Mongolia’s current economic situation is characterized by a combination of falling commodity prices and slowing growth. This heightens the need for the country’s social welfare system to protect the poor and the vulnerable from the threatened fall in incomes.
To assess how well the system is performing, it is necessary to consider Mongolia’s spending on social welfare - whether it is directed towards poor and vulnerable households, and if the benefits provide effective and adequate protection.
A Look Back at Mongolia’s Welfare Programs
Mongolia is among the few countries in the East Asia and Pacific region that spend relatively generous amounts on social welfare programs. In 2013, Mongolia spent 2.78% of its GDP on welfare transfers.
Mongolia’s government has over the years developed effective cash delivery mechanisms and maintained an updated poverty-targeting method that has registered approximately 90% of all households in the country. However, social welfare programs are fragmented, with 71 programs administered by the Ministry of Population Development and Social Protection alone.
Programs vary from social pensions for the elderly and the disabled to reimbursements for healthcare and other services. For example, there is a lifetime Mother Hero Program for mothers who gave birth to four or more children, and a generous monthly transfer program to veterans and those accorded state honors. In addition, half of all benefits amounts are distributed through the Child Money Program, a near-universal monthly cash transfer program for all children 18 years and younger, aimed at re-distributing the country’s expected mineral wealth to the younger generation.
Poverty Targeting Can Expand Coverage
A World Bank analysis of the social welfare programs in Mongolia revealed that just about half (49%) of all citizens are direct beneficiaries of at least one program, when the Child Money Program is included. Without the Child Money Program, some 19% of the population is direct beneficiaries, with 14% receiving multiple program benefits.
Despite the fact that the government maintains an updated poverty-targeted mechanism, that applies the Proxy-Means Testing approach, all but one program is categorically targeted.
That is, they do not directly target poor or vulnerable households, but instead provide benefits to population groups deemed vulnerable or meritorious (such as the elderly, the disabled, the orphans and their caretakers, pregnant mothers and mothers who have given birth to many children, and veterans with state honors). The Food Stamp Program is the only program that is currently poverty-targeted. It only covers approximately 3% of the households nationwide.
In spite of this, the distribution of welfare benefits is, on the whole, pro-poor. It is estimated that over a third (34%) of total benefits go to individuals who are among the poorest quintile in terms of household income. However, individuals who are among the richer 40% are receiving 28% of the total benefit amounts. In comparison, some well-performing states in Europe and Central Asia provide 40% of their benefits to the poorest quintile.
Currently in Mongolia, two-thirds of the individuals among the poorest quintile are direct beneficiaries of a welfare program. However, the benefits size is small. For an average household size of five living at the poverty line, the average household benefit amount received is estimated to be around 12% of the households’ post-transfer consumption (consumption taking into account the cash grants they receive). Although there is considerable variation, most welfare benefits around the world represent 20-35% of the poorest households’ post-transfer consumption.
The Mongolian government has all the basic tools to make the country’s social welfare system a more efficient one that promises a larger impact on poverty. The question is: can the government seize the moment and turn the need for an economic adjustment into an opportunity for social welfare reform?