Social, Environment and RURAL Development – East Asia and Paci�c Region 62788 D i s c u s s i o n P a p e r s M O N G O L I A Financing Public Environmental Expenditures in Mongolia March 2010 MONGOLIA Financing Public Environmental Expenditures in Mongolia March 2010 THE WORLD BANK © 2010 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, NW Washington, DC 20433 USA March 2010 All rights reserved. This study was prepared by the Social, Environment and Rural Development Unit (EASER) of the East Asia and Paci�c Region, and was funded by the World Bank's Netherlands-Mongolia Trust Fund for Environmental Reform. Social, environment and rural development issues are an integral part of the development challenge in the East Asia and Paci�c (EAP) Region. The World Bank's Sustainable Development Strategy for the region provides the concep- tual framework for setting priorities, strengthening the policy and institutional frameworks for sustainable develop- ment, and addressing key environmental, social and rural development challenges through projects, programs, policy dialogue, non-lending services, and partnerships. The EASER Discussion Paper series provides a forum for discussion on good practices and policy issues within the development community and with client countries. The publication and primary data are available online at www.worldbank.org/mn and www.worldbank.org/nemo. Suggested citation: Markandya, A. 2010. Financing Public Environmental Expenditures in Mongolia. Mongolia Discussion Papers, East Asia and Paci�c Sustainable Development Department. Washington, D.C.: World Bank. Contact details for author: Professor Anil Markandya, Scienti�c Director, Basque Centre for Climate Change, Gran Via, 35-2, 48009 Bilbao, Spain. anil.markandya@bc3research.org, www.bc3research.org, tel. +34 944 014 690, fax +34 944 054 787. Cover photos: Tg.20,000 banknote and Fireweed Epilobium angustifolium, Tony Whitten This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The �ndings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Table of Contents TABLE OF CONTENTS ..................................................................................................................... III FOREWORD.................................................................................................................................... V ACRONYMS AND ABBREVIATIONS..................................................................................................... VII ACKNOWLEDGEMENTS .................................................................................................................... IX 1. INTRODUCTION ....................................................................................................................... 1 2. LEVELS OF ENVIRONMENTAL EXPENDITURE ................................................................................. 3 3. EFFICIENCY OF ENVIRONMENTAL EXPENDITURE ........................................................................... 7 Roles of public and private sector spending on environmental protection ............................................ 7 Consistency of expenditures with broad priorities that society has determined for the environment sector, through NEAP and other fora .............................................................. 8 Data gathered on the ex post efficiency of programs that have been �nanced ......................................10 Process of allocating budgets and determining funding levels ............................................................10 Links between expenditures in the environmental area and those in related areas................................12 The role of environmental funds as a means of �nancing key expenditures .........................................12 Division of funds between local and central spending .........................................................................13 Capacity and staffing levels in the environmental agencies ..................................................................13 4. PUBLIC REVENUES RELATED TO THE ENVIRONMENT ................................................................... 15 5. CONCLUSIONS AND RECOMMENDATIONS .................................................................................. 19 iii Foreword I t is a commonly-heard complaint that (NEMO2) to allow other recommendations to be environmental management is under-funded followed up and actions taken during 2010. One by the state budgets of many countries. For of these actions will be initiating ways to monitor those in the Ministries of Finance who have the environmental spending by the public sector to balance the needs of all sectors, it is sometimes which can be quite substantial and once collected difficult to support environmental needs because gives a more rounded picture of how money is the arguments, monitoring and de�nitions are spent to address important issues. When this and somewhat loose. Those who argue for appropriate other steps have been taken it will be possible levels of environmental funding frequently present to make more meaningful comparisons between a less-than-effective summary of how its money is Mongolia and other similar countries. The situ- used and why more might be needed. ation currently appears to be that Mongolian environmental expenditures as a percentage of Hence the signi�cance of this report. Over the GDP can be said to be rather low, while the past year the distinguished author, Professor Anil expenditure per capita is well within the range of Markandya, has worked with the Ministry of the comparator countries. Nature, Environment and Tourism (MNET) on a series of drafts, and we are pleased to report that We look forward to continuing to work with some of the earlier recommendations have had MNET on this topic helping to bring the monitor- to be deleted because the government has already ing of environmental expenditures to a systematic acted on them. Meanwhile, MNET has allocated level, as a way to help MNET make the best pos- funds from the second phase of our Netherlands- sible case for enhanced state budget. Mongolia Trust Fund for Environmental Reform Ede Ijjasz-Vasquez Arshad Sayed Sector Manager for Sustainable Development Mongolia Resident Representative & Country Manager The World Bank, Beijing The World Bank, Ulaanbaatar v Acronyms and Abbreviations GDP Gross domestic product METT Management Effectiveness Tracking Tool MNET Ministry of Nature, Environment and Tourism NEAP National Environmental Action Plan OECD Organization for Economic Cooperation and Development WHO World Health Organization WWF World Wildlife Fund vii Acknowledgements I would particularly like to thank Erdene- on earlier drafts. I would also like to acknowledge Ochir Badarch, Rural Development and the contributions of many officials in the Govern- Environment Officer in the World Bank ment of Mongolia who gave time from their busy office in Ulaanbaatar, Ms Enkhtsetseg Bataa, schedules and provided insights into the issues MNET Coordinator of the World Bank’s portion discussed in this report and corrected my misap- of NEMO2, Judith Schleicher and Tony Whitten prehensions. Finally the Bank office in Ulaanbaatar of the Sustainable Development Department of provided excellent logistical support during the the World Bank’s East Asia and Paci�c Region, as Mission and I offer my grateful thanks for that. well as Bank peer reviewers Steven Mink and Rich- ard Damania who provided constructive comments Anil Markandya ix 1. Introduction P ublic environmental expenditure is an out at around 26 percent while in middle-income important policy matter for the Mongo- and high-income countries the shares are 13 per- lian economy and society. Environmental cent and 4 percent, respectively.3 This importance expenditures include items related to pro- is underscored when one looks at the components tection of the environment that may be incurred of gross domestic product (GDP) that are directly by the public or private sectors. There are issues dependent on the resource base. In 2007 around of coverage; in particular, some countries do not 23 percent was derived from agriculture, hunting, include natural resource sectors. Where an invest- forestry, and �shing; and 20 percent from mining ment is made by industry, part of it may have the and mining-related activities. In terms of employ- effect of reducing emissions. Rules for establishing ment, the �gures are almost the same: around environmental expenditure data were prepared by 420,000 persons or 42 percent of the economi- 1 the OECD in the late 1970s and revised in 2001. cally active population make their living from these two sectors. This note reviews the �nancing of public environmental expenditures in Mongolia. The aim These strong ties between the economy and is to obtain more information on the trends in this the natural resource base do not necessarily imply sector with respect to levels of spending as well as that the Government of Mongolia should spend the breakdown of that spending between differ- a large part of its budget in these sectors. The ent areas. The study also aims to shed light on the level of spending depends on where government effectiveness of the expenditures and how this has intervention is needed and what form it should been changing since 2000. Finally, it makes some take. As a country makes a transition to a market- recommendations for changes that could improve based economy, one would expect the structure of the management of this sector. public spending to change, with more emphasis on regulation and private sector involvement and The importance of the natural resource base less direct capital spending by the Government. for Mongolia can be seen clearly from a break- The relative burdens of the public and private sec- down of its wealth estimates. World Bank data tors will also evolve as the private parties become indicate that around 58 percent of the country’s more aware of the environmental consequences wealth consists of minerals, forest resources, cropland, and pastureland. The rest is made up 1 For details see Environmental Finance: Trends in Environmental of produced capital (28 percent) and human and Finance in Eastern Europe, Caucasus, and Central Asia, Annex I ‘intangible’ capital (14 percent).2 The share of (OECD, 2007). 2 natural capital is exceptionally high: in Mongolia Mongolia: Sources of Growth. Country Economic Memoran- dum, Chapter 6 (World Bank, 2007). and other low-income countries that are heavily 3 Where is the Wealth of Nations: Measuring Capital for the 21st dependent on natural resources the share averages Century (World Bank, Washington DC, 2006). 1 Financing Public Environmental Expenditures in Mongolia of their activities and are more able to bear the expressed through the National Environmental environmental burdens they create. The ‘polluter Action Plan (NEAP) and other forums. pays principle’ is easy to declare but often, in poor ■ Data gathered on the ex post efficiency of countries, difficult to implement; and a move programs that have been �nanced. toward it has to be taken in stages. ■ Process by which budgets are allocated and levels of funding determined. Given this background, Chapter 2 looks at ■ Links between expenditures in the strictly the data on environmental expenditure from 2000 environmental area and those in related areas to 2009 (the last year’s numbers are projections). where government spending has an impact on International comparisons are provided where the environment (either positive or negative) possible. There are several data gaps that make an and how these links have been handled. evaluation difficult but one can nevertheless see ■ Role of environmental funds as a means of important trends, notably the increase in alloca- �nancing key expenditures. tion to the environment and a shift in the compo- ■ Division of funds between local and central sition of expenditure in 2008. spending. ■ Capacity and staffing levels in the environ- Looking at overall spending, however, can mental agencies. only provide a part of the picture. It is even more important to see how effective the expenditures Chapter 4 looks at the revenue side. How have been and from that point try and �gure out much is raised from taxes or charges for environmen- how they can be made more effective. The various tal services? Are these appropriate and should they be indicators, which merit investigation and will be modi�ed? What use is made of these revenues? The discussed more fully in Chapter 3, include the issue of earmarking arises in all such reviews and following: needs to be examined speci�cally in the Mongo- lian context. ■ Interplay between public and private sector spending on environmental protection. Finally, Chapter 5 offers some overall conclu- ■ Consistency of the expenditures with broad so- sions and recommendations for action and follow- cietal priorities for the environmental sector, as up work. 2 2. Levels of Environmental Expenditure T able 1 gives data on public expenditure ■ Protection against radiation (excluding exter- on the environment from 2000 to nal safety); 2009 (projected).4 These �gures were ■ Research and development; and derived based on the OECD guidelines ■ Other. for the calculation of environmental expenditures in transition economies. Environmental expendi- As a percent of GDP and government expen- ture information is collected on a range of envi- diture, the share has increased signi�cantly over ronmental expenditures through the Joint OECD/ that period, with a marked jump in 2008. In 2009 Eurostat Questionnaire on Environmental Protec- it stood at around 0.4 percent of GDP and 1 per- tion Expenditure and Revenues. Environmental cent of total government spending. In dollar terms protection is de�ned as including all purposeful it amounts to US$17 million, or just under US$7 activities directly aimed at the prevention, reduc- per person. There has also been a shift in the com- tion, and elimination of pollution or any other position of spending. Administration and other degradation of the environment resulting from recurrent expenditures accounted for 87 percent the production process or from the use of goods of all spending in 2003, and investment expendi- and services. This de�nition is wider than the tures made up 13 percent; by 2008 administration formerly used concept of pollution abatement and and other recurrent expenditures accounted for control expenditure. The scope of environmental 65 percent, with investment expenditures at 35 protection is de�ned according to the Classi�ca- percent. Indeed the largest item that increased in tion of Environmental Protection Activities, which 2008 was investment expenditures, which went distinguishes the following nine environmental up three-fold in real terms. This may have been an domains: exceptional year, however, as projections for 2009 indicate a decrease in expenditures to 60 percent, ■ Protection of ambient air and climate; nearer to 2008 level, and the share of investment ■ Wastewater management (includes prevention spending at 30 percent.5 Big expenditure items in- of emission to surface water); ■ Waste management (includes treatment of 4 Table 1 covers expenditures by all implementing agencies, low-level radioactive waste, composting, street within the limitations referred to below. In the case of Mongo- cleaning and sweeping, recycling); lia the expenditures include those for the protection of natural ■ Protection and remediation of soil, groundwa- resources. Donor project �nance flows are also covered in the expenditures. ter, and surface water (includes all cleaning-up 5 Investment spending is taken as expenditure classi�ed as activities); Environmental Investment and Renovation, plus afforestation, ■ Noise and vibration abatement (excluding the Green Wall Program, Activities to Combat Deserti�cation. In 2009 there was also the Investment from the Tourism Fund workplace protection); (which is included but could be considered as only partly for en- ■ Protection of biodiversity and landscape; vironmental protection) and the Fund for Developing Mongolia. 3 Financing Public Environmental Expenditures in Mongolia cluded vehicles for the aimags, increased numbers The �rst thing to note in Table 2 is the of rangers, land restoration around water sources, important role of private expenditure in the total. monitoring air pollution, and radar equipment for Although it varies considerably, private expendi- guidance to cloud seeding. ture accounts for anything from 20 percent to 80 percent of total spending.6 In the more developed The other changes in 2008 that are worth countries, the share of private spending is found to noting are (a) the special allocation to cleaning be between 20 and 40 percent of the total. up poisonous chemicals from the mining sector, Second, as a percent of GDP the share varies from which received 1.7 billion Tugrug (US$1.5 mil- 0.4 percent to 2.3 percent. Thus a �gure for Mon- lion) and (b) an allocation of 645 million Tugrug golia of around 0.5 percent would be considered (US$570,000) for investment from the Fund for on the low side but not out of the range that is Developing Mongolia and the Tourism Invest- found in other countries. Third, the share of ex- ment Fund. penditure that includes investment as opposed to recurrent is typically around 30–40 percent, with How do these �gures compare with other coun- Kyrgyz being an outlier. A �gure of 30 percent for tries in transition? Comparisons are problematic Mongolia for 2008 is in the range, but previous for two reasons. First, public expenditures on the years’ �gures were somewhat lower, such as the �g- environment have to be seen in the wider context ure for 2009. Figure 1 illustrates a comparison of of total expenditures, which include spending by public environment expenditures in Mongolia in the private sector and households. While some 2003 and 2008. Finally, public spending per capi- transition countries have collected data on private ta varies widely with some of the poorer countries sector spending, Mongolia has not. This is a gap only reaching US$2 per capita and Russia attain- that should be �lled urgently. Second the classi�- ing a level of US$31. For Mongolia, an estimated cation of what constitutes environmental expendi- US$9 per capita would not seem unreasonable in ture is not consistent. In particular, some countries this context, but it does depend on how much the do not include expenditures on natural resource private sector is undertaking. This is not known. management and some do not cover spending on water and wastewater. There are also gaps in coverage of local and regional authorities. Not- withstanding these difficulties, it is useful to see how public sector spending in selected countries compares with that in Mongolia. Countries that include natural resource expenditures, at least in part, are Belarus, Georgia, Kazakhstan, Kyrgyz, 6 Russia and Georgia, which give only 20 percent of expenditure and the Russian Federation. Table 2 provides some to the private sector, are exceptions in in Table 2 and more gen- of the data for these countries. erally. This may due to poor coverage of that the private sector. 4 Table 1: Public Environmental Expenditures in Mongolia: 2000–2009 Current Prices: 000 Tugrugs 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Administration Expenditures 2,603,617 3,092,770 3,497,020 4,095,356 5,310,203 11,239,023 12,676,838 Recurrent Expenditures 1,097,720 1,349,807 1,191,726 1,961,595 2,522,969 6,053,865 5,954,718 Investment Expenditures 586,000 770,000 794,000 1,468,000 2,836,000 9,394,100 5,685,400 Total 1,646,908 2,754,562 2,784,064 4,287,337 5,212,577 5,482,747 7,524,951 10,669,172 26,686,988 24,316,957 In US$ (Mn.) 1.53 2.51 2.51 3.74 4.40 4.72 6.54 9.44 23.04 16.84 As % of Total Gov. Exp.: 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Administration 61% 59% 64% 54% 50% 42% 52% Other Recurrent Expenditures 26% 26% 22% 26% 24% 23% 24% Investment Expenditures 14% 15% 14% 20% 27% 35% 23% As % of GDP 0.16% 0.25% 0.22% 0.29% 0.27% 0.24% 0.20% 0.24% 0.49% 0.39% As % of Total Gov. Exp. 0.39% 0.57% 0.51% 0.70% 0.69% 0.72% 0.61% 0.58% 1.04% 1.01% Const. 2008 Prices 000 Tugrugs 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Administration 4,822,854 5,161,963 5,332,203 5,892,737 6,637,754 11,239,023 11,318,606 Other Recurrent Expenditures 2,033,381 2,252,885 1,817,126 2,822,505 3,153,711 6,053,865 5,316,713 Investment Expenditures 1,085,487 1,285,162 1,210,679 2,112,280 3,545,000 9,394,100 5,076,250 Total 3,508,454 5,434,696 5,399,355 7,941,722 8,700,010 8,360,008 10,827,522 13,336,465 26,686,988 21,711,568 Source: Government of Mongolia (Ministry of Finance); �gure based on OECD guidelines for calculation of environmental expenditures in transition economies, Environmental Finance: Trends in Environmental Finance in Eastern Europe, Caucasus, and Central Asia (OECD, 2007). 5 Levels of Environmental Expenditure Note: Figures for 2009 are based on projections. In calculating the values in constant prices, inflation projections were taken from http://www.adb.org/documents/books/ADO/2008/Update/Part03-Subregional.pdf Financing Public Environmental Expenditures in Mongolia Table 2: Environmental Expenditure in Selected Countries Public expenditure as % of total environmental Total expenditure Investment Public expenditure Country expenditure as % of GDP as % of total per capita (2003 US$) Mongolia n.a. 0.5 30 9 Belarus 37 2.3 41 19 Georgia 79 0.4 35 2 Kazakhstan 18 1.3 41 6 Kyrgyz 25 0.5 11 2 Russian Federation 79 1.2 32 31 Source: Environmental Finance. Trends in Environmental Finance in Eastern Europe, Caucasus and Central Asia (OECD, 2007). Note: Data are for the most recent year available at time of publication. Figures for Mongolia are also from the same source. Public expenditure’s share includes expenditure by specialized producers, such as utilities. Figure 1: Environmental Expenditure by Share 2003 2008 Investment Expenditures Administration Administration Investment Expenditures Recurrent Expenditures Recurrent Expenditures 6 3. Efficiency of Environmental Expenditure M ore important than the level of The legal framework under the 1997 Mineral expenditure is its effectiveness as Law was designed to provide a basis for the appli- measured by its economic effi- cation of adequate safeguards in the case of ciency (value for money) as well as medium- to large-scale operations and the applica- physical indicators of improvement. This section tion of the polluter pay principle, but enforcement will elaborate on the 8 indicators that merit inves- has not been strong. Moreover, the Law does not tigation. These can be assessed from a number of deal with artisanal mining activities. The result perspectives, covering the way allocations are made is that environmental risks have been increas- and how they are evaluated. ing and the state has had to step in to undertake emergency operations to prevent a crisis.8 In the 2008 budget, an allocation of nearly US$3 million Roles of public and private sector had to be made to address such cases in 10 aimags spending on environmental (part of this coming from the special fund of the protection Cabinet for such events). It is not only the mining sector that is not living up to its obligations. The The state cannot be responsible for all environ- whole issue of the management of hazardous waste mental protection activities. As the economy falls in this category, with waste collection utili- expands its private sector, a greater share of the ties not keeping hazardous waste separated (even costs of environmental protection should be borne though hospitals separate it) and some tanneries by that sector. In industrialized countries, spend- and other operators outside the center of Ulaan- ing on management of industrial waste and on baatar not undertaking treatment before dumping controlling air pollution falls mainly to the private waste into water bodies. sector. In Mongolia, however, the major expan- sion of the mining sector has resulted in increased This problem has to be settled at a regula- environmental burdens that are not being picked tory level as well as at a �nancial level. From the up by that sector. Current practices are resulting in regulatory side, the Government has to enforce damage to surface water and underground drink- the requirements for the operations of enterprises ing water supplies. Waste-rock piles and tailing engaged in polluting activities. This will require repositories are a signi�cant concern at medium- to large-scale mining operations. Areas where arti- 7 sanal miners are living are unsanitary, dangers of Mongolia: A Review of Environmental and Social Impacts in the Mining Sector (World Bank, 2006). infectious disease are high, and the use of mercury 8 A major accident occurred in 2008 in Darkhan Yal as a result and cyanide are mounting problems.7 of a tailing dam bursting. 7 Financing Public Environmental Expenditures in Mongolia Table 3: Priorities and Progress in Attaining Them Area Status Component 1. Environmental Legislation, The record shows substantial action has been taken. Action is still ongoing on land reform, and Policies and Regulations progress is to be made on insurance system for victims of disasters and economic compensa- tion for health impacts Component 2. Environmental Pollution and Various projects have been implemented in capacity building in water management. Projects Natural Resources Management undertaken on community-based natural resource management, species protection, and restoration of degraded desert zones. Component 3. Environmental Monitoring Action has been taken on air pollution monitoring, but not much on groundwater monitoring, and Information Services biodiversity and forestry inventory, and upgraded meteorological data collection systems. Gap remains on establishing a natural resources and environmental pollution auditing system. Component 4. Public Awareness, Ecological Most programs have been covered with the exception of a program to “increase community Education and Community Participation participation in protected area management and buffer zone development� and a program to link environmental protection measures to reduction of poverty. Component 5. Investments in Pollution Although allocations have been made to cover these areas, there are still major gaps. Control, Natural Resources Improvement Programs not �nanced so far include (a) establishment of a network for adventure tourism, and Biodiversity Conservation (b) reconstruction of smoke �lters in power stations, (c) mitigation of air pollution from large point sources, (d) introduction of new technologies for solid waste recycling, (e) restoration of deteriorated water sources, (f) establishment of a tree seed orchard, (g) forest harvesting technology improvement, and (h) solid waste management. Source: Assessment provided by Prof. Ts. Adyasuren, unpublished NEMO project report, 2008. more resources, human and capital, as well as where international partners could play an impor- the political will to enforce the laws and bet- tant role. ter coordination among the Ministry of Nature, Environment, and Tourism (MNET) and the line ministries.9 At a �nancial level, one has to accept Consistency of expenditures with that most small-scale operations cannot afford broad priorities that society has to pay the costs of proper environmental protec- determined for the environment tion. At the same time, activities such as artisanal sector, through NEAP and other fora mining, tanning, etc. are providing livelihoods and social safety nets to poor households. The answer In evaluating environmental expenditures, it is is to develop public-private partnerships, in which important to see how far the priorities expressed the public sector provides training and education in documents such as NEAP have been realized. A as well as part of the cost of common treatment recent review of the 2000/2002 NEAP revealed the facilities, with the state’s share declining over actions on key priorities (Table 3). time. This model has been successfully developed in India to tackle the serious problem of tanning 9 MNET was established in 2008 to rename the Ministry of waste.10 The World Bank was involved in the Nature and Environment. 10 Wastewater Management: With Special Reference to Tanneries, 1990s in helping set up the scheme.11 As part of edited by S.N. Kaul, Tapas Nandy, L. Szpyrkowicz, A. Gautam, the management of environmental risks, Mongolia and D.R. Khanna (New Delhi, Discovery Publications, 2005, could seek to establish a similar framework that viii, 480 p.). 11 Greening Industry: New Roles for Communities, Markets allows a gradual move toward full private sector and Governments (New York: Oxford University Press for the responsibility for industrial waste. This is an area World Bank, 2000). 8 Efficiency of Environmental Expenditure The assessment indicates a fair degree of as well as losses due to pests and mining activi- achievement in the areas identi�ed, with the pos- ties.12 Policies and actions to address these are to a sible exception of component 5, which focuses great extent outside the scope of the environment on investments. Although there were signi�cant sector and require integrated actions involving the increases in investment budgets in 2008 and 2009, agricultural and other ministries. there remain areas where further investments are urgently needed. The major gap is with respect to Risks from hazardous wastes have already solid waste management, where the needed invest- been noted and are an increasing source of ment of US$44 million is yet to be �nanced. Only concern, with illegal dumping and inadequate 30 percent of the waste in Ulaanbaatar is collected, separation and treatment of those wastes that are so in addition to the three official dumpsites, there disposed of in official sites. Increased allocations are numerous illegal disposal sites in the ger com- are urgently needed but should be shared with munities. This waste is often dumped in storm the private sector. In fact, there has been some ditches and drains and is a main source of pollution movement on this front. A program to create an posing a major health risk to the local commu- inventory of hazardous sites has been initiated. nity. The waste is sometimes burned and generates In addition, MNET announced an open-bidding local air pollution problems. Also important in process for the building of a hazardous waste man- this discussion are the programs for insurance and agement facility with the participation of inter- compensation against environmental damages to national companies. An Hungarian company has health. So far progress on these has been limited. At been selected; and, working together with MNET, present the main efforts are establishing a network a technical and economic study is ongoing. In for recycling of some wastes to use as a raw mate- 2010, following the completion of these studies, rial source for industry and providing incentives an investment budget proposal will be forwarded for polluters to minimize the generation of waste by MNET to the Government. through charges. A draft law covering these issues is currently under consultation. The air quality as measured by concentrations of �ne particulate matter, especially in Ulaan- Another way to identify priorities is to look baatar, is up to 14 times worse than allowed by at the environmental indicators for the ones that Mongolian or international air quality standards, are showing a deteriorating situation and the ones and over short periods it is even worse. It thus has that should cause concern. The available data show probably the worst winter-time air of any city in the following: the world.13 The maximum health costs in 2007 are estimated to have been $147 million equiva- ■ Degradation to land, including pasture; lent, representing 8 percent of Ulaanbaatar’s GDP ■ Risks from hazardous wastes, including those and 3.8 percent of national GDP. Estimates pro- from mining, tanning, etc.; vided by Professor Adyasuren of Eco-Asia Univer- ■ Increased air pollution in Ulaanbaatar; sity in Ulaanbaatar, suggest that the air pollution ■ Damages to forest resources and loss of biodi- causes 2,530 cases of asthma in children per year, versity. and 6.3 million “restricted activity days� (when an individual is unable to carry out his or her normal The damages to cultivated land are increas- activities). The causes of pollution can be observed ing. In 2007 an additional 83,000 hectares were in the city where increasing populations of people added to land classi�ed as degraded, making the total 2.5 percent of all cultivated land. Damage to 12 Report on the State of the Environment of Mongolia (MNET, pasture land is a serious issue, with 700,000 hect- 2008). ares added in 2007 to this category. The damage 13 World Bank (2009). Air Pollution in Ulaanbaatar: Initial As- is caused by livestock numbers exceeding carry- sessment of Current Situation and Effects of Abatement Measures. Mongolia Discussion Series, East Asia and Paci�c Region Sus- ing capacity, which is supported by added water tainable Development Department. World Bank: Washington points that are available on an open access basis, DC. 9 Financing Public Environmental Expenditures in Mongolia depend on coal for heating and where volumes ■ Additional rangers and �eld equipment. of vehicular traffic are also growing. Action is ■ Formulation of regulations for the manage- urgently needed here, again with the private sector ment of waste from industrial activities, taking a signi�cant share of the burden. especially mining. Damages to forests and biodiversity are no- In any event, it is essential that information table, with forests suffering particularly from �res from these activities be carefully monitored relative and diseases, as well as illegal logging. In 2007, to clear outcome indicators and the results used in damages from these sources amounted to 1.4 mil- allocating funds. In the area of nature conserva- lion hectares, an increase of over 1 million hectares tion, tools such as RAPPAM monitor and quantify recorded in 2006. Increased allocations of funds changes in conservation and were used in Mon- were made in 2008 to address these issues, but suc- golia in 2005 by WWF. However, this tool looks cess is still to be assessed. With respect to biodi- at the whole system and provides only gross data. versity, MNET notes that almost none of the wild An additional tool to measure real conservation animals are abundant and several are endangered progress is the Management Effectiveness Tracking and in need of further protection from illegal trade. Tool 15 (METT) which provides a score for each Programs involving community-based management protected area. This tool was developed by WWF are being implemented, but additional resources and the World Bank, adopted by the GEF, and has will be needed, along with better enforcement of been used in thousands of protected areas around existing regulations. The resources should cover the world. It has so far been used for only about 10 management of hunting, timber, and non-timber sites in Mongolia, although not consistently. production, through better-equipped rangers, as well as better enforcement of existing laws.14 If METT were formally instituted in Mongo- lia, MNET would be able to compare results be- tween its protected areas, and compare the changes Data gathered on the ex post in the scores the �nancial investments. What is efficiency of programs that have needed therefore is to make the METT a national been �nanced tool. Since it is almost cost-free, there is little �nancial burden in adopting it. If all the protected In evaluating ongoing programs, it is essential to areas used it, MNET could select a number of sites look back at the success of programs that have been representing conservation issues and ecosystem enacted and investments that have been made. types and take the average score of those sites. That Furthermore, the results of such evaluations should average number would be a good index of how feed through to future programs and the allocation well conservation was being delivered in Mongolia. of funds to them. Despite several donor agencies completing reviews of their individual projects, there is no systematic use of this information for the bud- Process of allocating budgets and getary allocation process in Mongolia, and MNET determining funding levels does not appear to have a department that evaluates past projects. Thus almost all indicators that are The process of allocating funds for environmen- available for past investments relate to inputs, such tal expenditure is quite instructive with regard as resources allocated and persons employed, and not to outputs that measure success. The following 14 examples raise at least some question about the mea- In Mongolia, the number of available rangers does not seem to be too serious a concern. The government budget pays for 818 surable success of the investments and programs: rangers, of which 579 are environmental and tourism rangers; according to law there should be 608 rangers in this sector. ■ Cloud seeding program. There are 239 rangers for special protected areas; there should be 270 by law. ■ Enforcement of regulations for hunting, logging, 15 http://www.panda.org/what_we_do/how_we_work/conserva- and harvesting of non-timber forest products. tion/forests/publications/?uNewsID=137101 10 Efficiency of Environmental Expenditure to the efficiency of the expenditures themselves. available in any one year, the Budget Depart- Each year the MNET budget department receives ment could not provide an answer. So the way in proposals from the different departments as well which donor-funded programs are integrated into as the aimags and, based on those numbers, draws the national budget remains unclear. Certainly it up a proposed request to the Ministry of Finance. would help if all data were available to the Budget The Ministry of Finance audits for cost effective- Department, and allocations to activities could ness to ensure that itemized costs are not out of directly reflect the donor programs. The Ministry line with market conditions and then proposes of Finance is planning to integrate grant and loan an overall envelope to MNET; although it can programs into the central budget in a program- demand cuts in individual components, it rarely matic way from 2010 onward. does so. In general the Ministry of Finance tends not to cut personnel and to keep most programs In addition to its own budget, the Cabinet going, even if the allocations are small. The result retains a certain amount of funding that line min- is over-staffing in some areas of activity (with istries can apply for on exceptional grounds. In the small budgets) and possible under-staffing in case of MNET, it did so in 2008 to address the others, and low levels of allocations. Examples of emergency created by releases of mine tailings. small allocations include National Committee on Water with 14.5 million Tugrug (US$12,500); The Ministry of Finance is moving toward National Forest Program with 6.7 million Tugrug program-based budgeting, which should help (US$5,800); and National Committee on Bio- rationalize expenditures at the line ministries. This safety with 8.2 million Tugrug (US$7,100). These would represent a shift away from input-based allocations are only for administration expenses. budgets, and initially a few ministries (agriculture, Amounts for actual programs of investment, etc. education, and social welfare) have been selected for these committees to manage are also small or for this shift. The MNET was not considered to non-existent. have the capacity to prepare such a budget. This suggests that if MNET is to move in this direc- The budget from the Ministry of Finance tion, it will have to strengthen its Budget De- does not include expenditures from donor-funded partment, which at present consists of only one projects. For 2006/2007 the donors’ contribu- person. The Ministry of Finance also asks each line tion to the environment and natural resource ministry to prepare a medium-term expenditure management sectors was around US$35 million; framework (the current Nature Protection Fund in addition, anecdotal evidence for the period covers 2009–2011). The Ministry of Finance fur- 2003–2005 suggests that donors contributed ther notes that MNET needs to improve internal around US$25–30 million (or US$8–10 million consistency in drawing up its budgets. Policy per year).16 Despite differences in categoriza- departments should get involved in the process to tion among donors and Government render- ensure that allocations are consistent with respect ing it difficult to compare funding allocations, to policy goals, and those activities with low the main areas for donor funding appears to be priorities should be really discontinued instead of land reclamation/restoration and deserti�cation being maintained just for personnel reasons. prevention, protected areas network development, and biodiversity conservation, and water resource management. Other sectors include environmen- 16 Starting in 2006, the Government of Mongolia – Donors tal governance and pollution management. Working Group for Environment and Rural Development attempted a rapid assessment of the funding that the interna- tional donor community channels to Mongolia on an annual The Ministry of Finance is of course aware basis, whether or not such funding complements Government’s of donor-funded projects (some are executed by current budget allocations, and priority areas as identi�ed by the Ministry itself ), which should be approved by the Ministry of Nature and Enviroment. External partners that participated in this rapid assessment included the EU, France, the Government before they are �nally adopted. Germany, Japan, the Netherlands, Sweden, Switzerland, But when asked how much donor funding was UNDP, UNFPA, UNESCO, World Bank, WHO, and WWF. 11 Financing Public Environmental Expenditures in Mongolia Links between expenditures in the in this area under one authority, which should environmental area and those in help in this regard. related areas In the tourism sector, the present policies do The determination of programs and policies in the not take full advantage of the services provided environmental area should take account of links by sites to raise revenue to maintain the parks and to other areas where policy has an environmen- reserves for the bene�t of tourists. The options are tal impact. An obvious one is agriculture where discussed further in Section IV, but it is clear that measures that are taken have implications for the current policies in both tourism and environment natural resource base. Another is tourism, with its need to go strongly hand in hand. strong links to the natural resource base. It makes sense that tourism is now combined with the old The Ministry of Finance is sensitive to the Ministry of Nature and Environment to create the need for such integration in determining expen- new MNET. Additional relevant sectors are indus- ditures and making decisions on spending. It try, mining, and energy. cited the example of mining where policies largely ignored the environmental dimension when devel- An example of the important links between oping a policy framework; and that of air pollu- sectors and environment are policies in the cash- tion, for which the Ministry of Finance allocated mere industry.17 Cashmere is Mongolia’s third larg- 100 billion Tugrug (US$87 million) across 6 min- est official export, behind copper and gold, and istries and the City of Ulaanbaatar to address the provides income to over one-third of Mongolia’s problem, but the funds remained unspent because 2.4 million people. The cashmere industry is the of a lack of coordination. economy’s single largest employer providing jobs for over 16 percent of the work force and account- ing for over 6.3 percent of GDP over 1993–2002. The role of environmental funds As a result of opening up the market during as a means of �nancing key the transition and the open access nature of the expenditures pastureland on which the goats are raised, this has created pressure for overgrazing, a pressure exacer- In June 2006, the Government of Mongolia passed bated by the opening up of wells that allow winter the Law on Government Special Funds; the main pastures to be overused. Mindful of the need to purpose of this new law was to rationalize the develop a sustainable industry, the Government government’s special funds and strengthen the could help by developing public-private partner- monitoring and reporting performance of many ships for the maintenance of wells and regulating of the existing special funds, including the Nature access to them, providing extension services to Protection Fund. The Nature Protection Fund is inform the pastoralists of the bene�ts of smaller the latest incarnation of the Natural Resources high-quality herds and how to develop them, and Rehabilitation Fund, which existed throughout possibly introducing a head tax on animals over the 1990s and beginning of 2000s—and whose a certain age. In developing such a program, the performance the Government never considered Ministry of Food, Agriculture, and Light Industry particularly strong. and MNET must work together, which to date has not been the case. At an aggregate level, the expenditure patterns across the various fund categories suggest that the More generally, the responsibility for land available resources are used mostly to supplement management cuts across at least three ministries formal budget allocations for routine expenditures. (MNET; Food, Agriculture and Light Industry; and Construction and Urban Development) among which lack poor coordination. There is a 17 From Goats to Coats: Institutional Reform in Mongolia’s Cashmere proposal to create a Land Agency to bring policies Sector (World Bank, 2003). 12 Efficiency of Environmental Expenditure This is due to the broad range of allowable catego- international donor community and the private ries, a relatively flexible decision making system sector. In spite of the efforts put into it (which to allocate the funds (Nature Protection Fund), also included the attempt to re-direct part of the and recurrent shortfalls, both for development annual revenues from the existing Endangered and routine expenditures in the formal budget of Species Fund to the Nature Protection Fund), the the Ministry of Finance. The lack of disaggregated fundraising strategy was unsuccessful and did not data at the project-/activity-level for each category meet initial expectations. Although the Nature does not allow for a more detailed analysis. Over- Protection Fund is obliged to organize its activities all, the laws and regulations de�ning the tasks of under legal covenants that mandate the operation the fund seem to be generic but this does allow re- of such a Fund, the Government could consider sources of the Nature Protection Fund to be used the possibility of abolishing the Nature Protection to complement MNET overall budget allocation. Fund altogether and re-direct its budget allocation In 2006 the allocation from the Nature Protection to other relevant budget lines. Fund was 234 million Tugrug (US$203,000), but in 2007 it increased signi�cantly to 661 million (US$585,000). In 2008 it declined by about 20 Division of funds between local and percent, and the 2009 �gure was close to the 2008 central spending level. Local spending is mainly for monitoring on behalf The objectives of the Nature Protection of the Institute of Meteorology and Hydrology and Fund were broadened under the 2006 Law on other environmental monitoring. This accounts Government Special Funds, under which the for 70–80 percent of its environmental budget. government’s special funds were rationalized and Other items include afforestation (6 percent in monitoring and reporting strengthened. The Na- 2007) and administration of the environmental ture Protection Fund objectives were broadened so departments, including enforcement of territorial that, in addition to activities to support biodiver- regulations. Up to 2007 around 40 percent of total sity conservation and combat deserti�cation, those public environmental expenditure was undertaken activities addressing other key priorities in the at the local level. Although this �gure looks high, environment and natural resources management little in the way of policy is made at that level. The sectors could also be eligible for funding. monitoring programs are centrally determined, leaving only the afforestation and enforcement It is not clear what special function the activities in which the local authorities could have Nature Protection Fund serves. It was meant to some flexibility. provide an important complement to foreign- funded activities that have a limited time span, A visit to aimags �nds local capacity for deci- and to secure government funding that was at sion making and management to be very weak. risk of being cut due to economic difficulties in Given that local budget allocations for afforesta- Mongolia at the time. Sophisticated legal and tion are �xed as a percent of revenues collected, fundraising aspects of the Fund were developed the effectiveness of local decision making must with support of donor funding. The Nature Pro- raise some doubts. tection Fund was to have two accounts: the capital of the Nature Protection Fund should have been invested in an off-shore account, and a second Capacity and staffing levels in the account was to be established in Mongolia and environmental agencies used for disbursement. However, to complement the one billion Tugrug annual counterpart fund- There are indications that staffing in the MNET ing from the Government, international pledges Budget Department is inadequate and perhaps have remained very weak. The initial endowment needs to be increased by 1 or 2 staff. At the same was to be created by seeking donations from the time, the existence of small programs with small 13 Financing Public Environmental Expenditures in Mongolia budgets that cover just salaries suggests that there It was not possible to make an assessment is overstaffing in other areas.18 Weak enforcement of these issues. A careful evaluation would be could be partly due to understaffing of the inspec- desirable and should be undertaken looking at torate and could also be the result of a lack of will the questions raised and seeing what changes are on the part of authorities to enforce regulations. required. With regard to monitoring, good practice is often to outsource this to the private sector that can do 18 It is forecast that some 25 MNET staff positions will be lost in the same job at a lower cost. This does not appear mid-February 2009, but it is not yet known at what level or in to the practice in MNET which divisions. 14 4. Public Revenues Related to the Environment T he state collects considerable revenues alties on minerals make the largest share (around from the taxation of activities related 75 percent). Comparable estimates for each catego- to the environment. Estimates of taxes ry given in Table 4 are not available after 2007, but paid for different resources are given in the most recent budget data from the Government Table 4. Revenues amount to around 3 percent of indicates that revenues from natural resources are GDP and 7 percent of all taxes, with the �gures expected to have been around 2.4 percent of GDP varying considerably 2004–2007. Of the total, roy- in 2008 and to have fallen to 2.1 percent in 2009. Table 4: Revenue from Natural Resources Tugrug in thousand (unless otherwise noted) 2004 2005 2006 2007 Payment for timber and �rewood 634,155 793,129 1,167,400 1,320,465 Payment for water use 278,803 2,505,444 2,699,00 2,725,007 Land Payment 11,883,561 13,604,347 15,507,100 20,093,793 Payment for mineral extraction 25,126,000 31,801,152 44,495,900 106,207,100 Payment for hunting 2,685,000 2,818,000 2,940,100 3,049,500 Payment for non-mineral resources 274,874 153,155 126,500 Payment for plants 625,400 Total 41,508,593 51,675,227 69,936,100 133,395,865 Total in US$ million 35 44 58 118 Total as % of GDP 2.2 2.3 1.8 2.9 Total as % of tax revenue 5.8 11 4.9 7.2 Total public environment expenditure as % of tax 13 11 8 Source: Mongolia, Ministry of Nature, Environment, and Tourism (2008). 15 Financing Public Environmental Expenditures in Mongolia In terms of the share of total tax revenues, revenues from natural resources are expected to be between Table 5: Revenues Minimum Percentage 6 and 7 percent in 2008 and 2009. Share to be Spent on an Annual Basis for Environmental Protection and Natural Comparisons are made by MNET between Resources Restoration Measures the amounts raised in taxes and the amount spent Type of natural resources Minimum on the environment. The �gures indicate that use fee revenue percentage share expenditures are declining as a share of natural resource taxes—from 13 percent in 2004 to 8 Natural plants 30 percent in 2007. Taxes however do not need to be related to revenue unless a case can be made Hunting 50 for earmarking. Such a case at the level of natural Land 30 resource taxation as a whole is difficult to make. One argument for earmarking is political— Timber and fuelwood 85 ensuring that the tax is acceptable. In the case Water resources 35 of these natural resource taxes (or at least for the minerals tax) that is not the case. The other argu- Source: Adapted from the 2000 Law on Reinvestment of Natural Resource ment is to ensure that allocations are in fact made Use Fee for the Protection of the Environment and the Restoration of Natural Resources. to agencies responsible for the protective and other managerial duties they have to perform. This argu- ment too looks weak. The state is not inclined to The Law (Article 4.2) also states that “match- underfund the environmental sector as far as one ing funds equivalent to at least: (i) 70 percent of can tell. the timber and fuelwood revenues; (ii) 20 percent of the land revenues; and (iii) 35 percent of water The arguments against earmarking also merit resources revenues must be spent from the State consideration. If revenues are tied to expenditures budget for protection and conservation and/or for some categories of taxes, it reduces the ability sustainable management of land, water and forest of the �scal authorities to allocate funds to the resources�. These requirements are expected to most efficient uses. Moreover, it makes it difficult be clearly reflected annually in the Government’s to make a case for increased expenditure in the Socio-Economic Guidelines. However, the Guide- areas where earmarking is practiced, even if the lines for 2002–2006 did not seem to give enough needs for further spending are strong. For both space to these requirements in the environment- these reasons, �scal authorities are against ear- dedicated section. marking unless a strong case can be made for it. This issue has been raised by nongovernmen- In Mongolia earmarking is practiced with tal organizations (NGOs) frequently. Since 2004, respect to natural resource charges on plants, NGOs have been strengthening their advocacy ef- hunting, land, and water. The Law on Reinvest- forts for MNET to be more vocal on the need for ment of Natural Resource Use Fee for the Protec- the Law on Reinvestment to be implemented fully. tion of the Environment and the Restoration of This is evident particularly in light of the growing Natural Resources, which Parliament approved crisis of illegal wildlife trade and wildlife manage- in 2000, de�nes the percentage and extent of fees ment problems,19 the growing illegal economies paid for natural resources use to be applied for the in forest and biodiversity resources, and increas- protection of the environment and the restoration of natural resources. Table 5 gives an overview of the revenues minimum percentage share that the 19 For a discussion on issues pertaining to illegal wildlife trade in Law mandates to be spent on an annual basis for Mongolia, see J.R. Wingard, and P. Zahler, Silent Steppe: The Illegal Wildlife Trade Crisis in Mongolia, Mongolia Discussion environmental protection and natural resources Paper Series (East Asia and Paci�c Environment and Social restoration measures. Development Unit, Washington D.C.: World Bank, 2006). 16 Public Revenues Related to the Environment ing demands for the water resources in existing areas where new and further taxes can be consid- and planned mining developments. It is not clear, ered. One area is tourism. Campsite developers are however, that earmarking would serve the case for awarded development rights in a non-transparent more resources to be allocated to these areas. In way.20 Once the site is developed, a land tax is any event, the amounts collected are small; and paid but the amounts are quite small (charges are if expenditure is constrained by these revenues, it around 70,000 Tugrug or US$60 per hectare per may be a disservice to the sectors involved. If there year). One could consider an auctioning system is a case to be made for more spending (and one for allocating sites, with revenues recycled for the can make such a case on the grounds of the eco- protection and maintenance of the areas. This logical and economic priorities and the evolving would allow the state to capture some of the rents situation with respect to wildlife and biodiversity), from the natural resources that tourism exploits. then it should be made and increased amounts There is also a fee of 3,000 Tugrug (or US$2.60) allocated from the state budget as well as donor for visiting a protected area. Compared to similar funds. sites in other countries, that fee would seem to be quite low. The other issue on the revenue side is for a more efficient taxation system. It is not clear whether the charge rates for use of these resources 20 have been optimally set or, since they were set, There is also evidence that sites developed for tourism in pro- tected areas are being sold as homes on the local market. A case whether they need to be reconsidered in the light of this is being investigated connected with Bogd Khan Strictly of a changing environment. In addition, there are Protected Area, south of Ulaanbaatar. 17 5. Conclusions and Recommendations B ased on the review carried out and com- ommendation of Ministry of Finance for all line ments from some reviewers, the following ministries. It would help ensure that expenditure recommendations are made: allocations from the budget are made in full aware- ness of what is going on through donor programs. Provide support for moving expenditure ac- Therefore, a mechanism should be established for counting to a programmatic basis. The Govern- the coordination of international donor-�nanced ment is now moving its expenditure accounting and donor-implemented projects so that MNET in this direction—within the framework of the can learn international best experiences and, in the World Bank project, Improvement of Mid-term framework of international projects, set up a system Budget Planning—implemented in way so as to for the monitoring of such programs and projects. take into consideration speci�c MNET concerns. To make such budgeting effective, more capac- Collect data on private expenditures on envi- ity will be needed in the areas of performance ronmental protection. Collecting such data using monitoring and evaluation. Under Government internationally established methods of sampling Resolution No. 126 (2008), which deals with the would provide valuable information for plan- improvement of the government budget planning ning level and structure of future environmental for mid-term 2009–2011, there is a requirement budgets. This will not be a simple task, and the for all sector budgets to be result oriented and be Government will need considerable assistance in evaluated in terms of outcome products. At the carrying out such a data collection exercise. same time, cross-sector policy coordination is be- ing ensured within a results-based sector program Develop policy and regulations for a pubic coordinated through a sector master plan, which private partnership to address waste manage- is part of the National Development Policy and ment in the small and medium-size enterprise Millennium Development Goals programs. This sector, with additional, but declining, funding budget principle has been approved by Parliament. for MNET for this purpose. Many industries are In line with this policy, the environment and tour- not assuming their full share of responsibility for ism sector budget for 2009 was approved within pollution management. In some cases they are un- the principle, based on program and products. The able to afford it. By initiating a program of public implementation of such programmatic budgeting, private partnership for the small and medium-size however, was still relatively limited at the time of enterprise sector, enterprises will be provided some the preparation of this report. Further develop- assistance but on the condition that they also par- ments in this direction will need more capacity. ticipate in implementing the necessary measures. Integrate expenditures by donors into the line Instigate an external (independent) audit of the ministries’ budgeting procedures. This is a rec- natural resource sector, seeking recommenda- 19 Financing Public Environmental Expenditures in Mongolia tions for reforms such as better systems of ac- the possibility of moving the Nature Protection countability to address the lack of trust and re- Fund to MNET. The MNET is reasonably asking spect afforded to MNET. The issue of corruption for clear rules to be established on how the Nature remains a matter of concern with respect to the Protection Fund would be formed, managed, and awarding of contracts, licenses for exploitation of monitored under its jurisdiction. In the process of natural resources, etc. An independent audit would doing this, the views of the other ministries should help distinguish where there are problems with the be also taken into account. This will ensure that existing system and where reforms are needed. environmental protection, which is not just an environmental issue, is also discussed from health Develop ex post efficiency assessment of pro- and other perspectives. The outcome should be a grams and feed this back to planning of future set of clear and valid recommendations to the Min- expenditures. This is part of the move to use data istry of Finance for the operations of the Nature and information from past projects to better design Protection Fund. new ones. It implies an increase in capacity in MNET. Re-assess staffing requirements for MNET. The MNET staffing needs should be reconsidered. Integrate environmental policy more closely There is over-supply in some areas and shortages with related ministries. The presence of a cell, in others, particularly for expenditure manage- even if it is only one person, in each line ministry ment. Increased staff allocation for inspection and with signi�cant links to the environment would compliance should also be considered. help ensure better integration of environmental considerations in such policies. This line ministry Revisit the rules for earmarking. Earmarking cell would also be responsible for ensuring that of funds for the environment guarantees a small environmental issues are taken into account in sec- amount of allocation, but it does not work well toral policies. This will be important, for example, when larger allocations are required. It may be in better addressing the lack of compliance with better to move away from earmarking and seek regulations on mining waste and the management to justify expenditures directly for all areas of the of air quality Ulaanbaatar. environment. Consider formation of a Land Agency. The case Examine the possibilities for taxing activities, for bringing together all land management respon- like tourism, more efficiently. There are some sibilities under one agency could help overcome potentialities for increased revenue-raising from problems of divided responsibility and lack of nature tourism, such as higher charges for licenses coordination. If proposed agency is to succeed, ef- and higher fees for entering some protected areas. fort must be shown that such a move would result These should be explored further. in major improvements. A study of the role and functions of a proposed Land Agency is therefore Adopt the METT as a national tool. If all the recommended, including whether and how it protected areas used it, MNET could select a should be affiliated to MNET. number of sites representing conservation issues and ecosystem types and take the average score of Reconsider the role of the Nature Protection those sites. That average number could be an index Fund. The Nature Protection Fund is not work- of how well conservation was being delivered in ing particularly well and it this merits further Mongolia. study. Currently, the Government is examining 20 Social, Environment and Rural Development East Asia and Paci�c Region THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA Telephone: 202 473 1000 Facsimile: 202 522 1666 Homepage: worldbank.org/eapenvironment