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433530Esw0mn0v1eb0502009 Report No. 43353-MN Report No. 43353_MN Mongolia Consolidating the Gains, Managing Booms and Busts, and Moving to Better Service Delivery Public Disclosure Authorized A Public Expenditure and Financial Management Review (In Two Volumes) Volume I: Core Report January 2, 2009 Poverty Reduction and Economic Management Unit East Asia and Pacific Region Mongolia Consolidating the Gains, Managing Booms and Busts, and Moving to Better Service Delivery to Better Service Consolidating the Gains, Managing Booms and Busts, Moving Public Disclosure Authorized Public Disclosure Authorized Vol. I Vol. Document of the World Bank Public Disclosure Authorized ABBREVIATIONS AND ACRONYMS ALMP Active Labor Market Programs MTBF Medium-term Budget Framework ASEAN Association of Southeast Asian Nations MTFF Medium-term Fiscal Framework CAB Cyclically Adjusted Balance MTCSRS Medium-term Civil Service Reform CBC Congressional Budget Committees MTEF Medium-term Expenditure Framework CCT Conditional Cash Transfer MUB Municipality of Ulaanbaatar ccu Client Construction Unit NASA National Assessment of Students’ Achievements CEE Central and Eastern Europe NCD Cardiovascular mental disorder CIS Commonwealth of Independent States NDC Notional Defined Contribution CMP Child Money Program NHA National Health Accounts CPI Consumer Price Index NSO National Statistics Office csc Civil Service Council ODA Official Development Assistance DAC Development Assistance Committee OECD Organization for Economic Cooperation and DF Development Fund Development DMD Debt Management Division PEFMR Public Expenditure and Financial Management DOTS Observed Treatment Short Course Review EDCM Education Donors Consultative Mechanism PETS Public Expenditure Tracking Survey EITI Extractive Industry Transparency Initiative PFI Project Financial Intermediary EPF Employment Promotion Fund PFM Public Financial Management FDI Foreign Direct Investment PIP Public Investment Program FTI Fast Track Initiative PIU Project Implementing Units FE&T Finance, Economy and Treasury PMU Project Management Unit FGP Family Group Practice PPCD Procurement Policy and Coordination Department FMD Food and Mouth Disease PPLM Public Procurement Law of Mongolia GDP Gross Domestic Product PRR Poverty Risk Ratio GFMIS Government Financial Management PSMFL Public Sector Management and Finance Law Information System PTR Pupil to Teacher Ratio GoM Government ofMongolia R&D Research and Development HEIs Higher Education Institutions SEG Socio-Economic Guidelines HIES Household Income and Expenditures Survey SES Sanitary Epidemiological Services HIF Health Insurance Fund SI0 Social Insurance Office HIV Human immunodeficiency virus SHI Social Health Insurance HR Human Resources SNI National System of Investment HSMP Health Sector Master Plan SPES Special Protected Areas ICOR Incremental Capital-output Ratio SOE State Owned Enterprises IDF Institutional Development Fund SSIA State Specialized Inspection Agency IE Impact Evaluation SSIGO State Social Insurance General Office IMF International Monetary Fund SSMP Social Security Sector Master Plan IMR Infant mortality rates STI Sexually Transmitted Infection INTOSAI International Organization of Supreme Audit SWF Social Welfare Fund Institutions TB Tuberculosis LSMS Living Standard Measurement Survey USMR Under-Five Mortality Rate MECS Ministry of Education, Culture and Science UNDP United Nations Development Programme MDG Millennium Development Goals UNFPA United Nations Fund for Population Activities M&E Monitoring and evaluation UNESCO United Nations Educational, Scientific and Cultural MICs Middle Income Countries Organization MLS Minimum Living Subsistence UNICEF United Nations International Children’s Emergency MNAO Mongolia National Audit Office Fund MNT Mongolian Tugriks UIF Unemployment Insurance Fund MOF Ministry of Finance VAT Value Added Tax MOFALI Ministry of Food and Agriculture and Light WDI World Development Indicators Industry WIF Work Injury Fund MOH Ministry ofHealth WHO World Health Organization MOP Ministry ofPlanning MOSWL Ministry of Social Welfare and Labor MSL Minimum Subsistence Level MTB Medium-term Budgeting ACKNOWLEDGEMENTS This report has been prepared by a core team led by Ms. Genevieve Boyreau (Macroeconomic and Fiscal). The team comprised Giovana Dore (Environment), Andrew Goodland (Agriculture), Tserendagva Gerelgua (Procurement), Byambatsogt Jugder (Education, Social Protection), Ulrich Koester (Consultant, Agriculture), Soonman Kwon (Consultant, Health), David I (Financial Management), Xiaoping Li (Procurement), Magnus Lindelow (Health), Ochir Lkhagvasuren (Financial Management), Shabih Mohib, (Public Sector), Katherine Nesmith (Education), Dorjdari Namkhaijantsant (Consultant, Open Society Forum, local governance), Ian Nightingale (Procurement), John Richardson (Consultant, Procurement), Cristobal Ridao-Can0 (Education, Social Protection), Mark Dorfman (Social Insurance), Jinan Shi (Procurement), Altantsetseg Shiilegmaa (overall assistance). Valuable comments on earlier drafts of the chapters, background inputs, and guidance during the preparation on this report and PEFMR missions, were received from Messrs. Christopher Finch, Barbara Nunberg, Arshad Sayed, Bert Hofinan. Mr. Chuluunzagd Batbayar and Otgonbayar Yadmaa (EACMF) provided able assistance with the administrative and logistical arrangements for the task team during missions. Ms. Gloria Elmore was responsible for document preparation and formatting, a task she undertook with usual ease and attention to detail. This report would not have been possible without the guidance from H.E. Dr. Bayartsaikhan (Minister of Finance), and State Secretary Khurelbaatar (Ministry of Finance) during the PEFMR missions. The team appreciates the excellent collaboration from Mr. Batjargal (Director, Fiscal Policy Department, Ministry of Finance, Head of PEFMR Governmental Working Group and official counterpart, Order of the Minister of Finance #110, see annex) and his colleagues for making the missions productive, and providing critical data for the PEFMR team to do its research and analysis in the subsequent months, the results of which are presented in this report. We are grateful for the comments received from the State Secretaries and other officials of the Ministries of: Finance (MoF); Food and Agriculture and Light Industry (MOFALI); Social Welfare and Labor (MSWL); Education, Science and Culture (MESC), Nature and Environment (MNE); Health (MoH); Fuel and Energy (MFE); Roads, Transportation and Tourism (MRTT); National Statistical Office (NSO); Bank of Mongolia (BoM), at the State Khural the Budget Standing Committee, Economic Standing Committee and Social Policy Standing Committee; the Mongolia National Audit Office (MNAO); Civil Service Council (CSC), Open Society Forum (OSF) of the during the PEFMR working group meetings and workshops in Ulaanbaatar in January and June 2007 that were held to discuss the preliminary findings of the team as they became available. Peer Reviewers for this Economic Report are Messrs. Mandar Jayawant (Deputy Country Director, Asian Development Bank, Ulaanbaatar, Mongolia), Daehaeng Kim (Fiscal Affairs Division, IMF) and Francisco Galrao Carneiro (World Bank). Overall guidance for the report was provided by Mr. David Dollar (World Bank Country Director for Mongolia), Vikram Nehru (Acting Regional Chief Economist and Sector Director, PREM, East-Asia and Pacific Region), and Sudarshan Gooptu (Lead Economist, PREM, East- Asia and Pacific Region). TABLE OF CONTENTS VOLUME I EXECUTIVE SUMMARY ........................................................................................................... vii CHAPTER 1 FISCAL TRENDS ..................................................................................................... 1 Progress and Challenges ........................................................................................................... 1 Key Future Priorities ................................................................................................................. 1 Introduction............................................................................................................................... 3 Overall Fiscal Trends ................................................................................................................ 3 Economic Composition ofExpenditures ................................................................................ 13 Functional Composition of Expenditures................................................................................ 16 Local Expenditures ................................................................................................................. 18 CHAPTER 2 PUBLIC SECTOR FINANCIAL MANAGEMENT .............................................. 23 Progress and Challenges ......................................................................................................... 23 Key Future Priorities .............................................................................................................. 24 Introduction............................................................................................................................. 26 The Legislative Framework .................................................................................................... 26 A review ofthe PSFML implementationprogress ........................................................... 27 Public Finance Planning.........................................................................................................
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