Report No. 43353_MN Mongolia Consolidating the Gains, Managing Booms and Busts, and Moving to Better Service Delivery A Public Expenditure and Financial Management Review (In Two Volumes) Volume II: Annexes January 2, 2009 Poverty Reduction and Economic Management Unit East Asia and Pacific Region Document of the World Bank PUBLIC EXPENDITURE MONGOLIA: MANAGEMENT AND FINANCIAL REVIEW TABLE OF CONTENTS Annex 1: Order ofthe Minister of Finance .................................................................................... 1 Annex 1A Table 1A .1: Annual planned. amended and actual budgets ..................................................... 5 Table 1A.2: Economic classification o f public expenditures .................................................. 6 Table lA.3: Functionalcomposition of public expenditures ................................................... 7 Annex 1B Table l B . l : Assignments o f Local and Central Government roles and responsibilities...........8 Annex 1C: Civil Service in Mongolia ............................................................................................ 9 Table 1C.1: Civil service employment by classification........................................................... 9 Table 1C.2: Grade, ranking and classificationo f the civil service.......................................... 10 Table 1C.3: Civil service average wage .................................................................................. 10 Table 1C.4: Range of pay scales in the Association o f Southeast Asian Nations Region compared to Mongolia ............................................................................................................ 10 Annex 2A: Budget timetable ........................................................................................................ 13 Table 2A .1: Medium-term and annual budgetingcalendars .................................................. 13 Table 2A.2: New revised medium-termand annual budgeting calendars ............................. 14 Table 2A.3: Summary of proposed timetable for budget reparation...................................... 15 Annex 2B: Government Financial Management InformationSystem Compliance Check .......... 16 Table 2B .1: Government Financial Management Informationkey controls........................... 18 Annex 2C: Comments on the Public Procurement Law o f Mongolia.......................................... 20 Annex 3A Table 3A .1: Basic indicators for the education sector ........................................................... 25 Table 3A.2: State Training Fund Financial Aid Program 2007 ............................................. 26 Annex 5A: Mandatory pension parameters .................................................................................. 27 Annex 7A: Economic terms ......................................................................................................... 31 Annex 8: Tracked progress of recommendations and actions o f the 2002 PEFMR report ..........33 i Mongolia: Public Expenditure and Financial Management Review Members: J. Aldmjavkhlan Advisor to Minister o f Finance L. Aruinjargal Specialist, Finance, Investment and Cooperation Department, MRTT B. Sanduijav Specialist, Finance and InvestmentDepartment, Ministry o f Fuel and Energy D. Erdenebalsuren National Consultant, Procurement Project, GAP B. BolorchimegNational Consultant, Procurement Project, GAP Secretary o f the working group: S. Erdenechimeg Strengthening Short and Medium Term Budget Planning Project Local Consultant, ECTAC Two. To order the working group (B. Batjargal) to organize the working group meetings and report the results. FINANCE MINISTER N. BAYARTSAIKHAN 2 Xo.2~. XaMrapcaH axnbiH X ~ C ~ M yynsanrbir ~ H JOXMOH 6acllryynx YP - (6 6 a ~ m a p r a n ) - ~ H 6ARPTCAgXAH 4 3 v * * W 0 0 N * P 0 0 N u 0 0 N 10 0 0 N B 0 zz N m 0 0 N N 0 0 m u d-N zs vlm 3 N 3 0 0 c-4 v) e, V e 'E .- 0 c) 8 Mongolia: Public Ewenditure and Financial Management Review Annex 1B Table 1B.1: Assignment o f Local and Central Government Roles and Responsibilities Roles and Responsibilities by government level Functions Legal Service Pollcy Fundlng expenditure deIIvely arsianments asslgnment General government services General public services I/ Central /Local Central /Local Central /Local Central /Local Defense affairs and services Central Central Central Central Public order and safetv affairs hntral ?Antral Central /Local Central /Local Education Kindergarten (0-3 year) Central Central Central Local 21 Primary and secondary school (8-16) Central Central Central Local 2/ Vocational training and production Central Central Central Central Vocational secondary education Central Central Central Central Tertiary education affairs Central Central Central Central Other rsntral rmtral rmtral local 21 Health Hospitals Central Central Central Local 21 General hospital services Central Central Central CentrallLocal Inter soum' and Soums' hospital Central Central Central Local 21 Health resorts (spas) Central Central Central Local 21 Hygiene and Epidemiology Central CentrallLocal CentrallLocal Local Other Central CentrallLocal CentrallLocal CentrallLocal Veterinary affairs CentrallLocal CentrallLocal CentrallLocal CentrallLocal Forestation expenses Central Central Central CentrallLocal State stock omce Central Central Central CentrallLocal Source: Government Authorities. 2005 I/ Governors offices and Citizens Representative Hurals of local governments 2/ Via agency contracts between central and local governments 3/ Only in UB Municipality 8 Volume II - Annexes ANNEX - 1c C I V I L SERVICE IN MONGOLIA INTRODUCTION 1. The Mongolian state structure, with legislative, executive and judicial branches, was established in early 1990s after the Constitution o f Mongolia was adopted in 1992. Within this new structural framework, a total o f 5634' budget entities that employ 124.9 (Table l C . l ) thousand civil servants are currently operating in Mongolia, Out of the total, 350 organizations hnction at the central administrative level and 5280 organizations are at the local administrative level, as the government o f Mongolia uses both central and local level structures for administrating the territories o f the country. In terms o f the employees, about 32 percent of civil servants work in the central administrative organizations while the rest work in the local administrative organizations. 2. According to the Civil Service Law, the civil service i s classified into four main categories: political, administrative, special and support, out o f which administrative and special civil servants form core civil service. Though there has been a steady increase in the number o f core civil servants in the last couple o f years, the support civil service that consists o f doctors and teachers s t i l l accounts for the largest proportion o f the overall civil service employment. Although females account for 61.9 percent o f the civil service jobs, women hold only 20 percent o f the political jobs while holding large proportion o f support service (75 percent) which includes teacherse2 Table lC.l: Civil Service Employment by Classification (as o f January 1'' o f each year, in thousand persons) Categories 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Political 2.2 2.3 2.6 2.6 2.7 2.6 2.6 2.5 2.5 2.6 2.6 2.6 Administrative 11.6 7.3 8.0 8.1 8.3 7.8 7.8 7.9 9.3 8.1 9.3 9.7 Speci a1 20.6 20.6 23.9 24.3 23.7 20.7 29.6 22.1 29.1 22.1 23.0 23.6 support 119.7 111.3 106.5 102.5 97.1 104.3 99.0 100.4 99.5 94.3 90.1 89.0 Total 154.1 141.5 141.0 137.5 131.8 135.4 139.0 132.9 140.4 127.1 125.0 124.9 Source: Ministry of Finance, Civil Service Council 3. However, there have been some discrepancies in the aggregate employment data between the MOF and the CSC3 The discrepancy o f about 4.8 percent i s mainly due to differences between the positions approved by the CSC and the actual number o f civil servants on the payroll, which i s maintained by the MOF. 4. The civil service o f Mongolia i s classified by types o f employment as shown in the Table 1C. 1, and also varies in accordance with employment duration (Grades) and grade within the general classification. For instance, the administrative civil servant's salary i s determined in accordance with hisher years o f service in the budget entity and the seniority o f the position (Table 1C.2). 5. Currently, civil servants in Mongolia have to wait an average o f 5 to 6 years to receive a promotion. Promotions should be granted based on an annual evaluation o f work performance. MOF data. According to the CSC, there are 5200 budget entities. Government Service Council. (2007) Statistics on Government Employees Structure and Movement, Ulaanbaatar. 3 Civil Service Council 9 Mongolia: Public Expenditure and Financial Management Review Table 1C.2: Grade, Ranking and Classification of the Civil Service CS classification Administrative Political Special Support Position R A N K S for each classification Grade by employment TZl--TZ13 AI-A10 TTl-TT18 TY1-TY14 1-4 5-8 9-12 13-16 SALARY 17-20 2 1-24 25+ 6. The average wage for civil service employees has been increasing gradually. The government decided to increase wages by 25 percent in early 2007 and by 30 percent again in the same year after making amendments into the 2007 budget law. As o f June 2007, the average monthly salary for an employee i s MNT 162700 (Table 1C.3) which i s three times higher than in 2000 The significant strides in the general salary increases for the civil servants in recent years made the average wage in the public sector outpace average private wage (Table 1C.3). Table 1C.3: Civil Service Average Wage /tg billion/ Indice 2000 2001 2002 2003 2004 2005 2006 2007 Average CS wage /in th. M N T 52.1 57.6 64.6 73.7 88.9 95.0 131.8 162.7 Exchange rate 1076.7 1097.6 1110.4 1146.5 1185.2 1205.3 1179.6 1,162.1 Average CS wage in USD 48.4 52.5 58.1 64.3 75.0 78.8 111.7 140.0 Private sector wages in th. M N T 62.3 65.2 71.3 81.5 93.1 101.2 127.7 154.7 Source: M O F Wage Compression Ratio 7. Average civil service employee compensation in 2006 was MNT 1,459,925, including base salary and allowances. The compression ratio (CR) of the highest and lowest salaries within the civil service system was 5.5 (Table 1C.4). Even though the CR was 5.5 in 2006 for the civil service as a whole, it ranged between 2.0 and 2.5 between classifications and 1.O and 1.4 between grades within each classification. Table 1C.4: Range o f Pay Scales in the Association of Southeast Asian Nations Region Compared to Mongolia Country Lowest SalaryiMonth Highest Salary/Month Compression (US$) (US$) Ratio Cambodia 7.50 41.25 5.5 Indonesia 42.55 84.00 2.0 Philippines 108.00 103 1.OO 9.6 Singapore 480.00 1436.00 3 .O Thailand 102.50 1477.25 14.4 Mongolia 66.90 366.00 5.5 Source: CSRS 8. The compression ratio (CR) in the selected countries, including Mongolia, ranges from a low o f 2.0:l.O in Indonesia to 14.4:l.O in Thailand. Based on a World Bank study o f more than 60 countries, CR ranges from as much as 30: 1 to 2: 1. Looking at classification categories, salary scales are compressed and range from 2.0:l.O to 2.5:l.O. At the grade level within each classification, salary scales are even more 10 Volume II - Annexes compressed, ranging from 1.4:1.O to 1.1:1.O. Therefore, Mongolia's public pay scale CR remains low, despite some recent decompression in recent years with higher salary increases to the highest paid officials. Wage bill expenditure 9. The share o f wages and salaries in total GDP fluctuated between 5.7 and 6.2 percent during the last decade (1996-2006) (Figure 1C.l) while the total wage bill amounts to around 21-16 percent o f total budget expenditure for the same period (Figure 1C.2). The wage bill share in total expenditures as well as GDP was higher in 2000-2002 than other years due to a 20 to 25 percent increase in basic salary during those years. Though wages have increased substantially in 2006-07 (Figure 1C.3), their share in GDP and overall expenditure i s not likely to go up due to high economic growth. Figure 1C1: Wage Bill (YOGDP) Figure 1C.2: Wage Bill (YOtotal expenditure) 10 0 25 0 80 20 0 60 15 0 40 10 0 20 50 00 00 1996 1998 2000 2002 2004 2006 1996 1998 2000 2002 2004 2006 o Wage bilVtotal expenditure % 8 f z 6 8 8 8 2 g z 8 8 6 administration o f state owned buildings. , z z " z z " 4 E 4 x 4 z rn Under this regulation, civil servants who Yea16 11 Mongolia: Public Expenditure and Financial Management Review by government resolution while they were regulated by the Civil Service Law and Labor Law when they were civil servants. Second, this initiative did not materialize into an actual expenditure saving since the total cost for delivering those services was the same as before. Lastly, after an attempt in 2005 to stop subsidizing some o f the benefits that are applicable for civil servants to the contracted workers (such as university tuition fee for a child of a civil servant), strong protest led the government to bring contractors back to the civil service. The initiative was subsequently discontinued and in 2007 all contracted workers were officially brought back into the civil service. C u r r e n t civil service reform 13. Civil service and public administration reform has been on the agenda of various governments in Mongolia over the last 15 years. Since the beginning o f the economic transition, reducing and changing the role of the state to one more consonant with a market economy has been a core government policy. 14. A medium term civil service reform strategy (MTCSRS) was formulated and approved in 2004. This document i s the continuation o f a series of reform initiatives that have been developed in Mongolia since 1990. An action plan for the implementation o f the CSRS has been was prepared and approved by the Cabinet recently? The action plan has defined strategic objectives and activities to be done for strategic planning and performance management, leadership and selection o f senior managers, organization and human resource development, policy analysis and data, optimum size and civil service functions. 15. The Law on Civil Service was substantially amended to ensure consistency with PSMFL. It aims at strengthening personnel controls and increasing the emphasis on performance, for example allowing dismissal of administrative staff after 2 or more adverse performance assessments. Further amendments to the civil service law have been submitted to the Parliament so that core civil servants will be depoliticized. High staff turnover in the civil service following each political election indicates that the government should lessen the influence of political discretion over the civil service, and move toward a professional structure which delivers government services effectively and efficiently. 12 Volume 11-Annexes ANNEX 2A: BUDGETTIMETABLE Table 2A.1: Medium-term and annual budgeting calendars Action Deadline Deliver general financial categories limits to general budget managers. 0 1-Mar General budget governors prepare and submit to the Ministry o f Finance the Operational plan for the next 3 years and i t s relevant budget projections and proposals 20-Mar 3 .- Ministry of Finance discusses the Operational plan and budget with each Y g, general manager 10-Apr 3 Finalize and submit to the Cabinet the draft Medium term budget framework and relevant calculations 20-Apr E ~1 The draft Medium term budget framework and draft medium term economic and financial policy are discussed at the Cabinet session and 3 relevant decisions are approved 30-Apr E: The draft Medium term budget framework and draft Parliamentary resolution are submitted to the Parliament 0 1-May Estimates reflected in the Parliament approved Budget framework are delivered to the general budget managers MTBF ceilings are approved by the Parliament 0 1-Jun Budget entity managers deliver the proposal for the next year’s budget and operational plan to the general budget managers 01-Jul General budget managers submit to the Ministry of Finance the proposal for the next year’s draft budget and operational plan 15-Aug The relevant departments and division of the Ministry of Finance review the draft budget submitted by the general budget managers and reach an agreement with each general budget manager 0 1-Sep Draft budget, medium term economic and financial policy are finalized and submitted to the Cabinet Next year’s draft budget, medium term economic and financial policy are discussed by the Cabinet 30-Sep Socio-economic development policy, draft state budget and draft budgets for each general budget manager are submitted to the Parliament 0 1-0ct Parliament approves annual Budget Law along with SEG and monetary policy guidelines 0 1-Dec Parliament approved budget i s delivered to budget general managers in detailed estimates 10-Dec General budget managers enter into output delivery and result- based contract with each aimag and capital Governors and general managers 25-Dec Citizen’s RepresentativeKhural approved aimag and capital city budget are submitted in detailed estimates to the Ministry o f Finance 15-Jan Budget general managers approve the current year’s monthly, quarterly budget financing schedule and deliver to the Ministry of Finance 05-Jan After approval by the Minister o f Finance, the monthly, quarterly budget financing schedule for the current year i s delivered to the general budget managers 20-Jan 13 Mongolia: Public Expenditure and Financial Management Review Table 2A.2: New revised medium-term and annual budgeting calendars MTFF to Cabinet 15-Mar MTFF to Parliament Ceiling preparation Budget circular Ministry consultations MT SEG to Cabinet 06May 20-May 10-Jun 15 Aug- 15 Sept 15-Mar MTB to Cabinet MTB to Parliament MTB Published Monthly & quarterlyschedule 15%~ 01.OCt OSDec 25Dec Source: Manual of Procedures for Medium Term Budget Preparation (MTB), June 2008 14 Volume II - Annexes Table 2A.3: Summary o f proposed timetable for budget reparation Document Responsibility o f Produced by MTFF MoF 15 March Financial statements Local governments 20 March Output delivery reports Policy Statements as part o f the PEPS - Three-year Budget Scenarios (based on master plans, strategy papers and Line ministries 10 May progress review of previous year’s budget implementation) Ministry ceilings MoF 10 May Ceilings and prioritization MoF 10 May Response to ceilings and prioritization Cabinet Secretariat 1 June Approval o f medium term strategy paper Parliament 20 June Budget ceilings and methodology paper MoF 20 June Ministries and budget Local Government ceilings 15 June portfolio agencies Medium term budget preparation within ceilings Local governments 25 July and preparation of Strategic Business Plan ExpenditurePlanning Statements as part o f the Ministries and budget 15 August PEPS portfolio agencies Final draft MTB (for Cabinet) including MoF and 15 September Portfolio Budget Statements Line ministries Final annual budget (for Parliament) Cabinet secretariat, MoF 1 October Budget law (annual) Parliament 1 December Source: Manual of Proceduresfor Medium Term Budget Preparation (MTB), June 2008 15 Mongolia: Public Expenditure and Financial Management Review ANNEX 2B: GOVERNMENT MANAGEMENT FINANCIAL SYSTEMCOMPLIANCE INFORMATION CHECK 1. With the implementation o f GFMIS on January 1, 2005, there was a need to conduct a compliance check of GFMIS to examine whether the business processes and internal controls in the FreeBalance e- Financials software were working in practice. Such a compliance check i s aimed at assisting the MOF to fine-tune GFMIS functionality. In addition to the compliance check, an internal control system review on the control environment within and surrounding GFMIS was also conducted. This review sought to ensure that all funds and informationflow processes that underlie GFMIS are also working. 2. The compliance check concluded that the business processes and internal controls for GFMIS are adequate for financial management purposes. Table 2B. 1 lists the key controls imbedded within the GFMIS FreeBalance e-Financials software. As noted in the status column o f Annex 2B, the GOM has done a very good job in ensuring that the GFMIS implementation has met most of the requirements of the key controls. However, there are some areas o f control that should be improved as listed below: Fiduciary Improvements. 0 Budgetary Control 0 System Integrity Check 0 Payment Security 0 Documentation System Management Improvements: 0 Performance 0 Data Backup and Restore 0 Disaster Recovery 3. These are discussed in further detail in the following paragraphs. To address the points below, the GOM also needs to deal with the human resource requirements for meeting the anticipated additional workload due to the proposed increase in the number of users and monitoring mechanisms as the government rolls out GFMIS to more budget entities. Fiduciary Improvements 4. Budgetary control in GFMIS could be enhanced with stricter control enforced by the system instead of relying on a mix o f Manual and partial System Control. The current process could potentially result in spending more than the Annual Budget. The Budget Entities (BE) re-allocate their quarterly warrants and corresponding cash to their departments. As the relationship between departments and their respective BEs are not defined in GFMIS, the aggregate o f budgets at department levels cannot be controlled at the BE level by the system. The budgets approved by Parliament are only defined at BE level. To enhance the system control, it i s recommended that a review be carried out of the control and reporting requirements and business processes. As required, revise Chart of Accounts structures for fiscal year 2008 to include the relationships between departments and their respective BEs. 5. The System Integrity Check function in GFMIS is performed only once a week and is not printed, The system integrity check verifies that all data entered i s accurate and balanced and ensures that all ledgers have been properly updated. An out-of balance database could potentially provide incorrect information in reports and affect the budgetary controls within GFMIS. I t i s recommended that the system integrity check hnction be performed daily and the related reports should be printed, signed and filed. In addition, out-of balance situations should be corrected immediately. 6. I t was observed that Payment Security could be improved by reducing manual activities. Payment details are transferred from Treasury to Bank of Mongolia through an in-house developed Electronic Fund Transfer (EFT) application and related Bank reconciliationbetween Treasury and BOM i s done manually; all o f this i s done outside o f GFMIS. The daily payment details data resides on the personal computer of the Treasury Officer, outside o f GFMIS. This Treasury Officer i s also responsible for performing the Bank reconciliations. As a result, there i s a potential risk o f tampering with payment data by unauthorized 16 - Volume II Annexes persons. I t i s recommended that since GFMIS has the capability to automatically interface with BOM, the GOM should review and integrate the EFT and Bank reconciliation functions within GFMIS. The payment data should reside in a secured environment with access only for authorized persons. I n addition, payment and bank reconciliation functions should be performed by different individuals. This will also reduce key personnel risk. 7. To address potential staff turnover issues, GOM should improve the documentation o f business processes. Updated technical procedural documentation on Oracle, GFMIS, Interfaces, EFTBank Interface Tools, etc. i s all available; Treasury procedural documentation exists only in the form o f instructions. A consolidated document of Treasury Procedural instructions i s under preparation and i s expected to be completed soon. Once complete, the Treasury Procedural instructions should be reviewed periodically and kept up-to-date. This document, including updates, should be made available to all GFMIS users. System Management Improvements 8. The number o f users of GFMIS will be substantially increased by the end of 2007, from 171 to 751. This will result in higher transaction volumes and increased database traffic. This increase could potentially have an adverse impact on the Performance of GFMIS, which already has issues with slow performance during the last three months of a fiscal year as the database size increases substantially. Technical infrastructure, hardware requirements and architecture should be reviewed and a Technical Blueprint prepared that will meet the GOM’s present and foreseeable fhture requirements. Also, GOM should continue to upgrade GFMIS to the latest version o f FreeBalance Financial Accountability software to take advantage of new features, robustness and improvement in performance. 9. Current Data Backup and Restore practices should be improved. GFMIS data i s scheduled to be automatically backed-up twice a day on the hard drive and then copied from the hard drive to the tape once a day. The backup tape i s sent to an off-site location once a month. In the event that data has to be restored from the tape backup, then potentially one month o f data would have to be re-entered and reconciled, causing significant stress on the human resources at the Treasury Department. Also, in the absence o f procedures for testing the Restore operation, there i s a risk that the data from backup tape may not be restored. Backup tapes should be sent of off-site location at least once a week. Restore from tapes and hard drive should be checked at least once a month. 10. Disaster Recover and Business Continuity environment does not exist. I n the event the server room i s destroyed, MOF would not be able to provide any support for budgetary and expenditure control and make payments for the entire central and local governments. As a long-term plan, MOF should review the possibility of establishing a duplicate facility of at least 30km away. This will enable the GOM to continue to conduct its business without interruption from a disaster recovery center. 17 Mongolia: Public Expenditure and Financial Management Review Table 2B.1: Government financial management information system key controls Key Controls Description Status 1. System parameters business rules How the organization will process Appropriately established data and approve transactions. 2. Valid code combinations Only valid account code GFMIS does not allow combinations will be accepted by posting o f transactions to the system. budgets that do not exist 3. System entry and security Security access features at system Functional access security entry, function and data levels. classes and data access Users need to have a valid user ID groups defined in GFMIS and and password. Access rights are associated with users defined by user profile and adequately used functional classes 4. General Ledger (G/L) function Accounting entries must always GFMIS prevents unbalanced balance before acceptance into the transactions from being system posted 5 , System edit access rights System tables can only be changed System edit access rights by a user with the appropriate properly specified authorization 6. Audit trail A report can be produced A document report trail notes all tracing a history o f changes. activity in the system Also, the system produces edit messages so users can correct the data input 7. System integrity check Verifies the coherence of the Recommended that system database at regular intervals. This integrity check be performed verifies that entered data i s accurate daily instead of on a weekly while ensuring that all data files basis. Also, reports should be have been properly updated produced, as evidence and signed and filed 8. Posting date Set based on the government System will not allow posting to business rules prior periods 9. System setup System allows management to Detailed in GFMIS determine the level of detail and Configuration Blueprint. control for budgets, allotments and G/L transactions 10. Authorized vendors Tax ID information i s Payments can only be made to provided to become a valid authorized vendors vendor, to whom payments can be made 11. Allotmenthudget controls The system default i s “no” to Not adequate. exceeding allotments. There i s a Please refer to the topic on default tolerance that can specify in Budgetary Control dollars or in percentage Improvements detailed earlier 18 Volume II - Annexes Key Controls Description Status in this chapter 12. Suspense transactions System has “not posted reasons” Adequate. fimction to explain what has been “temp-saved” and not posted to the Incomplete transactions are G/L (waiting approval, funds not allowed to be saved without available, insufficient information) posting to the GL. These can be reported on through GFMIS standard reports. 13, Back-up and Restore Procedures Procedures for backups and Not Adequate recovery Please refer to the topic on Back-up and Restore Improvements detailed earlier in this chapter 14. Disaster Recovery Duplicate Server Room Facility that Does not exist can be used in the event server room i s destroyed Please refer to the topic on Back-up and Restore Improvements detailed earlier in this chapter 15. GFMIS Data Security GFMIS data i s adequately Security o f financial data in GFMIS secured. However, payment data i s insecure. Please refer to the topic on Payment Security detailed earlier in this chapter 16. Division o f responsibilities Could be enhanced in some Division o f work necessary for areas. Please refer to the topic proper internal control on Payment Security detailed earlier in this Chapter 19 0 N 8 .d 2 N a 0 i5 2 E 8 '5 R s c? 3 0 m N m m N v) 1 0 ,I > c d E 0 Y B Y - ‘2 I- 6 3 * n - D W 8 8 z 5 e 0 U 8 VI E ?J i ! 8 e 3 U B Y v) 3 2 a W 5 M Y E 8 ; a W 4 3 3 d I I Volume I/ - Annexes Annex 3A Table 3A.1: Basic indicators for the education sector, 2000-2006 2000101 2001102 2002103 2003104 2004105 2005106 Average Kindergartens 653 665 655 687 696 Pupils 79,294 83,578 87,711 90,2 I 5 82,674 Annual rate of change 0.8% 5.4% 4.9% 2.9% -8.4% 1.1% Teachers 3,056 3,177 3,257 3,267 3,424 Pupikteacher ratio 26 26 27 28 24 26 Secondary schools o f which: 683 700 688 686 710 Primary schools (stand alone) 113 106 95 72 75 Secondary schools (incl. grades 1-10) 570 594 593 614 63 5 Students 494,544 510,291 527,93 1 537,398 557,346* Annual rate of change 5.2% 3.2% 3.5% 1.8% 3.7% 3.5% Percentage of dropouts 2.8% 2.8% 2.4% 2.5% 2.3% 2.6% Teachers 19,223 20,076 20,752 20,792 2 1,458 Student: teacher ratio 26 25 25 26 26 26 Vocational and technical education schools: VTPCNETCIBranch schools 36 32 31 32 35 Students 12,177 15,05 1 19,493 2 1,574 21,911 Annual rate of change 8.3% 23.6% 29.5% 10.7% 1.6% 14.7% Teachers 865 843 955 1,098 1,160 Student:teacher ratio 14 18 20 20 19 18 Higher education institutions (HEIs): universities, institutes, colleges (total) 172 171 178 176 178 Students (total) 84,970 90,246 98,03 1 108,268 123,824 Teachers (total) 4,910 5,25 1 5,650 5,962 5,309 Public HEIs 38 41 42 47 13 Public HEIshare 22. I % 24.0% 23.6% 26.7% 27.5% 24.8% Public HE1 students 56,906 60,382 66,834 74,134 54,041 Public HEI students share 67.0% 66.9% 68.2% 68.5% 57.9% 67.7% Annual rate of change 11.5% 6.1% I O . 7% 10.9% 13.4% 10.5% Public HE1teachers 3,455 3,655 3,882 3,999 t , 187 Public HEI student/teacher ratio 16 17 17 19 ?O 18 Private HEIs 134 130 136 129 135 Private HEI share 77.9% 76.0% 76.4% 73.3% 72.5% 75.2% Private HE1 students 28,064 29,864 31,197 34,134 39,783 Private HEI students share 33.0% 33.1% 31.8% 31.5% 32.I % 32.3% Annual rate of change 22.2% 6.4% 4.5% 9.4% 16.5% 11.8% Private HE1teachers 1,455 1,596 1,768 1,963 1,122 Private H E I studetdteacher ratio 19 19 18 17 19 18 I Sources: National Statistical Ofice of A rgolia M polian St( -tical Year >ok2003 and 2004, Ulaanbaatar. 25 Mongolia: Public Expenditure and Financial Management Review Table 3A.2: State Training Fund Financial Aid Programs 2007 Target Type Eligibility Nature of Amount Criteria assistance Government Poor, low-income, Loan -Families with income Soft loan Public tuition Loan and disadvantaged less than MLS or students -Families with a disabled member or -If parents retired or - An orphan Assistance to Very poor students Grant -Families with income Need- Public tuition very poor less than 60% of MLS based grant Assistance to Orphans, Grant -orphan or Presumed Public tuition disadvantaged physically disabled and -disabled and from a need or (Needy students students students, and mixed family with income need-based with one parent students from a less than MLS or receive 150,000 single-parent - have single parent Tugrik as grant family and from a family with and the income less than MLS remainder of tuition as a loan) Talented Outstanding HS Grant - Award from an Merit- Public tuition students graduates, high international based achievers in competition, grant college, and - First three prizes graduate students from a national competition, - GPA of 3.8 or higher for 4 consecutive semesters, - Master’s or doctoral students with a demonstrated research achievements Large families Families with 3 or Grant Certificationthat the Specific Public tuition more college recipient i s one of 3 social students college students from group the same family Herdsmen Students from Grant Herdsmen families Specific Public tuition children herdsman families with fewer than 700 social small animals group Public Students from Grant Parental employment Merit- Public tuition employees’ public employee’s in the public sector based grant children families and GPA of no less than 2.0 Note: Does not include grant and loan programs for overseas training. 26 - Volume II Annexes ANNEX 5A: MANDATORY PENSION PARAMETERS’ Defined-Benefit Scheme (pre-1960 Cohorts) NDC Scheme (post 1959 cohorts) Old Age Law on Social Insurance and Law on Pensions and Benefits Individual Pension Insurance Insurance Provided by the Fund o f Social Insurance 1994 (as Contribution Accounts Law o f 1999 amended) Applicability All contract employees born after January 1, 1960. Contribution Rate 19 percent of wages (13.5 percent employer and 5.5 percent 19 percent o f wages( 13.5 percent employee) employer and 5.5 percent employee) Minimum Wage National Minimum Wage (revised periodically) National Minimum Wage (revised subject to periodically) Contributions Maximum None None Covered Wage Benefits - 2.25 percent/year for the first 20 years of eligible service Based on Notional Account balance Accrual rate and 1.5 percentlyear for each year o f eligible service after for 15 percent contribution rate for that. years of contributions, accrued notional returns for each year (average growth in the last three years’ average wages), and average l i f e expectancy factor. Wage base for Best 5 years’ consecutive wages out of the final 20 years Not applicable. benefit wages reported. determination Minimum 75 percent o f the minimum wage. 20 percent o f the national average Pension wage, plus an additional 0.5 percent of the average wage for each additional service year beyond the minimum o f 15 years Indexation In practice, pension increases are determined by Parliament “in direct relation to the inflation on an ad-hoc basis, although the law states that pensions rate” The pension adjustment index should be increased in “relation to changes in the cost of and the procedure for its application living”. shall be determined by the National Statistical Office based on the suggestion o f the Social Insurance National Council. Taxation of Tax exempt Tax exempt benefits Qualifjing Conditions Vesting 0 20 years 0 15 years of service and Requirements contributions Retirement Age 0 60 for men and 55 for women not subject to special early same retirement rules. 0 55 for men with 20 years of service, 12 of which in hazardous conditions. 0 50 for women with 20 years o f service, 10 of which in hazardous conditions. 0 50 for men with 20 years o f service, 10 of which underground or in high heat. 45 for women with 20 years o f service, 7 o f which 5 This table has been reprinted from Louse Fox, Cash Transfers and Social Protection Programs, 2002. 27 Mongolia: Public Expenditure and Financial Management Review Defined-Benefit Scheme (pre-1960 Cohorts) N D C Scheme (post 1959 cohorts) underground or high heat. 0 50 for women who have brought up 4 or children. Invalidity/Disability Enabling Law On Pensions & Benefits Provided By The Social Law On Individual Pension Legislation Insurance Fund. Enforced on 1/1/1995, Amended in 1995, Insurance Contribution Account. 1996,1997 and 1999 Effective 7/1/1999 Contributions Contained within the combined 19 percent contribution Contributions for invalidity, rate. survivorship, minimum pension guarantees and administrative costs all contained in 4 percent contribution. Benefit Formula DP = W* Percentage o f capacity loss(1) Note: This law i s not applicable to DP = W* Percentage o f capacity loss(I1) injury related benefits. DP = Disability pension W = Insured person's monthly average wage PCL(1) = 10 percent ( up to 10 per cent) PCL(I1) = Percentages over 10 per cent Formula Total invalidity = same formula as retirement Total invalidity = W*60 percent Partial Invalidity = (retirement formula)* percentage of Partial invalidity = (W*.6) * loss of capacity for work (percentage o f loss of capacity for work) W = monthly average wage in the last three years, Length of From the date o f commencing invalidity and ending with Same as under the Current Law pension the day of rehabilitation, or with the following month in which the beneficiary dies Minimum Same as the minimum retirement pension Same as the minimum retirement pension pension provided from Individual Account Qualification Not less than 50 per cent loss o f capacity for work Same permanently, or for a long duration due non-occupational disease or injury Classification o f Total invalidity (70 percent and more loss of working Same invalidity capacity) and partial invalidity (from 50 to70 percent) Minimum length Not less than 20 years insured service, or three years out of Same of service for five, immediately preceding the date of commencement of qualification invalidity Incomplete Disability benefit i s reduced proportionallyto the period o f Not allowed service pension insurance, but its minimum i s equal to minimum (minimum 3 reduced retirement pension years) Minimum Not less than 75 per cent of the wage in case of working pension capacity loss over 30 percent and more Length of From the date o f commencing disability and ending with pension the day o f rehabilitation, or with the following month in which the beneficiary dies Qualifying W h i l e discharging employment duties at work place or service other places; before the commencement o f the general working hours or after the general finishing time in the course of arranging the work place & equipment; travel to or from an insured person's place of work Certification Determinedby Medical Labor Accredited Commission, Same 28 Volume II - Annexes Defined-Benefit Scheme (pre-1960 Cohorts) NDC Scheme (post 1959 cohorts) whether cases are relevant to employment injury determined by Employer’s Investigating& Registering Commissions. Dependent’s/Survivorship Pension Applicable Law on Benefits Provided BY The Fund O f Social Law On Individual Pension Legislation Insurance Against Employment Injury & Occupational Insurance Contribution Account Diseases. Enforced on 1/1/1995, Amended in January 2000 Effective 71I/I 999 Benefit formula Same benefit formula as old age retirement; 40 percent monthly average wage Survivors receive pension in proportion to certain in the last three years for one percentages depending upon the number of survivors: for dependent, increased by 10 percent three or more -100 percent, two - 75 percent and one - 50 per each member over two and percent. more. But pension should not exceed 60 percent monthly average wage Eligibility Family dependents determined as survivors under the Law On Pensions & Benefits Provided By The Social Insurance Fund Length o f Same as survivor’s pension under the Law On Pensions & pension Benefits Provided By The Social Insurance Fund Credit for period Pension increased by 1 per cent pension amount for each N o credit of invalidity year o f total invalidity, if the deceased was on the receipt o f pension invalidity pension Minimum 50 percent minimum wage for one dependent, 75 percent Same as the minimum retirement pension for two dependents and 100 percent for three dependents; pension provided from Individual reduced pension should not be less than 50 percent same Account wage. Length of service Not less than 20 years insured service, or three years out of Same five, immediately preceding the date of breadwinner’s death due to non-occupationaldisease or accident. Incomplete Pension i s reduced proportionally to the period of pension Not allowed service insurance. (minimum 5 years; continuous in last year) Eligible survivors Born or adopted children under 16, if student children to Same age 19; grandchildren, brothers and sisters under 16 without caregivers; grandchildren, brothers and sisters disabled or got disabled prior attaining age 16; parents over retirement age or disabled parents, spouse or grandparents, brothers and sisters without caregivers; any of parents or spouse not working and caring for children under 8, or grandchildren and younger brothers and sisters, also family dependents of the deceased who was on receipt of retirement or invalidity pension and who totally lost capacity for work in months preceding the death; step-parents; step-childrennot receiving alimony from their own parents; family dependents o f the disappeared; Length o f From the date o f death up to the day on which surviving Same pension children attain age 16, if student children to age 19, incapacitated persons for period of loss of working capacities, survivors who have attained the pension age up to the end of the following- month in which the insured breadwinner’s dies 29 Mongolia: Public Expenditure and Financial Management Review Defined-Benefit Scheme (pre-1960 Cohorts) NDC Scheme (post 1959 cohorts) Social Assistance Pension Enabling Law on Pensions and Benefits Provided by The Social Social Welfare Law, enforced on Legislation Assistance Fund 7/1/1996 11111999 Pension Rate Minimum living level for a given period Same Eligibility 1 Men aged 60, women aged 55 whose income i s less than Persons ineligible for social the minimum subsistence level; insurance pensions such as: men o f 1 persons suffering from total invalidity, born 60, women o f 55 unable to make incapacitated or become incapacitated prior to age to 16, living on hislor her own, without . 1 family dependents on death of the breadwinner, blind, dumb, deaf persons and dwarves; totally disabled in prosecution of civilian duties such as saving human children and relatives to maintain them, or if legal caregivers are elderly or disabled who are unable lives, or in the fight with natural calamities, to support them; and the ultra poor; 1 family dependents of those who died in prosecution o f disabled persons who have lost 70 duties described above, per cent working capacity; born 1 single mothers aged 45 (father aged 50) whose income i s incapacitated over age 16, or less than the minimum subsistence level and who have become incapacitated prior to age 4 and more children to 16 due to loss of more than 50 per cent working capacity; family dependents on death of the breadwinner; blind, dumb, deaf persons and dwarves; disabled in prosecution o f civilian duties such as saving human lives, working in extremely dangerous infectious foci or in the fight with natural calamities; and their family dependents in case o f death; extremely poor single mothers o f age 45 and more, fathers o f age 50. Indexation of In relation to the movements in the minimum living level Same benefits Source: State Social Insurance General Ofice, Social Insurance Legislation, 2001, in Louise Fox, Cash Transfers and Social Protection Programs. 30 Volume II - Annexes ANNEX 7A: ECONOMIC TERMS Types of economic goods 1. Economic goods are products and services for which there i s willingness to pay. Economic goods are not only physical products, but also laws and rules. The latter determine how the Government exerts power and how individuals are constrained in their behavior. Laws and rules affect the economic outcome o f a society similar to the rules o f a game may determine the result o f the play. Therefore, the laws and rules, which are also termed institutions, are most important for the development o f nations. 2. A private good i s a product or service that exhibits the following properties: 0 Excludabilitv, Le., it i s reasonably possible to prevent those who have not paid for it from having any benefit from the good; and, 0 Rivalrv, Le., if someone benefits from some part o f a good others cannot benefit from the same part o f the good. 3. Club goods: These are specific private goods. They benefit only a limited number o f people, but the beneficiaries can be identified. Wells are pure private goods or club goods. Wells are private goods if private persons have the necessary funds to build wells and if they are allowed and able to exclude other potential users o f the well. Wells are club goods if individuals do not have the funds to build wells and i t i s technically possible and legally allowed to exclude some potential users from taking advantage o f the well. Hence, a group o f people could build a well and enjoy the benefit. 4. Public goods: products or services which do not meet the two conditions which have to hold for private goods. Hence, there i s no incentive for private people to produce these goods and offer them on the market. It should be noted that public goods are not only physical goods, such as a livestock disease surveillance system, but the setting, monitoring and enforcement o f laws and rules which constrain human behavior. 5. Private goods with externalities: Private goods without externalities only affect the producer and user. The producer has to bear the costs and the user has to pay the price for using the good. In cases o f externalities, third parties are affected. People are positively affected if they enjoy a benefit without being charged and negatively if they incur a hardship without being compensated. Markets do not coordinate individual decisions well in cases o f externalities. There i s market failure. For example, wells produce negative externalities in that they lead to increased livestock numbers and lower the quality o f surrounding pastureland for all herders. 6. I t i s generally accepted that the task o f the government in a market economy i s to produce public goods and not private goods. However, governments may intervene into the production o f private goods if there are externalities. The society may be better o f f if goods with positive externalities are subsidized and those with negative externalities are taxed. However there i s a clear economic rule for these interventions: They should be as near as possible at the place o f the positive or negative externality. Market failure 7. The market i s supposed to ease transaction between economic agents. If the transaction between agents leads to positive or negative effects for those who are not engaged in the transaction there i s market failure: the market has failed to coordinate individual actions in an optimal way. There i s also market failure if markets do not emerge. Markets for long-term investment in agriculture may not emerge. The producer o f a very specific investment good on a farm, such as a shed for livestock, incurs a high risk if he i s not certain that the contracting partner will comply with the 31 Mongolia: Public Expenditure and Financial Management Review contract. Uncertainty may suppress the emergence o f such a market. I t i s the task o f the Government to design policies which deal with market failure. Such a policy could be a tax or a subsidy in the first case and fast and reliable law enforcement in the second case. Policy failure 8. I t can be taken for granted that policy makers try to improve the economic and social condition in a country. However, it occasionally happens that well-intended measures may not contribute at all to the achievement of the stated objective. Such a case would indicate absolute policy failure. The export tax on cashmere may be such an example. The tax has been introduced in order to support the domestic processing industry. However, as cross-border trade i s difficult to control more raw cashmere may have been exported than without the tax. Relative policy failure exists if the costs o f a measure are higher than the positive effects. I t i s possible that the present support of wells leads to relative policy failure. However, there i s no proof as no exact policy evaluation i s available. Transaction cost 9. A transaction cost i s a cost incurred in making an economic exchange. If a herder wants to sell cashmere wool or a sheep he has to decide at what point in time. Prices may be somewhat higher if he delays the sale for some time. Thus, he has to search for information concerning present and future prices. If the herder has decided to sell now, he may go to a market place, possibly a soum center, and search for the buyer who will pay the highest price. Hence, search costs and information costs are one element o f transaction costs. The Government could lower this part of transaction costs by setting up a market information system and by supporting the setting up o f a private credit rating agency. 10. A second element of transaction costs are negotiation and decision costs. The seller of milk to a dairy factory or the farmer who buys machinery may have to negotiate the price. H e may need a lot o f information to find out the willingness to pay or the price to accept of the trading partner. The Government could contribute to reducing this component of transaction costs by improving transparency. If sellers on the wholesale and retail markets are forced by law to place a price label on the products transparency i s improved and negotiation costs reduced. 32 C m '5 m e, e, e, e, e, C B a" B B B m rn m m -0 C 5 c, cc IC) 0 s 3 8 E 0 Y - e, M z 0 s Y ? a 0 -0 < E I rn c) cc 8 U n x -c 0 c) M 'E: .- Ym C m m 3 vi e, 0 & El -0 a d -0 B 0 -0 2 * z . 2 . . E z . $ 0 0 8 00 m 0 0 3 * e * e w 8 0 -0 i * 2 . v1 I I l l I