WASHINGTON, July 30, 2019 – The World Bank’s Board of Directors approved today US$100 million in financing to help Mongolia further stabilize its economy and move it towards a more sustainable development path. The Second Economic Management Support Operation (EMSO 2) follows on EMSO 1 approved in November 2017, and supports policy reforms aimed at restoring debt sustainability, strengthening the social protection system, and enhancing competitiveness.
Mongolia’s economy has recovered strongly from the brink of a macroeconomic crisis in 2016, but underlying vulnerabilities remain. The economy grew by 6.9 percent in 2018, compared to 1.2 percent in 2016. The country’s fiscal position has improved substantially, as the deficit declined from 16.4 percent of GDP in 2016 to a surplus of 2.7 percent in 2018, resulting in a reduction of Mongolia’s government debt to GDP ratio by nearly 13 percentage points over this period. Poverty increased during the economic slowdown of 2014-16 and declined again only moderately during the subsequent recovery, pointing to continued challenges in the labor market and the need for stronger social support policies.
“The reforms supported by this operation are critical for sustaining economic growth, improving public finances, and enhancing competitiveness. Their adoption shows the government’s commitment to continue structural reforms in Mongolia. The World Bank will continue to work with the government and with other international development partners in support of Mongolia and the Economic Recovery Program, ” – said Martin Raiser, Country Director for China, Mongolia and Korea.
The program seeks to restore the country’s debt sustainability by consolidating the adjustment already achieved and addressing structural weaknesses in the management of public sector finances. This includes improving the tax system and public investment management, helping to reduce the costs of ongoing investment projects, and tightening the management of special funds financed from the state budget. It also includes publicly disclosing the recent external reviews of the operations of the Development Bank of Mongolia and the Bank of Mongolia, as well as restructuring of the Housing Mortgage Program to expand availability of affordable housing and improve its targeting.
Another focus area is to strengthen the social protection system for poor and vulnerable groups, by promoting employment creation outside the mining sector and better targeting of social policies.
To enhance the competitiveness of the economy, the program also supports measures to improve the business and trade environment such as strengthening investor protection, streamlining permit requirements, and promoting trade facilitation reforms. Moreover, it supports economic diversification by promoting animal health management.
The EMSO series is part of a broader, coordinated effort of development partners to support the government’s medium-term economic recovery program. A third operation under the EMSO series is planned, focusing among other things on completing the ongoing recapitalization of the banking sector in close coordination with the IMF. The EMSO series complements existing World Bank investment and technical assistance projects in areas such as development of non-mineral exports, employment support, fiscal stability, energy, education, ICT development, and central and local governance.
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