the Development: Aimag centers to alleviate the burden on the existing road and prioritized investment mining sector, which supports the Government’s stated policy. Rethinking the lab and ensure better coverage. Enhanced supervision of program However, the process for identifying priority road sector investments Delivery of works during construction would encourage the use of 59 outside of the mining sector is largely political. There is a focus on Infrastructure appropriate methods, equipment, and quality materials. new construction, rather than maintaining existing road assets (90 Services in While axle load limits have been established for the country, percent of budgets go to new construction). It is estimated that more Mongolia) (FY07) they are rarely enforced. Weigh-in motion traffic sensors than 3,000 km of roads require reconstruction, and this large backlog of and heavy vehicle weigh bridges should be installed and rehabilitation and maintenance should have priority over the regulations enforced to deter overloading. construction of new roads. Ministry of Infrastructure Partially achieved. The Road Supervision and Research Center implementing credible plan (RSRC) regularly carries out traffic counts and roughness for managing their roads measurements and maintains the information in a database (both paper within fixed budget and electronic versions). However, the information is not unified using constraint, including a common software. Traffic counts are taken every three months, but reliable assessment of fixed the entire spectrum of measurements is only done every three years for and recurrent costs of existing roads, and every five years for new roads. While input from Millennium Road; gravel traffic counts and roughness measurements are considered when vs. paved roads; [increase preparing annual road maintenance plans, the approach is not in number of km of roads in systematic based on need so much as it is based on condition surveys, good and fair condition] including visual surveys, which are typically carried out at the request of MRTT. In addition, each Aimag receives a percentage of available maintenance funds based on the length of paved roads in their jurisdiction. Intermediate indicators: Updated roads sector While criteria for building new roads have been defined, they are not strategy in place with regularly applied. Also, most road maintenance activities are not investment criteria taking tendered competitively, but awarded to one of 18 state-owned recurrent costs into account companies. Three-year forward rolling The MRTCUD regularly provides three-year plans and updates them plan and budget of periodically. investment and recurrent costs in the road sector Maintenance management There is a system for road maintenance in place. The RSRC regularly system in place carries out traffic counts (quarterly) and road roughness measurements (annually). A lack of control on overloading contributes to the poor quality of roads throughout the country. Although the Road Act allowed for limits to be established, they are rarely enforced, and there is little consideration given to the size, weight and loads imposed by vehicles on the road network. Outcome 8: Improved Achieved. The Universal Service Obligation Fund (USOF) was Financing: regulatory environment established and operationalized to promote the expansion of access to Information and The focus on creating a favorable policy and regulatory and financing mechanism ICT services in rural and underserved areas and the financing of USOF Communications environment for private sector investments and competition to promote expansion of was secured by a law requiring all licensed telecommunications Infrastructure was key for the dramatic improvement of service delivery. ICT infrastructure and operators to contribute 2% of their taxable income to the fund. Development The strong commitment of the Communications Regulatory 60 services Moreover, competition in the sector increased significantly (two Project (FY06); Commission was a major success factor. Furthermore, additional private mobile operators were licensed) and the transparency GPOBA funded skills transfer and ownership of the program by the and predictability of the regulatory process were improved (a Rural ICT Pilot Government were critical, and consultations with operators regulatory public consultation process was established in 2007; the Project; TF Project and stakeholders helped to bring them on board. share of spectrum applications approved and assigned within 15 Support (PHRD) working days increased from 50% in 2005 to 75% in 2009; the share of The Government and ICT operators have expressed to the regulatory decisions published increased from 58% in 2005 to 100% in Non-lending: World Bank their appreciation for its support to this 2009) resulting in sustained investments in the sector (US$37.6m in Infrastructure program and have asked it to consider continuing its support Outcome indicators: 2005, US$93.2m in 2007, US$63.6m in 2008, and US$46.9m in 2009). Strategy (FY07) for this initiative. Next steps would be to assist initiatives to improve the quality and reach of the mobile network Universal access strategy Achieved. The World Bank supported the development and infrastructure, and to extend the broadband services to more and service fund in place implementation of the Government’s Universal Access Strategy and soum centers. (number of households with Policy, which included the establishment of USOF to provide subsidies access to a telephone for the expansion of ICT services into rural areas. The share of Going forward, The Bank should engage with the increases from 17% in 2002 households with access to a telephone increased beyond forecasts and Government on a new ICT and economic growth agenda to 30% ) is significantly higher than 30%. There are over 1.9 million telephony that includes broadband access, content and applications subscribers with about 600,000 household covered. relevant to Mongolia, building new economy skills for the young population, developing a private sector led IT/ IT Increased private sector Achieved. The sector is dominated by privately owned companies. enabled services industry in niche segments/markets, and participation in the Two additional private mobile operators were licensed resulting in four using broadband/mobile phones for the delivery of public provision of ICT private mobile operators competing in the mobile sector. The fixed line services especially in rural areas. infrastructure and services operator (MTC) is 40% privately owned (54% owned by the with over 85% of ICT Government) but its market share is small and declining. The fully services provided by Government owned ICNC is a wholesale operator providing services to private sector the other operators.. Intermediate indicators: IT law approved that No new ICT law was approved but there were several amendments to provides for favorable legal the existing law and a package of ICT laws has been submitted to the framework for IT sector; Parliament recently. Overall, the legal framework is fairly favorable. government strategy for its The E-Mongolia National Program originally approved in 2005 was use of ICT developed. updated in 2009. Tariffs for local phone calls Telephony tariffs and interconnection rates have been restructured and, increased; annualized overall, the cost dropped significantly for users. The target for the local charges for two MBP call tariff lost relevance due to technological developments in the circuits reduced; sector. interconnection charges rationalized Results Area D: Strengthened social service financing and institutional capacity Outcome 9: Improved Not achieved. Social assistance continues to rely on the provision of Non-lending: financial sustainability categorical benefits. The Poverty-Targeted Benefit (PTB) envisaged Policy Note on and targeting of social under the new Social Welfare Law (SWL) could not be implemented as Pension Reform Government commitment and interest are key to moving protection systems the SWL has not been passed by the Parliament. The fiscal costs of (FY08) forward the pension and social protection system reforms. 61 social transfers as a share of GDP have been increasing over the The Bank’s team keeps engagement with the Government in reporting period. Universal cash transfers from the Human this area, and there has been recent renewed interest from Development Fund (HDF) during 2010 (and planned for 2011) have the Government in the policy discussions on the directions been the key reason behind rising fiscal costs of social transfers for the pension system reform. recently. With respect to the pension system, the Bank’s recent estimates indicate that holding replacement rates, retirement ages and contribution rates constant, the fiscal costs of the pension system will substantially increase over time. Significant policy changes would be Outcome indicators: needed to ensure that fiscal costs are sustainable over time. Long term projection shows Not achieved. The pension agenda has seen little progress over the improved financial reporting period. However, in 2010 the Government expressed sustainability of pension renewed interest in the Bank’s support (technical assistance) in various system areas of pension system reforms. It was agreed that moving forward, the Bank’s pension team will provide policy advice to the Government on: (i) formulation of a Pensions Law revising existing parameters including initiation of a process of modeling baseline projections and reform options for the current social security scheme; (ii) design of a savings program for the herders and informal sector; (iii) potential expansion and restructuring of the old age income assistance program; and (iv) determination of the objectives in the potential establishment of a social security reserve fund. However, these recommendations have not been reflected in the policy changes yet. No major structural benefit Not achieved. Addressing the existing gap between pre-1960 and post- gaps exist between age 1960 cohorts would require changes to the pension system. No cohorts at the introduction changes have taken place yet. of the new program Regular IAS standard Not observable. The existing information indicates that SSIGO audits of SSIGO show that accounts are well maintained. However, no rigorous assessment of this accounts are well was conducted. maintained, and that internal control is appropriately enforced LSMS data shows that Not achieved. Social assistance programs have not been changed in exclusion and inclusion any significant way, and the Poverty-Targeted Benefit (PTB) has not errors of social assistance been introduced. Hence, the targeting performance remains unchanged. programs reduced Intermediate indicators: Long term projection model The SSIGO staff has received the training from the World Bank on the developed and maintained analysis of the pension system and making projections using PROST 62 by the Ministry of Social model. It is not entirely clear though to what extent SSIGO staff has a Welfare and Labor and capacity to undertake such an analysis independently without support State Social Insurance of the World Bank consultants. Government Organization (SSIGO) Short term budgeting model No information is available on the status of this indicator. used in preparing program budget and monitoring expenditure Action plan adopted that No information is available on the status of this indicator. improves financial management of SSIGO; SSIGO included under TSA Analysis of household The analysis of targeting efficiency using the household survey data survey data completed on was performed using ADEPT SP software. The results still need to be targeting efficiency reflected in a write-up. Outcome 10: Improved sustainability and Not evaluated given little WBG engagement during the CAS period. The Bank was not a significant player in the health sector allocation of health during this CAS period. Bank contributions have been at financing the margin through small grants. However, the Government and partners view the Bank as important for bringing in Outcome indicators: global best practice, knowledge and innovation to the sector. The Bank’s knowledge products are highly valued. Public goods and primary care increase from 15% to 30% Increased spending on provinces with greater health needs (e.g., greater than national standardized mortality ratio) Hospital spending decreases from 85% to 70% of total health spending Increased availability of essential drugs in rural areas 63 Strengthened standards for quality, conditions for public financing of private facilities enforced Intermediate indicators: National health accounts include private out of pocket spending, health insurance, public budgets Government strategy clarifies responsibilities between health insurance and state budget, coordinates payment systems to encourage primary care and improved efficiency of hospital sector; optimization process for Ulaanbaatar hospitals including new financing mechanism Strengthened system to track availability and price of essential drugs; improved public procurement, distribution of drugs Government strategy includes role of private sector in health Outcome 11: Improved Financing: education financing, Rural Education and standards, and Development monitoring (READ) Project (FY06); EPDF The Bank’s engagement in the education sector in Mongolia Outcome indicators: Grant: Education for has made a positive contribution. A programmatic approach All-Fast Track and budget to support longer-term engagement would be MTEF for education Partially achieved. Progress has been made in all subsectors of Initiative more effective. 64 finalized and more efficient education. The MTEF has been finalized, but the mechanism for financing norms, specially improving efficient financing norms still has room for improvement. Non-lending: As the 2012 elections draw near, decisions have been for institutions of higher Higher education institutions are being consolidated to improve quality Public Expenditure increasingly driven by political considerations. Future grant education, are in place and and efficiency. This reform is still underway. and Financial support should be Bank-executed to maintain a more neutral being used Management position for assistance to education. Review (FY08); Increase in number of Partially achieved. Accreditation is being improved, but this may not Civil Service Policy accredited institutions necessarily be reflected in the number of institutions accredited because Note (FY09); Policy institutions are being consolidated or merged. Note on Higher Education (FY10); Modernized system Partially achieved. The Education Evaluation Center which has been Public Expenditure measures student responsible for handling university entrance examinations and student Tracking Survey achievement, life skills and assessment has undergone a leadership change. Its capacity can benefit (PETS) Education disseminates results of from further strengthening. The international assessment exercise in (FY07) academic achievement the Third International Mathematics and Science Study (TIMSS) and Progress in International Literacy Study (PIRLS), in which Mongolia’s participation was financed by an EPDF grant, has been terminated by a ministerial decision. The survey was not conducted and the unused funds will be returned. Intermediate indicators: More efficient financing Mongolia’s public spending on education has been equitable and pro- norms for all levels of poor as a very large share goes to basic education, and higher education education consistent with is financed in large part by private expenditures. The State Training MTEF policies and targets Fund provides financial assistance to tertiary education students. However, it could be further improved to ensure better targeting and thereby help ensure access to more disadvantaged students. Accreditation system An accreditation system is already in place and has begun the process. initiated; a full Its mandate goes beyond higher education and covers technical and accreditation process begun vocational education and training as well. However, it can be further for higher education strengthened. institutions Improved M&E system in M&E has been improved. However, due to personnel changes, it is place and piloted in limited unclear whether the improvement has been institutionalized. number of schools CAS Objective 2: Reducing Vulnerabilities Results Area A: Strengthened risk management and growth to reduce rural vulnerability Outcome 12: Financing: Strengthened systems, Sustainable The Pastoral Risk Management component activities have new mechanisms piloted, Livelihoods Project been scaled up under SLP2. One of the key lessons is that to reduce rural risks 1 (FY02-FY08; investment and capacity building under the project have not ICR=S; IEG=S); changed herder behavior, particularly with respect to herd 65 Outcome indicators: Sustainable sizes and overgrazing. The mid-term review of the project Livelihoods Project concluded that: “Ultimately, despite the positive impacts of Dzud-related animal losses Not observable. This indicator was from the first phase of the 2 (FY07); Index- project activities, these have been ineffective in the face of in target aimags reduced by Sustainable Livelihoods Project, and as it was not a good indicator, it Based Livestock the prevailing incentive structure and market failure which 33% compared to other was not included for the second phase, SLP2. Dzud conditions vary Insurance Project encourage herders to overstock and degrade pasture aimags by 2007 widely among aimags and such comparisons are difficult to make and (FY05); IBLIP resources.� Under SLP2, there is increasing focus on some are meaningless. Additional of the prevailing incentive issues in a common access Financing (FY10) scenario. Options are being explored to pilot, for example, 3-7% of targeted herders Achieved. By 2008, 14% of herders in the three pilot aimags bought pasture user fees. This remains a critical area for covered by livestock insurance. Non-lending: engagement for the Bank, working closely with other insurance by 2008 Livestock Sector partners (e.g., Switzerland, UNDP). Study (FY09); Meat Policy measures formulated Not achieved. Formal policy measures were not formulated, though Sector Policy Note to assist herders through analytical work was conducted with respect to post dzud assistance for (FY10); Trust Fund fiscally responsible social herders (see outcome indicator below). for Environmentally protection programs & Socially Sustainable Intermediate indicators: Development (TFESSD) financed Integrated risk preparedness The activities under the Pastoral Risk Management Component of study “Structuring strategy for livestock SLP1 were all completed, and herders in the pilot aimags were taking Dzud Disaster production developed, more actions to prepare better for winter and mitigate risk. However, a Preparation, piloted, adopted in 8 formal strategy was not adopted. Financing and selected aimags by 2006 Response to Increase Resilience Legal framework The Insurance Law was revised in 2004 and enabled the selling of of Herder established under Insurance index based insurance. Thus, a legal framework had been established. Households to Law, index-based insurance The legal framework is being strengthened further and it has been Climatic Risk� system piloted, policies agreed with the Government that a separate index based livestock (FY11) sold commercially, insurance law is required and is in draft. The index based livestock contingent financing insurance system has been piloted; policies are sold commercially; and mechanism in place contingent financing mechanisms are in place. Policy analysis conducted Under the TFESSD financed study, “Structuring Dzud Disaster regarding options to cover Preparation, Financing and Response to Increase Resilience of Herder herders under social Households to Climatic Risk�, a study was made on how to introduce a protection programs structured, transparent system for providing social transfers to herders following severe dzud. Outcome 13: Enhanced Financing: environment for private Sustainable sector-led growth in rural Livelihoods Project The Bank is following up the analytical work with areas 1 (FY02-FY08; investment operations including the Integrated Livestock- ICR=S; IEG=S); based Livelihoods Program, to be financed under the Global Outcome indicators: Sustainable Agriculture and Food Security Program (GAFSP). There Livelihoods Project may also be a request for IDA co-financing. 66 Policy interventions Achieved. Several analytical pieces have been completed which have 2 (FY07) identified to intensify and examined these issues (Livestock Sector Study; Mongolia Country The improvement in access to rural financial services has diversify livestock Economic Memorandum). The Bank can take some credit for Non-lending: been quite dramatic, aided by the emergence of strong production and marketing influencing the National Livestock Program, endorsed by Parliament in Livestock Sector micro-finance institutions. As the recent financial crisis systems 2010, which takes forward the policy agenda for livestock Study (FY09); Meat showed, however, the system is not robust, and more could intensification. Sector Policy Note be done. Specific areas for potential engagements include (FY10); CEM developing community based financial institutions (to 10% of target beneficiaries Achieved. The SLP1 ICR noted that about 15% of target population Sources of Growth provide competition to banks, and also to serve the un- in selected aimags have were sub-borrowers from the Microfinance Development Fund (MDF). (FY07) bankable) and increased consumer education. access to microfinance services by 2007 Improved targeting of Achieved. This indicator has been difficult to track, not least because community-level it tries to capture too much in one figure. The SLP1 ICR was infrastructure projects -- inconclusive: “Actual numeric value for this indicator is not available. 75% of target community High satisfaction rates are provided by different studies for different members satisfied with procedures�. No specific survey was carried out to assess the Local procedure for identification, Initiatives Fund (LIF) process from a range of community perspectives. selection, and Monconsult (2006): 37% of respondents felt that selection processes implementation were transparent, open and fair; 72% of community members ranked Household Livelihoods Support Councils’ (HLSC) performance as average to excellent; 50% noted a slight or major change in community participation, initiatives, and sense of self-responsibility. Community scorecards in Household Livelihoods Support Program Office (HLSPO) indicate a 93% satisfaction rate. This indicator is also tracked in SLP2 with an improved system compared to SLP1. The October 2010 mission found that satisfaction with the mechanism was 88% and satisfaction with outcomes was 77%. Intermediate indicators: Analytical work on rural Undertaken. supply chains, livestock sector Outreach of institutionally Met. and financially sustainable micro-finance services to targeted poor achieved in 8 aimags by 2006 Efficient, socially inclusive, Completed. transparent mechanisms established in 8 aimags to execute investments in 67 infrastructure and local services by 2005 Results Area B: Strengthened environmental and natural resource management Outcome 14: Financing: Strengthened institutional TF NEMO 1 & 2; capacity for management Mining Sector TA A key lesson is the need for counterparts to take ownership of environment and Project (FY08) in developing and implementing proposed reforms. natural resources Although implementation might take longer and require Non-lending: more oversight and guidance, there is far greater potential Outcome indicators: South Gobi for reforms to be sustained. Infrastructure and Implementation of road Achieved. Under NEMO2, support continues to be provided to Environment map to strengthen improve environmental laws and standards to manage the country’s (FY09); legislative and institutional natural resources by: (i) developing drafts to eliminate discrepancies Ulaanbaatar Air framework to improve and duplications in laws relating to industry; (ii) renewing the laws and Pollution management of regulations (rules, regulations, methods) on EIAs, and increasing the Discussion Note environment and natural accountability of IA (e.g., ecological agreements); and (iii) supporting (FY09) resources, with priority on advocacy activities to help the passage of the drafts through Parliament. mining and forestry The FAO provides on-going support to newly established forestry brigades. Under NEMO2, the Ministry of Nature, Environment and Tourism (MNET) is building upon FAO’s activities by developing detailed training plans and implementing a professional and methodical program of training sessions for a number (up to 10) of inter-soum forest units. The intent is to improve awareness and strengthen the understanding of the roles of the local units to better manage forests under their jurisdictions. Support is also being provided for two local environment and tourism departments at Dalanzadgad and Khovd aimags to improve how they function and how they carry out their duties and responsibilities. Environmental Partially achieved. Beginning in 2008, the MNET introduced expenditures aligned with program- based budgeting. The Bank is helping to improve this environmental priorities scheme through its AAA products such as the 2009 Study to Review Environmental Expenditures. Currently, work is ongoing to improve inter-sectoral coordination in environmental policy, as well as collecting information on spending by the private sector to comply with environmental guidelines. Improved public Achieved. The MNET has revised its law on EIAs and will submit it participation in EIA and to Parliament for ratification during the 2011 spring session. The Bank access to data and also assisted in establishing an EIA database with some 2,500 records information on environment which are publicly available on the internet (http://geodata.mne- and natural resources ngic.mn/eia). The Guidelines for Conducting EIAs were revised in management 2010 through a Decree issued by the MNET minister. 68 Intermediate indicators: Identification of the key The MNET conducted a review of environmental laws and regulations changes needed to in 2010 in an effort to identify needed revisions and amendments to strengthen the institutional eliminate potential contradictions among different environmental laws. and legislative framework During the review process, MNET identified a number of key changes. for environment and natural Also, Mongolia has strengthened important policy documents resource management governing natural resources, including the National Water Program (2010), National Plan for Combating Desertification, and National Action Plan on Climate Change and Adaptation. System developed within System not developed. public expenditure reforms to track environmental/ natural resources revenues and expenditures Regulations formulated to The proposed revised Law on EIAs has two important aspects: (i) institutionalize public public consultation when EIAs are prepared; and (ii) public access to consultation and information and the detailed EIAs. The draft law will be submitted to participation in EIA process Parliament during its 2011 spring session. Outcome 15: Community- Achieved. Under SLP2, the Bank supports pasture/range management Financing: based natural resource and the development of community-based approaches which have been Sustainable These outcomes were directly supported under SLP2. management systems piloted and scaled up. Under the dropped Forestry Project, it was Livelihoods Project piloted in three soums planned to support community based forest management, though 2 (FY07); TF that systematically ultimately this was not supported by the Ministry of Finance. NEMO 1 & 2 include participation of local government and civil Non-lending: society in natural South Gobi resource decisions and Infrastructure and monitoring Environment (FY09); NEMO- Intermediate indicators: funded studies (various) Revised procedures for The guidelines for pasture management planning and implementation public participation in were developed under SLP1 and the implementation is now supported environment /natural under SLP2. The guidelines are government policy, under the resource management supervision of the Land Agency. developed and disseminated in targeted soums 69 CAS/ISN Completion Report Attachment 2 Mongolia: CAS Completion Report Planned IDA Financing Program and Actual Deliveries CAS PLANS (April 5, 2004) Status of deliveries IDA US$M Project US$M Credit Grant TOTAL FY05-FY08 88 50.07 49.55 FY05 Program 19 18.32 PRSC-II 10 Dropped Index-Based Livestock Insurance Project 5 Delivered (5/26/05) 7.75 Private Sector Development 4 Delivered as Private Sector Development Credit 2 (6/28/05) 10.57 FY06 Program 26 0.00 26.00 PRSC-III 10 Dropped Social Sector TA 3 Delivered as Rural Education and Development (READ) Project (5/23/06) 4.00 Infrastructure Project 13 Delivered as ICT Infrastrucutre Development Project (6/8/06) 8.00 Additional Actual Projects Governance Assistance Project (5/23/06) 14.00 FY07 Program 20 23.30 16.70 PRSC-IV 9 Dropped Second Sustainable Livelihoods Project 8 Delivered (6/19/07) 19.80 13.20 Judicial and Public Sector Reform TA 3 Deferred to FY08 Additional Actual Projects Renewable Energy for Rural Access Project (REAP) (12/9/06) 3.50 GEF Renewable Energy for Rural Access Project (12/9/06) 3.50 FY08 Program 23 8.45 6.85 PRSC-V 9 Dropped Infrastructure Project 8 Dropped Land Administration and Management Project 3 Dropped Forestry Project 3 Dropped Additional Actual Projects Enhanced Justice Sector Services Project (6/26/08) 3.35 1.65 Mining Sector TA Project (6/26/08) 5.10 4.20 Additional Financing for Rural Education and Development Project 1.00 INTERIM STRATEGY NOTE PLANS (April, 2009) COMPLETION REPORT (May, 2011) TOTAL FY09-FY11 90 130.70 FY09 Program 2 42.00 MONSTAT (Statistical Development) 2 Delivered (6/12/09) 2.00 Additional Actual Projects Development Policy Credit 1 (DPC) (6/25/09) 40.00 FY10-FY11 Program 88 88.70 Development Policy Credit 1 (DPC-1) 40 Delivered in FY09 Development Policy Credit 2 (DPC-2) 20 Delivered (10/18/10) 29.70 Other projects 28 Multi-Sectoral TA Project (6/28/10) 12.00 Additional Actual Projects Additional Financing for Index-Based Livestock Insurance (2/23/10) 10.00 Additional Financing for Energy Sector (3/25/10) 12.00 Mining Infrastructure Investment Support Project (5/10/11) 25.00 Total CAS + ISN period 178 230.32 180.77 49.55 70 CAS/ISN Completion Report Attachment 3 Planned Nonlending Services and Actual Deliveries CAS PLANS (April 5, 2004) STATUS OF DELIVERIS Activity FY05 Program Consultative Group Meeting Delivered Econimc Monitor Delivered regulalrly Environment Monitor Dropped Financial Sector Review Delivered as Financial Sector Mid-term Review FY06 Integrated Infrastructure Strategy Delivered as Infrastructure Strategy FY07 Poverty Assessment Delivered FY06 PSD Strategy (Investment Climate/Supply Chains) Delivered as Investment Climate FY06 Public Expenditure Tracking Survey Delivered as PETS Education FY07 Regional Development Note Delivered as Regional Development Policy Note FY06 Social Sector Strategy Dropped Additional deliveries Enabling Environment for Social Accountability in Mongolia Gender Assessment Health Policy Note Poverty-Focused Policy Notes Support to the Association of Mayors FY06 Program CEM/DPR (Sources of Growth) Delivered FY07 Civic Engagement Assessment Delivered as Strengthening Parliament, Media & Civil Society FY11 Consultative Group Meeting Delivered as semi-annual Technical Meetings CPAR/CFAA Dropped Decentralization Study Dropped Economic Monitor Delivered regulalrly Livestock Support Services Study Deferred Social Monitor Dropped Social Sector AAA Dropped Additional deliveries Dialogue and Support of Master Plan & Fast Track Initiative Evaluation of Poverty-Targetted Program Migrants Remittances to Mongolia Mining Policy Dialogue/Regulatory Reforms Review of the Environment & Social Policies in Mining Secondary Cities Development Strategy Judicial Reform Programme FY07 Program Consultative Group Meeting Delivered as semi-annual Technical Meetings Economic Monitor Delivered regularly Environment and Social Development AAA Dropped Environment Monitor Dropped ICT Strategy Dropped Infrastructure AAA Dropped Natural Resource Use Strategy Dropped Public Expenditure Review/Integrated Fiduciary Assessment Delivered as Public Expenditure and Financial Management Review FY08 Regional Trade Study Deferred Social Sector AAA Dropped FY08 Program Consultative Group Meeting Delivered as semi-annual Technical Meetings Economic Monitor Delivered regularly Environment and Social Development AAA Dropped Financial Sector Assessment Delivered as Financial Sector Assessment Program (FSAP) FY07 Human Development Assessment Dropped Infrastructure AAA Dropped Invetsment Climate/Private Sector Assessment Dropped Social Monitor Dropped Additional deliveries Financial Sector Technical Assistance Rural Energy Project 71 Planned Nonlending Services and Actual Deliveries, continued CAS PLANS (April 5, 2004) STATUS OF DELIVERIS Activity INTERIM STRATEGY NOTE PLANS (April, 2009) COMPLETION REPORT (May, 2011) FY09-FY10 Program Air Pollution Work Delivered as Ulaanbaatar Air Pollution Discussion Note FY09 Analysis of Banking Sector Vulnerabilities Delivered as Banking Sector Vulnerabilities FY09 Civil Service Policy Note Delivered FY09 Corporate Governance ROSC Assessment Delivered FY09 Economic Monitor Delivered regularly Ger Area Development Strategy Delivered FY09 Insolvency and Credit Rights ROSC Delivered as ROSC Accounting and Auditing Review FY08 Livestock Sector Study Delivered as Livestock Sector Study FY09 Mining Background Notes Delivered as Mining Sector Policy Dialogue FY06 Policy Notes on Pension Reforms Delivered FY08 Poverty Assessment Delivered as Poverty Assessment Policy Note FY10 Public Expenditure and Financial Managament Review Deferred Southern Mongolia Infrastrucure Study Delivered as South Gobi Infrastructure & Environment AAA Technical Meetings Delivered?? Trade Facilitation and Integration Delivered FY09 Additional deliveries AML/CFT Capacity Building Enhancing Policies and Practices for Ger Area Development Health Results-Based Financing Meat Sector Policy Note Mitigation Sector Reform and Tariff Adjustment Policy Note on Higher Education Public Investment Planning Note: Only AAA with actual delivery date to the client during the CAS-ISN period are included, thus excluding active and dropped activities. 72 Attachment 4 World Bank Group Financial Products for IBRD Clients IBRD IDA IFC MIGA Middle-income country governments and sub-national ELIGIBITY Low-income country governments Private sector clients entities (with government guarantee)  IFC A-Loan  Equity finance  Credits  IBRD Flexible Loan  IFC C-Loan  Grants FINANCING Financing  Local currency loans  Subnational finance*  IBRD Flexible Loan for enclave  Subnational finance  Local currency loans operations  IFC B-Loan (third parties)  Parallel loans (third parties) Contingent Financing  Deferred Drawdown Option (DDO)  DDO for IDA Blend countries  Partial risk guarantees  Full/partial credit guarantees  Credit-linked guarantees  Partial risk guarantees  Partial risk guarantees (PRGs)  Trade finance guarantees  IBRD PRGs/PCGs/PBGs for IDA  Political risk Credit Enhancement  Partial credit guarantees (PCGs)  Mezzanine investments in Blend countries insurance  Policy based guarantees (PBG) securitizations  IBRD PRGs for enclave operations RISK MANAGEMENT  Risk sharing facilities  Guaranteed offshore liquidity facility  Currency swaps  Currency swaps  Interest rate swaps  Interest rate swaps  IBRD Hedging products for IDA  Interest rate caps and collars Hedging Products  Interest rate caps and collars Blend countries  Commodity price swaps  Commodity price swaps  Swap guarantees  Carbon delivery guarantees  Weather hedges  Weather hedges Disaster Risk  Catastrophe Risk Deferred Drawdown Option (Cat DDO)  Catastrophe bond  Weather hedges Financing  Insurance pools  Insurance pools  Catastrophe bonds  Asset management (central banks, sovereign wealth funds • Investment  Access to finance and public pension funds) strategy related to ADVISORY  Investment climate  Asset-liability management  Asset management political risk  Environmental and social Client Advisory Services  Capital market access strategy and implementation  Commodity risk management • Dispute resolution sustainability  Commodity risk management  Public debt management • Environmental and  Infrastructure advisory  Public debt management social sustainability  Corporate advice  Transaction processing, reporting and IT 73 Attachment 5 Development Partners Matrix (Financial and Analytical Assistance) Lead role in sector Active Engagement Planning new engagement by 2015 Leaving sector by 2015 Waiting for info Wo Un erlan Un Ne UN C R rl ite Ge dB UN ite Can UN UN UN Au th Lux KO US UN es dK WH EB HA UN T WF MC FA AD IM JI C SD rm ILO GIZ dS ank EC ESC sAi ICE H AID FPA ICA RD A id ada DP i ng O BI T C B F A V any P O C tat d O F Gro do A ds m up Sectors and subsectors 1. Education 1.1 Early childhood development 1.2 Primary education Non formal educ 1.3 Secondary education 1.4 Vocational training 1.5 Tertiary Education 2. Health 2.1 Health policy & management 2.2 Basic health care 2.3 Basic health infrastructure 2.4 Nutrition 2.5 Immunization & infectious disease control 2.6 Health education 2.7 TB control 3. Population and reproductive health 3.1 Reproductive healthcare 3.2 Family planning 3.3 STD control, incl. HIV/AIDS 4. Water and sanitation 4.1 Water sector policy 4.2 Water supply 4.3 Wasterwater 4.4 Basic sanitation 4.5 River basins management 5. Government and Civil Society 5.1 Public sector policy and administrative management 5.2 Public finance management 5.3 Decentralization 5.4 Anti-corruption organizations and institutions 5.5 Legal and judicial development 5.6 Democratic participation & civil society 5.7 Elections 5.8 Media and access to information 5.9 Human rights 5.10 Gender 6. Other social and infrastructure services 6.1 Social protection/welfare policy 6.2 Employment policy 6.3 Housing policy & low-cost housing 6.4 Statistical capacity building 7. Transport 7.1 Road 7.2 Railway 7.3 Air transportation 8. Communications 8.1 Communications policy 8.2 ICT 9. Energy 9.1 Energy policy 9.2 Power generation 9.3 Power transmission & distribution 9.4 Renewable energy 74 Development Partners Matrix (Financial and Analytical Assistance), continued Lead role in sector Active Engagement Planning new engagement by 2015 Leaving sector by 2015 Waiting for info Wo Un erlan Un Ne UN C R rl ite Ge dB UN ite Can UN UN UN Au th Lux KO US UN es dK WH EB HA UN T WF MC FA AD IM JI C SD rm ILO GIZ dS ank EC ESC sAi ICE H AID FPA ICA RD A id ada DP i ng O BI T C B F A V any P O C tat d O F Gro do A ds m up Sectors and subsectors 10. Banking and financial services 10.1 Financial sector policy 10.2 Central Bank 10.3 Financial intermediaries 10.4 Microfinance 10.5 Capital markets development 11. Business development 11.1 Business support services & associations 11.2 Privatization 11.3 Public Private Partnerships 11.4 Corporate governance 11.5 Investment climate 12. Agriculture 12.1 Agricultural policy & management 12.2 Agricultural development 12.3 Food crop production 12.4 Livestock 12.5 Agricultural services (research, extensions, cooperatives) 12.6 Integrated rural development 13. Forestry 14. Fishing 15. Industry 15.1 Industrial policy 15.2 SME development 15.3 Agribusiness 15.4 Textile industry 16. Mining 16.1 Mineral policy and regulatory framework 16.2 Mining and environment 16.3 Mining and social policy wages 16.4 Mining and transparency (EITI) 16.5 Mining and economic management 17. Trade policy 17.1 Trade policy 17.2 Trade facilitation 17.3 Multilateral trade negotiations & agreements 18. Tourism 19. Multi-sector / Cross-cutting 19.1 Environmental policy & management 19.2 Biodiversity 19.3 Climate change adaptation 19.4 Climate change mitigation 19.5 Disaster risk management 19.6 Land management 20. Economic management 20.1 Macroeconomy 20.2 Fiscal management 20.3 Treasury management 20.4 Debt management The following countries have bilateral programs: Australia, China Czech Republic, France, Russia, Turkey 75 Standard CAS Annexes Annex A2: Mongolia At A Glance Mongolia at a glance 2/27/12 East Lower Key Development Indicators Asia & middle Age distribution, 2010 Mongolia Pacific income (2010) Male Female 75-79 Population, mid-year (millions) 2.8 1,962 2,465 Surface area (thousand sq. km) 1,564 16,302 23,582 60-64 Population growth (%) 1.6 0.7 1.5 45-49 Urban population (% of total population) 58 46 40 30-34 GNI (Atlas method, US$ billions) 5.2 7,224 4,091 15-19 GNI per capita (Atlas method, US$) 1,870 3,683 1,660 0-4 GNI per capita (PPP, international $) 3,630 6,609 3,704 10 5 0 5 10 GDP growth (%) 6.4 9.6 7.3 percent of total population GDP per capita growth (%) 4.7 8.8 5.7 (most recent estimate, 2004–2010) .25 Poverty headcount ratio at $1 a day (PPP, %) 22 17 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 49 39 .. Life expectancy at birth (years) 68 72 65 120 Infant mortality (per 1,000 live births) 26 20 50 100 Child malnutrition (% of children under 5) 5 9 32 80 60 5 Adult literacy, male (% of ages 1 and older) 97 96 80 40 5 Adult literacy, female (% of ages 1 and older) 98 91 62 20 Gross primary enrollment, male (% of age group) 1 10 1 11 1 10 0 Gross primary enrollment, female (% of age group) 1 10 1 12 104 1990 1995 2000 2010 Mongolia East Asia & Pacific Access to an improved water source (% of population) 76 88 84 Access to improved sanitation facilities (% of population) 50 59 45 a Net Aid Flows 1980 1990 2000 2010 (US$ millions) Net ODA and official aid .. 13 217 372 Top 3 donors (in 2008): Growth of GDP and GDP per Japan .. 2 105 75 United States .. 0 13 35 15 Korea, Rep. .. 0 2 32 10 5 Aid (% of GNI) .. 0.5 19.2 8.5 0 Aid per capita (US$) .. 6 90 137 -5 -10 Long-T erm Economic T rends -15 95 05 Consumer prices (annual % change) .. 325.5 8.1 10.2 GDP implicit deflator (annual % change) .. 93.3 12.0 20.0 GDP GDP per capita Exchange rate (annual average, local per US$) 3.0 5.0 1,076.7 1,357.1 Terms of trade index (2000 = 100) .. .. 100 128 1980–90 1990–2000 2000–10 (average annual growth %) Population, mid-year (millions) 1 .7 2.2 2.4 2.8 2.6 1.0 1.3 GDP (US$ millions) 2,310 2,561 1 37 ,1 6,200 .. 1.0 7.2 (% of GDP) Agriculture 16.7 12.9 30.9 16.2 .. 0.3 4.6 Industry 25.0 42.5 25.0 37.5 .. 1.5 5.8 Manufacturing .. 21.0 7.5 7.3 .. -6.6 6.1 Services 58.3 44.7 44.1 46.3 .. -0.9 8.9 Household final consumption expenditure 52.3 68.7 69.6 53.1 .. .. 12.4 General gov't final consumption expenditure 24.9 24.4 15.3 13.7 .. .. 5.9 Gross capital formation 70.0 29.1 29.0 40.8 .. .. 6.7 Exports of goods and services 23.9 18.3 54.0 54.7 .. .. 10.2 Imports of goods and services 71.0 40.3 67.9 62.4 .. .. 14.8 Gross savings 22.3 5.6 23.0 26.5 0 Note: Figures in italics are for years other than those specified. 201 data are preliminary. .. indicates data are not available. a. Aid data are for 2009. Development Economics, Development Data Group (DECDG). 76 Mongolia Balance of Payments and T rade 2000 2010 Governance indicators, 2000 and 2010 (US$ millions) Total merchandise exports (fob) 536 2,899 Voice and Total merchandise imports (cif) 615 3,278 accountability Net trade in goods and services -158 -475 Political stability Current account balance -69 -887 Regulatory quality as a % of GDP -6.0 -14.3 Rule of law Workers' remittances and compensation of employees (receipts) 12 277 Control of corruption Reserves, including gold 191 2 0 25 50 75 100 2010 Country's percentile rank (0-100) Central Government Finance higher values imply better ratings 2000 (% of GDP) Source: Kaufmann-Kraay-Mastruzzi, World Bank Current revenue (including grants) 28.7 36.5 Tax revenue 21.3 31.8 Current expenditure 25.7 27.0 T echnology and Infrastructure 2000 2010 Overall surplus/deficit -6.4 0.0 Paved roads (% of total) 3.5 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. 00 subscribers (per 1 people) 11 90 Corporate .. .. High technology exports (% of manufactured exports) 0.5 7.5 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 896 2,444 Agricultural land (% of land area) 84 75 Total debt service 39 171 Forest area (% of land area) 7.5 7.0 Debt relief (HIPC, MDRI) – – Terrestrial protected areas (% of land area) 13.4 13.4 Total debt (% of GDP) 78.9 39.4 Freshwater resources per capita (cu. meters) 4,1 1 53 13,260 Total debt service (% of exports) 6.2 4.8 Freshwater withdrawal (billion cubic meters) 0.5 .. Foreign direct investment (net inflows) 54 437 CO2 emissions per capita (mt) 3.1 4.0 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 2.3 3.0 Composition of total external debt, 2009 Energy use per capita (kg of oil equivalent) 980 ,1 1 82 Short-term, 72 IBRD, 0 392 Private, 152 IDA, W orld Bank Group portfolio 2000 2010 IMF, 182 (US$ millions) Bilateral, 668 IBRD Total debt outstanding and disbursed 0 0 Disbursements 0 0 Other multi- Principal repayments 0 0 lateral, 677 Interest payments 0 0 US$ millions IDA Total debt outstanding and disbursed 137 403 Disbursements 14 22 Private Sector Development 2000 2010 Total debt service 1 7 Time required to start a business (days) – 13 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 3.2 Total disbursed and outstanding portfolio 1 50 Time required to register property (days) – 11 of which IFC own account 1 50 Disbursements for IFC own account 0 3 Ranked as a major constraint to business 2000 2010 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 8 Tax rates .. 64.9 Access to/cost of financing .. 64.4 MIGA Gross exposure – 0 Stock market capitalization (% of GDP) 3.2 17.6 New guarantees 0 0 Bank capital to asset ratio (%) .. .. 0 Note: Figures in italics are for years other than those specified. 201 data are preliminary. 2/27/12 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 77 Millennium Development Goals Mongolia With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Mongolia Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2010 .25 Poverty headcount ratio at $1 a day (PPP, % of population) .. 18.8 15.5 22.4 Poverty headcount ratio at national poverty line (% of population) .. 36.3 61 .1 35.2 Share of income or consumption to the poorest qunitile (%) .. 7.4 7.5 7.2 Prevalence of malnutrition (% of children under 5) 10.8 .. 1 1 .6 5.3 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) .. 81 94 90 Primary completion rate (% of relevant age group) .. 74 90 93 Secondary school enrollment (gross, %) 87 63 65 92 Youth literacy rate (% of people ages 15-24) .. .. .. .. Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 109 122 1 11 103 Women employed in the nonagricultural sector (% of nonagricultural employment) .. 46 49 51 Proportion of seats held by women in national parliament (%) 25 8 8 4 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1 ,000) 107 83 61 32 Infant mortality rate (per 1,000 live births) 76 61 47 26 Measles immunization (proportion of one-year olds immunized, %) 92 85 92 94 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 1 00,000 live births) 130 1 10 93 65 Births attended by skilled health staff (% of total) .. .. 97 99 Contraceptive prevalence (% of women ages 1 5-49) .. 57 67 55 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 1 5-49) 0.1 0.1 0.1 0.1 Incidence of tuberculosis (per 100,000 people) 405 314 254 224 Tuberculosis case detection rate (%, all forms) 18 39 51 75 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 58 59 66 76 Access to improved sanitation facilities (% of population) .. 49 49 50 Forest area (% of land area) 8.1 .. 7.5 7.0 Terrestrial protected areas (% of land area) 4.1 8.5 13.4 13.4 CO2 emissions (metric tons per capita) 4.6 3.4 3.1 4.0 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 1.6 1.7 2.3 3.0 Goal 8: develop a global partnership for development 00 Telephone mainlines (per 1 people) 3.0 3.4 4.9 7.0 00 Mobile phone subscribers (per 1 people) 0.0 0.0 6.4 82.9 00 Internet users (per 1 people) 0.0 0.0 1.2 12.9 00 Personal computers (per 1 people) .. 0.3 1.3 25.8 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 100 100 90 80 75 75 70 50 60 50 50 25 40 30 0 25 20 2000 2005 2009 10 0 0 Primary net enrollment ratio 1990 1995 2000 2009 2000 2005 2009 Ratio of girls to boys in primary & secondary education Mongolia East Asia & Pacific Fixed + mobile subscribers Internet users Note: Figures in italics are for years other than those specified. .. indicates data are not available. 2/27/12 Development Economics, Development Data Group (DECDG). 78 Standard CAS Annex B2 Selected Indicators* of Bank Portfolio Performance and Management As Of Date 2/27/2012 Indicator 2009 2010 2011 2012 Portfolio Assessment Number of Projects Under Implementation a 14 14 13 14 Average Implementation Period (years) b 3.3 4.3 4.8 5.6 Percent of Problem Projects by Number a, c 0.0 7.1 7.7 7.1 Percent of Problem Projects by Amount a, c 0.0 2.6 2.5 2.3 Percent of Projects at Risk by Number a, d 0.0 7.1 7.7 7.1 Percent of Projects at Risk by Amount a, d 0.0 2.6 2.5 2.3 Disbursement Ratio (%) e 20.1 31.4 29.6 23.6 Portfolio Management CPPR during the year (yes/no) Yes No Yes No Supervision Resources (total US$'000) 1101 1236 1425 1425 f Average Supervision (US$'000/project) 73 82 89 89 f Memorandum Item Since FY80 FY08-12 Project Evaluated by IEG (Number) 17 5 Project Evaluated by IEG (Amount, US$ millions) 271.4 66.7 % of IEG Projects Rated U or HU (Number) 5.9 0.0 % of IEG Projects Rated U or HU (Amount) 3.6 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. f. Projected for 2012. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 79 Standard CAS Annexes B3 Mongolia CPS: Indicative IDA/IBRD Financing Program Fiscal Pillar US$M Year Project 1 2 3 IDA IBRD FY12 Ulaanbaatar Clean Air Project x 15 FY13 E-Government Project x 15 FY13 Sustainable Livelihoods 3 Project x x x >30 FY13 Third Ulaanbaatar Services Improvement Project x x 20 FY14 SME Access to Finance Project x 15 FY14 E-Health Project x 15 FY15 AF - Mining Sector Institutional Strengthening Project x IDA FY15 AF - MONSTAT x IDA FY15 Transmission Line Project x 50 FY15 District Heating Project x 50 FY16 Social Protection Administration Project x IDA FY16 Index-Based Livestock 2 Project x x IDA Notes: Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas Pillar 3: Address Vulnerabilities through Improved Access to Services and Better Service Delivery, Safety Net Provision, and Improved Disaster Risk Management AF: Additional Financing The program for the later part of the CPS will be further defined during the mid-term review and presented in the CPS Progress Report 80 Standard CAS Annexes B4 Mongolia CPS: Key Ongoing and Indicative Nonlending Services AAA Fiscal Pillar Activity Type Year 1 2 3 Reserves Assets Management Program TA Continuous x Financial Sector Assessment Program - Development Module ESW FY12 x Programmatic Social Protection (including pension reform) ESW FY12-13 x Programmatic Agricultural Policy Review ESW FY12-13 x Programmatic Financial Sector Monitoring and Policy Dialogue ESW FY12-13 x Programmatic Mining Sector Technical Assistance TA FY12-13 x Programmatic Municipal Financing for Ulaanbaatar ESW FY12-13 x Programmatic Poverty Analysis ESW FY12-13 x Debt Management Strategy TA FY12-13 x Programmatic Economic Policy (Quarterly Updates) ESW FY12-14 x Financial Literacy and Consumer Protection Assessment TA FY13 x Poverty and Inequality Study ESW FY13 x Gender Action Plan ESW FY13 x Programmatic Accountability and Service Delivery ESW FY13-14 x [Administrative Courts and Executive Accountability] ESW FY14 x Procurement Assessment TA FY14 x Disaster Preparedness (GFDRR) TA FY14 x Notes: Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas Pillar 3: Address Vulnerabilities through Improved Access to Services and Better Service Delivery Safety Net Provision, and Improved Disaster Risk Management AAA: Analytical and Advisory Activities ESW: Economic and Sector Work TA: Nonlending Technical Assistance The program for the later part of the CPS will be further defined during the mid-term review and presented in the CPS Progress Report 81 Standard CAS Annex B5 Mongolia: Social Indicators Latest single year Same region/income group East Lower- Asia & middle- 1980-85 1990-95 2004-10 Pacific income POPULATION Total population, mid-year (millions) 1.9 2.3 2.8 1,961.6 2,465.1 Growth rate (% annual average for period) 2.6 1.0 1.5 0.7 1.5 Urban population (% of population) 55.0 56.8 57.5 45.9 39.6 Total fertility rate (births per woman) 5.4 2.8 2.5 1.8 3.0 POVERTY (% of population) National headcount index .. 36.3 35.2 .. .. Urban headcount index .. 38.5 26.9 .. .. Rural headcount index .. 33.1 46.6 .. .. INCOME GNI per capita (US$) .. 460 1,870 3,683 1,660 Consumer price index (2005=100) .. 46 231 131 140 INCOME/CONSUMPTION DISTRIBUTION Gini index .. 33.2 33.0 .. .. Lowest quintile (% of income or consumption) .. 7.4 7.2 .. .. Highest quintile (% of income or consumption) .. 40.8 40.5 .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 3.7 4.0 2.2 1.7 Education (% of GNI) .. .. .. 3.3 3.8 Net primary school enrollment rate (% of age group) Total 98 81 90 93 85 Male .. 79 91 93 87 Female .. 82 90 94 83 Access to an improved water source (% of population) Total .. 59 76 88 84 Urban .. 82 97 96 92 Rural .. 28 49 81 79 Immunization rate (% of children ages 12-23 months) Measles 18 85 94 91 74 DPT 80 88 95 93 72 Child malnutrition (% under 5 years) .. 11 5 9 32 Life expectancy at birth (years) Total 59 61 68 72 65 Male 57 59 64 70 63 Female 61 64 72 74 67 Mortality Infant (per 1,000 live births) 86 61 26 20 50 Under 5 (per 1,000) 122 83 32 24 69 Adult (15-59) Male (per 1,000 population) 320 251 300 160 247 Female (per 1,000 population) 273 211 144 107 177 Maternal (per 100,000 live births) .. 110 65 89 300 Births attended by skilled health staff (%) .. .. 99 89 56 CAS Annex B5. This table was produced from the CMU LDB system. 02/27/12 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. 82 Standard CAS Annex B6 Mongolia: Key Economic Indicators Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 National accounts (as % of GDP) Gross domestic product a 100 100 100 100 100 100 100 100 100 Agriculture 22 20 20 21 20 16 .. .. .. Industry 36 43 42 34 33 38 .. .. .. Services 42 37 38 44 47 46 .. .. .. Total Consumption 67 58 60 70 73 67 .. .. .. Gross domestic fixed investment 28 33 35 36 29 33 .. .. .. Government investment 2 4 6 9 7 6 .. .. .. Private investment 26 29 30 27 22 26 .. .. .. Exports (GNFS) b 59 59 60 54 50 55 .. .. .. Imports (GNFS) 64 53 58 67 58 62 .. .. .. Gross domestic savings 33 42 40 30 27 33 .. .. .. Gross national savings c 40 47 43 31 27 27 .. .. .. Memorandum items Gross domestic product 2523 3396 4235 5623 4584 6200 .. .. .. (US$ million at current prices) GNI per capita (US$, Atlas method) 890 1110 1390 1770 1760 1880 .. .. .. Real annual growth rates (%, calculated from 05 prices) Gross domestic product at market prices 7.3 8.6 10.2 8.9 -1.3 6.4 .. .. .. Gross Domestic Income .. 21.6 15.3 1.9 -9.1 18.5 .. .. .. Real annual per capita growth rates (%, calculated from 05 prices) Gross domestic product at market prices 5.9 7.0 8.6 7.1 -2.9 4.7 .. .. .. Total consumption .. 3.9 21.1 16.8 -4.6 9.5 .. .. .. Private consumption .. 3.1 23.0 19.9 -4.1 9.1 .. .. .. Balance of Payments (US$ millions) Exports (GNFS) b 1481 2030 2525 3029 2300 3395 0 0 0 Merchandise FOB 1066 1544 1951 2529 1885 2909 0 0 0 Imports (GNFS) b 1566 1826 2467 3767 2632 3869 0 0 0 Merchandise FOB 1166 1408 2003 3156 2074 3089 0 0 0 Resource balance -86 203 57 -738 -332 -475 0 0 0 Net current transfers 225 211 212 221 186 187 0 0 0 Current account balance 88 372 172 -690 -342 -887 0 0 0 Net private foreign direct investment 185 191 360 838 570 1630 0 0 0 Long-term loans (net) 72 52 75 213 354 202 .. 0 0 Official 75 52 59 38 157 32 133 81 31 Private -3 0 16 176 197 171 .. -81 -31 Other capital (net, incl. errors & ommissions) -210 -226 -318 -594 -27 -72 .. 0 0 Change in reserves d -135 -389 -288 233 -556 -873 0 0 0 Memorandum items Resource balance (% of GDP) -3.4 6.0 1.3 -13.1 -7.2 -7.7 .. .. .. Real annual growth rates ( YR05 prices) Merchandise exports (FOB) .. .. .. .. .. .. .. .. .. Primary .. .. .. .. .. .. .. .. .. Manufactures .. .. .. .. .. .. .. .. .. Merchandise imports (CIF) .. .. .. .. .. .. .. .. .. (Continued) 83 Mongolia: Key Economic Indicators, continued Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Public finance (as % of GDP at market prices) e Current revenues 27.5 33.7 37.9 33.1 30.2 36.5 .. .. .. Current expenditures 19.7 24.4 27.6 26.9 27.1 27.0 .. .. .. Current account surplus (+) or deficit (-) 7.8 9.3 10.3 6.2 3.1 9.5 .. .. .. Capital expenditure 5.4 6.3 7.7 10.8 8.3 9.6 .. .. .. Foreign financing 3.0 1.8 0.9 0.6 4.8 0.2 .. .. .. Monetary indicators M2/GDP 37.5 38.1 48.4 34.6 43.7 55.6 .. .. .. Growth of M2 (%) 34.6 34.8 56.3 -5.5 26.9 62.5 .. .. .. Private sector credit growth / 101.5 -720.2 86.8 55.2 -117.5 28.1 .. .. .. total credit growth (%) Price indices( YR05 =100) Merchandise export price index .. .. .. .. .. .. .. .. .. Merchandise import price index .. .. .. .. .. .. .. .. .. Merchandise terms of trade index .. .. .. .. .. .. .. .. .. Real exchange rate (US$/LCU) f 101.3 106.8 111.2 132.0 117.3 130.6 .. 0.0 0.0 Real interest rates Consumer price index (% change) 12.7 5.1 9.0 25.1 6.3 10.2 .. .. .. GDP deflator (% change) 20.1 22.0 11.6 21.4 1.8 20.0 .. .. .. a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 84 Standard CAS Annex B7 Mongolia: Key Exposure Indicators Actual Estimated Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total debt outstanding and 1327 1440 1682 1833 2143 2444 2550 2556 2452 disbursed (TDO) (US$m) a Net disbursements (US$m) a 69 61 131 34 176 0 0 0 0 Total debt service (TDS) 43 48 55 79 99 28 33 33 31 (US$m)a Debt and debt service indicators (%) TDO/XGSb 81.6 67.8 63.2 58.9 87.7 68.8 0.0 0.0 0.0 TDO/GDP 52.6 42.4 39.7 32.6 46.7 39.4 .. .. .. TDS/XGS 2.6 2.3 2.1 2.5 4.0 0.8 0.0 0.0 0.0 Concessional/TDO 94.5 93.6 88.4 85.7 81.1 73.2 75.3 78.3 82.9 IBRD exposure indicators (%) IBRD DS/public DS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Preferred creditor DS/public 50.5 46.6 48.3 43.1 34.4 24.2 48.8 61.8 74.5 DS (%)c IBRD DS/XGS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IBRD TDO (US$m) d 0 0 0 0 0 0 0 0 0 Of which present value of guarantees (US$m) Share of IBRD portfolio (%) 0 0 0 0 0 0 0 0 0 IDA TDO (US$m) d 277 301 331 338 392 403 416 432 444 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 85 Standard CAS Annex B8 Mongolia IFC Operations Portfolio Mongolia Committed and Disbursed Outstanding Investment Portfolio As of 1/31/2012 (In USD Millions) Committed Disbursed Outstanding **Quasi Partici **Quasi Partici FY Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 7/8/2004/08/09/11 Agbank 5.01 2.28 20 0 0 5.01 2.28 20 0 0 2008 Mcs group 11.25 0 0 0 0 11.25 0 0 0 0 2011 Mof i 0 6.25 0 0 0 0 0.22 0 0 0 0 Mongolian mining 0 14.44 0 0 0 0 14.44 0 0 0 2011 Newcom llc 20 0 20 0 0 0 0 0 0 0 8/8/2007/10/11/12 Sef xacbank 2 10.37 5 0 0 2 8.6 5 0 0 2011 Shangri-la ub 50 0 0 0 0 0 0 0 0 0 2011 Suu jsc 2 0 0 0 0 1 0 0 0 0 2009 Xacleasing 0.75 0 0 0 0 0.75 0 0 0 0 Total Portfolio: 91.01 33.34 45 0 0 20.01 25.54 25 0 0 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 86 Standard CAS Annex B8 Mongolia: Operations Portfolio (IBRD/IDA and Grants) As Of Date 2/27/2012 Closed Projects 19 IBRD/IDA * Total Disbursed (Active) 138.57 of which has been repaid 0.36 Total Disbursed (Closed) 181.43 of which has been repaid 27.17 Total Disbursed (Active + Closed) 320.00 of which has been repaid 27.53 Total Undisbursed (Active) 78.18 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 78.18 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Developm Implement ent Project ID Project Name ation Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Objective Progress s P077778 MN Economic Capacity Tech. Assistance MS MS 2003 7.5 0.49 -0.42 P040907 MN-Energy Sector S S 2001 42 0.53 8.42 -8.28 P101446 MN-Enhanced Justice Sec Services MU MU 2008 5 2.27 2.32 P084766 MN-GEF-Renewable Energy for Rural Access S HS 2007 3.5 0.82 P098426 MN-Governance Assistance S S 2006 14 2.65 1.22 P088816 MN-Index-Based Livestock Insurance S S 2005 17.75 11.82 1.84 P092965 MN-Info & Com Infra Dev S MS 2006 8 1.42 0.94 P118109 MN-Mining Infrastructure Investment Supp S S 2011 25 22.30 P113160 MN-MONSTAT S S 2009 2 1.67 0.73 P099321 MN-Renewable Energy for Rural Access HS HS 2007 3.5 0.30 0.15 P096328 MN-Rural Education and Development -READ S S 2006 5 0.31 -1.16 P096439 MN-Sustainable Livelihoods II S S 2007 44 11.52 -1.79 P074591 MN-UB SERVICES IMPROVMT 2 S S 2004 18 0.16 -0.89 P119825 Mongolia Multi-Sector TA S S 2010 12 10.69 1.30 P108768 Mongolia-Mining Sector Inst Strength TA S MS 2008 9.3 4.15 3.66 Overall Result 213.05 3.5 0.53 79.00 -5.55 87 Standard CAS Annex B8 Mongolia CPS: Major Trust Funds Project Effective Closing Pillar Grant ID TF No. Date Date 1 2 3 US$M Active Recipient Executed Trust Funds P096439 TF92715 12/10/2008 6/30/2012 EC TF: Sustainable Livelihoods II x x 14.00 P108776 TF58043 3/16/2007 12/31/2012 Education for All – Fast Track Initiative: Catalytic TF x 29.40 P126994 TF99918 9/26/2011 10/22/2012 Extractive Industries Transparency Initiative Grant (outreach) x 0.25 GPE: Global Partnership for Education x 10.00 P088816 TF94827 8/16/2010 3/31/2014 Korea TF: Index-Based Livestock Insurance x x 0.70 P113160 TF93575 9/18/2009 4/30/2012 Korea TF: MONSTAT Strengthening National Statsistical System x 0.40 P113160 TF94696 9/18/2009 12/31/2014 Korea TF: MONSTAT Strengthening National Statsistical System x 0.70 P122953 TF98487 4/11/2011 12/31/2014 Korea TF: MONSTAT Strengthening National Statsistical System x 0.65 P119825 TF99122 4/13/2011 5/31/2012 Korea TF: Multi-sector TA x x x 0.50 P099321 TF90858 10/5/2007 6/30/2012 MN-FS Renewable Energy for Rural Access Project x x 6.00 P096439 TF90580 2/4/2008 6/30/2012 PHRD TF: Sustainable Livelihoods II x x x 3.90 Indicative Recipient Executed Trust Funds AusAid TF: Groundwater Management in Southern Gobi x 6.00 AusAid TF: Mining and the Environment x tbd FIRST Initiative: Improving Financial Sector Stability x 0.20 GAFSP: Livestock-Based Livelihoods Improvement x 11.00 GFAHI MDTF: Avian and Human Influenza 2 x 2.50 JSDF: Primary Education Outcomes for the Most Vulnerable Children in Rural Mongolia x 2.60 SDC (Swiss Development Cooperation): Participatory Planning/Decentralization Support x 0.60 Notes: Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas Pillar 3: Address Vulnerabilities and Growing Inequality through Improved Access to Services and Better Service Delivery, Safety Net Provision, and Improved Disaster Risk Management 88 85°E 90°E 95°E 100°E 110°E 115°E 120°E 105°E RUSSIAN FEDERATION Lake Baikal To Biysk To 50°N Ulan-Ude To To Chita Chita Hövsgöl Uvs Nuur 50°N Ulaangom Nuur Achit Hatgal Tavan Bogd Uul Nuur (4,374 m ) UVS Tesiyn HÖVSGÖL Sühbaatar Ereentsav Ho H Olgii Mörön SEL ENG E To vd AN - B A Y A N- Hyargas nge d Hailar Nuur Sele Darhan DAR HAN -U UL DA R -UUL Hulun Ö LG I I r Erdenet OR HON H ON Bayan Uul Nur Ide on On DORNOD Jargalant HAN A Z A V K H AN Bulgan (Khovd) Har Har Nuur BUL G AN BU L GA N KHE NTI I Kherlen Us Nuur (Choibalsan) Uliastai Ha AR HA NG AI ARH ANG A I ULAANBAATAR ule n A A ng Ker Tamsagbulag KHOVD TÖV an ay Erdenebulgan Zuunmod l n Öndörhaan h (Tsetserleg) av 120°E M Dz Tsagaan-Olom tt ts Baruun-Urt . a a Esonbulag GOVISÜMBER GOVISÜMBER GAI 45°N (Altai) Bayankhongor Choir KBAATAR KBAATA SÜ KBA ATAR y y GOV - A L TAI GO V I -AL TA I Arvaiheer Ö V Ö RK H A N Mandalgovi Hongor 45°N M DUN DG DUNDG OV ' Sainshand o CHINA u AYANKHONGOR BAYANKHONGO BAYANKHONGOR n t DORNOGOV' DOR NOGOV' a To i Dalandzadgad t Jining 115°E n e r s ÖMNÖGOV' D e s o b i M ONG OL IA CHINA G SELECTED CITIES AND TOWNS MONGOLIA PROVINCE (AIMAG) CAPITALS 40°N To NATIONAL CAPITAL Hami RIVERS 0 100 200 300 Kilometers MAIN ROADS 40°N IBRD 33449R1 RAILROADS JANUARY 2009 0 50 100 150 200 Miles PROVINCE (AIMAG) BOUNDARIES 90°E 95°E 100°E 105°E 110°E INTERNATIONAL BOUNDARIES