Ulaanbaatar/MONTSAME/ On November 30, the World Bank’s Board of Executive Directors approved USD120 million in financing to support Mongolia’s efforts to restore debt sustainability, strengthen the social protection system, and enhance the competitiveness of the economy.

The Mongolia Economic Management Support Operation First Development Policy Financing (DPF) comes at a critical juncture and aligns with the country’s moves towards strong policy adjustment.

“This program endorses many of the measures that the government has taken to put Mongolia’s economy on a healthier path. Policy reforms in priority areas will help fiscal adjustment, strengthen the social protection system, and improve the competitiveness of the economy.  Together with the long-term and affordable financing from the program, the reforms will help stabilize government debt, while strengthening the social safety net,” said James Anderson, World Bank Country Manager for Mongolia. 

Although  Mongolia’s  legal  system  includes  controls  over  fiscal  deficits,  these  controls  were  largely circumvented  in  the  past  several  years  through  off-budget expenditures.  By consolidating off-budget and quasi-fiscal expenditures, spending priorities will be debated during budget negotiations. Reducing capital expenditure – the largest source of spending increase in 2016 – is also a priority target. Measures to boost revenues include a more progressive personal income tax system that will reduce taxes for lower income groups, as well as increases in excise taxes on alcohol and tobacco, supporting both health and revenue objectives. Other reforms to expand the tax base will follow in the coming years. 

The program also endorses the government’s efforts to rebalance the social welfare system in favor of the poor, notably by strengthening the Food Stamp Program and laying the foundation for a poverty-targeted benefit. Mongolia experienced a sharp increase in poverty between 2014 and 2016, a reminder of the need for a robust system of protecting the poorest during economic downturns.  The program includes reforms aimed at making the pension system sustainable. 

Strengthening  the  investment  climate  will  help  Mongolia  to  unlock  its  long-term  potential  and  reduce  its reliance  on  commodity  exports.  Important reforms in  this  area  include  strengthening  investor  protection, streamlining permit requirements, strengthening animal health management to promote livestock production and exports, and improving the trade environment.

Development Policy Financing operations endorse certain policy actions undertaken by the government and lay  out  a  program  of  reforms  for  the  next  several  years,  while  also  providing  low  cost  financing  for  the government’s budget. Policy reforms are expected to promote specific development outcomes that contribute to poverty reduction. The DPF approved today complements World Bank investment and technical assistance projects in areas such as development of non-mineral exports, employment support, energy, education, ICT development, and central and local governance