Monday, January 9, 2012

Mongolia - Country assistance strategy

Overcoming the natural resource curse and transforming its mineral endowment into renewable assets for sustainable and broad-based development are Mongolia's most significant development challenges.
The quality and competency of its economic policies and institutions will determine whether the country will exploit this opportunity, or succumb to the “resource curse.”
The local implications of the recent global economic downturn highlighted the importance of improving macroeconomic management. Improved management will reduce the impact of cyclical mineral prices on Mongolia’s increasingly mineral-based economy.
Government policies in recent years – including pro-cyclical fiscal policy, expansionary monetary policy, and an inflexible exchange rate –heightened the impact of the global economic downturn on Mongolia.
Putting in place fiscal rules, which is well under way, (the Mongolian Parliament adopted the Fiscal Stability Law in June 2010) will assist the country in successfully navigating the after effect of the economic crisis and better cushion the country’s small economy from future shocks. These fiscal rules smooth expenditures through commodity cycles and improve the management of monetary policy and of the exchange rate.
A second challenge is to develop and maintain a competitive and stable regime for the mining and private sectors. A mining regime that attracts first-class global investors to develop key mineral reserves, while ensuring Mongolia obtains a fair share of mining revenues, is of utmost importance.

A related challenge, in the medium-term, is to encourage economic diversification.
Other key challenges will be to achieve more sustainable management of Mongolia’s rich natural and cultural resources. This can promote economic growth (e.g., the fast-growing tourism industry) and reduce poverty and vulnerability of both rural and urban households.
Managing environmental impacts associated with mining and rapid urbanization, including severe pollution and poor energy efficiency, and improving management of rural pasture land, biodiversity, and water supply will be important for sustaining broad-based growth.

Addressing the wealth disparity between rural and urban populations is also another challenge of Mongolia. In making strategic trade-offs between rural and urban investments and expenditures, international experience suggests that the Government should adopt policies that accompany rather than attempt to offset the migration and economic concentration that is taking place in Ulaanbaatar. Addressing regressive subsidies that burden the poor (for heating, water) and strengthening the labor market can help to reduce disparities and boost competitiveness. With over half of the population of Ulaanbaatar living in gers in difficult conditions, housing will be a serious development challenge for the Government. of pasture land, biodiversity and water supply will be important for sustaining broad-based growth.

The long term economic performance of the country will depend on how well structural and policy weaknesses are address, particularly regarding the management of mineral wealth. Ensuring a sustainable contribution from the mining sector to economic growth, while avoiding the impacts of Dutch Disease will continue to be a challenge in the medium term. Creating broad-based economic growth and diversification through the prudent investment of mineral revenues whilst avoiding subsidies and dependencies will continue to be a challenging area for Government. Addressing income disparities and poverty in both rural and peri-urban populations will also require ongoing attention. In order to encourage broad-based economic growth, significant attention needs to be given to developing the policy and regulatory framework for a more competitive and stable investment climate.

The strategic objectives:
1. Increase Mongolia’s capacity to manage the mining economy sustainably and transparently
2. Support the expansion of a diversified economic base through an open and accountable business climate
3. Reinforce services and local initiatives to expand opportunities for all, specifically the poorest

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