Connecting the People Given the dependence of the Mongolian economy on railways and roads, the World Bank recognized early on that the country would need emergency assistance for the transportation sector. One of the earliest Bank projects in Mongolia, the Transport Rehabilitation Project, was designed to complement activities of other donors in this area by providing physical investments in rail and bus fleets to smooth disruptions in service. Despite the advances in construction and fleet capacity, two pressing issues remain in the transportation sector: maintenance of existing roads and construction of new ones. Budget constraints in recent years have resulted in minimal investments in road maintenance, while the large territory and sparse population provide little incentive to develop new roads. As a result, only about 13 percent of all roads in Mongolia are paved. Another 30 percent of the roads are gravel or formed earth, and more than half of the country's roads are simply earth tracks. In 2001, the Parliament of Mongolia adopted a “Millennium road” project to build a local infrastructure network, which will allow Mongolia to be connected to its neighboring countries in the shortest possible way and to gain access to sea ports in these countries. Transportation on current roads is problematic and is often impossible in winters, which is undermining regional growth and development. Thus, the World Bank approved US$34 million credit for Transport Development to help connect marginalized areas, improve roads, and reduce environmental degradation associated with poor road conditions. back to top
Internet Communications and Technologies Since the mid-1990s, the Government of Mongolia has implemented a telecommunications reform program leading to effective liberalization of all market segments, partial privatization of the fixed line incumbent, Mongolia Telecom Company (MTC), and establishment of the Communications Regulation Commission (CRC) as an independent regulatory authority. As a result, the tele-communications sector has seen considerable foreign investments and witnessed tremendous growth. The market structure has evolved into a multi-operator environment, with two national cellular operators, two fixed line operators, multiple VSAT, internet and other value-added service providers. The market has grown at a compound rate above 25 percent per annum over the last three years. At the end of August 2004, total fixed and mobile teledensity reached 20.6 percent, up from 13 percent in 2001. The regulatory environment has also evolved with interconnection, tariff and licensing regimes that are conducive to competition. The GOM articulated a national Information and Communication Technologies (ICT) Vision 2010 providing a blueprint for the development of the ICT sector in Mongolia. The coalition government, in October 2004 established the ICT Authority (ICTA) as the lead sector policy agency. The ICTA is currently developing an E-Mongolia strategy. GOM considers these actions important to address its Economic Growth Support and Poverty Reduction Strategy which aims to accelerate pro-poor growth and reduce poverty through an approach that includes improving the environment for private sector led development and enhancing regional and rural development. The Bank, with support from a Public-Private Infrastructure Advisory Facility (PPIAF) grant is currently assisting the GOM to develop a framework and strategy for universal access to telecommunications services. The focus is on achieving an appropriate and self-sustainable level of access to voice telephony and public Internet/information services in all under-served areas, particularly rural “soums” that are unlikely to see sufficient private investment without intervention in the form of financial support. Considerable preliminary support has also been provided by the Bank in the areas of telecommunications regulations, postal policy, and IT legislation as part of the Bank’s larger sector engagement in Mongolia. Currently, the Bank has started to implement a new “Information and Communications Infrastructure Development” Project. The project builds on the work conducted to date and will assist the Government in advancing the reform agenda. The project is consistent with the recently approved CAS core strategic objectives of: (a) consolidating the transition to a market economy by improving the regulatory and legal environment for increasing private sector participation in the provision of infrastructure; and (b) reducing rural vulnerabilities by supporting new approaches to improve the environment for local economic growth. The proposed project also supports the GOM in meeting its commitment made under the auspices of the World Summit on Information Society (WSIS) 2003. Supporting Energy Sector Mongolia's energy needs are met mainly by domestic generation, as well as by some imports from Russia. Coal supplies about 80 percent of the country's energy. Additional energy is generated by diesel generators. The central energy system supplies Ulaanbaatar, three other cities and six aimags with electricity and heating, while in the rest of the aimags energy is supplied through coal-fired heat-and-power plants, diesel generators and heat-only coal-fired boilers. The system experienced severe disruptions starting in 1990 and the resulting fall in supply was too large to be offset by the decrease in demand during economic decline. The Bank conducted a review of the energy sector which detailed current issues and future needs of the sector and incorporated measures for improving energy distribution. New energy legislation has laid out the framework for restructuring of the energy sector. World Bank’s Energy project helps Mongolia to improve the management and financial sustainability of electricity distribution companies in Ulaanbaatar and selected aimags, so that consumers are provided by reliable electricity supply. back to top
Stabilizing and Reforming the Financial Sector A few years into Mongolia's transition to a market economy, the banking sector was hard hit by rocketing interest rates, poor banking practices, an underdeveloped legal system, and defaulting borrowers. In 1996, the rate of non-performing loans in the banking system was about 47 percent and the structure of bank loans was such as to discourage productive businesses. Two of the four largest banks went insolvent, and the other two were on the edge of insolvency. In response, the World Bank issued two loans -- the Banking and Enterprise Sector Adjustment Credit (BESAC) and the Bank, Enterprise and Legal Technical Assistance Credit (BELTAC) -- which contributed significantly to reforms carried out in the banking sector and to instituting better loan management practices. Financial Sector Adjustment Credit (FSAC, US$32 million) supported the Government's medium-term strategy for financial sector reform and development needed to achieve macroeconomic stability, accelerate private sector-led growth and reduce poverty. Completed in 2004, the project enabled the Government to substantially reduce its large stock of net domestic credit from the domestic banking system, and helped fund the cost of bank restructuring. The ongoing Financial Capacity Development Project (FCDP, US$5 million) is supporting the banking sector as part of a broader effort to improve the investment climate in Mongolia. The project seeks to reduce risks in the banking system and introduce more financial intermediaries such as Mongol Post Bank and Zoos Bank to help diversify risk. Fielding a representative office in Mongolia, the World Bank began to closely follow developments in the banking sector and the overall macro situation. This time, the World Bank played a key role in coordinating government and donor efforts to restructure the ailing banking sector. A review of the financial sector carried out by the Bank helped the government to formulate new policies and strategies for restructuring and further development of the financial sector. In 1999, two large banks were liquidated and another one was placed in receivership . A highly fragmented banking sector was encouraged to consolidate. Non-bank financial institutions filled the gaps created by the absence of banking services to some segments of population, namely, the middle- and low-income individuals, microenterprises and rural population. back to top
Backing the Private Sector Almost all of the Bank's activities in Mongolia have been geared to building the private sector. Some measures include restructuring public enterprises, providing credits for private sector initiatives, developing an insolvency law, supporting micro-finance schemes, and promoting foreign investment. In conjunction with other donors to Mongolia, the World Bank has helped reduce the size of the public sector and increase the role of the private sector. Today, Mongolia's private sector produces more than 70 percent of the country's total output. However, the private sector still needs stronger support of the government in the form of legal coherence and stability, land reform, and secure property rights. Second Private Sector development project in the FY2005/06 lending program. The lack of access to formal term finance in Mongolia stymied the potential for the private sector to lead growth. To address this need for medium and long-term investment financing, the PSDC credit line was structured to meet both the investment needs for the sub-borrowers and the soundness of the PFIs. The World Bank has successfully implemented the Private Sector Development project that was a part of the broader donor program to support the development of the Mongolia’s private enterprise and financial sectors. Sub-loans of $200,000 in average were made available to 47 small and medium-sized enterprises through three commercial banks: Golomt, Zoos and Trade & Development Banks. As a sign of the positive results from the PSDC, several Mongolian private entrepreneurs, who took sub-loans from the credit, have been actively positioning themselves to take advantages of the globalization with European markets and with the fast economic growth of neighboring China. Inspired by the achievements of PSDC, The Bank’s management has decided to implement the engaging the government, the private sector, and civil society on the topic of business climate through roundtable discussions. back to top
Helping the Poor
More than one-third of Mongolia's population lives below the poverty line. The severity and depth of poverty has increased in past years, compounded by economic shocks. The World Bank has committed to reduce poverty and has undertaken several projects aimed at this goal. Poverty Alleviation Project worth USD 10 mln implemented in 1996-2000 helped the government to mitigate the adverse effects of Mongolia’s economic transition on the most vulnerable groups by creating jobs for unemployed people, promoting income generation for the poor, reducing dropout and non-enrollment rates in basic education by renovating soum schools, strengthening rural health services and assisting the poor herders affected by dzud. The First Urban Services Improvement Project (UBSIP-1, US$ 16,7 million) aimed to reduce the cost of living and improve the quality of life for residents living in the ger (yurt) areas around Ulaanbaatar. About 46 percent of these people are estimated to be living below the poverty line. Living near the capital, they face high prices for services, at the same time they are vulnerable to the hardships of rural life -- they lack nearby water sources (especially difficult during winters and in difficult weather conditions), and face risks from flooding, inadequate sewerage, and air pollution created by coal-fired heating. The upcoming Second Urban Services Improvement Project (UBSIP-2, US$18 million) builds on the lessons learned from the implementation of UBSIP-1 and aimes to provide improved water supply to the urban poor in a sustainable manner. The Improved Stoves Project under the Global Environmental Facility is working to help provide the infrastructure for commercial development of more efficient wood- and coal-fired stoves in Ulaanbaatar. The new stoves serve twin purposes: to reduce emission of greenhouse gases and to help economize on reduced input of wood or coal in these higher efficiency stoves. The ongoing Sustainable Livelihoods Project is working to help shift Mongolia's anti-poverty strategy away from welfare-style measures toward those that promote secure and sustainable livelihoods for all. The strategy aims to manage risk in pastoral livestock production, increase hay and fodder production, promote conservation techniques, improve livestock marketing, create early warning and emergency response systems, organize herd restocking and conflict management, institute rural micro-finance services, and set up a community investment fund for co-financing and execution of investments in basic infrastructure and social service provision. The development objective of the proposed Index-Based Livestock Insurance Project (IBLIP, US$7,5 million) would be to ascertain the viability of indexbased livestock insurance in Mongolia. This would be achieved through the piloting of insurance schemes in various provinces of Mongolia and the formulation of an appropriate regulatory framework. The proposed insurance would enhance livelihood security of livestock-owning households by reducing their vulnerability from livestock mortality events. back to top
| 
RSS