End poverty now more than ever, Mongolia

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October 17 is End Poverty Day. Every day is a day to end poverty, but it helps to designate one day per year to reflect on this goal and how we can work to achieve it.

In Mongolia, poverty declined from 2010 to 2012, and again from 2012 to 2014. Since poverty rates very closely track overall economic growth, this is not surprising. Growth in labor incomes over the period helped reduce poverty, and this growth, in turn, was generated by increases in real wages in the non-agricultural sector and non-wage income in the  agricultural sector.  Mongolia’s fondness for universal social transfers also contributed: poverty rates fell from 38.8 percent in 2010 to 21.6 percent in 2014, based on the national poverty lines.

That was then, this is now.

Although the 2016 poverty level is not yet available, we can be sure that the economic downturn has not helped. Overall growth of GDP is projected to be only 0.1 percent for 2016, with production in the non-mining sector declining. And Mongolia’s pro-cyclical policies that funded social programs in the boom years now face opposite pressures. Social welfare  programs that are categorically targeted and pro-cyclically funded are more difficult to scale up when times become difficult.

With a large and unsustainable budget deficit (projected to reach 18 percent of GDP for 2016), and with growing levels of debt, Mongolia has little choice but to focus on fiscal  consolidation. Can they do so without hurting the most vulnerable people in society?

While the task is daunting, evaluating the likely poverty impacts of fiscal changes can help.  Consolidating some of Mongolia’s 71 social welfare transfer programs, strengthening those that are pro-poor, and making universal programs poverty-targeted would help make the system more efficient.  Maintaining the overall envelope of the safety net budget, however, would mean that savings come from somewhere else.  But where?

Mongolia spends relatively more on capital investment than most countries, and much of the spending is inefficient. Reducing the public investment budget, and improving processes to make spending more efficient, would ease pressure on the budget without unduly impacting the poor. On the revenue side of the equation, transitioning Mongolia’s system of low, flat income tax rates to a more progressive system would also help protect the working poor while freeing up needed revenues. And as tempting as it may be to create new programs outside of the budget system, doing so only exacerbates the problems; avoiding the new programs to begin with makes more sense.

End Poverty is more than a slogan; it is a call to examine the poverty impacts of policies and then to act, especially when times are bad. It’s Possible.  What do you think?


Jim Anderson

Lead Governance Specialist, World Bank

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