Mongolia approves USD250 million to start implementation of new country partnership strategy

The loans will help maintain funding for social welfare programs for the poor and vulnerable people and stabilize and restructure the banking industry during the implementation of an extended fund facility of the International Monetary Fund (IMF) approved on May 24th 2017.

The overarching goal of ADB’s assistance during the 2017-2020 period is to help Mongolia sustain inclusive growth during its current economic difficulties. To achieve this, it will focus on three main areas — economic and social stability, developing infrastructure for economic diversification, and strengthening environmental sustainability. Cutting across these pillars are efforts to improve public sector management and gender inequality in Mongolia. Annual lending from ADB will amount to about $300 million a year, with PBLs accounting for about half of this amount.

“The CPS builds on ADB’s role as Mongolia’s lead development partner and improved operational performance in recent years. The CPS is closely aligned with the government’s high-priority areas, and will focus on complex projects requiring significant technical expertise,” said Yolanda Fernandez Lommen, ADB Country Director in Mongolia. “ADB has also closely coordinated with the IMF and World Bank in formulating this CPS.”

Mongolia’s economic performance has slowed down from 17.3% gross domestic product growth in 2011 to 1% in 2016 in the face of falling foreign direct investment and commodity prices, among other challenges. As the economic growth has declined, the fiscal deficit has swollen to 15.4% of gross domestic product, resulting in cuts to some social welfare programs. This risks reversing gains in poverty reduction in recent years and throwing the 35% of the population that is near-poor back into poverty.

To mitigate the adverse impacts of the economic slowdown and fiscal consolidation, a PBL of USD150 million will ensure fiscal expenditure is maintained on social welfare programs. Besides strengthening fiscal management, the PBL will help Mongolia consolidate the country’s 71 existing social welfare programs and achieve better targeting to ensure that the poor and vulnerable people are supported.

In restoring growth, the government faces another challenge in reviving the banking industry, which is seeing a rise in nonperforming loans that threatens the solvency of banks. The second PBL of USD100 million will support the government’s efforts to restructure and recapitalize the banking industry, reduce nonperforming loans, and enhance regulation and supervision. Under this, government will implement a road map for banking industry rehabilitation and ensure effective management and sale of distressed assets./.