One year ago, Mongolia was designated an Upper Middle Income Country (UMIC) when the country’s GNI per capita crossed the threshold between lower and upper middle income countries. Some Mongolians celebrated, seeing the designation as a reflection of how far the country had come since recovering from a prolonged slump in the 1990s. Others wondered what it means for the availability of concessional financing in the future. And others just wondered if it was accurate. While Mongolia’s progress is unmistakable, we also know that 22% of the population lives below the national poverty line of roughly $2.70 per day—what does it mean to be an “upper middle income country” in the face of such a statistic?
Last week, Mongolia was re-designated a Lower Middle Income Country (LMIC). How is this possible and what does it mean?
The latest estimates of poverty in Mongolia showed both progress and reason for concern. The National Statistical Office (NSO) and the World Bank have worked together on the methodology for estimating poverty since at least 2002. The estimates showed that the poverty rate declined from 27.4 percent in 2012 to 21.6 percent in 2014, continuing the trend of 2010-2012. The estimates also showed, however, that many people are near the poverty line and remain vulnerable as the economy softens.
The rapid growth rates of the previous years, combined with the bent for decentralization, led to a natural desire to explore new possibilities for subnational finance. To this end, a pair of studies in 2014 aimed at preparing a debt management approach for Ulaanbaatar and a financial self-assessment for the city. The former stressed “the need to first build local institutional capacity for an effective and transparent debt management system before any borrowing is considered. … UB should use this time to put in place a debt management system so that it is prepared for borrowing once it is ready and the macroeconomic conditions improve.” The latter study examined what it would take for Ulaanbaatar to improve its credit quality and thereby prepare for an official rating from a credit rating agency. The recommendations centered on improving the city’s financial reporting system, strengthening its capital investment planning process, improving its capital asset registry, strengthening the oversight of municipal-owned enterprises and their debts, and identifying Ulaanbaatar’s contingent liabilities, both explicit and implicit.
With the boom well underway, a report examined how to meet the challenge of scaling up infrastructure. In a blog summarizing the study, one co-author was blunt: “Financed by the mining boom, government spending on new infrastructure in Mongolia has increased 35-fold in the past 10 years. But you would not know this from driving the pot holed streets of Ulaanbaatar or inhaling the smog filled air of the city, particularly in the ger areas. … [The study] examines why this increased spending is not resulting in equivalent benefits for the citizens of Mongolia in terms of better roads, efficient and clean heating, and improved water and sanitation services.” The study pointed to poor project planning and implementation, and suggested ways to improve.
For an outside observer like me—I was in my second year as the World Bank’s Country Manager for Mongolia at the time—it was fantastic to see democracy at work: the spirit of 1990 that I had read about and seen in pictures at the National Museum was still alive! The more experienced observers were puzzled: many Mongolians told me that for the first time since 1990, they were unable to forecast the outcome of those elections. A few did predict the outcome, of course: the Democratic Party won the largest share of seats and opted to form a coalition with the MPRP and the Civil Will-Green Party.
At the World Bank, we also had a leadership change: Mr. Jim Yong Kim, until then President of Dartmouth College and co-founder of Partners in Health, replaced Mr. Robert Zoellick at the helm of the World Bank Group in July 2012.
Continuing our series celebrating the 25 years since Mongolia became a member of the World Bank, today we look at 2009. The global financial crisis that began in the US the previous year hit Mongolia hard in late 2008 and through 2009, as commodity prices collapsed and economic growth turned negative for the first time since 1993. The World Bank switched from a quarterly to a monthly format for its economic updates to stay abreast of the rapidly deteriorating situation—the April 2009 edition illustrated how sharply the commodities markets had reversed in only one year.
Did you know that low-income Mongolians are better at managing daily finances than higher income earners, although those with better incomes are more likely to make provisions for the future?
These were the findings of a comprehensive demand-side assessment on financial capability in Mongolia which the World Bank Group carried out in 2013.
These findings make sense. Poor people – those with low and irregular incomes – devote a lot of time to thinking about how to stretch their money to put food on the table while being able to cover other daily spending needs. They tend to have surprisingly sophisticated financial lives despite having limited income, the Portfolios of the Poor found.
Continuing with our series looking at the 25 year partnership between Mongolia and the World Bank, today we look at 2008, a year that will be remembered by many Mongolians for events both high and low. The low point was the riot that followed parliamentary elections on 1st July, 2008. Five innocent lives were lost and Ulaanbaatar city was under a state emergency for two days and three nights. While Mongolia is rightfully praised for its peaceful transition from one regime to another in 1990, this incident of 2008 will be remembered as the darkest time in the 25 years of democracy.
The high of 2008 occurred after this riot when Mr. Tuvshinbayr Naidan brought home Mongolia’s 1st ever gold medal from the Beijing summer Olympics. I will never forget the sight of people waving our national flag, gathering in the Central Square and cheering with exhilaration. The World Bank’s Country Director, David Dollar, also celebrated this historic occasion, noting that “The event was important enough to get rival political parties to shake hands and share the pride.”