Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 139667-MN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY FOR MONGOLIA FOR THE PERIOD FY13-FY18 November 13, 2019 Mongolia Country Management Unit East Asia Pacific Region The International Finance Corporation East Asia Pacific Department The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. Last Country Partnership Strategy: May 12, 2012 (Report No. 67567-MN) Last Progress and Learning Review: December 16, 2016 (Report No. 106796-MN) CURRENCY EQUIVALENTS (as of November 7, 2019) Currency Unit = Mongolian Tugrik (MNT) US$1.00 = MNT 2703.61 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank LAMP Livestock Agricultural and Marketing Project AML Anti-Money Laundering LDF Local Development Funds AQR Asset Quality Review MEP MN - Employment Support Project AS Advisory Services MESP Mongolia Employment Support Project ASA Advisory Services and Analytics MFD Maximize Financing for Development BOP Balance of Payments MINIS Mining Infrastructure Support Project BOM Bank of Mongolia MIGA Multilateral Investment Guarantee Agency CG Corporate Governance MOF Ministry of Finance CGAP Country Gender Action Plan MPP Mongolian People’s Party CLR Completion and Learning Review MSME Micro, Small and Medium Enterprises CPF Country Partnership Framework MSTA Multi-Sector Technical Assistance CPPR Country Portfolio Performance Review NBFIs Non-Bank Financial Institutions CPS Country Partnership Strategy NDC Nationally Determined Contribution CRW Crisis Response Window OBI Open Budget Index DB Doing Business OT Oyu Tolgoi DP Democratic Party PBOC People’s Bank of China DPF Development Policy Financing PER Public Expenditure Review EDP Export Development Project PFM Public Financial Management EFF Extended Fund Facility PIM Public Investment Management EITI Extractive Industries Transparency Initiative PLR Performance and Learning Review EMSO Economic Management and Support Operation SCD Systematic Country Diagnostic EQRP MN Education Quality Reform Project SEP2 Second Energy and Support Project ERP Economic Recovery Program SESA Strategic Environmental &Social Assessment ESF Environmental and Social Framework SFFS Strengthening Fiscal & Financial Stability Project FATF Financial Action Task Force SLP Sustainable Livelihoods Project FDI Foreign Direct Investment SME Small and Medium Enterprise FSP Food Stamp Benefit SNG Synthetic Natural Gas GFDRR Global Facility for Disaster Reduction and Recovery SORT Systematic Operations Risk-rating Tool IBRD International Bank for Reconstruction and Development TF Trust Fund IDA International Development Association UBCAP Ulaanbaatar Clean Air Project IEG Independent Evaluation Group VCP Voluntary Code of Practice IFC International Finance Corporation WAIS Welfare Admin Management Information System IMF International Monetary Fund WBG World Bank Group IBRD IFC MIGA Vice President: Victoria Kwakwa Snezana Stoiljkovic S. Vijay Iyer (Acting EVP) Director: Martin Raiser Vivek Pathak Merli Baroudi Country Manager: Andrei Mikhnev Randall Riopelle Task Team Leader: Nico von der Goltz Rufat Alimardanov/ Alexei Volkov Eugeniu Croitor Table of Contents I. INTRODUCTION ........................................................................................................................... 4 II. MAIN CHANGES IN COUNTRY CONTEXT ................................................................................... 5 Recent Economic Developments ............................................................................................................. 5 Changes to Poverty Reduction and Shared Prosperity ........................................................................... 7 Political Context ....................................................................................................................................... 9 III. SUMMARY OF PROGRAM IMPLEMENTATION ....................................................................... 10 Portfolio Overview ................................................................................................................................. 10 Summary of Progress toward CPS Objectives and Outcomes .............................................................. 11 Evolution of Partnerships and Leveraging ............................................................................................. 16 VI. EMERGING LESSONS ............................................................................................................... 17 V. ADJUSTMENTS TO COUNTRY PARTNERSHIP STRATEGY........................................................ 18 VI. RISKS TO CPF PROGRAM......................................................................................................... 19 Annex 1. Updated CPS Results Matrix ......................................................................................... 21 Annex 2. Matrix of changes to original CPS Results Matrix....................................................... 27 Annex 3. Matrix summarizing progress toward CPS Objectives ................................................ 34 Annex 4: World Bank Lending Portfolio and Pipeline................................................................. 45 Annex 5: Ongoing ASA ................................................................................................................. 46 Annex 6. Completed Lending Projects and ASA during CPS period ........................................... 47 Annex 7. Portfolio indicators over the CPS Period ..................................................................... 49 Annex 8: IFC Portfolio .................................................................................................................. 50 Annex 9: MIGA Portfolio .............................................................................................................. 53 Annex 10. Key Economic Indicators, 2016–23 ............................................................................ 54 Annex 11: Development Priorities identified in the SCD ............................................................ 55 3 Mongolia PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY I. INTRODUCTION 1. This Progress and Learning Review (PLR) takes stock of progress of the World Bank Group (WBG) Country Partnership Strategy (CPS) for Mongolia (Report No. 67567-MN). The last CPS for Mongolia, initially covering the period of FY13–17, was presented to the WBG Board of Directors on May 7, 2012. The strategy was based on the three pillars: (1) enhance Mongolia’s capacity to manage the mining economy sustainably and transparently; (2) build a sustained and diversified basis for economic growth and employment in urban and rural areas; and (3) address vulnerabilities through improved access to services and better service delivery. 2. A first Performance and Learning Review (PLR) (Report No. 106796-MN) of the CPS was presented to the WBG Board of Directors on December 16, 2016 and a Systematic Country Diagnostic (SCD) (SECM2018-0318) on November 28, 2018. The 2016 PLR extended the CPS by six months to FY18 (December 31, 2017) and adjusted the results framework in light of considerable changes in the external environment, economic policies and the WBG portfolio. 3. This PLR confirms the continued relevance of the CPS and its pillars for the partnership between Mongolia and the WBG. Even though there have been considerable economic and social changes in the country since the last CPS was approved, its key pillars and objectives remain highly relevant to address Mongolia’s development challenges. Managing the mining economy, promoting economic diversification, and better service delivery continue to be at the heart of Mongolia’s development challenges, as also confirmed by the WBG’s recent SCD, and the Mongolian government’s own development plans, such as the Sustainable Development Vision 2030 and the Economic Recovery Program (ERP). Therefore, the PLR does not propose any major adjustments to the WBG program. 4. The PLR extends the CPS retroactively until December 31, 2020. The current CPS already expired in December 2017 and a new Country Partnership Framework (CPF) was planned for 2018. In fact, an SCD was conducted and identified key development challenges and priorities to eradicate poverty and promote shared prosperity in Mongolia. After the SCD was finalized and a new CPF was ready for consultations with the government and internal approval, it became clear that Mongolia is now a candidate for IDA graduation. Such a graduation would impact the design of the next CPF.1 In October 2019, IDA Deputies and Borrower Representatives endorsed a proposal for Mongolia’s graduation from IDA at the third IDA19 replenishment meeting. The final decision by the IDA Board is expected before the end of FY20, while parliamentary elections in Mongolia will take place in June 2020. Thus, the WBG management in consultation with the Mongolian authorities decided the best course of action would be to postpone the next CPF until after the next elections. This would enable the next CPF to factor in the graduation decision and to be aligned with the priorities of the newly elected government. To avoid an additional gap in the WBG strategy formulation for the country, this PLR provides an update on the current 1However, the IBRD capital package, endorsed by the Development Committee in Spring 2018, contains a commitment ensuring that supply of WB financing to IDA graduates will not decline. IBRD will prioritize support to IDA graduates and new blends, aiming to make available resources to replace 100% of IDA financing for IDA graduates for the period of 6 years, helping ensure sustainable IDA graduations. The current country program is already supporting the transition from IDA blend to IBRD only status by promoting macroeconomic stability, competitiveness and social protection (e.g. through objectives 1.2, 2.1, 2.2 and 3.1). 4 strategy and extends it until the December 31, 2020. The WBG will aim to prepare a new CPF before the end of 2020. II. MAIN CHANGES IN COUNTRY CONTEXT Recent Economic Developments 5. After the CPS was approved in 2012, Mongolia faced substantial economic challenges due to externally driven shocks as well as internal shortcomings in macroeconomic policy. Mongolia’s economy grew on average by 14 percent during the 2011‐13 period, supported by strong mineral exports, foreign direct investment (FDI), and an expansionary fiscal policy. The economic boom started to drop sharply from 2014 due to a deteriorating external environment marked by declining commodity prices and slowing demand for commodities, especially coal, from Mongolia’s main trading partner China2. On the demand side, private investment was severely affected as FDI inflows dried up to less than 2 percent of GDP in 2014‐16 from 40 percent of GDP in 2011 due to the delay in new mining projects. The government responded to the economic slowdown with higher, and ultimately unsustainable public spending. As a result, the fiscal deficit reached 15.3 percent of GDP in 2016, public debt stock reached an unprecedented level of close to 90 percent of GDP, and reserves declined substantially. Real GDP growth fell to 2.4 percent in 2015 and 1.2 percent in 2016. 6. The Government’s response was anchored in the Economic Recovery Program (ERP), which has been supported by a multi-donor support package including an IMF Extended Fund Facility (EFF). The newly elected government launched the ERP in November 2016. The objective of the ERP has been to mitigate the impact of the economic crisis and to restore fiscal sustainability, while pursuing structural reforms aimed at regaining the confidence of foreign investors and diversifying the economy.3 The ERP was supported by an international US$5.5 billion support package, including an IMF SDR 314 million (US$434.3 million equivalent) EFF. This package was also supported by other partners, including the WBG, Asian Development Bank (ADB), China, Japan, and Korea. The Bank’s support for Mongolia’s economic recovery has mainly been provided through a three-tier DPF series. In November 2017, the World Bank Board approved the first Economic Management Support Operation (EMSO) 1 with an amount of US$120 million. A second operation, EMSO 2, in the amount of US$ 100 million was approved in July 2019. 7. The Mongolian economy recovered strongly in 2017 and 2018. GDP growth reached 7.2 percent in 2018 comparing with 5.3 percent in 2017 and 1.2 percent in 2016 due to increased prices and demand in the coal sector, higher private investment supported by FDI ($ 2.1 billion in 2018 and $1.4 billion in 2017 from $121 million in 2016) and increased private consumption, which grew by 6.2 percent (y/y) in 2018 from a contraction in 2016. 4 Improved market confidence following the international support program, skillful management of the macroeconomy, especially on the fiscal side, and steady progress on structural reforms have contributed to this strong overall economic performance. 2 About 90% of Mongolia’s exports are to China. 3 Key reform measures included in the 2017 supplementary budget included the termination of off-budget spending by the Development Bank of Mongolia and the Bank of Mongolia (BoM); additional safeguard measures such as the establishment of a Fiscal Council; strong adjustment measures to reduce on-budget spending; revenue mobilization measures such as raising taxes on higher income earners and on tobacco, alcohol, petroleum and old vehicles; and budget priorities to strengthen social protection and basic services (esp. education and health). 4 See key economic indicators in Annex 10. 5 8. Mongolia’s fiscal stance improved significantly in 2017-18, supported by strong economic recovery and budget spending discipline. A large overperformance in revenue and tight spending controls helped to turn around the overall fiscal balance5 from the 2016 deficit of 15.3 percent of GDP to a surplus of 2.6 percent in 2018 – the first budget surplus of the last 8 years. The fiscal improvement has continued in the first ten months of 2019. 9. Government debt declined rapidly in 2018 and is projected to fall further in the presence of strong growth and a positive primary balance. The improved fiscal outturn and strong recovery in growth have resulted in the reduction of public debt to 74.4 percent of GDP in 2018 from 87.6 percent of GDP in 2016. Debt is projected to continue to fall in 2019 to 71.4 percent of GDP due to improvement in the primary balance, falling interest payments, and strong growth. However, the latest IMF Debt Sustainability Assessment (from November 2018) indicates that important vulnerabilities remain. A decline in growth by one standard deviation below the long-term trend in 2019 and 2020 or a real exchange rate depreciation of 25 percent would push the debt-to-GDP-ratio back above 80 percent in 2020. 10. Despite the recent progress in lowering public sector debt, pressures on the balance of payments are likely to continue. With improved investor confidence, Mongolia successfully resolved immediate external debt repayments in 2017 and 2018 through issuing US$1.4 billion in sovereign bonds (Khuraldai and Gerege Bonds) at more favorable terms than previous loans (8.75 percent interest rate and 7-year maturity and 5.63 percent interest rate and 5-year maturity respectively). Moreover, no large external debt repayments are due on the public sector side till 2021 except the renewal of People's Bank of China (PBOC) swap line with Bank of Mongolia (BoM).6 However, further strengthening external buffers remains warranted given limited reserves. In this context, greater flexibility of the exchange rate through curbing the rising trend of BoM foreign exchange interventions since the second half of 2018 is needed. In addition, a delayed implementation of ongoing reforms could affect Mongolia's sovereign ratings and reduce the chance of refinancing under favorable conditions. 11. The medium-term outlook remains positive in 2019 and beyond, but significant risks remain. Annual GDP growth is projected to be between 6 and 7 percent in 2019 to 2023, mainly supported by private consumption, investment in mining and manufacturing (see Annex 10). However, significant risks remain. These include political uncertainty and rising political pressure to loosen economic policies in the run-up to the 2020 elections; slower-than-expected increase in FDI in key mining projects; potential delay in the production schedule of Oyu Tolgoi’s (OT) underground mine; commodity price and export shocks; slower implementation of banking sector reforms and further delays in the IMF program; and Mongolia’s recent identification as a jurisdiction with strategic deficiency by the Financial Action Task Force (FATF), which may influence investor’s decisions and add scrutiny to bank transactions. These risks could be exacerbated by growing uncertainty on the government’s position on the investment agreement of the second phase development of the OT cooper mine project. 12. Mongolia’s investment climate needs to improve in order to enable sustained private sector- led growth. This is demonstrated by Mongolia’s ranking in the World Bank’s Doing Business 2020 report 5 According to the Fiscal Stability Law, the structural budget balance is defined as the difference between structural revenue (that is, total government revenue minus transfers to the Fiscal Stabilization Fund and the Future Heritage Fund) and total government spending (excluding DBM commercial projects). Meanwhile, the IMF and World Bank monitor the overall fiscal balance, including on the revenue-side the proceeds to the saving funds. 6 Expected public debt repayments during 2020-24 include the following: PBoC swap line (US$1.7 billion, June 2020), Mazaalai Bond (US$500 million, due in 2021), Gerege Bond (US$800 million, due in November 2022), Chinggis Bond (US$1 billion, due in December 2022), Samurai Bond (US$268 million, due in May 2023), Khuraldai Bond (US$600 million, due in March 2024). 6 (ranked 81), with main areas for improvement including Resolving Insolvency (ranked 150), Getting Electricity (152), Trading Across Borders (143) and Starting a Business (100). Similarly, Mongolia’s relative position in the Global Competitiveness Index (2018 report) remains low – Mongolia is ranked 99th overall out of 140 economies (was 95th in 2017 edition), with particularly low rankings in macroeconomic stability (121st), financial system (109th), health (105th), market size (103rd) and infrastructure (103rd). The poor quality of infrastructure is also reflected in Mongolia’s low ranking in the World Bank’s Logistics Performance Index – Mongolia is ranked 130th out of 160 economies. Despite some improvements in the regulatory environment, access to finance remains a pressing challenge for micro, small and medium enterprises (MSME), with an MSME financing gap estimated at $1.3 billion. Government interference in the economy and the domination of state-owned enterprises in main export generating sectors distort the market and put the private sector in a disadvantageous position. Recent revocations of licenses in the mining sector, lack of transparency in procurement, and questioning the sanctity of contracts (especially those signed by previous governments) contribute to a deteriorating perception of the investment climate. A recent enterprise survey, conducted by the WBG in partnership with the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB), identified political instability, tax rates and access to finance as the main three business obstacles for firms.7 Changes to Poverty Reduction and Shared Prosperity 13. Mongolia’s rapid decline in poverty since 2010 was partly reversed in 2016 and poverty has remained relatively stagnant since. As defined by the official poverty estimates, the poverty rate in Mongolia declined from 38.8 percent in 2010 to 21.6 percent in 2014. It rose again to 29.6 percent in 2016 and only moderately declined to 28.4 percent in 2018.8 In addition, 14.9 percent of the total population lived in “near” poverty (between the poverty line and 1.25 times the poverty line) in 2018, which makes them especially vulnerable to negative shocks. The 2016 increase in poverty can be attributed in large part to the 2014-16 economic downturn. However, despite the robust economic rebound in the past two years, there has been little progress in poverty reduction. This is primarily due to low wage and self- employed business income growth, a significant depreciation of the Mongolian Tughrik and increased consumer price inflation in the past three years. While the percentage of poor under the national poverty line is substantial, the number of people living under the international poverty line of US$3.20 (2011 PPP) for lower-middle income countries remains around 6 percent.9 14. Poverty concentration continued to grow in urban areas. Rural poverty rates have been regularly higher than urban rates, but the gap has narrowed over the years. During the period between 2016 and 2018, the poverty rate declined by 4.1 percentage points in rural areas, while it remained unchanged in urban areas. Despite the higher poverty rate in rural areas, with two-thirds of the total population of Mongolia living in urban cities, poverty has further concentrated in urban areas. The share of the poor 7 See 2019 Enterprise Survey (https://www.enterprisesurveys.org/en/data/exploreeconomies/2019/mongolia). 8 The official poverty rate uses the cost of basic needs method and an official poverty line of 166,580 MNT per person/month in year 2018 (~2.2 US$/day at the average market exchange rate of MNT2473 per US$ in 2018). Higher levels of price inflation have increased the national poverty line from MNT146,145 in 2016 to MNT166,580 (per month) in 2018. 9 As countries have grown economically, the level of extreme poverty based on the International Poverty Line (IPL, $1.90/day 2011PPP) has gradually become less relevant to the lives of the people in middle-income countries. In developing EAP, China, Thailand, Mongolia, and Malaysia all have extreme international poverty rates less than 1 percent. For most countries, national poverty lines are increasing with national per capita consumption and income. The lower-middle income class (LMIC) poverty line ($3.2/day 2011PPP), based on the median values of national poverty lines from lower-middle income countries, sets international poverty benchmarks among lower-middle income countries. 7 population in urban areas has increased from 55.2 percent in 2010 to 63.5 percent in 2018, and more than 40 percent of the poor lived in Ulaanbaatar in 2018. Figure 1: Poverty trends and location of the poor, 2010-2018 Poverty Trend (2010-2018) Location of the Poor 60 100 49.0 50 37.9 36.5 Poverty headcount rate (percent) 80 percentage of population 44.8 43.7 44.5 38.8 40 35.4 60 34.9 33.2 29.6 30.8 30 27.4 27.1 28.4 26.4 27.2 40 23.3 21.6 62.1 63.5 18.8 55.2 56.3 55.6 20 20 10 0 2010 2012 2014 2016 2018 0 Urban Rural 2010 2012 2014 2016 2018 National Urban Rural Source: WBG and NSO, HSES (Household Socio-Economic Survey), 2019 15. Economic growth has been broadly shared, and inequality has remained stable. Between 2010 and 2018, the bottom 40 percent achieved a 2.2 percent annual growth in real per capita household consumption, which is slightly higher than the national average growth of 2.0 percent. These shared prosperity patterns have been accompanied by a remarkably stable inequality in consumption. The Gini moved from 33.1 in 2010 to 32.7 in 2018. Emerging Development Issues 16. Notwithstanding the country’s long-term achievements, the recent WBG’s SCD10 identifies three main challenges for Mongolia: unstable economic growth, population wellbeing at risk, and growing environmental stress. Mongolia has demonstrated significant success in reducing poverty and elevating human well-being since its peaceful transformation into a market-oriented democracy in the early 1990s.11 However, over the last two and a half decades, the country has experienced three recessions, and entered six IMF programs (including the current EFF). The recurring boom-and-bust cycles put at risk past gains in standards of living and poverty reduction. In addition, low life expectancy, relative to comparison countries, and a growing incidence of non-communicable diseases pose serious risks to 10 WBG, Mongolia – Systematic Country Diagnostic (SCD), Report SecM2018-0318, published on November 28, 2018. 11 Between 1990 and 2015, life expectancy increased by over 9 years (from 60.3 to 69.8, for the same period), average years of schooling increased by 1.4 years (from 7.7 to 9.1) and national income per capita (in 2011 PPP terms) grew at 3.3 percent a year, for a cumulative increase of 124 percent. In 2017, Mongolia ranked 51 out of 157 countries in the World Bank’s Human Capital Index (HCI), the highest ranking of all IDA countries. 8 population well-being. Moreover, climate change and human actions have brought about higher disaster risks and environmental degradation. Over the last six decades, a growing frequency and severity of natural disasters (e.g., dzud, drought, and flood) has been observed, in addition to a clear upward trend in Mongolian average temperatures. These climate change factors, together with fast urbanization, mining industrialization, and low-productivity agriculture have increased pressure on air quality, water, and pasturelands. At the same time, the country’s own carbon footprint has worsened due to the expansion of mining exports, inefficient electricity and heating services, and an increasingly motorized transport sector. 17. The SCD proposes five development priorities going forward: improving governance, job creation, human capital accumulation, investments in infrastructure, and protection of natural resources. These priorities were derived from a combination of quantitative benchmarking to all countries in the world and a few peer countries, extensive stakeholder consultations in Mongolia, and WBG experts’ deliberation. (See Annex 11 for the full list of priorities.) The SCD further suggests two main strategies to tackle Mongolia’s development challenges, the formation of intangible capital, i.e. the creation of efficient regulations and capable institutions, and genuine savings, i.e. the investment of rents from commodity exports in a more diversified set of financial, physical, and human capital assets (e.g. through investments in sovereign wealth funds, sustainable infrastructure, health and education). 18. Mongolia continues to make progress in closing gender gaps in health and education, but important gaps remain regarding longevity, economic opportunities, owning and controlling of productive assets, and exercising voice. 12 Significant gains have been attained in maternal and child health (e.g., maternal mortality was halved between 1990 and 2015) and the gender gap in education in aggregate terms has narrowed at primary and secondary levels. However, the gap continues to be significant at tertiary level with more females than males enrolled in higher education. Even though Mongolian women are on average better educated than their male peers, female labor force participation has declined from nearly 60 percent in 2007 to around 55 percent in 2016, with an increasing gender gap of around 12 percentage points. Men are also six times as likely to own agricultural land, and more than 1.5 times as likely to own other real estate. In addition, the gender gap in life expectancy is widening further: women are expected to live nearly ten years longer than men in 2017 as compared to 6.5 years in 2005. Progress was made in 2016 in increasing women’s representation in the national assembly, but women’s participation in public policy making is much lower than men’s (e.g., women comprise only 13.1 percent of the ministerial positions in 2017).13 Political Context 19. Mongolia’s current government has been in power since October 2017 and parliamentary elections are scheduled for mid-2020. Although Mongolia’s transition to democracy has been remarkably peaceful, Mongolian politics have always been volatile.14 The present government has been in place for more than two years. Current Prime Minister U. Khurelsukh’s (Mongolian People’s Party - MPP) vowed to 12 Several key gender assessments were recently undertaken, incl: i) World Bank (2019), Mongolia Gender Action Plan; ii) World Bank (2018) Perceptions of Precariousness: A Qualitative Study of Constraints Underlying Gender Disparities in Mongolia’s Labor Market; iii) NSO and ADB, Pilot Survey on Measuring Asset Ownership and Entrepreneurship from Gender Perspective in Mongolia, 2018; and iv) IRIM and UNDP (2016) Mainstreaming, acceleration and policy support (MAPS) for SDGs: Gender baseline analysis against SDGs in Mongolia. 13 World Economic Forum, Global Gender Gap Report 2017 14 Fifteen Prime Ministers served the country over the last 25 years with an average tenure of 1.5 years, reflecting instability within coalitions and ruling parties. 9 continue the implementation of the IMF program and the previous government’s economic recovery program. Mongolia’s President, Kh. Battulga (Democratic Party - DP), was elected in 2017. The Presidential elections were characterized by the first ever run-off elections in Mongolia between the two leading candidates and highly polarized media coverage. Currently, Mongolia is in the midst of a constitutional amendment process, which could affect the judiciary and composition of legislative and executive branches. The next parliamentary elections will take place in June 2020. 20. Mining projects, and especially the OT investment, remain a point of contention in political debates. On a per capita basis, Mongolia ranks as one of the richest countries in the world in terms of natural resource endowments. While mining investments have been a significant driver of economic growth in the past 20 years, the ownership and management of mineral resources have constituted key issues in political debates. This, in turn, has been a source of uncertainty for investors and capital markets. In 2018, two former Prime Ministers and a Finance Minister were arrested on corruption allegations regarding the signing of OT related investment agreements. They will stand trial in the next months. The current government has also established several parliamentary working groups to review different aspects of the agreements. The working group report has recently been finalized and is expected to be discussed by Parliament. III. SUMMARY OF PROGRAM IMPLEMENTATION Portfolio Overview 21. The World Bank portfolio currently consists of 11 projects. The overall volume of commitments for the eleven projects stands at US$338.9 million, of which US$88.5 million (26.2 percent) have already been disbursed.15 Ten of these projects are Investment Project Financing (IPFs) operations, exclusively financed by IDA. In addition, the WB Board of Directors recently approved the second EMSO project (in the amount of $100 million). This project is a Development Policy Financing (DPF) operation and, for the first time, was partly financed (US$20 million) with IBRD funds.16 (See Annex 4 for current portfolio). 22. Portfolio quality has fluctuated since the last PLR in 2016. As of October 2019, 4 out of 10 projects are underperforming and therefore considered at risk (compared to 1 out of 9 in November 2016 and 6 out of 10 in March 2019). The causes for the challenges the portfolio has been facing vary by project, but some recurring reasons include: effectiveness delays due to a requirement for parliamentary review and/or approval; coordination between line ministries and the Ministry of Finance; slow implementation start-up (incl. the set-up of project implementation units); delays due to frequent changes in line ministries and/or project implementation units; disbursement delays as a result of complex project design with multiple components; and delays in decision-making regarding individual procurements and project restructurings both on the Bank and client side. Various restructurings are currently underway to tackle the remaining projects at risk. Together with the government, the Bank has also embarked on a Country Portfolio Performance Review (CPPR) to analyze overall portfolio quality, review problem projects and 15 Since the last PLR in December 2016, three new projects entered the portfolio at the end of FY17: Second Energy and Support Project (SEP2), the Mongolia Employment Support Project (MESP), and the Strengthening Fiscal and Financial Stability Project (SFFS). In addition, the Board approved the first EMSO project in November 2017. The Livestock Agricultural and Marketing Project (LAMP) and Multi-Sector Technical Assistance (MSTA) project were completed and exited the portfolio. 16 Mongolia is a blend country with access to IBRD funds in addition to IDA. Actual IBRD lending volumes will depend on country demand, overall country performance, as well as global economic and financial developments, IBRD’s financial capacity, and demand by other Bank borrowers. 10 formulate systemic actions to improve project performance. The CPPR will be finalized by the end of calendar year 2019. 23. A relatively large Advisory Services and Analytics (ASA) program has played an important role in Mongolia. Currently 16 ASA are ongoing and several new ASA are in the pipeline. Of the ongoing ASA, about two thirds are either entirely or partly financed by Trust Funds (TFs). Most ASA complement ongoing or prepare new lending operations. Since the last PLR, the Bank concluded several strategic ASA such as a public expenditure review (PER), a multi-year financial sector support program, and an analysis of the district heating sector in Ulaanbaatar. These ASA have informed public debates as well as government policies, and in some instances led to new lending (e.g. the planned district heating project). Key strategic ASA that are currently under development include an InfraSAP assessment, an energy masterplan for Mongolia, and a country economic memorandum. 24. Mining sector continues to dominate IFC’s outstanding portfolio in Mongolia at 85 percent. IFC’s prior support to OT copper and gold mine has led to Mongolia becoming one of IFC’s largest exposures globally. As of end-FY19, IFC’s outstanding portfolio stands at $1.4 billion, comprising $590 million exposure for IFC’s own account and $839 million in syndications.17 25. IFC engagements have been growing in other sectors further diversifying its portfolio including banking, hospitality and property sectors. New long-term finance commitments since the last PLR totaled $203.5 million comprising investments to support SME financing and tourism. In addition, IFC continued supporting its client financial institutions through trade finance. IFC’s investment portfolio in Mongolia, mostly comprising debt in terms of product composition, remains healthy, with modest level of non- performing loans. IFC’s Advisory Services (AS) portfolio currently comprises six projects worth $7.3 million in funds managed by IFC, of which four will continue implementation during the period covered by this PLR. The ongoing AS support trade and export facilitation, investment policy and investment promotion in the agribusiness sector, financial sector stability and access to finance for MSMEs, environmental and social risk management in the financial sector, and water management in mining; two most recent additions in AS portfolio are targeting insolvency reform and green buildings. Since the last PLR, IFC’s advisory project supporting on secured transactions reform reached its completion surpassing most of its objectives. Please see Annexes 8 for details on IFC’s investment and advisory portfolio. 26. MIGA has provided a large guarantee for the OT gold and copper mine and is seeking to support other cross-border investments. MIGA issued a guarantee of $ 1 billion for the OT mine for up to 12 years against the risks of expropriation, transfer restriction and inconvertibility, war and civil disturbance, and breach of contract. Working closely with the World Bank and IFC, MIGA will continue to explore opportunities to support foreign investments in Mongolia, especially in infrastructure and renewable energy projects. Summary of Progress toward CPS Objectives and Outcomes 27. The CPS has made good progress on its seven CPS outcomes. Progress toward indicators and milestones is detailed in Annex 3. Out of 13 outcome indicators in the 2016 PLR results framework, 8 have been achieved, 2 have been mostly achieved, 1 has been partially achieved and 2 were dropped through this PLR. Most of the 2016 PLR milestones have been achieved. However, much of the progress was thanks 17Syndications include B-loans, Agented Parallel Loans, Agented Co-Participations, Agented Short-Term Parallel Loans, Syndicated Guarantees and MCPP loans 11 to projects in the portfolio at the time of the CPS design. Substantial adjustments to the CPS results framework through the 2016 PLR made it more realistic and relevant to the CPS activities. This PLR introduces 8 new outcome indicators to reflect more recent WBG activities. Out of these 7 new indicators, 3 have already been achieved but some of them run the risk of being reversed by 2020. 4 others have not been achieved yet, but most are on track to be achieved. The following paragraphs describe the progress made since the last PLR and current or planned activities under each objective. Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently 28. Objective 1.1: Supporting development of a regulatory environment, institutional capacity, and infrastructure for world-class mining. Good progress has been made with regard to the indicators in the CPS results framework, but more work is needed to enhance the regulatory environment for mining. The Mining Infrastructure Support Project (MINIS) has helped evaluate potential investments in infrastructure to support mining and downstream processing activities, and build local capacity to prepare and transact infrastructure projects. The project supported various feasibility studies and social and environmental assessments. Until the end of 2018, the World Bank also supported the implementation of the Extractive Industries Transparency Initiative (EITI) standards with support from the Extractives Global Programmatic Support TF. IFC and the WB have maintained a close dialogue with the government on the OT project, showcased best practice examples in mining and worked to facilitate better alignment among project partners. Beyond the OT mine, IFC is engaging with mining companies in the South Gobi region to address the region’s water management challenges by helping them follow best international practices in water management and social engagement practices. Through the Disclosure to Development (D2D) initiative, IFC engaged with key stakeholders to promote a dialogue on data challenges and improvement relating to water data accessibility and re-use in the mining sector. Within the PLR period, IFC is looking to implement an advisory program with OT aimed at linking local businesses and communities with OT’s operations, thereby enhancing integration of SMEs into OT’s supply chain. On the investment side, IFC is prepared to consider additional financial support to OT, to the extent it is needed to complete underground development, as well as potentially to cover a renewable energy component in mining operations. Notwithstanding the progress made, a number of strategic policy issues remain unresolved, including persisting regulatory gaps, especially in environmental and social management and tax administration, as well as slow and inconsistent planning and execution of mining related infrastructure programs. The WBG has been asked by the government and various stakeholders to continue playing an active role in the sector, e.g. by presenting evidence-based advice on issues such as local supplier development, state participation, mineral processing, sovereign wealth funds and providing capacity building. The World Bank is seeking support from donors to finance such activities going forward. 29. Objective 1.2: Supporting a more robust, equitable, and transparent management of public revenues and expenditures. Important progress has been made since the last PLR. The World Bank’s Economic Management and Support Operation (EMSO) has supported the termination of off-budget fiscal expenditures through the DBM and BoM as well as the Promissory Notes Program for financing capital expenditures. It further introduced a framework for selection and rationalization of budget investments and promoted a more efficient tax revenue base. In addition, a Public Expenditure Review (PER) was concluded in 2018, which provided a detailed analysis of recent trends in budget revenues and expenditures. It helped policy makers identify options for revenue mobilization, spending priorities and strengthening the fiscal foundation of sustainable and inclusive growth. The Bank’s engagement on macro-fiscal policy and PFM has continued through the Strengthening Fiscal and Financial Stability (SFFS) project and an EU-funded trust fund “Strengthening Governance in Mongolia”. In addition, the ongoing third Sustainable Livelihoods Project (SLP 3) helped improve the fiscal transfer mechanism to local 12 governments and the efficiency of the Local Development Funds (LDF). However, significant challenges remain. Various cases of corruption (e.g. allegations of improper use of the SME Development Fund in 2018) surfaced in the past two years, and efforts to foster public participation, transparency, and accountability have produced uneven results.18 In addition, the increased turnover in senior civil service personnel in recent years has compromised the effectiveness of the public sector, while the expansion of the civil service and the associated rise in the wage bill could represent growing risks for the country’s fiscal sustainability. Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas 30. Objective 2.1: Enhancing the investment climate and financial intermediation. Progress has been mixed, and especially the banking sector is an area of concern. Several banks have failed to raise the necessary capital to fully close the gap identified in the 2018 Asset Quality Review (AQR). In addition, the regulatory and supervisory capacity in the financial sector has remained low. Thus, the EMSO program recently incorporated additional policy actions to support implementation of the banking sector reform program and the WBG has further strengthened its engagement on financial sector issues with the Mongolian authorities. A new Financial Sector ASA, with a focus on regulatory reforms and capacity building, was initiated in August 2019 and IFC is developing an advisory service to support the BoM to improve the credit reporting system. Progress has been made on financial access. IFC has continued supporting selected partner banks with credit lines aiming to further enhance access to finance for MSMEs and with corporate governance advisory services. IFC is working on improving the public credit registry, reforming the insolvency resolution framework and the development of value chain financing. To help address issues around the AML/CFT in the banking industry, IFC has provided advisory support through its new global de-risking program and shared with key partner banks the AML/CFT Diagnostic Tool and Good Practice Statement Handbook on AML/CFT risk management. With the support from IFC, an effective secured transactions framework was established and a market for movable asset financing has benefitted a large number of MSMEs. This was also recognized in the Doing Business (DB) ranking of 2018, in which Mongolia’s Getting Credit ranking increased dramatically from 62 to 22 among 190 economies. One area where reforms are lacking in particular is resolving insolvency. IFC continues to support capacity building in this area and is assisting the GOM in drafting the Mongolia Insolvency Law. Going forward, IFC will continue supporting banks with dedicated credit lines targeting better access to finance for MSMEs, including those along the agriculture supply chain. IFC also plans to introduce green financing and green bonds with partner banks and will seek to contribute to development of non-Bank financial institutions (NBFIs). 31. Objective 2.2: Creating more opportunities in the rural economy for enhanced livelihoods. Progress has been made through a variety of WBG interventions, but economic diversification remains a long-term challenge for the country. The Livestock and Agricultural Marketing Project (LAMP) was concluded in FY18. It addressed constraints for herders in market access, price-quality relationships, and livestock production and helped increase household incomes in selected project soums. A follow-up project, the Livestock Commercialization Project, is planned for FY20. It will support framework conditions for greater private sector involvement by strengthening key institutions and working on issues such as 18 On the 2017 Open Budget Index (OBI), for instance, Mongolia was among the countries whose score decreased from 51 (out of 100 points) in 2015 to 46 in 2017. Anti-corruption efforts have not been as effective as expected given the country ranked 93 (in the bottom half) on the 2018 Transparency International Corruption Perception Index. The 2017 Study of Private Perceptions of Corruption (STOPP) in Mongolia by the Asia Foundation also documented a worsening of the situation of corruption in the public sector in the last five years as almost half of the survey respondents noted that there is “a lot” of corruption. 13 animal health management systems, product quality and food safety standards. In 2017, the Export Development Project, which supports SMEs in the non-mining sector to strengthen their export capabilities, and the Employment Support Project, which supports employment facilities and access to micro-loans and trainings for job seekers, were initiated. Both projects experienced implementation delays but are now showing initial results. Pillar 3 of the EMSO series has supported structural reforms to improve the competitiveness of livestock products (esp. by strengthening animal health provisions) and enhance trade facilitation (e.g. ratification and implementation of the WTO trade facilitation agreement). WBG collaboration under this pillar is expected to create synergies for value chain productive partnerships and financing, develop risk sharing mechanisms, facilitate trade and improve food safety standards. In addition, both IFC and the World Bank have provided analytical work and advisory services on opportunities for economic diversification.19 IFC is exploring advisory support targeting trade facilitation through better access to trade information for all relevant stakeholders, streamlining trade and customs regulations and improving border inspection practices thus making it easier for Mongolian businesses, especially meat producers and their foreign partners to trade across borders. IFC is also working with its partner banks in designing lending and guarantee products to improve financing for MSMEs along agriculture supply chain, including financing for herders. Going forward, IFC may pursue investment opportunities to support high value-added agricultural producers and exporters (meat, cashmere, dairy) that can reach appropriate scale and standards, and will continue looking for bankable opportunities to develop tourism destinations outside the Ulaanbaatar area. Furthermore, the Bank has started an InfraSap assessment focusing on transport, energy and information and communication technologies (ICT) to identify and prioritize connectivity investments to support economic diversification and integration in the regional economy. Mongolia’s infrastructure needs are vast, while the country’s geographic location and size pose specific challenges for cost-effective infrastructure development. The InfraSAP is further exploring ways to improve the enabling environment for greater private sector participation in Mongolia’s infrastructure. Overall, the WBG has broadened its engagement beyond rural areas to foster economic opportunities in urban areas too. The widened scope will also be reflected through a change of the wording of objective 2.2 in the revised results framework (see Annex 1). Pillar 3: Address vulnerabilities through improved access to services and better service delivery 32. Objective 3.1: Working with the government on the design, adaptation, and implementation of a comprehensive social welfare information system and database for targeting the poor. The main objective of establishing a welfare administration information system (WAIS) was achieved. In addition, the World Bank has supported the targeting aspects of social benefits and pension reforms in recent years, but both areas remain challenging. Pillar 2 of the EMSO series aims to strengthen the social protection system. As a result, the government increased the Food Stamp Benefit (FSP) amount and doubled the program coverage (although from a very small base) and, for the first time, earmarked MNT 31.1 billion in the 2019 budget for a poverty-based targeted cash transfer, which had originally been legislated in 2012. However, the FSP still covers less than 10 percent of the poorest population and most of the government’s multiple benefit programs remain largely categorically targeted without any form of means- testing. The pension system is at a critical moment, which in the absence of substantial reforms will generate significant increases in fiscal deficits. The World Bank has been closely engaged in the policy dialogue with the government. However, the government reversed the increase of the retirement age, one of EMSO1’s prior actions, amid considerable political pressure. Moreover, the authorities enacted several benefit liberalizations in 2017-2018 which adversely affect incentives and fiscal costs. Being 19 E.g. Latimer, Julian and Marcin Piatkowski, 2018, Trade and Transport Facilitation Assessment of Cashmere, Wool, meat and Leather Industries, and Opportunities along the Central Economic Corridor in Mongolia, Policy Note, World Bank. 14 informed by the Bank’s analysis, the government postponed the implementation of some of these amendments to 2020 and prepared a Cabinet proposal for modification of the parameters of some of them. A comprehensive reform package to the pension insurance scheme (initially envisioned as part of EMSO2) has been proposed to achieve financial sustainability for the pension system, defined as a state subsidy of 2.0% of GDP by 2030. The reform package is now being considered as part of EMSO3. Undertaking these reforms in the coming months is critical to avoid growing fiscal burden in the coming years, which would require more politically difficult actions in 2020. In order to reflect the additional WBG engagements to strengthen social protection and the pension system, objective 3.1 has been adjusted in the revised results framework (see Annex 1). 33. Objective 3.2: Supporting better delivery of basic services (education, health, justice, infrastructure). Most of the remaining results indicators under this objective had already been achieved in 2016, but several ongoing projects to improve service delivery are facing difficulties. The Education Quality and Reform project, the e-Health project, and the Smart Government project have all experienced severe implementation and disbursement delays. Some of the delays were due to changes in government and implementation units, but they also originated from differences in opinion with the government regarding project design and individual procurements. However, concrete actions, including project restructurings, are underway to bring these projects back on track. While the World Bank concluded its engagement in the justice sector before the 2016 PLR, it has significantly expanded its footprint in the energy sector since the last PLR. In 2017, the Second Energy Project was approved. It is the largest ever IPF in Mongolia with US$ 42 million IDA financing and an additional US$12.4 million contributed by Strategic Climate Fund grants. The project finances investments in improved energy access and efficiency as well as a new solar power plant. In addition, a new district heating project to enable access to and improve efficiency of Ulaanbaatar’s district heating network is due to be delivered before the end of FY20. These investments respond to Mongolia’s challenges in providing reliable and sustainable energy (electricity and heat)20 and have been underpinned by analytical work on district heating and an energy masterplan for Mongolia. In close coordination with ADB, IFC has been evaluating local developers to identify suitable affordable and green housing projects, to be financed either directly or indirectly through partner banks. IFC is also working with government counterparts to assist with the development of green buildings and standards and explore opportunities in renewable energy. 34. Objective 3.3: Reducing the vulnerability of households exposed to natural hazards. World Bank interventions in these areas achieved good results, but more needs to be done especially with regard to air pollution in Ulaanbaatar. The clean stove program, supported by the World Bank’s Ulaanbaatar Clean Air Project (UBCAP), achieved considerable scale and visible impact on air quality. However, Ulaanbaatar’s air pollution level in winter remains high, resulting in severe health risks for its population. The city’s air quality challenges require multiple abatement measures to be pursued simultaneously in the short-to- medium term and a concerted effort by various donors is therefore key. To expand and scale-up the impacts of UBCAP, the government requested additional financing of UBCAP, which was approved by the World Bank Board of Directors in September 2019, to finance selected abatement measures, including housing insulation and electric heating system pilots in ger areas. UBCAP also maintains a coordination platform for various government agencies and donors to discuss air pollution issues and identify priority actions. With regards to disaster risk management, the World Bank has built on previous analytical work in Ulaanbaatar (e.g. flood risk management study, seismic vulnerability assessment) for a broader national level engagement in supporting the government to implement its Nationally Determined Contributions 20 The lack of access to electricity has also been a serious impediment for the private sector. Mongolia is ranked 148 in the Getting Electricity indicator of the 2019 Doing Business Report. 15 (NDCs), which were agreed at the 2015 Paris Climate Change conference. Within Mongolia’s NDC framework, the World Bank has become the leading partner agency. More specifically, it supports the implementation of two NDC priorities: (i) low carbon growth and resilient cities; (ii) hydromet modernization and climate services. This work is financed through GFDRR Trust Funds and the NDC Support Facility. Evolution of Partnerships and Leveraging 35. The WBG has continued to foster partnerships with various development partners. The World Bank has worked closely with the IMF, ADB, Japan, Korea, and China in designing and implementing the international support program for Mongolia’s economic recovery. In addition, the WBG has continued its partnerships with bilateral donors such as Switzerland, Korea, and Australia to strengthen governance, public outreach and oversight, the financial sector, social accountability, and groundwater management. Since 2018, an EU Trust Fund ($US10 million) finances various Bank activities to support the Government’s PFM reforms. Japan provided a small grant ($US0.3 million) for a new project on early childhood development and entrepreneurial skills development. The World Bank also received funding from the NDC Support Facility ($US0.5 million), as a contribution to the NDC partnership, to support the implementation of Mongolia’s NDC commitments alongside other development partners. Many development partners are active in the country and coordination among them could be strengthened further. 36. The WBG has also sought additional opportunities to crowd in the private sector and to Maximize Financing for Development (MFD), especially with regards to infrastructure investments and mining. The ongoing InfraSap assessment, for example, is assessing the potential and constraints to private sector solutions for critical infrastructure projects. Another key area for applying the MFD approach21 is in the mining sector. As in the case of OT (see Box 1 below), there is significant potential for additional private sector investments in mining. As part of the EMSO series and several other projects, the World Bank has supported fiscal and macroeconomic management, transparent public finances and a stable regulatory environment, which are all key to attract private investments. Box 1: WBG support for the Oyu Tolgoi mine The WBG’s support for the Oyu Tolgoi (OT) mine has been a good example of putting MfD into practice. While IFC provided one of its largest investments loan for the mine (US$400 million own account, plus US$820.625 million in B Loans, for a total of US$1.2 billion), MIGA provided a political risk guarantee of US$ 1 billion, which facilitated the commercial financing provided to the OT mine. At the same time, the World Bank has provided long-standing support for mining sector regulations and, more broadly, on fiscal and macroeconomic management. While the OT Investment Agreement was being negotiated, the World Bank worked with Mongolian policy makers to enhance understanding of international best practice, including by arranging study tours to meet with policy makers in Chile, Botswana, Canada, Australia, and several other countries. The Bank continued to provide technical assistance to the Ministry of Mines to support an update of the mining regulatory and fiscal framework and provided advice on sector transparency to help Mongolia become compliant with the Extractive Industries Transparency Initiative (EITI). 21Applying an MFD approach means using a broad range of WBG instruments and partnerships to help WBG clients leverage private sector solutions - private sector financing and/or delivery - in order to transform sectors or create markets in fiscally, environmentally and socially sustainable ways. 16 VI. EMERGING LESSONS 37. Align with the political cycle. The last CPS was approved only two months prior to general elections. This complicated the WBG’s dialogue with the new government and caused some slippages in the financing program. This is one of the main reasons why this PLR extends the current CPS until after the next election to ensure sufficient consultations with and ownership of the new government. 38. Be more realistic regarding the medium-term development prospects. The last CPS was written at a time when Mongolia was the fastest growing economy in the world and medium-term economic forecasts painted a very rosy picture. These forecasts had to be revised significantly, even in the initial CPS years, but especially once the economic downturn hit the country in 2014. Circumstances change quickly in Mongolia and any planning based on medium- to long-term forecasts needs to be reviewed regularly. 39. Maintain a high degree of flexibility. It is likely that volatility will continue to be a key feature of Mongolia in the years ahead. Even a better alignment with the election cycle will not suffice to protect the program from changes in the internal and external environment. The WBG will have to adjust to changes in the country context quickly and, on occasion, may have to be opportunistic once new openings to address development challenges occur. 40. Be more selective and act as a catalyst. Given the relatively small amount of IDA and IBRD resources available, the Bank program will have to become more focused. The current CPS has 7 objectives across various sectors. The ten active IPF operations are implemented by eight different WBG Global Practices (average loan size is about $23 million). A greater concentration of resources to fewer sectors may increase the WBG’s impact on the ground and also help improve the portfolio quality. In addition, the WBG should explore options to work closer with other development partners and the private sector to leverage additional resources. This may include cooperation through co-financing, the use of guarantees as well as the provision of ASA to support the Mongolian authorities to seek or maximize financing from others, even if WBG financing is not an option. 41. Simplify project design and ensure strong ownership. The design of some recent IPF is complex, especially given the relatively small size of these operations. Multiple components and grant facilities put a high burden on project management and slowed down implementation. Also, in the past three IDA cycles, the majority of the Bank’s IPFs were approved in the last three months of the three-year IDA cycles. This may be an indication that final decision-making processes was driven by the timing of the IDA cycle. 42. Address governance and capacity challenges as part of project planning and implementation. Challenges in the institutional environment—including high attrition and rotation in the civil service— continue to impact the Bank’s dialogue and project implementation. Thus, it will be important to factor governance risks into the project design and to consider adequate remedies. This also includes to work towards project implementation unit design that minimizes opportunities for political favoritism and rent seeking (e.g., by making sure that implementation units are staffed independently from political decision- making) and to increase efforts to strengthen the capacity of project implementation units. 43. Ensure timely delivery and strategic fit of ASA. The high quality of its analytical work helped the WBG to remain a respected counterpart. However, some ASA took too long to finalize and disseminate. Also, any new ASA, including trust funded ones, should be rigorously assessed to what extent they support the overall program and country strategy. This also entails early buy-in from Mongolian partners and a clear dissemination strategy. 17 V. ADJUSTMENTS TO COUNTRY PARTNERSHIP STRATEGY 44. This PLR extends the CPS until December 31, 2020 (see also para 4). The decision on Mongolia’s graduation from IDA is still pending and parliamentary elections are scheduled for June 2020. The extension of the current CPS provides the newly elected government with the chance to consult and agree on a new Country Partnership Framework (CPF) and allows the next strategy to reflect the IDA19 graduation decisions. The next CPF will build on the recent SCD and be prepared before the end of 2020. 45. The CPS pillars and objectives are still relevant, but the PLR makes some adjustments to the results framework to reflect more recent activities. All of the three CPS pillars still constitute major priorities for the WBG’s engagement in Mongolia with high demand for WBG support from the government. The 2016 PLR already carried out a major adjustment of the results framework. Various outcome indicators and milestones were amended or dropped to better represent key interventions of the program and to remove indicators for projects that never materialized. This PLR suggests additional changes to the results framework, primarily to include new activities since the last PLR was approved. Specifically, the PLR broadens objective 2.2 to reflect the WBG’s engagement to promote economic opportunities in urban areas (in addition to rural areas). It also amends objective 3.1 to include the WBG’s work on the management, targeting and coverage of social transfers and pension reform beyond the WBG’s support for the establishment of the Social Welfare Information System. In addition, seven outcome indicators and a few milestones have been added to reflect more recent activities and their outcomes, including the structural reforms supported by the EMSO series. At the same time, two outcome indicators have been dropped and some others have been revised to align them with the underlying projects or available data sources. (See revised results framework in Annex 1 and changes compared to the 2016 PLR in Annex 2.) 46. The WB lending pipeline for the remainder of the extended CPS period includes two investment projects. These are the Livestock Commercialization project (US$30 million; aligned with CPS Pillar 2) and the Ulaanbaatar Heating Sector Improvement project (US$ 21 million – aligned with CPS Pillar 3).22 These projects respond to pressing demands to improve energy efficiency of district heating systems and promote economic diversification by improving the competitiveness of the livestock and agricultural sector. In addition, the Bank is discussing with the government the third and last DPF of the EMSO series (amount tbc; aligned with CPS Pillars 1, 2, 3). This last DPF in the series would most likely be financed primarily from IBRD. 47. The IFC will focus its support on sustainable mining, increased competitiveness and economic diversification, sustainable urbanization, and renewable energy for the remainder of the CPS. These priorities were confirmed in an internal IFC strategy update in September 2019. They are squarely aligned with the CPS pillars and will inform the strategic focus areas in the upcoming CPF. IFC will be looking to play a strong catalytic role in helping Mongolia address its private sector development needs using the full range of its investment and advisory instruments. Under IFC’s 3.0 framework, it will work closely with the Bank, MIGA and other donors and institutions to help create and unlock markets in Mongolia. In particular, it will explore and support projects where the private sector, including private sources of financing, can play a more meaningful role – including in infrastructure, thus helping relieve fiscal pressures from the Government of Mongolia and allowing them to deploy resources in much needed social areas (e.g. health, education, social protection). 22 The District Heating project is likely to receive co-financing from AIIB to match the WB financing. It would be the first AIIB co- financing of a World Bank project in Mongolia. 18 48. In coordination with the Bank and IFC, MIGA will also seek to encourage private sector development, particularly in cross-border equity or debt investments in infrastructure and the renewables sector, through its political risk insurance product. VI. RISKS TO CPF PROGRAM 49. The overall risk to the program continues to be substantial. The summary risk table (see below) uses the Systematic Operations Risk-rating Tool (SORT).23 Apart from Political and Governance risks, all risks levels remain the same as in the 2016 PLR. Stakeholder as well as environmental and social risks remain moderate, but the roll out of the new ESF requires special attention. Table 1: Summary Risks (H: High; S: Substantial; M: Moderate; L: Low) 2016 PLR 2019 PLR Risk Categories Rating Rating 1. Political and governance S H 2. Macroeconomic H H 3. Sector strategies and policies M M 4. Technical design of project or program M M 5. Institutional capacity for implementation and sustainability S S 6. Fiduciary S S 7. Environment and social M M 8. Stakeholders M M Overall S S 50. Political and governance risks are high. These risks range from frequent changes in government and civil service, which have led to delays in project implementation in the past, difficulties in engaging with government on the planning of new Bank projects, and political interference in the implementation of ongoing operations. Especially in the run-up to the 2020 elections, the government’s commitment to the economic reform program, which will be essential to achieve many of the CPS objectives, could come under pressure and some WBG projects may be at risk of becoming politicized. Furthermore, the recent (October 2019) FATF grey listing shows the continued need for improved transparency and anti-corruption efforts. Thus, the risk rating has been raised from substantial to high. The WBG country team will continue a close and open dialogue with the government and actively manage any political interference in project implementation. The Bank also stands ready to provide support for implementing the agreed FATF action plan, in coordination with other partners. 51. Environmental and social as well as stakeholder risks remain moderate for the remainder of the CPS, but special attention should be given to the rollout of the World Bank’s new Environmental and Social Framework (ESF). Since the 2016 PLR, the World Bank received several complaints from affected 23 A definition of risks and a rating guide are provided in the SORT Interim Guidance Note, available at: http://www.worldbank.org/content/dam/Worldbank/document/SORT_Guidance_Note_11_7_14.pdf. 19 communities about potential adverse social and economic impacts in the context of the MINIS project. The complaints underscored the importance of comprehensive consultations with affected communities as a key prerequisite to mitigate environmental and social risks. New planned projects for the remainder of the CPS have a moderate environmental and social risk profile. However, they are the first ones to be implemented in Mongolia under the Bank’s new ESF and a successful rollout of the ESF will require adequate communication, training and implementation support. 20 Annex 1. Updated CPS Results Matrix CPS Outcomes Milestones WBG Program Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently 1.1 Supporting development of a regulatory environment, institutional capacity, and infrastructure for world-class mining Indicator 1: Number of public/PPP • Completed development of a model of Ongoing Financing: mining-related infrastructure assets community development agreement for • Mining Infrastructure Investment Support ready for tender responsible mining (MINIS) Project Baseline: 0 (FY12) • Completed consultative process to • IFC: Oyu Tolgoi Project Finance Target: At least 2 (end-2019) develop new mineral law • MIGA Guarantee: Oyu Tolgoi • Completed development of a model Indicator 2: Aimag-wide management mineral investment agreement Key Ongoing and Indicative ASA: and monitoring plans for groundwater appropriate for responsible mining • Potential new Mining Sector ASA use prepared and in use (cumulative) development • Fiscal Risk Assessment including contingent Baseline: 0 (2012) • Supported enhanced corporate liabilities and PPP (FY16-17) Target: 3 aimags (end-2017) governance of state-owned mining • IFC Advisory Services: South Gobi Water- interests Mining Roundtable (voluntary code of • Supported enhanced government capacity practiced signed by 11 companies) to assess and prepare investments in • IFC Advisory Services: Corporate Governance infrastructure Assessment for Erdenes Mongol (EMGL) • Completed a Strategic Environmental and • Oyu Tolgoi Local Supplier Development Social Assessment (SESA) focusing on the Program mining sector including gender dimensions • Pilot institutional structure for groundwater management established and functioning with appropriate staffing • Improved water management practices of mining companies 1.2 Supporting a more robust, equitable, and transparent management of public revenues and expenditures Indicator 1: Percentage of citizens • Fiscal Stability Law implemented: (1) The Ongoing Financing: satisfied with the mechanisms and structural balance of consolidated budget • Third Sustainable Livelihoods Project (SLP 3) outcomes of Community Initiative Fund shall be not more than the deficit of • Strengthening Fiscal & Financial Stability investment 10.4%, 9.5%, 6.9%, 5.1% of GDP in 2017, Project (SFFS) Baseline: (FY12) 2018, 2019, 2020 respectively; (2)Total • Strengthening Governance (RE) Outcomes: 85% budget expenditure growth of the • EMSO 2 21 CPS Outcomes Milestones WBG Program Mechanism: 86% particular year shall be not more than the Indicative Financing: Target: (2013 end of SLP2) greatest of the non-mineral GDP growth • EMSO 3 (FY20) Outcomes: Remains above 80% rate of the particular year and the average Key Ongoing and Indicative ASA: Mechanism: Remains above 80% of non-mineral GDP for 12 consecutive • Mainstreaming Social Accountability in years preceding the particular year; (3) net Mongolia Indicator 2: Net financing from the BoM present value of government debt shall • Strengthening Governance in Mongolia to the Housing Mortgage Program not exceed 85%, 80%, 75%, 70% of GDP in • Mongolia Strengthening PFM Efficiency (Funding of new mortgages in excess of 2017, 2018, 2019, 2020 respectively. • Mongolia Civil Service Reform Assessment principal repayment inflows is defined as • Improved EITI Mongolia’s scope and the “net financing” which has been provided quality of revenue data by the GoM and recorded as expenditure • Expanded EITI’s outreach to civil society starting from the 2017 supplementary and parliamentarians budget.) • Municipality of Ulaanbaatar adopts an Baseline: MNT 404 billion (2016) improved budgeting system Target: MNT 0 billion (2019–2020) • Approval and implementation of PFM action plan with a clear identification of Indicator 3: Capital expenditure for the key short-and medium-term priorities and clearance of promissory notes is removed activities. Baseline: MNT 672 billion (2016) • Resolution approved on public investment Target: MNT 0 billion (2020) appraisal, selection and rationalization which sets forth general principles to assess the entire Public Investment Management (PIM) portfolio for both new and ongoing projects. Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas 2.1 Enhancing the investment climate and financial intermediation Indicator 1: Number of business activities • Established movable collateral registry Ongoing Financing: subject to permitting and licensing • Adopted action plan for consumer • Strengthening Fiscal & Financial Stability Baseline: 890 (2013) protection in the financial sector Project (SFFS) Target: The number of business • Improved corporate governance of IFC • EMSO2 activities subject to permitting and bank investments • Export Development Project (EDP) licensing to be reduced by more than 10 • Implemented International Financial • IFC Investments in systemic banks including percent from the baseline (2020). Reporting Standards in some of the public- mobilization, in Khan, Khas, and Golomt banks interest entities supported by IFC Indicative Financing: 22 CPS Outcomes Milestones WBG Program Indicator 2: The recapitalization of banks • EMSO 3 (FY20) is advanced to meet prudential norm. Key Ongoing and Indicative ASA: Baseline: The banks are undercapitalized • Financial Sector Support TA based on the AQR results. (2017) • F&M: Programmatic Financial Sector Support Target: The operating banks are (FY16) recapitalized to meet the Capital • IFC Advisory Services: Inspection Services Adequacy Ratio (CAR) (2020) • IFC Advisory Services: Secured Transaction Reform (moveable collateral registry) • IFC Advisory Services: Insolvency Reform • IFC Advisory Services: Corporate Governance • IFC Advisory Services: Capacity building for systemic banks (Khas, Khan, Golomt) in core banking, SME, risk management 2.2 Creating more opportunities in the rural and urban economy for enhanced livelihoods Indicator 1: Number of loan beneficiaries • Reviewed agricultural price support and Ongoing Financing: from the Microfinance Development subsidy policies • Third Sustainable Livelihoods Project Fund at soum level and below • Supported new financial products • EMSO 2 Baseline: 29,133 (2008) including loan guarantee funds to address • Employment Support Project (MESP) Target: 39,330 (2013) collateral shortfalls • Export Development Project (EDP) • Drafted Food Security Law • IFC Advisory Services: Food Safety Indicator 2: Increase in household income • An evidence-based framework for Indicative Financing: in project areas from livestock and in developing Mongolia’s economic corridors • Livestock Commercialization Project (FY20) selected cases horticultural products and domestic infrastructure required to • EMSO 3 (FY20) Baseline: 0 (2013) diversify the economy has been prepared Key Ongoing and Indicative ASA: Target: 20% (end-2017) and disseminated to policy makers • InfraSAP • Enhanced capacity of export-oriented • Real Economy Dynamics Indicator 3: Prevalence or incidence of SMEs PPR in the western region – as measured • Establishment of a Labor Market by a randomized cross-sectional survey Information System for disease antibodies (active surveillance) or by positive confirmation of a PPR outbreak by laboratory diagnosis of the presence of the virus (passive surveillance), respectively. 23 CPS Outcomes Milestones WBG Program Baseline: 126 outbreaks of PPR were reported in western region (Khovd aimag) (2016) Target: No detection of active PPR in the western region (aimags of Khovd, Bayanulgii, Gob-Altai, Uvs, Khuvsgul and Zavkhan) by end of 2020. Pillar 3: Address Vulnerabilities through improved Access to Services and Better Service Delivery 3.1 Improve the management, targeting and coverage of social welfare benefits Indicator 1: Development and • Analyzed and disseminated poverty data Ongoing Financing: introduction of an online integrated • Disseminated policy notes on women and • Strengthening Fiscal & Financial Stability information system for social welfare labor markets, and women and mining Project (SFFS) benefits • Completed Gender Action Plan • Employment Support Project (MESP) Baseline: none (2012) • Assessed gender dimensions of poverty • EMSO 2 Target: a new MIS is fully tested and and inequality Indicative Financing: introduced (end-2017) • Supported the government in developing • EMSO 3 (FY20) policy options for pension reform. Key Ongoing and Indicative AAA: Indicator 2: The coverage and benefit size • Strengthening the Social Protection System of the Food Stamp Program and other and Labor Policies in Mongolia poverty-targeted programs increased • ASA on Pensions, Aging and Elder Care in Baseline: MNT 18.1 billion allocated for Mongolia the Food Stamp Program; no budget • Mongolia Poverty Measurement and Analysis allocated for other poverty-targeted TA programs. (2016) Target: The total budget for the Food Stamp Program and other poverty- targeted programs is tripled in relation to the 2016 level. (2020) 24 CPS Outcomes Milestones WBG Program 3.2 Supporting better delivery of basic services (education, health, justice, and infrastructure) Indicator 1: Number of fixed ECE • Completed study on accountability of Ongoing Financing: facilities/ kindergartens built under Bank- service delivery in a decentralizing • Third Sustainable Livelihoods 3 Project supported projects government focusing on health and • E-Health Project Baseline: 0 (2012) education • Education Quality Reform Project Target: 25(2014) • Identified key challenges for efficient • Smart Government Project functioning of Municipality of • Second Energy Project (SEP 2) Indicator 2: Number of children attending Ulaanbaatar’s budgeting system Indicative Financing: new mobile ger kindergartens • Utilized justice sector data as part of a • Ulaanbaatar Heating Sector Improvement Baseline: 0 (2012) framework for court administration, project (FY20) Target: 1,500 (end-2017) budgeting, and planning Key Ongoing and Indicative AAA: • Applied IT solutions to enhance access to • Foundations of Human Capital Formation in Indicator 3: Access to legal information justice information including use of Mongolia: Governance of ECD, Financing, & and advice across all Ulaanbaatar districts websites and mobile phones Priorities for Investment and aimags • Mongolia Energy Sector Masterplan Baseline: No value related information • InfraSAP available; no paralegals available; no • Technical Assistance for Ulaanbaatar information in minority languages Transport Planning and Management available (2012) Target: 60% of Ulaanbaatar districts and aimag centers distribute legal information in central community locations; paralegals providing advice in 60% of aimag centers, soums, and horoos; 10 laws available in minority languages (end-2017) Indicator 4: Average interruption duration per year in selected area (minutes) – BSEDN / EBEDN Baseline: 809 / 1200 (2016) Target: 710 / 1060 (2020) 25 CPS Outcomes Milestones WBG Program 3.3 Reducing the vulnerability of households exposed to natural hazards and pollution Indicator 1: Percentage of herders in the • Agreed on roadmap for transitioning Ongoing Financing: selected area aware of the Livestock Risk index-based livestock insurance • Ulaanbaatar Clean Air Project Insurance products institutional structure Key Ongoing and Indicative AAA: Baseline: 80% (2010) • Explored ways to provide universal • Mongolia Climate and City Resilience Target: 85% (end-2017) coverage for uninsurable catastrophic losses to those herders not already Indicator 2: Coverage of targeted holding insurance policies households with eligible stoves in • Extended Livestock Early Warning System Ulaanbaatar and linked to disaster management Baseline: 0 (2012) agencies Target: 80% of targeted households (or • Principal recommendations and action 45,000 stoves) (end-2017) plan developed by the Ulaanbaatar Clean Air Project for selected medium-term abatement measures approved by relevant counterparts • Developed disaster risk management plan for Ulaanbaatar (earthquakes and floods) • Developed hazard and vulnerability database for Ulaanbaatar • Roadmap for modernizing hydromet and climate services prepared • Identified policy options and actions for low carbon growth and resilient urbanization in three cities (UB, Erdenet and Darkhan) 26 Annex 2. Matrix of changes to original CPS Results Matrix Original CPS matrix PLR 2016 changes PLR 2019 changes Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently Outcome 1.1 Supported the country in Revised: Supporting development of a regulatory developing a regulatory environment, environment, institutional capacity, and institutional capacity, and infrastructure for infrastructure for world-class mining world-class mining Indicator 1: Number of public/PPP mining- Revise target date to end 2020 in accordance related infrastructure assets ready for tender with MINIS schedule Baseline: 0 (FY12) Target: At least 2 (end-2017) Source: MINIS Indicator 2: Number of infrastructure feasibility Drop indicator due to significant overlap with studies carried out financed by the WBG Revise. Target revised to 7 to align with actual indicator 1 and lack of projects other than Baseline: 0 (2012) project target MINIS to support as many feasibility studies Target: 8 (FY17) Indicator 3: Aimag-wide management and Revise. Target revised to 3 to reflect more monitoring plans for groundwater use prepared ambitious project scope and in use (cumulative) Baseline: 0 (2012) Target: 2 aimags (FY17) • Prepared regional infrastructure • Drop. Milestone not measured under any of the • New. Milestone on improved water investment plans to holistically support associated World Bank projects. Contribution management practices of mining mineral development unclear. companies • Sustained Responsible Mining Initiative • Drop. Milestone formulation/definition is tripartite dialogue unclear. • Develop a model of community development agreement for responsible • New additional milestone mining Outcome 1.2 Supported the government in Revised: Supporting a more robust, equitable, and designing and implementing policies and transparent management of public revenues and systems for a more robust, equitable, and expenditures 27 transparent management of public revenues and expenditures Indicator 1: Time over-runs in public Drop. Indicator not measured under any of the investment projects (sample of road projects) associated World Bank projects. Contribution Baseline: 70% (2010) unclear. Target: < 70% (FY17) Indicator 3: Local Development Fund indicator Add new Indicator 2: Net financing from the and target to be identified during the Drop. SLP3 became effective in July 2015 and no BoM to the Housing Mortgage Program preparation of the Third Sustainable major outcomes are expected before the end of the (Funding of new mortgages in excess of Livelihoods Project CPS period. principal repayment inflows is defined as “net financing” which has been provided by the GoM and recorded as expenditure starting from the 2017 supplementary budget.) Baseline: MNT 404 billion (2016) Target: MNT 0 billion (2019–2020) Indicator added to better capture transparency and discipline in public expenditures. Add new Indicator 3: Capital expenditure for the clearance of promissory notes is removed Baseline: MNT 672 billion (2016) Target: MNT 0 billion (2020) Indicator added to better capture transparency and discipline in public expenditures. • Enhanced management of reserves by Bank • Drop. Milestone not measured under any of the Updated Milestone on the Fiscal Stability Law of Mongolia through the Reserves Advisory associated World Bank projects. Contribution to reflect amendments of 2017 and Management Program (RAMP) unclear. • Improved NDIC’s capacity in assessing and • Drop. NDIC replaced by MED in 2012. Add new milestones on planning public investments Subsequently MED functions were merged with • approval of a PFM action plan MoF in 2014. • Public Investment Management (PIM) To reflect latest activities in this sector. Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas 28 Outcome 2.1 Enhancing the investment climate and financial intermediation Indicator 1: Average number of days to comply Drop indicator since WBG does not track it with business regulations anymore Baseline: 12.6 (FY12) Target: 10 (end-2017) Add new Indicator 1: Number of business activities subject to permitting and licensing Baseline: 890 (2013) Target: The number of business activities subject to permitting and licensing to be reduced by more than 10 percent from the baseline (2020). Indicator added to complement other indicator in measuring improvements in investment climate. Add new Indicator 2: The recapitalization of banks is advanced to meet prudential norm. Baseline: The banks are undercapitalized based on the AQR results. (2017) Target: The operating banks are recapitalized to meet the Capital Adequacy Ratio (CAR) (2020) Indicator added to capture improvements in capitalization of banking sector. Outcome 2.2 Created more opportunities in Revise: Creating more opportunities in the rural Revise: Creating more opportunities in the rural the rural economy for enhanced livelihoods economy for enhanced livelihoods and urban economy for enhanced livelihoods Indicator 2: Household income generated from Watch/Revise. New Indicator 2: Increase in agricultural production and processing in pilot household income from livestock and in selected soums under the Global Agriculture and Food cases horticultural products Security Program supported livestock project Baseline: 0 (2013) Baseline and target to be determined during Target: 20% (2017) project preparation 29 Add new Indicator 3: Prevalence or incidence of PPR in the western region – as measured by a randomized cross-sectional survey for disease antibodies (active surveillance) or by positive confirmation of a PPR outbreak by laboratory diagnosis of the presence of the virus (passive surveillance), respectively. Baseline: 126 outbreaks of PPR were reported in western region (Khovd aimag) (2016) Target: No detection of active PPR in the western region (aimags of Khovd, Bayanulgii, Gob-Altai, Uvs, Khuvsgul and Zavkhan) by end of 2020. Indicator added to capture improvements in economic conditions and livelihoods for rural society. • Increased use of ICT for rural finance • Drop. Milestone definition and Bank Add new milestones on contribution unclear. • infrastructure planning to promote economic corridors and diversification • capacity building for export-oriented SMEs • establishment of a new labor market information system to better reflect recent activities to promote economic opportunities. Pillar 3: Address Vulnerabilities and Growing Inequality through Improved Access to Services and Better Service Delivery, Safety Net Provision, and Improved Disaster Risk Management Outcome 3.1 Worked with the government on Revised: Working with the government on the Revise: Improve the management, targeting the design, adaptation, and implementation of design, adaptation, and implementation of a and coverage of social welfare benefits a comprehensive social welfare system that comprehensive social protection information supports the poor system and (Proxy Means Test) database for targeting the poor 30 Indicator 1: Proportion of poverty-targeted Revise. New Indicator 1: Development and benefits going to poor households introduction of an online integrated information Baseline: 0% (FY12) system for social welfare benefits Target: >80% (2014) Baseline: none (2012) Comment: As also described in the main text Target: a new MIS is fully tested and introduced above, the poverty-targeted benefits that were (2017) supposed to be measured under this indicator were not implemented. Government resumed the universal Child Money program instead. The Bank nevertheless supported putting in place the necessary infrastructure for improved targeting of welfare benefits. The revised indicator, while not an outcome indicator per se, more adequately reflects these efforts. Add new Indicator 2: The coverage and benefit size of the Food Stamp Program and other poverty-targeted programs increased Baseline: MNT 18.1 billion allocated for the Food Stamp Program; no budget allocated for other poverty-targeted programs. (2016) Target: The total budget for the Food Stamp Program and other poverty-targeted programs is tripled in relation to the 2016 level. (2020) Indicator added to better capture the government’s commitment to scale-up and better target poverty-oriented programs. Drop milestone on WAIS and poverty targeted cash transfer due to duplication with outcome indicators Outcome 3.2 Supported better delivery of (Revised: Supporting better delivery of basic basic services (education, health, justice, and services (education, health, justice, and infrastructure) infrastructure) Indicator 1: Number of fixed ECE facilities/ Revise. Target revised to 17 based on revision of Revise target to 25 in accordance with latest kindergartens built under Bank-supported the target in the project following a November target in the GPE project which constitutes an projects 2012 restructuring. Revision of the target was increase from 17 foreseen in the 2016 PLR. Baseline: 0 (2012) necessary and appropriate due to price escalations 31 Target: 37 (2014) beyond the inflation rates considered at the original costing of the project. Indicator 4: Number of people in pilot ger areas Drop. Third UB Services Improvement Project did with access to an all-season road within a 500- not materialize. meter range Baseline: 25,000 (2012) Target: 60,000 (FY17) Drop. Third UB Services Improvement Project did Indicator 5: Number of people in pilot ger areas not materialize. provided with access to regular solid waste collection Baseline: 0 (2012) Target: 69,000 (FY17) Drop. Third UB Services Improvement Project did Indicator 6: Number of sub-projects identified not materialize. through the district planning process launched Baseline: 0 (2012) Target: 8 (FY17) Add new Indicator 4: Average interruption duration per year in selected area (minutes) – BSEDN / EBEDN Baseline: 809 / 1200 (2016) Target: 710 / 1060 (2020) Indicator added to better capture the increased focus of the WB program on access to energy and energy efficiency • Improved Ulaanbaatar municipality • Drop. Milestone not measured under any of the infrastructure planning and investment associated World Bank projects. Contribution prioritization with community participation unclear. • Expenditures for key services are reflected • Drop. Third UB Services Improvement Project in the municipal budget did not materialize. Outcome 3.3 Reduced vulnerability of (Revised: Reducing vulnerability of households households exposed to natural hazards and exposed to natural hazards and pollution) pollution 32 Indicator 1: Percentage of herders participating Revise. New Indicator 1: Percentage of herders in in the Livestock Risk Insurance scheme the selected area aware of the Livestock Risk Baseline: 9.13% (FY12) Insurance products Target: 15% (2014) Baseline: 80% (2010) Target: 85% (2017) Indicator 2: Coverage of targeted households without eligible stoves Revise. Target revised to 80% in line with the actual Target 60% project target and positive progress. Indicator 3: Number of people in pilot ger areas Drop. Third UB Services Improvement Project did protected from inundation not materialize. Baseline: 0 (2012) Target: 19,000 (FY17) Add new milestones on: • Modernizing hydromet and climate services • Low carbon growth and resilient urbanization in to reflect ongoing analytical work funded through NDC partnership and other TFs in this area. 33 Annex 3. Matrix summarizing progress toward CPS Objectives Pillar 1: Enhance Mongolia’s Capacity to Manage the Mining Economy Sustainably and Transparently 1.1 Supporting development of a regulatory environment, institutional capacity, and infrastructure for world-class mining CPS Outcomes Status at PLR Milestones Status at PLR Indicator 1: Number of Mostly Achieved: Feasibility and Completed development of a model of Achieved. Model Community public/PPP mining-related safeguard studies have been or are on community development agreement Development Agreement completed in infrastructure assets ready for track to be completed for four projects: for responsible mining early 2016. tender Baganuur mine expansion, Steel Complex, Completed consultative process to Achieved. Companies and Civil society Baseline: 0 (FY12) Synthetic Natural Gas (SNG) and Tavan develop new mineral law participate in consultation, including Target: At least 2 (end 2020) Tolgoi (TT), making these four subprojects proven involvement in consultation on Source: MINIS & MSTA (for TT) ready for investments/transaction. the Mining Law revisions, in 2013. Source: MINIS ISR June 2019 Completed development of a model Achieved. Model Mining Agreement mineral investment agreement and Community Development appropriate for responsible mining Agreement completed in early 2016. Drop Indicator 2: Number of Drop. Due to significant overlap with development infrastructure feasibility indicator 1 and lack of projects to support Supported enhanced corporate Achieved. Developed the first studies carried out financed by as many feasibility studies governance of state-owned mining Corporate Governance (CG) Scorecard the WBG interests for Mongolia which was extensively Baseline: 0 (2012) developed to help raise market Target: 7 (end-2017) awareness of the business case for CG. Source: MINIS & MSTA (for TT) Supported enhanced government Achieved: Trainings on preparation of capacity to assess and prepare feasibility studies and financial and Indicator 3: Aimag-wide Achieved. Groundwater management and investments in infrastructure economic evaluation delivered to management and monitoring monitoring plans are under government. plans for groundwater use implementation in 3 aimags. Completed a Strategic Environmental Achieved. SESA with gender dimension prepared and in use Source: 2016 PLR and Social Assessment (SESA) focusing completed in 2014; clarifies (cumulative) on the mining sector including gender environmental and social roles. Baseline: 0 (2012) dimensions Target: 3 aimags (end-2017) Pilot institutional structure for Achieved. Three river-based Source: MINIS (project groundwater management established administrations established and component completed) and functioning with appropriate functioning with appropriate staff. staffing Improved water management practices Achieved. Several mining companies of mining companies participating in the Mongolia 34 Multistakeholder Water Management in Mining project reported implementing water management practices that improve their business performance because of their commitment to the IFC-brokered voluntary code of practice (VCP) 1.2 Supporting a more robust, equitable, and transparent management of public revenues and expenditures CPS Outcomes Status at PLR Milestones Status at PLR Indicator 1: Percentage of Achieved. 87% of beneficiaries (i.e. Implemented Fiscal Stability Law: (i) Revise. To reflect amended Fiscal citizens satisfied with the citizens) were satisfied with the structural deficit of less than 2% of GDP Stability Law (see below) mechanisms and outcomes of mechanisms and outcomes of CIF sub- by 2013; (ii) government expenditure Community Initiative Fund projects. growth limited to non-mineral GDP investment Source: 2016 PLR growth by 2013; and (iii) Net Present Baseline: (FY12) Value of debt to GDP ratio of 40% by Outcomes: 85% 2014 Mechanism: 86% Target: (2013 end of SLP2) Outcomes: Remains above 80% Mechanism: Remains above 80% Source: SLP2 (Project completed) New Indicator 2: Net Achieved. Net financing to the program financing from the BoM to equals zero as of 2019. Since 2017, net the Housing Mortgage financing to the program has been Program terminated. provided by the government and recorded (Funding of new mortgages in as budget expenditure. The size of the net excess of principal repayment financing is determined within the inflows is defined as “net affordable budget envelope to contain the financing” which has been budget deficit within the fiscal adjustment provided by the GoM and path. recorded as expenditure 35 starting from the 2017 Source: EMSO task team and EMSO 2 Fiscal Stability Law implemented: (1) Achieved: Parliament amended Fiscal supplementary budget.) project document The structural balance of consolidated Stability Law in 2017 and updated Baseline: MNT 404 billion budget shall either be not more than requirements. Achieved results: (1) (2016) the deficit of 10.4%, 9.5%, 6.9%, 5.1% General budget execution: Structural Target: MNT 0 billion (2019- of GDP in 2017, 2018, 2019, 2020 balance in 2017 was in deficit of 6.4% of 2020) respectively; (2)Total budget GDP, in 2018 surplus of 0.1% of GDP; (2) Source: EMSO expenditure growth of the particular Actuals: The average of non-mineral year shall be not more than the GDP for 12 consecutive years preceding greatest of the non-mineral GDP the particular year were around 21% on New Indicator 3: Capital Achieved. The promissory notes were fully growth rate of the particular year and average during 2017-2018 FY. expenditure for the clearance paid by 2017. the average of non-mineral GDP for 12 Total budget expenditure declined by of promissory notes is Source: EMSO task team and EMSO 2 consecutive years preceding the 5% in 2017 and grew up to 3.3%; (3) removed project document particular year; (3) net present value of Actuals 2017 82%, 2018 70% Baseline: MNT 672 billion government debt shall not exceed 85%, (2016) 80%, 75%, 70% of GDP in 2017, 2018, Target: MNT 0 billion (2020) 2019, 2020 respectively. Source: EMSO Improved EITI Mongolia’s scope and Achieved. Mongolia was judged EITI the quality of revenue data compliant in the 2028 validation exercise. Next validation is in 2020. Expanded EITI’s outreach to civil society Achieved. EITI grant supported capacity- and parliamentarians building support through training and awareness raising workshops for civil society members, community leaders and parliamentarians. Municipality of Ulaanbaatar adopts an Achieved. World Bank support included improved budgeting system the UB finance report (2013); UB land report (2014); UB creditworthiness self- assessment (2014) and Debt management (2014). UB city established a unit to manage debt and has taken measures to improve its investment planning. Approval and implementation of PFM On track. MOF drafted new action plan action plan with a clear identification of with support from the World Bank and 36 key short-and medium-term priorities the action plan was subsequently and activities. approved by Minister of Finance. Resolution approved on public Achieved. The resolution outlining the investment appraisal, selection and principles and main process for the rationalization, which sets forth general appraisal, selection and rationalization principles to assess the entire Public of the public investment portfolio was Investment Management (PIM) approved in December 2018. This has portfolio for both new and ongoing been a prior action for EMSO1 & 2 and projects. its development and roll out have been supported by SFFS and EU TF. Pillar 2: Build a Sustained and Diversified Basis for Economic Growth and Employment in Urban and Rural Areas 2.1 Enhancing the investment climate and financial intermediation CPS Outcomes Status at PLR Milestones Status at PLR Drop Indicator 1: Average Drop. WBG does not track this indicator Established movable collateral registry Achieved. A new law on Secured number of days to comply anymore Transactions was adopted; an online with business regulations pledge notice registry is now Baseline: 12.6 (FY12) operational. Mongolia’s DB score on the Target: 10 (end-2017) Strength of Legal Rights Index increased from 5 to 9. An early stage market for movables finance is now in place; with a large increase in the share of the New Indicator 1: Number of Not Achieved. A draft Law envisages the business lending involving movables. business activities subject to reduction in the number of business permitting and licensing activities subject to permitting and Baseline: 890 (2013) licensing by 44%, but the law still needs to Target: The number of be approved and implemented. business activities subject to Source: EMSO task team and EMSO 2 permitting and licensing to project document be reduced by more than 10 percent from the baseline (2020). Source: EMSO 37 New Indicator 2: The Not achieved. Initial recapitalization actions Adopted action plan for consumer Achieved. Financial Consumer recapitalization of banks is have taken place and a forensic audit has protection in the financial sector Protection and Financial Literacy Report advanced to meet prudential started, but full banking recapitalization is National Financial Education Strategy (2013) formed basis for the norm. necessary to meet the target. (NFES) adopted and in implementation development and adoption of the NFES Baseline: The banks are Source: EMSO task team and EMSO 2 (2015). undercapitalized based on the project document AQR results. (2017) Target: The operating banks are recapitalized to meet the Capital Adequacy Ratio (CAR) (2020) Source: EMSO Improved corporate governance of IFC Achieved. IFC invested banks bank investments significantly improved their CG practices as recognized by local and international bodies. The improved CG also resulted in improved ability to attract external investment. Implemented International Financial Achieved. IFRS-complied accounting Reporting Standards in some of the guidelines for all entities along with public-interest entities supported by revised chart of accounts approved by IFC MoF in 2014. 2.2 Creating more opportunities in the rural and urban economy for enhanced livelihoods. CPS Outcomes Status at PLR Milestones Status at PLR Indicator 1: Number of loan Mostly achieved: On Track - 38,241 loan Reviewed agricultural price support Achieved. Four studies were carried-out. beneficiaries from the recipients as of February 2016. and subsidy policies Some of their recommendations were Microfinance Development Source: 2016 PLR reflected in the new Agriculture State Fund at soum level and Policy. below Baseline: 29,133 (2008) Target: 39,330 (2013) 38 Source: SLP2 (Project Supported new financial products Partially Achieved. SLP2 supported the completed) including loan guarantee funds to establishment of a grant initiative that address collateral shortfalls provided credit guarantee funds to Indicator 2: Increase in Achieved: By the end of 2017, the beneficiaries with problems of obtaining household income in project household income within the beneficiary collateral. This was piloted over two areas from livestock and in pool increased by 73.9% on average with a years and deemed successful with a 100 selected cases horticultural maximum of 8 fold increase in households percent repayment rate, but it did not products engaged in horticulture production. continue after the project because of Baseline: 0 (2013) Source: LAMP ICR and MoF high administrative and monitoring Target: 20% (end-2017) costs. Source: LAMP (project Drafted Food Security Law Achieved. Food Law passed in completed) December 2012. New Indicator 3: Prevalence On track. No detection of PPR in the or incidence of PPR in the western region (aimags of Khovd, western region – as Bayanulgii, Gob-Altai, Uvs, Khuvsgul and measured by a randomized Zavkhan) in 2019. cross-sectional survey for Source: EMSO project team disease antibodies (active surveillance) or by positive New: An evidence-based framework On track. InfraSAP assessment is under confirmation of a PPR for developing Mongolia’s economic preparation and to be finalized by 2020. outbreak by laboratory corridors and domestic infrastructure diagnosis of the presence of required to diversify the economy has the virus (passive been prepared and disseminated to surveillance), respectively. policy makers. Baseline: 126 outbreaks of PPR were reported in New: Enhanced capacity of export- Achieved. 379 employees from 51 western region (Khovd oriented SMEs enterprises received customized aimag) (2016) trainings to improve export capabilities Target: No detection of active PPR in the western New: Establishment of a Labor Market On track. A technical working group on region (aimags of Khovd, Information System designing the concept and technical Bayanulgii, Gob-Altai, Uvs, terms of reference for the Labor Market Khuvsgul and Zavkhan) by is developing the terms of reference for end of 2020. the IT firm and announcing a tender by Source: EMSO end of 2019. Operationalization of Labor 39 Market Information System by end of 2020 or early 2021. Pillar 3: Address Vulnerabilities through improved Access to Services and Better Service Delivery 3.1 Improve the management, targeting and coverage of social welfare benefits CPS Outcomes Status at PLR Milestones Status at PLR Indicator 1: Development Achieved. Integrated Welfare Analyzed and disseminated poverty Achieved. Policy paper on reducing and introduction of an online Administration Management Information data poverty and increasing share prosperity integrated information System (WAIS) for social welfare benefits issued in 2016. Poverty data for 2014, system for social welfare (and beneficiaries) has been established 2016 and 2018 was analyzed and widely benefits with support from MSTA project. disseminated in Mongolia. Baseline: none (2012) Source: 2016 PLR and task team Disseminated policy notes on women Achieved. Both reports were finalized, Target: a new MIS is fully and labor markets, and women and printed and shared with the public as tested and introduced mining well as the National Committee on (end-2017) Gender Equality. Source: MSTA (project Completed Gender Action Plan Achieved. CGAP completed and completed) approved in 2013; new CGAP prepared in FY19. Assessed gender dimensions of poverty Achieved. Poverty analyses and policy New Indicator 2: The Achieved. As of December 2018, the MoF and inequality paper assess gender dimension of coverage and benefit size of budget expenditure schedule for 2019 poverty and inequality. the Food Stamp Program and commitment to poverty targeted benefits Introduced a poverty targeting Drop. Duplication with Indicator 1 and 2. other poverty-targeted (including the Food Stamp Program - FSP) mechanism, and more integrated programs increased tripled its size comparing to 2016. The 2019 beneficiary information management Baseline: MNT 18.1 billion budget also includes MNT 31.2 bln for the Supported the government in Achieved. WB supported development allocated for the Food poverty targeted cash benefit program. developing policy options for pension of White Paper (Policy Framework) on Stamp Program; no budget Source: EMSO task team and EMSO 2 reform. Pension Reform (2015-2030), endorsed allocated for other poverty- project document by the Parliament, and preparation of targeted programs. (2016) 2019 Cabinet proposal. Target: The total budget for the Food Stamp Program and other poverty-targeted programs is tripled in relation to the 2016 level. (2020) 40 Source: EMSO 3.2 Supporting better delivery of basic services (education, health, justice, and infrastructure) CPS Outcomes Status at PLR Milestones Status at PLR Indicator 1: Number of fixed Achieved: 25 kindergartens were Completed study on accountability of Achieved. The study was completed and ECE facilities/ kindergartens constructed and equipped with furniture, service delivery in a decentralizing Report on “Understanding and built under Bank-supported kitchen equipment, electric appliances, government focusing on health and monitoring service delivery in a projects carpet, bedding, toys and teaching education decentralizing environment in Mongolia Baseline: 0 (2012) materials, achieving an increase of 3.5% in (the case of Education and Health)” was Target: 25 (2014) the number of state-owned kindergarten published and disseminated in 2015. Source: GPE Early Childhood facilities. Education Project / ICR Source: GPE ECE ICR (project completed) Indicator 2: Number of Achieved: 3,753 as of May 2015 Identified key challenges for efficient Achieved. UB city finance report was children attending new Source: 2016 PLR functioning of Municipality of prepared and disseminated. mobile ger kindergartens Ulaanbaatar’s budgeting system Baseline: 0 (2012) Target: 1,500 (end-2017) Source: GPE Early Childhood Education Project (project completed) Indicator 3: Access to legal Partially Achieved: 60% of UB districts and Utilized justice sector data as part of a Partially Achieved. Bank supported ICT information and advice Aimag centers distribute legal information framework for court administration, application in the justice system, across all Ulaanbaatar with legal advice available in 21 legal aid budgeting, and planning adjustments to civil case management districts and aimags centers. But no information on whether software and adoption of a case Baseline: No value related paralegals were providing this legal advice, management program. Administrative information available; no nor if 10 laws are available in minority court software eliminated many paralegals available; no languages. As of 2018, around 40 laws and procedural errors, cut down the information in minority legal acts are available in minority percentage of cases overturned on languages available (2012) language. appeal from 20% in 2012 to 17% in 2013 Source: 2016 PLR and MoF and 12% in 2014. 41 Target: 60% of Ulaanbaatar Applied IT solutions to enhance access Partially Achieved. Supported districts and aimag centers to justice information including use of installation of a national fiber optic distribute legal information in websites and mobile phones network and new archival management central community locations; standards and practices. Two websites paralegals providing advice in were supported but no indication on 60% of aimag centers, soums, mobile phones. and horoos; 10 laws available in minority languages (end- 2017) Source: Enhanced Justice Sector Services Project ICR and IEG (project completed) New Indicator 4: Average Not achieved: The current progression rate interruption duration per of distribution rehabilitation is about 30%. year in the selected area Many new poles have already been (Minutes) – BSEDN / EBEDN constructed, but the service wires have not Baseline: 809 / 1200 (2016) been connected to customers yet. Target: 710 / 1060 (2020) Source: SEP ISR and information provided Source: Second Energy Project by the task team (SEP2) 3.3 Reducing the vulnerability of households exposed to natural hazards and pollution CPS Outcomes Status at PLR Milestones Status at PLR Indicator 1: Percentage of Achieved Agreed on roadmap for transitioning Achieved. IBLI program is now managed herders in the selected area 85.3% as of March 2016. index-based livestock insurance by the Agricultural Reinsurance aware of the Livestock Risk Source: MN Indexed Livestock Insurance institutional structure PLR status: Company established under the IBLI law. Insurance products Project ICR achieved (Law to establish the The project supported the 2015 sales Baseline: 80% (2010) Agricultural Re-insurance Company of season by transferring its insurance and Target: 85% (end-2017) Mongolia (ARCM) promulgated and IT staff bringing in tenured aimag staff Source: MN Indexed Livestock company established in 2015) as trainers during the season, building Insurance Project (project capacity of the Company with completed) international consultants for capital assessment and operational manual. 42 Indicator 2: Coverage of Achieved - distribution of eligible stoves Explored ways to provide universal Watch. A commercial product targeted households with completed in December 2015 with 90% coverage for uninsurable catastrophic supported by the Government is eligible stoves in Ulaanbaatar coverage losses to those herders not already available. Universal social protection Baseline: 0 (2012) Source: 2016 PLR and UBCAP task team holding insurance policies and its potential impact on the Target: 80% of targeted commercial product still needs to be households (or 45,000 stoves) researched. (end-2017) Extended Livestock Early Warning On track. Upon completion of the Source: UBCAP (project System and linked to disaster project, the LEWS and related database component completed) management agencies were handed over to the Ministry of Food, Agriculture and Light Industry of Mongolia. Principal recommendations and action Achieved. A total of four action plans plan developed by the Ulaanbaatar were approved by the relevant Clean Air Project for selected medium- counterparts. term abatement measures approved by relevant counterparts Developed disaster risk management Achieved. Earthquake vulnerable school plan for Ulaanbaatar (earthquakes and infrastructure was identified through floods) Visual Rapid Assessment. The most vulnerable public school buildings were prioritized for seismic retrofitting and cost estimates for such an investment have been developed. The Flood Risk Management Strategy and Investment Plan was prepared in order to provide integrated, structural and non-structural interventions to address these factors. Developed hazard and vulnerability Achieved. A flood risk map and database database for Ulaanbaatar were created and placed in the General Planning Department and the Emergency Management Department of UB city. Seismic hazard and vulnerability database on facilities of schools and kindergartens of UB city were created. 43 New: Roadmap for modernizing On track. Draft Report under hydromet and climate services prepared preparation New: Identified policy options and On track. Draft report under actions for low carbon growth and preparation resilient urbanization in three cities (UB, Erdenet and Darkhan) 44 Annex 4: World Bank Lending Portfolio and Pipeline Active Lending Projects Net Tot Lending Appr. Comm At Age Project Name Closing Date Undisb Instrument FY Amt Risk yrs Bal ($M) MN-Mining Infrastructure IPF 12/31/2019 2011 19.2 0.0 8.4 Investment Supp (MINIS) MN-Ulaanbaatar Clean Air IPF 12/31/2019 2012 27.0 12.0 7.5 (UBCAP) MN Third Sustainable IPF 10/31/2020 2014 24.8 5.6 5.4 Livelihoods Project (SLP3) MN: SMART Government IPF 12/31/2020 2014 19.4 12.3 X 5.4 MN - E-Health Project IPF 09/30/2020 2014 19.5 15.3 X 5.4 MN Education Quality IPF 12/31/2020 2014 30.0 10.4 X 5.4 Reform Project (EQRP) MN Export Development IPF 06/30/2021 2017 20.0 17.1 X 3.3 Project (EDP) Mongolia: Second Energy IPF 09/30/2022 2017 42.0 37.1 2.3 Sector Project (SEP 2) MN - Employment IPF 09/30/2021 2017 25.0 19.2 2.5 Support Project (MEP) Strengthening Fiscal & Financial Stability Project IPF 01/31/2022 2017 12.0 9.2 2.4 (SFFS) EMSO 2* DPF 07/23/2020 2020 100.0** 99.4 0.2 Data as of October 2019. *EMSO 2 is partly financed by IDA (US$80 million) and IBRD (US$20 million). All other portfolio projects are financed by IDA only. Lending Pipeline Lending Net Comm. Net Comm. Appr. Closing Project Name Instrument Amt. - IDA Amt. – FY Date FY ($M) IBRD ($M) Livestock Commercialization Project IPF 2020 2025 30.00 0 UB Heating Sector Improvement Project IPF 2020 tbd 21.00 0 45 Annex 5: Ongoing ASA Task ID Task Name Task Type ACS - FY P153283 Mainstreaming Social Accountability in Mongolia Advisory 2020 P156878 Technical Assistance for Ulaanbaatar Transport 2021 Advisory Planning and Management P165221 Mongolia Poverty Measurement and Analysis TA Advisory 2020 P166443 Strengthening Governance in Mongolia Advisory 2022 P166801 Strengthening the Social Protection System and Labor 2020 Advisory Policies in Mongolia P167063 Mongolia Climate and City Resilience Advisory 2020 P167476 ASA on Pensions, Aging and Elder Care in Mongolia Analytical 2020 P168077 Foundations of Human Capital Formation in 2020 Mongolia: Governance of Early Childhood Services, Analytical Financing, & Priorities for Investment P168781 Mongolia: Real Economic Dynamics Analytical 2020 P169024 Mongolia InfraSAP - Economic Corridors Analytical 2020 P169682 Mongolia Strengthening PFM Efficiency Advisory 2022 P169683 Component 1: Strengthening Macro Fiscal 2022 Advisory Management P169934 Mongolia Energy Sector Masterplan Advisory 2020 P170968 Mongolia Civil Service Reform Assessment Analytical 2020 P170852 Mongolia Banking Sector Monitoring TA Analytical 2020 P172371 Anti-Corruption Efforts in Mongolia Analytical 2020 As of October 2019 46 Annex 6. Completed Lending Projects and ASA during CPS period Completed lending projects between FY12-FY19 Net Tot Closing Approval Comm Disb Proj ID. Date FY Amt ($M) ($M) MN-GEF-Renewable Energy for Rural 3.5 3.0 P084766 Access 06/30/2012 2007 P099321 MN-Renewable Energy for Rural Access 06/30/2012 2007 3.5 3.6 P074591 MN-UB SERVICES IMPROVMT 2 02/29/2012 2004 18.0 18.6 P096439 MN-Sustainable Livelihoods II 06/30/2013 2007 44.0 44.0 P101446 MN-Enhanced Justice Sec Services 06/30/2013 2008 5.0 4.1 P077778 MN Economic Capacity Tech. Assistance 03/31/2013 2003 7.5 8.0 P092965 MN-Info & Com Infra Dev 03/31/2013 2006 8.0 7.3 MN-Rural Education and Development - 4.8 5.0 P096328 READ 02/28/2013 2006 P040907 MN-Energy Sector 09/30/2013 2001 41.5 46.6 P098426 MN-Governance Assistance 12/31/2014 2006 14.0 15.0 P113160 MN-MONSTAT 12/31/2014 2009 2.0 2.2 P125445 MN - GPE Early Childhood Education 06/30/2015 2012 10.0 10.0 P108768 MN-Mining Sector Inst Strength TA 12/31/2015 2008 9.2 8.7 P088816 MN-Index-Based Livestock Insurance 03/31/2016 2005 17.8 10.3 P119825 Mongolia Multi-Sector TA 06/30/2017 2010 12.0 12.0 P122320 MN-Ulaanbaatar Clean Air 12/31/2019 2012 15.0 12.9 MN - Livestock and Agricultural 11.0 11.0 P125964 Marketing 12/31/2017 2013 Economic Management Support 120.0 122.7 P162402 Operation 1 07/31/2018 2018 Completed ASA since 2016 Task Closed in Task ID Task Name Type FY P118643 Mongolia-Independent Think Tank Advisory 2016 P130892 GAFSP - Mongolia Analytical 2016 P145422 Gender Action Plan Implementation Analytical 2016 P146146 Strengthening City Finances and Service Delivery in Ulaanbaatar Advisory 2016 P146172 Mongolia Capital Market Development TA Advisory 2016 P146360 StAR - Mongolia Country Engagement Advisory 2016 P150428 Building a More Efficient SP System in Mongolia Advisory 2016 P150919 Model Agreements for Mining Technical Assistance Advisory 2016 47 P152195 Mongolia #A065 Payments System Strategy and Oversight Framework Advisory 2016 P152905 Quality of Pre-Primary Education Analytical 2016 P154187 Mongolia Financial Education Strategy Advisory 2016 P146081 Support to the Mongolia DRM Program Advisory 2017 P150392 MN Preparation of SREP Investment Plan Advisory 2017 P152274 Mongolia Technical Assistance on Poverty Measurement and Analysis Advisory 2017 P157840 MN - Employment Support NLTA Advisory 2017 P158667 Mongolia Governance & Public Sector Management Analytical Support Analytical 2017 P160426 Mongolia Debt Management Performance Assessment (DeMPA) Advisory 2017 P161478 Mongolia Debt Management Reform Plan Advisory 2017 P150325 Mongolia Governance Partnership Facility Advisory 2018 P161057 Mongolia Public Expenditure Review Analytical 2018 P159938 Financial Sector Just-in-time Policy Advice Advisory 2019 P159939 Supporting Banking Sector Soundness Advisory 2019 P160024 Policy Framework for SFIs and SOEs Advisory 2019 P160095 Stronger Asset Declaration and Recovery Advisory 2019 P160262 Strengthening NBFIs Advisory 2019 P160263 Insolvency Reform Advisory 2019 P160815 Payment Systems Strategy Implementation Advisory 2019 P160816 Financial Capability Advisory 2019 P162813 Ulaanbaatar Efficient Heating Project Analytical 2019 P164554 Mongolia - Trade and Competitiveness Analytical Support Analytical 2019 P165166 Air Pollution Management in Mongolia Analytical 2019 P169119 Preparation and Implementation of Gender Action Plan for Mongolia Advisory 2019 P157826 Financial Sector Development Support Program Advisory 2020 48 Annex 7. Portfolio indicators over the CPS Period FY20 @ Data as of FY13 FY14 FY15 FY16 FY17 FY18 FY19 Sep 30 PORTFOLIO AND DISBURSEMENTS Active Projects # 10 13 10 8 11 10 10 11 Net Commitments Amt $m 157.52 209.75 183.75 156.70 243.70 337.70 232.70 338.94 Total Disbursements $m 85.23 56.31 48.91 45.18 54.45 172.67 76.15 82.64 Total Undisbursed Balance $m 66.04 154.16 123.07 99.65 176.66 162.14 145.69 244.12 Disbursements in FY $m 15.70 16.85 12.23 15.33 20.64 139.48 13.29 6.48 Disbursement Ratio for IPF only % 19.2 21.8 9.0 13.3 21.1 9.4 8.4 4.4 IBRD/IDA Disb Ratio 19.1 23.2 9.1 10.9 17.4 9.4 8.4 4.4 Slow Disbursements % 20.0 7.7 0.0 0.0 0.0 10.0 10.0 0.0 PORTFOLIO RISKINESS Actual Problem Project # 2 1 1 1 3 3 4 4 Problem Project % 20.0 7.7 10.0 12.5 27.3 30.0 40.0 36.4 Potential Problem Project # 0 0 0 0 0 0 0 0 Projects At Risk # 2 1 1 1 3 3 4 4 Projects At Risk % 20.0 7.7 10.0 12.5 27.3 30.0 40.0 36.4 Commitments At Risk $m 23.30 10.00 11.00 24.80 63.70 63.90 88.90 88.90 Commitments at Risk % 14.8 4.8 6.0 15.8 26.1 18.9 38.2 26.2 Proactivity % 100 100.0 100.0 100.0 0.0 33.3 66.7 33.333333 IEG RATINGS (FY11 - FY18) # of Exits 5 1 3 2 1 1 No. of Projects Evaluated by IEG 5 1 3 2 1 1 IEG MS+ Outcome Sat % 80.0 100.0 100.0 50.0 100.0 100.0 ICR Quality Sat % 80.0 100.0 66.7 0.0 0.0 0.0 Net Disconnect % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Bank Perf. MS+ @ Entry (%) 60.0 0.0 100.0 100.0 100.0 100.0 Bank Perf. MS+ @ SPN (%) 80.0 100.0 100.0 100.0 100.0 100.0 M&E Quality % 0.0 0.0 66.7 50.0 0.0 100.0 Borrower Overall Performance % Sat 60.0 100.0 100.0 50.0 0.0 0.0 49 Annex 8: IFC Portfolio IFC’s Investment Portfolio in Mongolia (as of June 30, 2019) LN Commitment Institution LN ET QL + QE GT RM ALL ALL LN ET QL + QE GT RM ALL ALL Repayment Fiscal Year Short Name Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - IFC Cmtd - Part Out - IFC Out - IFC Out - IFC Out - IFC Out - IFC Out - IFC Out - Part - IFC 2009/ 2013/ 2010/ 2018/ 2014/ 2017/ 2019/ 2007/ 2011/ KhanBank 33.33 51.67 2.30 - 3.68 - 39.31 - 33.33 2.30 - 3.68 - 39.31 - 2004/ 2015/ 2016/ 2008/ 2012 2010/ 2013/ 2018/ 2009/ 2014/ 2017/ 2019/ 2007/ 2011/ SEF XACBank 15.00 10.40 - - 10.89 2.50 28.39 28.66 10.00 - - 10.89 1.14 22.02 18.66 2015/ 2016/ 2002/ 2012/ 2008 2013 MCS Property BVI 11.88 28.12 - - - - 11.88 - 11.88 - - - - 11.88 - 2013/ 2011 Mongolia Opp I - - 7.38 - - - 7.38 - - 5.93 - - - 5.93 - 2014 Tenger FG LLC - - 15.46 - - - 15.46 - - 15.46 - - - 15.46 - 2015 Intermed Hospital 5.00 - - - - - 5.00 - 5.00 - - - - 5.00 - 2016 MMC Polaris 6.50 - - - - - 6.50 - 6.50 - - - - 6.50 - 2016 OT LLC 400.00 - - - - - 400.00 820.63 400.00 - - - - 400.00 820.63 2017/ 2011 Shangri-La UB 75.00 31.67 - - - - 75.00 - 75.00 - - - - 75.00 - 2018/ 2017/ 2019/ Golomt Bank - - - - 1.27 - 1.27 - - - - 1.27 - 1.27 - 2016/ 2008 Grand Total: 546.71 121.86 25.14 - 15.84 2.50 590.18 849.29 541.71 23.68 - 15.84 1.14 582.37 839.29 Note: LN=loan; ET= Straight Equity (incl. Funds); QL= Quasi-Equity (Loan-Type); QE= Quasi-Equity (Equity-Type); GT=Guarantee; RM=Risk Management 50 IFC’s Advisory Portfolio and Pipeline in Mongolia (as of June 30, 2019) Project ID Name Type Primary Business Area Implem. Implem. Total Funds Start Date End Date Managed by IFC, $m 601976 Mongolia Trade Sector Equitable Growth, Finance 3/16/2018 6/30/2022 2.30 Facilitation and Development/ and Institutions Agri Sector Export Market Creation Competitiveness 600098 Mongolia Client/ Sponsor Equitable Growth, Finance 12/1/2016 6/30/2021 2.05 Investment Policy Development and Institutions & Agribusiness Investment Promotion 598067 Mongolia Sector Infra and Natural Resources 5/20/2013 12/31/2018 1.96 Multistakeholder Development/ Water Market Creation Management in Mining 602272 EAP ESRM - Sector Environment, Social and 10/19/2017 6/30/2019 0.18 Mongolia Development/M Governance arket 601526 Mongolia Sector Equitable Growth, Finance 5/15/2019 12/31/2023 0.75 Insolvency Reform Development/ and Institutions Market Creation 604122 Mongolia Green Sector Economics & Private Sector 4/1/2019 6/30/2020 0.10 Building Development/ Development Market Creation Total Portfolio 7.34 51 Projects Completed after December 2016 PLR 599274 Mongolia Secured Sector Infrastructure and Natural 9/20/2013 9/30/2018 1.16 Transactions Development/ Resources Reform Market Creation 565508 Mongolia Business AS Projects with Trade and Competitiveness 3.78 Inspection Reform Client(s) 601179 2030 Water AS Projects with Cross-Cutting Advisory 7/1/2015 6/30/2018 3.02 Resources Group Client(s) solutions -Water East Asia Pipeline Projects 603169 Mongolia Value Sector Equitable Growth, Finance 9/30/2019 12/31/2023 1.33 Chain Finance Development/ and Institutions Market Market Creation Development 603336 Mongolia Credit Sector Equitable Growth, Finance 10/1/2019 6/30/2024 1.20 Registry Development/ and Institutions development Market Creation 603659 EAP INR AS Client/ Sponsor Infrastructure and Natural 11/1/2018 6/30/2022 1.80 Umbrella Development Resources Pre-Pipeline Projects 601996 Oyu Tolgoi Local AS Projects with Infrastructure and Natural - Supplier Client(S) Resources Development Program 52 Annex 9: MIGA Portfolio (as of October 2019) Project Name Effective Date Expiry Date Business Sector Exposure ($USD) Oyu Tolgoi 12/16/2015 12/15/2027 Mining 895,578,324 53 Annex 10. Key Economic Indicators, 2016–23 (Projections as of August 2019) 2016 2017 2018e 2019f 2020f 2021f 2022f 2023f Rea l Sector Rea l GDP (% cha nge y-y) 1.2 5.3 7.2 6.9 6.3 5.9 6.0 6.6 Mi nera l GDP (%, y-y) 0.2 -5.5 5.7 4.5 4.3 4.1 6.4 8.8 Non-Mi nera l GDP (%, y-y) 1.5 8.9 7.7 7.6 6.8 6.4 5.9 6.1 Cons umer pri ce i ndex (% cha nge y-y) 0.9 6.4 8.1 8.5 8.3 7.2 7.0 7.1 Fi s ca l Account (i n percent to GDP) Revenue & gra nts 24.4 28.5 31.1 30.4 29.9 29.7 30.0 30.0 Expendi ture 39.6 32.1 28.5 31.7 31.5 31.2 30.5 29.8 Overa l l budget ba l a nce -15.3 -3.6 2.6 -1.3 -1.7 -1.5 -0.5 0.2 Pri ma ry budget ba l a nce -11.2 -1.3 6.0 1.2 0.5 0.7 1.6 1.4 Genera l government debt (i n percent to GDP) 87.6 86.4 74.4 71.4 68.0 62.4 61.4 57.9 Externa l Accounts Current a ccount (mi l l i on US$) -700 -1156 -2227 -2021 -1983 -2109 -1967 -1585 (% GDP) -6.3 -10.2 -17.0 -14.4 -12.5 -11.9 -10.1 -7.3 Tra de ba l a nce 1336 1489 676 941 939 642 740 1030 Exports of goods 4809 5834 6557 7042 7202 7587 7955 8725 Imports of goods -3473 -4345 -5881 -6100 -6263 -6945 -7215 -7695 Ca pi tal /Fi na nci a l Account (mi l l i on US$) 813 1884 2103 1637 1887 1776 1230 1391 Ca pi tal Account 64 78 92 101 111 122 125 129 FDI 1/ 121 1446 2134 1805 1760 1928 1474 1410 Portfol i o 483 494 37 223 300 300 300 500 Tra de Credi ts -101 -43 78 -67 -12 -27 -47 -49 Currency a nd Depos i ts -204 490 -112 -200 -218 -209 -220 -240 Loa ns 1/ 784 1014 279 412 513 -105 -198 -372 Interna tiona l s upport 2/ 789 418 650 729 246 218 Errors a nd Omi s s i ons -221 -62 -127 0 0 0 0 0 Overa l l BoP Ba l a nce (mi l l i on US$) -108 1455 166 266 634 -87 -520 -194 Gros s i nterna tiona l res erves 1296 2895 3361 3627 4261 4174 3655 3460 (months of i mports ) 2.4 3.9 4.5 4.7 5.0 4.7 3.9 4.1 Monetary Sector (%) Credi t growth 5.8 13.6 26.5 18.0 17.0 15.0 15.0 16.0 Res erve money growth 24.6 30.5 19.5 17.1 13.8 17.6 12.3 17.5 Memo i tems : Nomi na l GDP (mi l l i ons US$) 11059 11356 13068 14070 15853 17676 19533 21650 Nomi na l GDP (bi l l i ons MNT) 23943 27876 32307 37382 42753 48622 54804 61961 1/ FDI a nd l oa ns for 2016 a re a djus ted for $4.2 bi l l i on off-s etti ng tra ns a ctions for OT-2 project fi na nci ng. 2/ The projections for l oa ns i ncl ude mul til a tera l a nd bi l a tera l fi na nci a l a s s i s tance i n 2017-22. Sources: IMF, MoF, BoM, WB staff estimates 54 Annex 11: Development Priorities identified in the SCD SCD Priority Short Description Priority Actions Governance: a Prudent macroeconomic management is i. Restore a sound and sustainable cross-cutting the key economic governance challenge. In macroeconomic management root-issue addition, three broad governance issues framework; behind all key are highlighted: pro-cyclical election ii. Strengthen medium-term debt challenges policies (exacerbating boom-bust-bailout management; cycles), poor enactment and iii. Restore meritocracy in civil service implementation of laws (an and reduce the exodus of technical “implementation gap”), and clientelistic staff; political competition, with frequent shifts iv. Increase fiscal budget following changes in parliamentary comprehensiveness and composition (frequent and deep turnover transparency; of civil servants). v. Strengthen public investment management (PIM); Jobs and private High unemployment rates and low female i. Modern-skill training programs; sector labor participation indicate that more can ii. Promote entrepreneurship training development: be done in terms of job creation. As the and finance; the fundamental economy grows, skills mismatch of recent iii. Strengthen financial sector stability; problem for graduates (especially at the tertiary level) is iv. Investor protection legislation and most a cause for stagnating employment, investment promotion for sectors Mongolians productivity, and fulfilment of higher value such as agriculture, tourism and jobs. Private Sector Development as the energy; main driver of growth and jobs is v. Implement regulations of Food constrained by fiscal crowding out and Product Safety Law and Food Law, unpredictable investment climate. Despite develop traceability system for meat advances in Doing Business indicators, and dairy and implement investment private investors still perceive Mongolia as plan for veterinary services and a high-risk environment. transboundary diseases control. Human capital Remaining health challenges call for an i. Reorganize health services (more accumulation expansion and quality enhancement of integration between primary care and protection: primary care, together with better and hospitals) and address growing turn mining incentives in the hospital system to cope burden of non-communicable riches into with growing demands from rising non- diseases; wellbeing communicable diseases. While public ii. Reduce fragmentation of funding spending on education remains at mid- and quality of health; level (compared to peer countries), the iii. Reduce inequities in access to supply-demand gap is widening – especially quality early childhood, primary for critical early childhood education – and secondary education; given the country’s young demographics iv. Rehabilitate rural schools and and fast urbanization. Moreover, upskilling expand urban schools; in poor-quality tertiary and vocational v. Continue reforms of tertiary education is much needed to prepare the education subsector; incoming workforce for higher value jobs. vi. Extend coverage and improve In addition, the social protection system sufficiency of social protection will need to be more targeted and fiscally programs; 55 sound. Despite its recognized merits in vii. Improve programs that serve as a terms of coverage and equity, it has had buffer to economic shocks in more limited impact on easing macro-shocks or means-tested and targeted poverty reduction. Pensions deserve special manner; attention as fiscal subsidies to the pension viii. Make pensions, Child Money system represent 2 percent of GDP and, Program and social protection without reform, could account for fiscally sustainable. unsustainable 6 percent in 2030 and 11 percent in 2050. Being land-locked and large in size, i. Implement a transportation plan Infrastructure: transport and logistics are acute concerns. with feasible financing; the groundworks The state is heavily involved in core ii. Pave access roads to ger areas and of future infrastructure such as power, water and build sidewalks, together with diversification transport, and is likely to remain an sanitation and power infrastructure; important factor in these areas. However, iii. Improve ICT policy and regulatory more private sector investment and PPP environment, induce private sector options would ease fiscal pressures and participation. rising pubic debt, as well as provide end- iv. Upgrade heat and power consumers of better technology, transmission and distribution governance, and efficiency in the provision infrastructure. of utilities. Protection of Climate change and recent economic i. Promote access to cleaner and Natural developments contribute to a deterioration affordable heating solutions in ger Resources: of natural resources. The depletion of areas of UB. shortsightedness water sources in some areas, high levels of ii. Promote low-cost on-site sanitation would be a grave air pollution in UB, pasture degradation and solutions, and affordable and mistake increasing disaster risks call for appropriate wastewater collection enforcement of laws and regulations and and treatment; additional investments in improved iii. Update regulatory frameworks to infrastructure. Legitimate conflicts of support heating and sanitation interest in the use of natural resources solutions; should be discussed transparently, iv. Promote productive alliances & recognizing the trade-offs involved. contract farming, incl. access to and sustainable management of pasture and water; v. Complete ground water assessment on proper water use and allocation plans. 56