ULAANBAATAR, December 10, 2024 — Two new reports published by the World Bank today provide policy recommendations for strengthening Mongolia’s financial and private sectors. They recognize Mongolia's efforts in reforms and climate commitments, while noting the need for improved policy coordination and implementation among agencies to ensure maximum impact.
“Creating a more efficient financial sector and a supportive environment for private investment can offer Mongolia significant development opportunities,” said World Bank Country Manager for Mongolia Taehyun Lee. “A strategic, well-coordinated approach that aligns with sectoral policies will help the country achieve a more diversified, equitable and resilient development.”
Building the Foundations for Financial Sector Development outlines comprehensive reforms Mongolia could adopt to address banking sector vulnerabilities and improve market development. It identifies steps policy makers could take to reform the country’s legal and judicial system and strenghten its central bank in order to make it easier for banks to extend credit to the private sector, which fell from 60 percent of GDP in 2013 to 41 percent in 2022. New businesses, investments in assets, and access to credit for small and medium-sized enterprises (SME) also decreased over this period. Banks’ reluctance to take risks reflects the high concentration of Mongolia’s banking system, in which the top three banks hold about 80 percent of assets.
The report stresses the importance of strengthening the independence, governance, and oversight of the Bank of Mongolia. It calls for better sharing of credit information; improved enforcement of contracts, including through judicial decisions; and out-of-court workouts. It also suggests restarting the government securities issuance program, in order to create a liquid market for domestic government securities, which is essential for developing the domestic capital market and improving the foreign exchange market.
Meanwhile, Boosting Mongolia’s Private Sector and Green Competitiveness proposes policy actions to increase productivity and private investment, especially outside the mining sector. It recommends three main strategies, including i) making regulations more predictable and reducing bureaucracy through digitalization; ii) improving the capabilities of SMEs (through quality certification and technology adoption, for example) to help them grow; and iii) supporting public-private efforts, in order to attract private investment in renewable energy, energy efficient production, and sustainable agribusiness.
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