Learning Curves

OED
November2008

Mongolia:FromTransitionto Takeoff

Thisupdatetothefindingsofthe2002countryassistanceprogramevaluationforMongolia assessestheperformanceofADBstrategiesandassistanceprogramsinthecountryduring 19972007. Theevaluation1foundthatADBsassistanceplayedanimportantroleinfacilitating Mongoliastransitionandindevelopingmarketrelatedinstitutions.ADBhasmade importantcontributionstoestablishingthepolicysettingandinstitutionalframeworkfora marketeconomy.

Background Inthelate1990s,theMongolianeconomywas reelingfromthedislocationsarisingfromthelossof traditionaltrade,investment,andassistancetieswith thenationsoftheformerSovietUnion,aswellasfrom theAsianfinancialcrisis.Outputwasfalling,the largerenterprisesandbanksweredistressed,and povertywasworseningatanalarmingrate. Since2003,theboomintheminingsectorhasfuelled economicgrowthatratesof610%,doublingtheper capitagrossdomesticproducttosome$1,490in2007 andturningthefiscalbalancetoasurplus.The incidenceofpovertyhasgraduallydeclined. Whileeconomicgrowthhasbeenimpressiveand prospectsarepositive,therearemanychallengesand risksasthecountryhasmovedfromtransitiontorapid growth.Mongoliaislandlockedandsparsely populatedandsuffersfromaharshclimate,chronic ruralpoverty,urbanpollution,andlimitedinstitutional andhumancapacity.Criticaldevelopmentconstraints onsustainableeconomicgrowthandpovertyreduction includeinfrastructurebottlenecks,limitedregulatory frameworkforprivatesectorparticipation,inefficient financialintermediation,relativelyweakpublicsector managementcapacity,asmalldomesticmarket,anda narroweconomicbase. SummaryofFindings TheoverallratingfortheAsianDevelopmentBanks (ADB)assistanceduringtheevaluationperiodis
Operations Evaluation Department Asian Development Bank

successful.KeyfactorswerethatADBassistance(i) waswellalignedtocountryrequirementsand governmentstrategies;(ii)wasdeliveredthrougha programmarkedbytheinnovativeuseofavarietyof newassistanceinstrumentsandastrongmeasureof nonlendingsupport;(iii)wasincreasinglyresponsiveto clientneeds;and(iv)hasmadeimportantcontributions tothetransitionprocess,socialdevelopment,fiscal stability,andeconomicrecovery. Whileperformancewasratedsuccessful,thereis scopeforimprovementandaneedforaninnovative approachtoADBassistanceinthenextCountry PartnershipStrategyforMongolia,takingintoaccount thecountryscriticaldevelopmentconstraintsand ADBscorporategoalsandstrategy. TheemphasisofADBsupportshiftedfromprogram lendingtoinvestmentprojectsby2002,whenthe financialsystemstabilizedandstartedtorecover.Asian DevelopmentFundallocationsgraduallydeclined, resultinginprojectsthatweresmallerinsizeandmore difficulttoimplementefficiently.Portfoliomanagement becameincreasinglydifficult,withstartupandinitial implementationdelaysandprojectextensions. ADBhasmadeimportantcontributionsto establishingthepolicysettingsandinstitutional frameworksforamarketeconomyandbyhelpingthe Governmentrestorefiscalstability.Also,ADB contributedtopovertyreductionindirectlythrough supportforenhancingMongoliasconnectionsfor regionalandglobalmarketsandfosteringgrowthand employmentledbytheprivatesector.

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

ADBscountryassistancehasbeenparticularly successfulinthetransport,education,banking,and urbansectors.Therewasstronggovernmentownership, followthroughonmajorsectorpolicyreforms, judicioususeoflendingandnonlendingassistance,and increasingcoordinationofexternalassistance. ADBsprivatesectorparticipationremainslimited becauseMongoliacurrentlylackstherequiredwell definedlegislativeandregulatoryframeworks.Efforts arebeingmade,however,tosupportprivatizationin thecivilaviationsector,introducenewmodesof publicprivatepartnershipandtodrawonbothpublic andprivatesectorsupportforreformsinthefinancial sectorandtoencouragepowerexports. Astheeconomyopenedandeconomicstabilitywas restored,tradeandinvestmentrelationsbetween Mongoliaanditslargeneighboringeconomieshave cometoplaygreaterrolesineconomicdevelopment. AssistanceundertheCentralAsianRegionalEconomic Cooperation(CAREC)programinitiatedin1997has alreadypaidoffintermsofattractinginvestmentin tradefacilitationanddevelopingthewesterntransport corridorthatispartoftheAsianHighwaynetwork. Moreimportantly,trustandconfidencehavebeenbuilt, andMongolianowhasawellestablishedforumfor benchmarkingpracticesandnegotiatingwithits neighbors. Aresultsbasedapproachtodevelopmentwas introducedbyADBsmostrecentCountryPartnership Strategy.However,resultsmonitoringencountered practicaldifficulties.Therewasalsolackoffull awarenessandinstitutionalcapacitywithintheclient governmentinthisregard.Amorefocusedresults frameworkwithmonitorablequantitativeindicators wouldhavebeenuseful. ThedevelopmentresultsofADBsassistanceasa wholehavebeenconsiderable,particularlythroughits supportformarketorientedpolicyreform,socialsector development,economiccorridordevelopment,capacity buildingforpublicsectorgovernance,government systemsforprocurement,projectmanagement,anda numberofotheraspectsofpublicsectorplanningand financialmanagement.Importantaccomplishments includeADBscontributiontorestoringfiscalstability andenhancedbudgetcontrol;improvingtransport connectivity,theefficiencyofdistrictheatingin Ulaanbaatar,andaccesstoessentialmunicipalservices inthesecondarycities;transformingamonobank systemintoacompetitivebankingsectorand introducingahousingmortgagemarket;restoring
Learning Curves available @ www.adb.org/evaluation/

primaryeducationenrollmentrates;andintroducinga networkofprimaryhealthcareproviders,social insurance,andamultitierpensionsystem. Theevaluationidentifiedanumberoflessons including(i)overlysophisticatedADBassistedpublic sectorgovernancereforms;(ii)ADBassistancetohelp theGovernmenttointroducenewlawsweresometimes pursuedwithlargeinstitutionalcapacitygaps;(iii)ADB assistancebecamestretchedoveralargenumberof regions,subsectors,institutions,andthemes;(iv)while beingresponsivetodemand,ADBassistancesometimes lackedinvestmentefficienciesandcrosssectorsynergies; (v)rapidurbantoruralmigrationwithoutadequate urbanplanningandprovisionofpublicservicesplaces growingburdenonthecapitalcityanditsperiurban areas;(vi)weakharmonizationofapproachinaid coordination;and(vii)weakresultsmonitoringof programdeliveryandportfoliobybothADBandthe Government. Recommendations Theevaluationmaderecommendationsinrelationtothe followingstrategicareasofADBsoperationsin Mongolia: ReorienttheroleoftheADBtosupportMongoliain thecountryschangingdevelopmentcontext. Strengthenstrategicfocusandsectorselectivityin ADBoperations. Supportfurtherprivatesectordevelopmentand improvecomplementaritybetweenthepublicand privatesectors. Fosterregionalcooperation. Improveportfolioperformanceandclient responsiveness. Feedback WhentheseLearningCurveswereprepared,ADB ManagementsresponseandtheChairsSummaryof theDevelopmentEffectivenessCommittee Discussionswerenotavailablefordisclosuretothe public.ThestudywascompletedinSeptember2008. 1 ADB.2008.Mongolia:FromTransitiontoTakeoff. CountryAssistanceProgramEvaluation.Manila. Available:http://www/adb/org/Documents/CAPES/ MON/CAPMON200833/CAPMON200833.asp

Team Leader: Cheolghee Kim; Tel +63 2 632 4151; cmkim@adb.org