1. Partners Have Operational National Development Strategies

December 31, 2006

MONGOLIA

OWNERSHIP 1. Partners have operational national development strategies a. Coherent long-term vision with medium-term strategy derived from vision 1. Some work has been done toward developing a long-term vision widely agreed within the country. With the support of the UN, the Government is working on a MDG- based National Development Strategy (NDS) through 2021. The NDS is expected to become a reference point for policymakers. The Government plans to operationalize the NDS in 2009. In February 2005, the Academy of Sciences and the Mongolian Development Institute, a local think-tank, completed a development plan through 2021, with the mining sector expected to play a lead role, prepared at the initiative of the President. The plan has not yet been widely shared within the country. In 1998, the Government adopted a Mongolian Action Program for the 21st Century, known as MAP- 21, linked to a Sustainable Development Strategy through 2021, developed with UN support. The Action Program and the Strategy were not implemented due to frequent government changes, and policy makers rarely refer to them. 2. The Economic Growth Support and Poverty Reduction Strategy (EGSPRS), Mongolia’s PRS,1 identified a set of polices through 2006 and was rooted in the main policy directions of the Government which left office in June 2004. Since the EGSPRS was not a legally binding document, in 2004 a newly-elected Government composed of the former ruling party and the former opposition groups decided to rely on a constitutionally-mandated Action Plan for 2004-08 as Mongolia’s medium-term development strategy. The Action Plan incorporates some of the EGSPRS priorities. The Government also prepared Guidelines for Economic and Social Development in 2005 and 2006, also required by the Constitution as the annual implementation framework for the Action Plan. 3. In 2006, the Government completed a Master Plan to Develop Education for 2006-15. It is conducting an infrastructure review, which is expected to be completed in early 2007, to identify the main-cross sectoral issues, key strategic options, as well as the investment and institutional gaps for the sector. It is also updating a Health Master Plan completed in 2005 and a transport sector strategy, which are at the basis of the Government Action Plan and will serve as an input into the NDS together with Master Plans for the environment, rural development, energy and information and communication technology. There are also a National Household Livelihood Capacity Support Program, which was launched in 2001 building on a National Poverty Alleviation Program for 1994-2000, a National Program on Gender Equality and a Social Sector Development Master Plan. 4. Local government strategies and plans have been formulated systematically every 2-3 years. They have been incorporated into the Government Action Plan.

1 The Government completed the EGSPRS in July 2003. It prepared a EGSPRS Progress Report, which was discussed by the Cabinet in May 2005.

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b. Country specific development targets with holistic, balanced, and well sequenced strategy 5. Development goals linked to the MDGs are being identified and are expected to be at the basis of the forthcoming NDS, which will thus help strengthen their link with future Government Action Plans and sector strategies. The EGSPRS already incorporated national development goals linked to the MDGs with targets for 2015. In 2004, the Government prepared a national report on the status of MDG implementation, identifying bottlenecks and policy actions to achieve the MDGs. The Government is currently on track to achieve some of the MDGs, including universal primary education, and has made significant progress on others such as reducing infant and child mortality. 6. The Government Action Plan for 2004-08 maintains the broad objectives identified in the EGSPRS, and proposes a new social and economic development policy with greater emphasis on improvements in the social sectors. It addresses cross-cutting issues such as governance and transparency, gender and private sector development. The EGSPRS’s five main pillars were: i) ensuring macroeconomic stability and enhancing public sector effectiveness; ii) enabling private sector-led growth through a sound institutional and regulatory environment; iii) enhancing balanced and environmentally sustainable development; iv) fostering sustainable human development and an equitable distribution of the fruits of economic growth through improved service delivery in education, health and social welfare; and v) promoting good governance reform and gender equality. c. Capacity and resources for implementation 7. Starting in 2003, a three-year rolling MTEF has been updated annually and the Government recognizes the necessity to implement the Government Action Plan through the budget as well as annual socio-economic guidelines in order to improve the relationship between planning and budgeting processes. The EGSPRS was only consistent with the macroeconomic medium-term budgetary framework adopted in 2003. The Public Investment Program (PIP) remains, however, fragmented. Sector policies are not yet fully linked to the budget, but the Government is taking steps to ensure that priorities identified in sector strategies and reflected in the Government Action Plan are aligned with the MTEF. NDS priorities are also expected to be in line with the MTEF, which also reflects objectives identified in local development plans. In 2004, up to 9 percent of GDP was spent in the education sector, and health spending per capita and medicine expenditures per patient increased. In 2005, expenditures in education increased to 9.8 percent of GDP and health spending amounted to 6.4 percent. The Government is also making efforts to develop and strengthen national capacity for gender-sensitive budgeting and has introduced a Child Money program, which covers all children under age of eighteen. 8. With the successful establishment of the Government Financial Management Information System (GFMIS), which has been deployed countrywide with cash execution centralized at the Ministry of Finance and Economy, Government capacity for planning and implementation is improving. A Human Resource Management Information System (HRMIS) is also being implemented with World Bank assistance. However, fragmentation, duplication and overlapping of administrative and management structures

2 December 31, 2006 still exist. Strategy implementation is also undermined by bottlenecks at the local level. Local governments deliver almost 70 percent of social services. However, they have limited revenue autonomy and the allocations they receive do not always mirror local needs. d. Participation of national stakeholders in strategy formulation and implementation 9. The Ministry of Finance and Economy, which took the lead in EGSPRS implementation, chairs an inter-ministerial steering group supported by a technical committee and an UN-funded Poverty Research Group. In April 2004, the Poverty Research Group was integrated into the main structure of the Ministry of Finance and Economy to coordinate the integration of the EGSPRS into the Government Action Plan. Ministers and Vice-ministers were responsible for coordination at the sectoral level. Working groups, established in each ministry and Ulaanbaatar city, have identified sectoral policies based on existing government strategies. A Working Group on the National Development Strategy is coordinating the formulation of the NDS. Inter- ministerial coordination, which is also required for Government Action Plan formulation, remains, however, an open challenge partly due to the fragile coalition supporting the Government. There is limited mutual understanding between central and line ministries on overall strategic priorities. 10. There is a separate institutional structure for coordinating a proposal to access Millennium Challenge Account (MCA) funds. In mid-2004, the Government established a National Council for the MCA, comprised of government officials and stakeholder representatives, to coordinate formulation and implementation of Mongolia’s proposal for the MCA. The National Council has remained in place after the change of Government and conducted extensive consultations for the MCA Proposal. 11. Stakeholder representatives have been involved in the ministerial working groups during EGSPRS implementation and reporting, as they had been during formulation. The Government recognizes the need to foster participation through a mechanism to increase public control on budget revenue and allocation of budget expenditures. However, due to frequent Cabinet changes, an action plan to develop this mechanism has not yet been developed. 12. Civil society organizations participated in EGSPRS formulation and were involved in EGSPRS implementation and monitoring through their participation in the ministerial working groups. 13. Private sector representatives participated in the working groups involved in EGSPRS implementation and monitoring. Their role and impact in the first EGSPRS was limited. 14. Parliamentary involvement in policy-making is in place but interruptions due to political instability have weakened its impact. In April 2005, Parliament adopted a resolution requiring the Executive to report progress on the MDGs at the national level every two years. Parliament receives regular reviews from sector ministries on progress in implementing policies and programs. As required by the Constitution, it approved the Government Action Plan for 2004-08 and the Guidelines for Economic and Social

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Development for 2005 and 2006. The Executive also sent the EGSPRS to Parliament for hearing in June 2005. Some Parliamentarians participated in regional consultations for the formulation of the EGSPRS. They also took part in a roundtable discussion with the Cabinet on EGSPRS priorities and implementation.

ALIGNMENT 2. Reliable country systems 15. Some progress is being made in strengthening expenditure discipline. In 2001, the Government established a Treasury Single Account that captures all extra budgetary allocations and expenditures. In 2004, Parliament passed a Public Sector and Finance Management Law addressing growing inadequacies in public sector management and reasserting budget discipline. Many of the current expenditure and revenue policies are being aligned with this Law. The GFMIS is also contributing to improving fiduciary controls in the management of public finance. In 2002, the Government updated its debt data base in line with UNCTAD Debt Management and Financial Analysis System and linked it to the Bank of Mongolia’s unified system, thus improving debt management and reporting processes. The World Bank Country Policy and Institutional Assessment (CPIA) performance criterion that assesses the quality of budgetary and financial management places Mongolia at 4 on a scale of 1 (very weak) to 6 (very strong). 16. Efforts have been made to strengthen public procurement. Above a certain amount of procurement, close scrutiny was applied up to the award decision but there were minimal post-award checks. The State Secretary of Finance was responsible for final review and clearance at the award stage and retained the power to delay final approvals, leaving little room for appeals and oversight. Under a new Procurement Act which became effective in February 2006, responsibility to review and award procurement contracts has been decentralized to executing ministries, departments and agencies depending on certain thresholds, while the Ministry of Finance and Economy retains oversight through no-objections and post-award reviews. 17. The Mongolian National Audit Office is the Supreme Audit Institution and reports annually to Parliament about its activities. 18. A more effective Anti-Corruption Law and Anti-Money Laundering Law were approved by Parliament in July 2006. The law provides for the establishment of a new anti-corruption council and an asset and income disclosure system. Parliament has also ratified the UN Convention on Anti-Corruption. Mongolia ranks 99 of 163 in the 2006 Transparency International Corruption Perceptions Index; on a scale from 0 (highly corrupt) to 10 (highly clean), it receives a score of 2.8. 3. Aid flows are aligned on national priorities a. Government leadership of coordination 19. The Ministry of Finance and Economy leads coordination. There are three informal working groups composed of government officials and external partners’ representatives jointly chaired by the Government and external partners, to coordinate support for infrastructure, private sector development and social sectors.

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20. In-country Technical Meetings between the Government and external partners, jointly organized and co-chaired by the Government and the World Bank, are becoming a regular forum for dialogue focused on aligning external assistance around country priorities and improving management of development results. They mark a shift in Government-external partner cooperation and are aimed at replacing CG meetings, the last of which took place in Tokyo in 2003 and was co-chaired by the Government and the World Bank. The meetings focus on priority development results as reflected in the Government’s own socio and economic guidelines and budget documents, and attempt to align with key windows in the budget process. The first and second Technical Meetings took place in February 2006 and October 2006 in Ulaanbaatar. b. Partners’ assistance strategy alignment 21. External partners are making efforts to align their strategies with the EGSPRS and the Government Action Plan. The five major external partners are Japan, ADB, the World Bank, Germany and the USA, accounting for approximately 87 percent of gross ODA in 2003-04. Net ODA accounted for 17.3 percent of GNI in 2004.2 Mongolia has been eligible for MCA assistance since FY04. The MCA proposal, which was completed in October 2005, supports private sector-led growth and human development in line with the Government Action Plan. The EC is preparing a Country Strategy Paper and National Indicative Program for 2007-13 which is likely to reflect priorities identified in the forthcoming NDS. ADB prepared a Country Strategy and Program for 2006-08, aligned with EGSPRS priorities. The World Bank Country Assistance Strategy FY05-08 is aligned with the EGSPRS and supports a subset of EGSPRS priorities. USAID approved its Strategic Plan for 2004-08 in September 2003. It is broadly in line with EGSPRS objectives on the acceleration and broadening of sustainable, private sector led growth and more effective and accountable governance. Since 2001, the German Cooperation has focused its support on sustainable economic development, including private sector development with particular focus on SMEs, and the environment, including protection of natural resources, energy efficiency and renewable energies. The UN Development Assistance Framework 2007-11 supports the national development framework as articulated in the forthcoming NDS, the ESGPRS and the Government Action Plan. c. Partnership organization 22. A number of development assistance agencies have strengthened their presence in the country and the region and delegated project management to the field to better participate in daily decision making and improve dialogue and cooperation. USAID and UN agencies maintain a strong presence in the country. ADB has strengthened its Resident Mission. The World Bank program is coordinated by a Country Director based in China and a Country Office in Ulaanbaatar. Almost all projects supported by Germany in the field of technical assistance and cooperation are managed by GTZ in country; German financial cooperation is managed by KfW Headquarters, assisted by a local representative in Ulaanbaatar. While external partners do not have sufficient local technical staff, they make strong efforts to actively participate in the informal working groups. 4. Strengthen capacity by coordinated support

2 See OECD/DAC Aid Statistics at http://www.oecd.org/dataoecd/23/4/1882335.gif

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Coherent and coordinated capacity support 23. External partners are moving toward aligning support for capacity building in line with some of the bottlenecks identified in the EGSPRS, but a coherent capacity building strategy is not yet in place. Efforts are underway to reduce fragmentation in capacity building support. For example, the ADB and the World Bank are providing joint support for civil service reform, procurement and financial management. 5. Use of country systems Donor financing relying on country systems 24. Most external support is still in the form of project assistance. The World Bank has made a first move towards budget support, which relies on country systems, through a series of PRSCs, the approval of which, however, is still pending. Other external partners, including the EC, the ADB and Sweden, have expressed interest in co-financing future PRSCs. 25. No externally-financed project assistance uses national procurement or financial management systems, with the only exception of some project components relying on National Competitive Bidding. 6. Strengthen capacity by avoiding parallel implementation structures PIUs progressively phased out 26. For externally-financed projects, Project Implementation Units (PIUs) are the most common project implementation arrangement. However, there is a tendency towards the use of lighter PIU structures. For example, implementation of the World Bank-financed Rural Education and Development Project is supported by a small PIU, headed by a Project Coordinator, and comprising a Finance Officer, a Procurement Officer, a Project Assistant and a translator. The World Bank Economic Capacity Building Technical Assistance Project is being executed by the Ministry of Finance and Economy through an existing Project Coordination Unit (PCU). The PCU is carrying out day-to-day management of the project activities. Also, the World Bank-financed Index- Based Livestock Insurance Project provides for a PIU located within the Ministry of Finance and Economy to be responsible for the overall implementation and management of the Project. It includes a director, component and provincial or aimag coordinators and other staff with responsibilities for finance, administration, procurement and general administration. In addition to these full-time PIU staff, the Project outlines the possibility of seconding staff members from the Ministry of Food and Agriculture, the Ministry of Justice and the National Statistical Office to work with the PIU on a part-time basis in order to facilitate close collaboration with their respective ministries. 7. Aid is more predictable Disbursements aligned with annual budgetary framework 27. The Government receives a significant and stable annual aid flow each year. Loans are reflected in the budget through a debt management and financial analysis system. During the February 2006 Technical Meeting, external partners discussed how to better align external support with the Government’s own planning and budgeting cycle.

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The Government is developing a debt management strategy to follow up on these discussions. 8. Aid is untied 28. Multilateral assistance, which accounted for approximately 40 percent of gross ODA in 2004,3 is untied. All German aid is untied. United aid might increase through expected increases in funding from other bilateral partners that as a policy provide only untied aid.

HARMONIZATION 9. Use of common arrangements or procedures 29. ADB and the World Bank are coordinating their support in the education and transport sectors. ADB, the World Bank and Japan are coordinating their support in the health sector around common sector strategies and common results frameworks. External partners are working toward coordinated and harmonized procedures to support the implementation of the Education Master Plan. They are working together to support the Government in developing a proposal for funding from the Education for All—Fast Track Initiative that Mongolia joined in September 2006. 10. Encouraging shared analysis a. Joint missions 30. Most external partners carry out missions independently and the Government has not yet requested that more missions are conducted jointly. b. Analytical partnership 31. Partnerships in external analytical support are emerging. ADB and the World Bank are coordinating their portfolio reviews. In 2003, the World Bank prepared a Country Procurement Assessment Review (CPAR) in cooperation with the the Government and ADB. ADB, Germany, Japan and the World Bank are jointly carrying out analytical work in rural development and decentralization in partnership with the Government. The World Bank and ADB conducted a joint Country Gender Assessment and Civil Society Assessment. The World Bank is conducting poverty and household surveys in close collaboration with the Government and UNDP. External partners have posted 20 documents on the Country Analytic Work website as of October 2006.4

MANAGING FOR RESULTS 11. Results oriented frameworks a. Quality of development information 32. The quality and availability of poverty-related data is improving. The Government prepared a national statistical development strategy, with the support of a multi-donor Trust Fund for Statistical Capacity Building, managed by the World Bank. The strategy was launched in March 2006 and external partners have expressed their intentions to coordinate their support around this strategy, as well as their commitment to

3 See OECD/DAC Aid Statistics at http://www.oecd.org/dataoecd/23/4/1882335.gif 4 www.countryanalyticwork.net

7 December 31, 2006 financing it. The National Statistical Office conducts annual Household Income and Expenditure Surveys. It conducted a census in 2000, a Labor Force Sample Survey and a Living Standards Measurement Survey in 2002/03. It is planning updated poverty surveys as input into the NDS and the Government Action Plan. b. Stakeholder access to development information 33. Information on Government policies is easily accessible and efforts are being made to further improve public access to data. The Poverty Research Group was regularly publicizing information on EGSPRS implementation through its bi-monthly information sheet entitled “Poverty Issues,” as well as through other publications and newspapers. The Government printed 1200 copies of the EGSPRS in Mongolian and 400 copies in English, and distributed them to governmental and non-governmental organizations, citizens, as well as all provinces or aimags and districts or soums during regional seminars. However, data and analysis conducted to inform the design of public policy, such as raw poverty data from the Living Standard Measurement Survey and Environmental Impact Assessments are not made available to the public. 34. The Government has an updated website with information on Cabinet meetings and other relevant government documents, including the Government Action Plan and draft laws. The Open Society Forum website also provides updated information on current policy issues and has detailed information on the Government budget for 2004, 2005 and 2006 as well as the draft 2007 budget.5 c. Coordinated country-level monitoring and evaluation 35. The Government is taking steps to develop a country-level M&E system. In February 2006, UNDP initiated a system-wide project to improve the Government’s ability to monitor the MDGs and the implementation of the Government Action Plan. The Ministry of Finance and Economy leads the MDG monitoring using the database DevInfo, in cooperation with the Ministry of Foreign Affairs and the National Statistical Office. In April 2004, the Government approved the creation of an EGSPRS M&E system consisting of two main components: a Strategic Management Section and an Information Collection, Processing and Analysis Section. While the Strategic Management Section activities have been focused on preparing and disseminating participatory reports on the EGSPRS implementation process as well as on reviewing and improving the strategy, the activities of the Information Collection, Processing and Analysis Section have mainly focused on collecting and analyzing quantitative and qualitative information on EGSPRS implementation. However, because the EGSPRS is not fully integrated with the other government strategies, the EGSPRS M&E system does not yet feed into policy design and budgeting.

MUTUAL ACCOUNTABILITY Development effectiveness assessment frameworks 36. Mongolia endorsed the Paris Declaration on Aid Effectiveness. The Government and external partners reviewed a harmonization action plan at the 2003 CG meeting and

5 http://www.open-government.mn/english/phpgov/index.php? vlink=indexhome.php&vmenunum=100&vurl=/phpgov/index.php&vlang=1; http://www.openforum.mn/index.php

8 December 31, 2006 are now considering steps for its implementation. They have not yet updated the harmonization action plan in the context of the Paris Declaration.

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Bibliography ADB (2003), Country Strategy and Program Update (2005 – 2006). Mongolia. Manila. ______(2005), Country Strategy and Program 2006-2008 – Mongolia. Manila ADB and World Bank (2005), Mongolia. Country Gender Assessment. Manila. Aid Harmonization and Alignment (2006), Initiatives for Mongolia . Constitution of Mongolia 1992. EIU (2006), Mongolia Country Report (November). London. Government of Mongolia (2003), Economic Growth Support and Poverty Reduction Strategy. Ulaanbaatar. ______(2004), Action Plan of the Government of Mongolia for 2004-2008. Ulaanbaatar. ______(2004), Millennium Development Goals: National Report on the Status of Implementation in Mongolia . Ulaanbaatar. ______(2005), Economic Growth Support Poverty Reduction Strategy. Implementation Progress Report 2004. Ulaanbaatar. IMF and World Bank (2003), Mongolia Poverty Reduction Strategy Paper Joint Staff Assessment. Washington DC. ______(2005), Mongolia Poverty Reduction Strategy Paper Progress Report Joint Staff Advisory Note. Washington DC. JBIC (2001), Poverty Profile Executive Summary: Mongolia. Tokyo. MCC (2006), Mongolia Country Status Report. Washington DC. UN (2006), United Nations Development Assistance Framework 2007-11. Ulaanbaatar. VENRO (2003), PRSP-Watch. Länderprofile: Mongolei (September). Berlin. World Bank (2002), Mongolia Public Expenditure and Financial Management Review. Washington DC. ______(2003), Mongolia Country Procurement Assessment Report. Washington DC. ______(2004), Country Assistance Strategy for Mongolia. Washington DC. ______(2004), Mongolia Poverty Reduction Support Credit. Project Information Document. Washington DC. ______(2004), Mongolia: World Bank Vice-President Reaffirms Support for New Coalition Government. Washington DC. ______(2005), Mongolia Poverty Reduction Strategy Paper Progress Report Joint Staff Advisory Note. Washington DC. ______(2005), Mongolia: Second Private Sector Development Credit Project. Project Appraisal Document. Washington DC. ______(2006), Mongolia – Governance Assistance Project. Project Information Document. Washington DC. ______(2006), Mongolia Poverty Assessment. Washington DC.

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______(2006), The Government of Mongolia - External Partners Cooperation Intensified (Press Release).

Related websites ADB Mongolia http://www.adb.org/Mongolia/default.asp Government of Mongolia and External Partners Technical Meeting, Ulaanbaatar, October 9-10, 2006 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/MON GOLIAEXTN/0,,contentMDK:21082912~menuPK:2099377~pagePK:64027988~piPK:6402798 6~theSitePK:327708,00.html GTZ Mongolia http://www.gtz.de/en/weltweit/asien-pazifik/612.htm JICA Mongolia http://www.jica.go.jp/mongolia/english/index.html KfW Mongolia http://www.kfw- entwicklungsbank.de/EN_Home/Laender_und_Projekte/Asia62/EastAsiaan28/Mongolia54/index. jsp Millennium Challenge Corporation http://www.mca.gov/index.php Transparency International: Corruption Perception Indexes http://www.transparency.org/policy_research/surveys_indices/cpi USAID Mongolia http://www.usaid.gov/mn/ World Bank Country Policy and Institutional Assessment (CPIA) http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:2093360 0~pagePK:51236175~piPK:437394~theSitePK:73154,00.html