CPS Final Review Validation of the Country Partnership Validation Strategy Final Review, 2017–2020

Independent Evaluation

Raising development impact through evaluation Validation Report April 2021

Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

This is a redacted version of the document, which excludes information that is subject to exeptions to disclosure set fourth in ADB’s Access to Information Policy.

Independent Evaluation: VR-25

NOTES

(i) The (FY) of the Government of the Mongolia ends on 31 December.

(ii) In this report, “$” refers to dollars.

(iii) For an explanation of rating descriptions used in ADB evaluation reports, see ADB. 2015. 2015 Guidelines for the Preparation of Country Assistance Program Evaluations and Country Partnership Strategy Final Review Validations. Manila.

Director General Marvin Taylor-Dormond, Independent Evaluation Department (IED) Deputy Director General Véronique N. Salze-Lozac'h, IED Director Joanne Asquith, Thematic and Country Division, IED

Team leader Tomoo Ueda, Principal Evaluation Specialist, IED Team members Sergio Villena, Evaluation Officer, IED Jullie Ann Palomares, Evaluation Assistant, IED

The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED management, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.

In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the IED does not intend to make any judgments as to the legal or other status of any territory or area.

Abbreviations

ADB – ANR – agriculture, natural resources, and rural development CAREC – Central Regional Economic Cooperation COBP – country operations business plan COVID-19 – coronavirus disease CPS – country partnership strategy CPSFR – country partnership strategy final review CPSFRV – country partnership strategy final review validation report EFF – Extended Fund Facility EIRR – economic internal rate of return FDI – foreign direct investment GAP – government action plan GDP – HDI – ICT – information and communication technology IED – Independent Evaluation Department IMF – International Monetary Fund JFPR – Fund for Reduction MDG – Millennium Development Goal MFF – multitranche financing facility NDS – National Development Strategy

NO2 – nitrogen dioxide NPL – non-performing loan NSO – nonsovereign operations PBL – policy-based lending PCR – project completion report PMT – proxy means testing

PM2.5 – particulate matter ≤ 2.5 micrometers in diameter PRC – People’s Republic of PSD – private sector development PSM – public sector management SDG – Sustainable Development Goal SMEs – small and medium-sized enterprises

SO2 – sulphur dioxide SPS – sanitary and phytosanitary TA – technical assistance WUS – water and other urban and services

Currency Equivalent (as of 28 February 2021)

Currency unit – togrog (MNT) MNT1.00 – $0.00035144 $1.00 – MNT2,845.43 Contents

Acknowledgments ix Executive Summary xi

Chapter 1: Rationale and Context 1 Validation Purpose and Rationale 1 Country Context 2 Recent Economic Performance 3 Key Challenges 8 Government Development Plans in the Context of the Country Partnership Strategy, 2017–2020 10 Country Partnership Strategy and ADB Portfolio 12

Chapter 2: Assessment of the Mongolia Country Program 15 A. Relevance 15 B. Effectiveness 23 C. Efficiency 32 D. Sustainability of the Country Program 36 E. Development Impacts 39 F. ADB and Borrower Performance 43 G. Quality of the Country Partnership Strategy Final Review 45

Chapter 3: Conclusions, Lessons, Issues, and Recommendations 46 Conclusions 46 Lessons 47 Key Issues 48 Recommendations 49

Appendixes 50

1. ADB Country Portfolio For Mongolia During the Country Partnership Strategy, 2017–2020 51 2. Sovereign Loans and Grants Planned and Approved in the Mongolia Country Partnership Strategy, 2017–2020 from ADB Funds 70 3. Linked Document 73 4. Self Assessments of Completed Projects 74

Acknowledgments

This validation report is a product of the Independent Evaluation Department (IED) of the Asian Development Bank (ADB). The validation was led by Tomoo Ueda. Team members were Sergio Villena and Jullie Ann Palomares. The report benefited from the overall guidance of IED Director General, Marvin Taylor-Dormond; Deputy Director General, Véronique Salze-Lozac’h; and Directors Joanne Asquith and Walter Kolkma (until 18 December 2020).

Consultants who supported the preparation of the validation report were Javzandulam Ganbold, Alexis Arthur Garcia, Paul Holden, and Elizabeth Lat.

Valuable comments for the draft report were received from Barry Hitchcock, former ADB Mongolia Resident Mission Country Director (2001–2006); and Hyun Son, Principal Evaluation Specialist, IED.

The team is grateful to ADB staff at headquarters and the Mongolia Resident Mission, officials from the Government of Mongolia, and other stakeholders for useful discussions and inputs.

The Independent Evaluation Department retains full responsibility for this report.

Executive Summary

The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has validated the Mongolia country partnership strategy (CPS) final review, 2017–2020. The validation concluded that the program was successful on the borderline. It found the program was relevant, effective, less than efficient, likely sustainable, and with satisfactory development impact. The final review rated ADB’s program successful: highly relevant, effective, less than efficient, and likely sustainable, with a satisfactory development impact. The validation drew from information presented in the CPS final review; relevant project documents; analysis of available country data; and interviews with a range of stakeholders and ADB staff. Due to the outbreak of the coronavirus disease (COVID-19) pandemic, interviews with government officials and other stakeholders were conducted online, and no country visit was undertaken.

Country Context to a slump in commodity prices, substantial public spending, and a sharp decline in the exchange Mongolia has an area that covers 1.6 million rate. The growth rate declined steeply from the square kilometers (km2) and is the world’s most earlier rapid expansion of the economy (real GDP sparsely populated country. Its population as of increased by over 40% from 2011 to 2013) to mid-2020 was estimated to be 3.3 million and annual real GDP growth of 7.9% in 2014 and 2.4% population density was less than two persons per in 2015. Growth then resumed and was stable km2. Nevertheless, Mongolia is highly urbanized— during 2017–2019. During the 2016 crisis, the nearly 70% of residents live in urban areas. Most fiscal deficit increased to the equivalent of 15% of live in the capital of , which is home to GDP, the exchange rate depreciated by 25%, and over half the country’s population. foreign exchange reserves were rapidly depleted.

Over the past quarter of a century, Mongolia has Before the COVID-19 crisis struck, the economy experienced rapid growth, with gross domestic appeared to be improving, with robust growth product (GDP) per capita increasing by a factor of forecast and optimistic prospects for continued three. Over the same period, GDP growth in real debt reduction. In the 3 years following the 2016 terms averaged over 6% per year. GDP amounted crisis, the fiscal deficit improved by 17-percentage to $13.6 billion in 2019, about $4,350 per capita. points of GDP, as revenues rose to 31.3% of GDP, Mongolia has a high Human Development Index and expenditures declined to 28.7%. International (HDI) score and is ranked 92 out of 189 countries. reserves, which had fallen to the equivalent of From 1990 to 2018, its score rose by 26%. 2.4 months of imports, rose to 5 months of However, 28% of the population live below the imports. However, risks remain because of the national poverty line of $2.70 per day. high cost of debt servicing and the exposure of the economy to fluctuations in commodity prices. Mongolia has vast resources, which are currently valued by the International Monetary Mongolia has moved toward middle-income Fund (IMF) at $1 trillion–$3 trillion. , , country status, driven by export-led industries in and are the main mined, along with and, to a much lesser extent, agriculture. molybdenum, silver, and uranium. Minerals However, the COVID-19 pandemic is having a constitute more than 80% of exports. substantial negative impact on the economy in the Nevertheless, the transition to greener energy by form of slowing exports, a widening current major economies—including the People’s Republic account deficit, and a fall in foreign direct of China (PRC), Mongolia’s main purchaser of investment (FDI). Mongolia’s GDP is estimated to coal—could have an impact on coal exports. have declined by nearly 10% in the first half of 2020. Declining budget revenues and an The economy is vulnerable to shifts in commodity increasing fiscal imbalance will likely lead to a rise pricing. In 2016, the economy went into crisis due in public debt. Access to finance has declined, xii Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

with a fall in domestic credit, and commercial The three strategic pillars of the CPS, 2017–2020 banking indicators have also deteriorated. Poverty were: (i) promoting economic and social stability, remains a significant problem as the country (ii) developing infrastructure for economic struggles to translate the gains of economic diversification, and (iii) strengthening expansion into benefits for the poorer sections of environmental sustainability. There were also two the population. Currently, 28% of the population cross-cutting areas: improving the transparency live below the national poverty line, and both rural and accountability of public sector management and urban populations are vulnerable to the fall in (PSM), and greater gender equality. economic activity. Nevertheless, the mining sector showed signs of recovery in the second half of the This validation covers the ADB CPS, 2017–2020 year, reflecting rising demand for coal and copper period, which was aligned with the GAP. The in the PRC. previous CPS, 2014–2016 was approved in 2014. Mongolia is an OCR blend country in that it Government Development Plans receives concessional and non-concessional OCR.

The Government Action Plan (GAP), 2016–2020 set The portfolio during the evaluation period was out a broad-based framework to place Mongolia $1.95 billion. As of end 2020, ADB had approved on a more inclusive and sustainable development 34 loans and 65 technical assistance (TA) projects. path. The GAP highlighted the need to diversify Of these, 94% were sovereign projects, with Mongolia’s economic base, with particular 30 loans and 64 TA projects. Policy-based loans emphasis on the , agriculture, and light (PBLs) comprised a significant amount of the loan industry sectors. The main priorities were to portfolio, and included reforms targeting air “revitalize the economy expediently, restore its quality in Ulaanbaatar, the distribution of social growth, support the social sectors, and improve welfare, and strengthening the banking system. livelihoods.” The measures contained in the GAP, All the PBLs provided budget support linked to the together with those in the Mongolia Development IMF’s EFF. PSM was the largest sector (25%), with Vision 2050, seek to transform Mongolia into an water and other urban infrastructure and services upper middle-income country, with 80% of the (WUS) in second place (19%), followed by population living in the middle- and upper-income transport (14%), and finance (12%). brackets, as well as to totally eradicate extreme poverty by 2030. The plans also aim to achieve Assessment broadly shared gains in human development while preserving the country’s ecological balance. This validation rates the program relevant. The country partnership strategy final review (CPSFR) ADB Objectives and Program rated the CPS highly relevant, on the grounds that its objectives were timed to coincide with the The CPS, 2017–2020 was prepared against a parliamentary cycle, ensuring close alignment with background of economic crisis. The response of Mongolia's development priorities; and that the the government was anchored in its Economic CPS was aligned with ADB’s Strategy 2020 and Recovery Program, with multi-donor support Strategy 2030 operational priorities. It concluded centered around an IMF Extended Fund Facility that the CPS was based on careful prioritization (EFF), approved in mid-2017. Substantial and innovative programming of nonsovereign additional support was provided by ADB, the operations (NSO); and contained a mix of PBL and , and bilateral development partners. investment projects that restored stability and A central element of the recovery program was promoted inclusive growth. fiscal consolidation to reduce the budget deficit and lower public debt, which stood at 88% of GDP In a number of areas, CPS objectives were not at the end of 2016. Another key element involved clearly aligned with Mongolia’s priorities. the strengthening of the banking system to The three pillars of the CPS program were very address non-performing loans (NPLs), which rose broad and could have been used to justify almost sharply during the crisis. any intervention. There was no elaboration on how ADB would support diversification, and little focus on agriculture or support for the private sector. Executive Summary xiii

While the CPS described agro-business as a sector indicators were modest. Nor did the annual with great potential that needed nurturing and country operations business plans (COBPs) fully promoting, ADB support for agriculture, natural justify why the CPS priorities had shifted. resources, and rural development (ANR) was just As a consequence, the results framework 5% of the total portfolio. contained outcomes and indicators that were not ultimately related to much of the lending program, There were limitations on the relevance of the because the program was different to what had program’s support to inclusive growth. ADB been originally envisaged. justified the selection of sectors and subsectors in the CPS on the grounds that they were critical to Some elements of the program were relevant. promoting inclusive . The CPS The PBL that combined budget support and the provided little justification for the allocation of improvement in air quality in Ulaanbaatar sector investment beyond indicating that the CPS contributed both to the restoration of economic was “selective within selected sectors based on stability and to environmental upgrading. careful prioritization” without explaining the basis This operation opportunistically supported a for the priorities. For example, there was no controversial initiative by the government banning elaboration on why PSM and WUS sectors received the use of raw coal, while providing finance in the most funding, when the CPS had made PSM, conjunction with the IMF EFF. not as a priority investment sector, but one of two additional CPS crossover themes. Furthermore, It is unclear how the second pillar, developing the first and second pillars received 88% of total infrastructure for economic diversification funding, with an almost even split between them, promoted by itself the diversification of the while the environment pillar received the balance economy. The exchange rate implications of the of 12% even though the GAP emphasized predominance of minerals in Mongolia’s exports “ecological balance.” Although the PBL on air implies that the price competitiveness of non- quality could be classified as having an mineral exports will be lower than in a more environmental component, it also had the goal of balanced economy. Price signals will tend to favor budgetary support, which did not fully offset the the development of the service sector, overwhelming focus on the other sectors. which suggests that the road component of infrastructure development will not promote Operations over the course of the program export diversification, although it could open the changed substantially and the balance between country to more tourism. Nevertheless, the link sectors in the program was not clearly justified. between infrastructure and diversification is Four sectors—PSM, WUS, transport, and finance— indirect. accounted for 70% of the portfolio. While this balance may have been warranted, there is no This validation rates the ADB Mongolia program justification in the CPS program why this should effective. The CPSFR emphasized that 2 of the 3 have been the case. For example, in the transport original impact targets, and 10 of 14 strategic sector program, there are several references to the pillar targets, were achieved and thus self-assessed need to promote agricultural exports, yet little of as effective. In arriving at this assessment, the final the program was directed towards this end. review judged the finance sector interventions as less than effective. It also noted that there was The results framework was not adjusted during the insufficient activity to assess the energy program period to reflect changes in the program. because the main project had just started The lending portfolio over the period may have implementation. been appropriate and may have reflected shifting priorities, but the results framework was not The WUS sector program made a substantial altered or properly updated to reflect the changes, difference to the quality of water. Eleven which weakened the relevance of the program. wastewater treatment plants are being In addition, the results framework itself contained constructed and are expected to be completed indicators that had only a tangential relationship during 2021. There was a substantial increase in with the objectives; and even where they were the number of users connected to water supply related, the targets of several of the outcome xiv Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

pipelines. User survey respondents indicated developing a legal framework for reforming the a high level of satisfaction with the improvements. health sector. ADB’s long working relationship in the sector helped it to process COVID-19-related The largest portion of infrastructure investment loans. was in the urban sector through the two tranches of the Ulaanbaatar Urban Services and Ger Area The most recent monitoring of air quality in Development multitranche financing facility (MFF). Ulaanbaatar during the 2019–2020 winter found Various municipal facility plant contracts have that concentrations of particulate matter had been completed, including the water treatment declined sharply by about 40% compared with the plant that incorporated supervisory control and previous year. However, concentrations of sulfur

data acquisition (SCADA) systems; a heating dioxide (SO2) rose over the same period by 80% network; a kindergarten and vocational training and concentrations of nitrogen dioxide (NO2) by center; and the rehabilitation of the sewerage 21%. However, this has not been proven to be network and central wastewater treatment plant. related to the burning of raw coal substitutes. is ongoing and the second tranche is due to be completed in 2022. This validation assessed the program less than efficient. Persistent implementation delays are The performance of the transport program was caused by political volatility, slow start-up periods ambiguous. The program mainly concerned after project approval, and the short time available projects to reduce traffic congestion in for construction in the country. The CPSFR’s self- Ulaanbaatar. The rail network was excluded from assessment rating was also less than efficient. the broader national transport strategy, The CPSFR’s analysis notes that these persistent particularly in relation to the growth of exports. systemic implementation issues spanned the entire A positive feature of the transport program was infrastructure portfolio and led to start-up and the improvement in key roads and higher traffic implementation delays that impeded the delivery speed on the main highways. of targeted results.

The targeted outcomes of pillar 2 (developing ADB introduced several innovations to improve infrastructure for economic diversification) were: portfolio performance. A financial framework improved physical connectivity with international arrangement streamlined the requirement in the markets, increased exports of processed budget law related to the ratification by agricultural products, and improved urban Parliament of each loan project, by delegating the infrastructure and coverage of basic urban approval of individual loan projects to the Cabinet. services. The speed of traffic on improved roads Regular portfolio review meetings were introduced along Central Asia Regional Economic Cooperation and ADB provided substantial training on project (CAREC) corridors increased, but the targets on the rules and regulations. Nevertheless, while volume of traffic were not ambitious and the performance against key portfolio indicators traffic growth may not make a significant improved during the CPS period, Mongolia still contribution to economic diversification. lagged ADB averages for the most part.

Access to finance for businesses in Mongolia The program’s efficiency was mixed, particularly in continues to hold back economic diversification. the PSM and WUS programs. Some sectors with A PBL supported the stabilization of the banking small-scale grant-sourced pilots or community- system and the resolution of NPLs. However, based projects have fared comparatively well, the NPL issue was not resolved, which was e.g., those in the agriculture, industry and trade, compounded by delays in developing a legal and, to some extent, health sectors. framework for dealing with these loans. The program is assessed overall likely sustainable Health interventions have been positive, with but marginally so. The CPSFR rated four of the significant satisfaction being recorded by the major lending operations completed during government’s user surveys. The quality of the 2017–2019 likely sustainable, although the PBL project supporting hospital construction is high, project completion reports (PCRs) emphasized the and there has been substantial progress in need for follow-on engagement. Of the PSM Executive Summary xv

projects, the air quality PBL has helped to reduce because of the government’s commitment to particulate matter in Ulaanbaatar reducing air pollution in Ulaanbaatar. The large substantially because of the ban on the burning of reduction in air pollution from particulate matter raw coal. The second largest WUS project, was a substantial achievement. However, the Southeast Gobi Urban and Border Town the recent increase in the concentrations of SO2 Development Project, has some preliminary results and NO2, which could have a long-run negative that seem to indicate it will likely be sustainable. impact on health, are a concern. These are possibly It is too early to assess the sustainability of the the result of the recent commissioning of a social protection program, as the information and thermal power plant. communication technology (ICT) system that supports it is still under construction. The ADB program supported sectors that were national development priorities. The prioritized The government has made some progress on sector programs were designed to link to the ADB relevant agencies’ capacity building and CPS’s three pillars. Results for the WUS program institutional reform efforts in ANR, education, depend on the outcome of the large investment health, and WUS. However, in the financial sector, under Ulaanbaatar Urban and Ger Area the resolution of the NPLs has proceeded slowly Development Project. The nearly completed and faces risks in view of fiscal and debt Southeast Gobi Urban and Border Town management challenges. In infrastructure, Development Project has had a steady impact. institutional reforms are unfinished. PSM interventions have led to marked Low maintenance budgets persist, particularly in improvements through the Ulaanbaatar Air Quality transport. The mining sector requires highly Improvement Program. The impacts of the capital-intensive investment that does little to transport and finance program were rated less create direct employment. Complementary than satisfactory. Impacts were more identifiable financial sector reform policies have yet to be given for the smaller lending programs, such as those for strong government support. The COVID-19 industry, education, agriculture, and health. pandemic will impact public sector debt because of higher borrowing. NSO performed generally well. The Beijing team of ADB’s Private Sector Operations Department The program had satisfactory (on the borderline) substantially increased the number of business impact. The CPSFR self-assessment rating was development missions to Mongolia and worked primarily based on the impact of the PBL, related closely with the ADB Mongolia Resident Mission to reducing Ulaanbaatar air pollution. In addition, and the Ministry of Finance to arrange two the CPSFR noted ADB's support for pioneering business outreach workshops. Four nonsovereign projects for people with disabilities and to issues projects were approved, totaling $110 million. related to domestic violence. These initiatives were in accordance with the CPS priorities related to Mongolia's inclusive economic IED finds the results of efforts to improve growth, regional cooperation, and climate change, governance and transparency mixed. and are considered relevant. ADB’s long-term local Under pillar 1, promoting economic and social currency loan and the COVID-19 response short- stability, the impact of ADB's support for social term working capital (revolving credit facility) service provision is difficult to ascertain because added value to a number of projects. The program key indicators measured inputs. Other projects, was assessed effective since all projects achieved including those in the finance sector, had timely disbursement and project completion. significant problems in achieving results. The projects were likely sustainable and The relatively low emphasis on private sector development impacts were satisfactory. development (PSD) in the CPS and in the program ADB nonsovereign interventions contributed to stands in contrast to the government’s goal of the adoption of international standards, such as diversifying the economy. environmental best practices, gender mainstreaming, and corporate governance. During Development impacts of PSM under pillar 3, the CPS period, three financial institution projects strengthening environmental sustainability, were validated less than efficient because of their will likely be positive over the longer term, xvi Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

modest contribution to overall financial sector portfolio and was not sharply focused on the development. strategic assistance it could provide towards the government’s National Development Strategy The program’s overall performance was successful (NDS) or GAP. Nevertheless, based on the feedback on the borderline. The CPSFR rated the CPS received during the mission from the government performance successful based on its weighted and development partners, the validation assesses average sector ratings. ADB adjusted its Mongolia ADB performance satisfactory. program in response to changing government aspirations and priorities to achieve economic Government performance. The CPSFR assessed the growth, expand connectivity infrastructure, and government’s performance in the delivery of the address the quality of life. The program mainly country program satisfactory. It justified this rating focused on urban development in Ulaanbaatar and on the basis that the borrower had been through extending budgetary support as part of the IMF long-standing and persistent challenges in project EFF framework through improving Ulaanbaatar air implementation, but government counterparts quality, NPLs, and social protection. ADB had consistently exhibited strong ownership continued its work in the transport, health and across the spectrum of ADB’s operations. ANR sectors, where it has traditionally had The government that came to office in 2017 was expertise. It was also involved in the finance and determined to show a commitment to reforms industry and trade sectors as well as with across many sectors, which it outlined in the NDS. nonsovereign loans to local banks. Experience The new GAP spelled out a set of broad long-term gained through generations of health sector aspirational goals aligned with the Sustainable programs in Mongolia have given ADB a strong Development Goals (SDGs), including for Mongolia foothold in this sector. Its knowledge of the to reach middle-income country status by 2030. challenges faced by the country in its endeavor to However, the government did not maintain a improve the quality of medical services was of consistent platform to coordinate with great value, especially for poorer neighborhoods in development partners, which resulted in some Ulaanbaatar. Assisting the government to fragmentation because of the lack of a strong consolidate its fragmented information and sector development strategy around which telecommunication (IT) systems in social development partners’ policies and interventions protection will bring benefits. The finance and could be harmonized. At times, this resulted in transport programs were less than satisfactory. partners having difficulty responding to The program could have included more direct and government needs. Nevertheless, based on the short-term interventions to support sustainable government’s commitment to reform and on environmental growth. Other than budgetary cooperation from government counterparts, support for the air quality and ANR projects, ADB’s this validation assesses the borrower performance direct impact was limited. satisfactory.

ADB performance. The CPSFR assessed ADB’s Lessons performance satisfactory based on its responsiveness to Mongolia’s development needs, Over generalized pillars and outcomes indicators strong administrative support, and its role as that are insufficiently specific and relevant makes Mongolia’s leading development partner. the development objectives of the CPS difficult to This validation confirms that ADB is the leading monitor. They provided little strategic guidance on multi-lateral development bank in Mongolia. how ADB could best help Mongolia to meet its Most of the sector project management units said development challenges. The pillars of the they had received quick and responsive support Mongolia CPS could have been used to justify from the resident mission and ADB headquarters. almost any intervention. Ideally, the pillars of the However, the CPS only partly considered the CPS should provide strategic guidance for the recommendations that had been made by IED in entire assistance program. The overly broad pillars the CPSFR validation report in 2015. Projects did of the CPS, 2017–2020 did not contribute in this not always demonstrate the knowledge that had regard. Furthermore, the annual COBPs were not been acquired in other projects and regions. updated to reflect changed priorities, nor were the ADB structured its focus broadly on its past key outcome and output indicators. Executive Summary xvii

Sector-based policy platforms and development Investing in environmental sectors in Mongolia can plans can provide a framework that development have long term payoffs. ADB invested most heavily partners can consider for future priorities and in two of the three pillar areas. Climate change investment pipelines. In Mongolia, there was no impact assessment is vital in balancing economic established sector development program or growth through mining industry, rural regions development partner platform where partners dependent on agriculture and tourism, and serious could discuss future priorities and investment and pollution in the capital. pipelines with the government and with each other, even though there was good informal Key Issues consultation. The impact of the COVID-19 pandemic and the More focused reforms can improve the efficiency post recovery period could cause further erosion of of PBL, and program design could have focused the fiscal balance. The government has put in place entirely on strengthening PSM. Using the PBL economic stimulus measures amounting to the modality, ADB was able to opportunistically equivalent of 7% of GDP. Further stimulus may be support the government in its controversial necessary, but that could compromise the decision to ban the burning of raw coal in country’s debt position and may require full Ulaanbaatar, which resulted in a substantial support from ADB and other development reduction in particulate matter air pollution. partners. As a result, there is substantial The PBL was sharply focused, which contributed to uncertainty regarding the appropriate formulation its success. However, the use of PBL for social of policy in the immediate future. welfare reform was more questionable. The program provided budget support, nominally Diversification of the economy remains an issue to bolster social programs, but the policy actions that was not sufficiently addressed during CPS, focused as much on improving fiscal policy 2017–2020. The difficulty of creating jobs and management as on social welfare. diversifying the economy, while the majority of investment is in the highly capital-intensive mining Promoting a close working relationship of sector, is one of the key challenges for the next CPS Mongolia with its key neighbors, donor agencies, period. Without diversification, the economy will and regional bodies can minimize is geographic struggle to create jobs and alleviate poverty. disadvantages. Close working relationship with its The effect of the exchange rate on relative prices key neighbors, donor agencies, and regional suggests that development of the services sector, bodies will help mitigate some of the geographic including construction, will become increasingly disadvantages. Since Mongolia is landlocked, important. Supporting job creation through a clear it requires efficient transport and border strategy is an important priority. processing. A close working relationship with its neighbors could help to minimize Mongolia’s The business environment in Mongolia geographic disadvantages in transport, regulation, is challenging. Greater focus on promoting PSD environmental issues, and disaster risk will promote diversification of the economy. management. This includes improving access to finance, strengthening the legal framework for business, Without close coordination between ADB and competition policy, regulation, and land property relevant ministries and domestic agencies, project rights. implementation can be compromised. Frequent staff changes in ministries severely delayed the Ongoing support for Mongolia’s social protection implementation progress of some projects. system will be an important component of the For example, while the government was strongly poverty alleviation strategy but it requires further committed to simplifying phytosanitary and reform, better targeting, and modern data sanitary (SPS) regulations for border trade, delays systems. Targeting assistance at those who are resulting from staff changes at the ministry level most in need is an urgent priority. Both ADB and meant that little progress was made. the World Bank have extended support for the modernization of information and data systems related to social services, but Mongolia’s xviii Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

72 welfare programs are too complicated to be (i) Place emphasis on supporting the national effectively tracked and managed. vaccination program and monitor the emerging COVID-19 related risks in Mongolia. With the Implementation capacity remains problematic in economic downturn likely to be prolonged, several areas, which leads to delays and low ADB should prioritize support for the national efficiency of projects. The effectiveness of the ADB vaccine program. The pandemic has resulted in a resident mission is hampered by insufficient staff sharp fall in growth and a severe deterioration of resources. This has contributed to implementation macroeconomic variables. The development delays, particularly in an environment where there community may well need to provide ongoing is significant staff turnover in counterpart budget support as well as social sector measures ministries. to alleviate the impact of the crisis on poverty. Continuing support for the provision of health Underinvestment in and lack of attention to services to vulnerable households in Ulaanbaatar is operation and maintenance risks longer-term needed. A “business as usual” strategy for infrastructure sustainability. Infrastructure Mongolia should be avoided. Delaying a new CPS vulnerabilities exist in many areas, particularly in until the uncertainty over the short- to medium- the transport, water, and energy sectors. Over 80% term impacts of the COVID-19 become apparent is of the freight transport between the Russian an option that should be seriously considered. Federation and the PRC passes through the There may be further spread of COVID-19 with Mongolian rail system, but the rail network is various virus variants before community immunity badly in need of both maintenance and upgrading. is achieved through the government’s vaccination Investment in Mongolia’s energy infrastructure has program. When the CPS is developed, ADB should not kept pace with the rapid growth of the ensure that its pillars are sufficiently delineated to economy. The electricity grid is still very inefficient. provide strategic guidance to the program. The challenge for infrastructure will be to catch up with the rapid growth of Mongolia over the past (ii) Place a strong emphasis on job creation 20 years and if it is to do that additional resources and economic diversification focusing on private must be devoted to maintenance. sector development and the improvement of the business environment. This will require much more Lack of long-term donor coordination mechanism focus on promoting the private sector through in key sectors and lack of efficient results reforms to: access to finance, property rights, monitoring affects the delivery of program. Due to the legal system for business, competition policy, the lack of a policy platform and a sector regulation, and developing access to long-term development platform, except in a few areas capital in the non-mining sectors. Possibilities for (e.g., air quality), donors’ interventions appear to job creation exist in value chains associated with focus on where they have prior experience and the mining industry, tourism, construction, their own priorities. and transport, which are all in the non-traded goods sectors. However, diversification is a long- The current CPS period’s investment on the term process and requires a strategic time horizon environment, pillar 3, was limited. Despite the CPS that may be longer than a single CPS period, placing emphasis on Sustainable Environmental which implies this theme should continue through Growth, climate change impacts and risk are not successive CPSs. monitored and had no clear results framework. While good progress has been made in improving (iii) Expedite support to the full the quality of air in Ulaanbaatar, risks remain. operationalization of the social welfare digital monitoring IT systems to ensure that social Recommendations assistance goes to those who are most in need. This will require supporting the government in This validation offers the following six streamlining the large number of different benefit recommendations. schemes by finalizing and operationalizing the digital platform to correctly identify eligible ADB should: households. In addition, ADB should incorporate

Executive Summary xix

into the platform the results of the postponed infrastructure investment so it can catch up with 2021 proxy means testing (PMT) survey. the country’s growth, without adequate maintenance, the benefits of infrastructure (iv) Ensure that the resources available to the investment will be reduced. Mongolia resident mission are commensurate with the ambition of the next CPS and the need for ADB (vi) Ensure that the ADB environmental to play a stronger role in donor coordination. assistance to Mongolia consolidates gains It should focus on the key challenges hampering achieved so far and that additional side effects implementation of programs and projects in the (such as increased NO2 and SO2 emissions) do not business environment, infrastructure provision, compromise gains to date. ADB should build on regulation, and safeguards, as well as in NSO. the experience gained through its PBL support for clean air in Ulaanbaatar. (v) Give a much stronger emphasis to infrastructure maintenance in the next CPS. While the focus should be on assisting Mongolia’s

CHAPTER 1 Rationale and Context

Validation Purpose and Rationale

1. The Asian Development Bank (ADB) is preparing a country partnership strategy (CPS) for Mongolia covering 2021–2024, aiming to align this strategy with Mongolia’s Government Action Plan (GAP), 2020–2024. 1 To support the new CPS, this evaluation assesses ADB performance against the Mongolia CPS, 2017–2020. 2 This report aims to (i) validate the findings of the country partnership strategy final review (CPSFR) of the Mongolia CPS, 2017–2020 3; (ii) identify lessons and recommendations for ADB’s future operations; and (iii) contribute to the formulation of the forthcoming CPS, 2021–2024 for Mongolia. The CPSFR, 2017–2020 assessed ADB’s operations successful, on the basis of assessing the program highly relevant; effective in achieving results that are likely to be sustainable; with satisfactory development impacts. However, the program was rated less than efficient.

2. The validation gathered evidence from a review of the CPS and relevant literature; and consultations with government agencies, development partners, and other stakeholders from ADB headquarters and the ADB Mongolia Resident Mission during 16 June to 10 September 2020 (conducted online). 4 As a result of the outbreak of the coronavirus disease (COVID-19) pandemic, this validation was conducted without a country visit. The validation has been prepared in accordance with Independent Evaluation Department’s (IED) guidelines. 5

3. In the Mongolia CPSFR validation report (CPSFRV), 2012–2016 6, IED concluded that given the rapid changes in the economic environment, ADB’s CPS should be closely aligned with the political cycle of Mongolia and because of the volatile political environment, flexible. The CPSFRV made four recommendations: (i) promote diversification of the economy with a focus on improving the productivity of agribusiness and small and medium-sized enterprises (SMEs), (ii) reduce project implementation delays, (iii) improve value addition of projects in response to government needs by embedding innovative and knowledge solutions as part of financing, and (iv) prioritize and support government maintenance expenditure in infrastructure and health and prioritize social protection.

4. To restore macroeconomic stability and place Mongolia on a path to fulfill its long-term development vision, CPS, 2017–2020 lists the following activities: (i) create a more diversified and labor-intensive economy, (ii) foster a more inclusive social service delivery system, and (iii) address the rapid pace of environmental degradation and respond to the impacts of climate change. Given the all-encompassing and cross-cutting nature of these development challenges, the CPS sought to transcend a sector-focused approach by addressing the key impediments to comprehensive and sustainable growth

1 Government of Mongolia. 2020. Government Action Plan 2020–2024. Ulaanbaatar. 2 ADB. 2017. Country Partnership Strategy: Mongolia, 2017–2020—Sustaining Inclusive Growth in a Period of Economic Difficulty. Manila. 3 ADB. 2020. Country Partnership Strategy Final Review: Mongolia, 2017–2020. Manila. IED received the self-assessed CPSFR on 6 April 2020 via email from the deputy country director of the Mongolia Resident Mission of the East Asia Department (EARD). 4 Interviews were conducted with: officials of the Ministry of Finance, director general of the Development Finance Department, the , the Ulaanbaatar Municipal Council, and the following government ministries: Energy, Urban Development, Food, Agriculture, and Light Industry; Environment and Tourism; and Labor and Social Protection. 5 IED. 2015. Guidelines for the Preparation of Country Assistance Program Evaluations and Country Partnership Strategy Final Review Validations. Manila: ADB. 6 ADB. 2020. Country Partnership Strategy Final Review: Mongolia, 2017–2020. Manila. IED received the self-assessed CPSFR on 6 April 2020 via email from the deputy country director of the Mongolia Resident Mission of the East Asia Department. 2 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

while strengthening public sector management (PSM) and reducing gender inequality. This resulted in the adoption of three pillars to: (i) promote economic and social stability through support to inclusive growth, essential social services, and structural reform; (ii) develop infrastructure for economic diversification through improved physical connectivity, urban economic growth; and (iii) environmental sustainability, natural resource management, climate change, and disaster risk management. The CPS indicated that its priorities were closely aligned with the GAP, 2016–2020 7, which sets out a broad-based plan to foster a more inclusive and sustainable development process. The CPS also included the goal of improving the transparency and accountability of PSM systems to ensure appropriate and effective use of public financial resources. Careful attention was also paid to gender issues across ADB operations, given the country’s gender inequalities.

5. The validation covers all Mongolia ADB loans (sovereign and nonsovereign), grants, and technical assistance (TA) projects approved during 2017–2020, as in the self-evaluated CPSFR by the Southeast Asia Department (SERD) with reference to ADB’s COVID-19 related support in late 2020. This validation also reviewed projects that were approved before 2017 but were still active and implemented during the validation period. A list of the ongoing and completed loans, grants, nonsovereign operations (NSO), and TA projects is provided in Appendix 1 Tables A1.4–A1.6. 8

6. Limitations. The validation faced several limitations. The evolving COVID-19 pandemic prevented the customary IED mission. Project completion reports (PCRs) were largely absent: PCRs were prepared for one sovereign and three nonsovereign loans only making it difficult to fully assess the program’s effectiveness, sustainability, and development impacts.

Country Context

7. Background. Mongolia covers an area of 1.56 million square kilometers. Its population in mid-2020 was estimated to be 3.28 million, resulting in a population density of less than two persons per square kilometer, making it the most sparsely populated country in the world. However, it is highly urbanized, with nearly 70% of inhabitants living in urban areas; over half the population of Mongolia resides in the capital, Ulaanbaatar. 9

8. Government. The Mongolian People’s Republic was established in 1924 and remained in the sphere of influence of the until its collapse in 1991. Mongolia was one of the few countries that peacefully switched to a democratic form of government. In its 1992 Constitution, Mongolia adopted a semi-presidential system, with the government formed by a majority of votes in Parliament but with a directly elected President, thereby guaranteeing a separation of powers. However, the transition from a centrally planned to a market-based economy initially resulted in high and economic hardship. Mongolia depended on the former Soviet Union and its satellites for 90% of its trade and investment and transitioning to a capitalist economy generated large adjustment costs.

9. Resources. Mongolia has vast mineral resources. The International Monetary Fund (IMF) identifies it as one of 29 resource-rich developing countries in the world. 10 Coal, copper, and gold are the main minerals that are mined along with molybdenum, silver, and uranium. The value of Mongolia's mineral wealth is estimated at $1 trillion–$3 trillion. 11 Minerals constitute more than 80% of Mongolia's exports.

7 Government of Mongolia. 2016. Action Program of the Government of Mongolia for 2016–2020. Ulaanbaatar. 8 In this report, ADB projects that are the subject of this validation are not footnoted when they are referred to the text. Projects are described in detail in Appendix 1. The validation list in Tables A1.4–A1.6 encompasses the stated coverage of the CPSFR, 2017–2020 review and also covers some operations included in the CPSFR, 2017–2020 that were not mentioned in the CPSFRV, 2012–2016. 9 Ulaanbaatar also has the distinction of being the coldest national capital in the world. 10 IMF. 2012. Macroeconomic Policy Frameworks for Resource-Rich Developing Countries (Policy Paper). Washington, DC. 11 IMF. 2015. IMF Working Paper WP/15/90. Washington, DC. Rationale and Context 3

However, the transition of the People’s Republic of China (PRC)—which is Mongolia's main purchaser of coal—to other forms of energy could impact coal exports.

Growth and Human Development

10. Mongolia’s gross domestic product (GDP) totaled $13.6 billion in 2019. Over the past quarter century Mongolia has experienced rapid growth—GDP per capita has increased by a factor of three, to an estimated $4,350 in 2019. Over the same period, GDP growth in real terms averaged 6.25% per year. The World Bank classified Mongolia as an upper-middle income country in 2015 when its per capita gross national income crossed the classification threshold, but it was reclassified as a lower-middle income country in 2016 as a result of exchange rate fluctuations. 12 Some 28.4% of the population live below the national poverty line of $2.70 per day. Mongolia has a “high” human development index (HDI) score and is ranked at 92 out of 189 countries in 2019. From 1990 to 2018 its HDI score rose by 26% from 0.583 to 0.735. 13 There has been a corresponding substantial improvement in social indicators; life expectancy has risen by more than 10% since 1990, primary school enrollment stands at 97%; and maternal and child mortality have plummeted.

Recent Economic Performance

11. Mongolia’s economy grew by over 40% a year from 2011 to 2013. However, from 2014–2020 economic growth declined sharply. Growth fell to 7.9% in 2014 and to 2.4% in 2015. In 2016 the economy experienced a crisis as a result of a slump in commodity prices, substantial government overspending, and sharp decline in the exchange rate. The fiscal deficit increased to the equivalent of 15% of GDP, the exchange rate depreciated by 25%, and foreign exchange reserves were rapidly depleted.

12. Extended Fund Facility. The government’s response was anchored in the Economic Recovery Program, which was supported by an IMF Extended Fund Facility (EFF) in mid-2017 of $440 million,14 with substantial additional support provided by ADB, the World Bank, 15 and bilateral development partners (including the PRC, Japan, and Republic of Korea). A central element was fiscal consolidation to reduce budget deficits, and public debt which stood at 88% of GDP at the end of 2016. Another key part of the program involved the strengthening of the banking system, including an assessment of the financial soundness and resilience of the major banking institutions, in particular the Development Bank of Mongolia.

13. Economic Recovery. The EFF program, substantial concessional financing, and a resurgence in the demand for Mongolia’s exports led to a recovery in GDP growth. Growth increased from 1% in 2016 to nearly 7% in 2018 driven by the mining sector and a rise in commodity prices. Annual exports of mineral products, particularly coal, rose by nearly 50% in 2017–2018. In addition, foreign direct investment (FDI) recovered, rising by 27.2%, adding 10-percentage points to growth (Figure 1).

12 World Bank. World Bank Country and Lending Groups. As of the World Bank 2021 fiscal year, lower-middle income countries have a gross national income per capita of $1,036 to $4,046 per annum. 13 United Nations Development Program. 2019. Human Development Report. New York. 14 World Bank Group. 2019. Performance and Learning Review of the Country Partnership Strategy for Mongolia, for the period FY13–FY18. Washington, DC. 15 The World Bank’s support for Mongolia’s economic recovery has mainly been provided through a three-tier Development Policy Financing series. In November 2017, the World Bank Board approved the first Economic Management Support Operation (EMSO) 1 with an amount of $120 million. A second operation, EMSO 2, in the amount of $100 million was approved in July 2019. 4 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Figure 1: Demand Side Contribution to Growth

Source: National Statistics Office of Mongolia. 2019. Monthly Statistical Bulletin, February 2019. Ulaanbaatar.

1. Recent Economic Performance

14. Fiscal Balance. The large negative fiscal balance in 2016, which had been one of the main factors in the crisis, improved by a remarkable 17-percentage points of GDP (Figure 2) in 2017. International reserves, which had fallen to the equivalent of 2.4 months of imports rose to the equivalent of 5 months. Prior to the COVID-19 crisis, Mongolia’s economy appeared to be rapidly improving, with a forecast of robust growth (the Asian Development Outlook 2019 forecast real growth of 5.1% in 2019 and 2.1% in 2020), and optimistic prospects for continued debt reduction. While prospects had improved substantially, the situation remained fragile due to the high cost of debt servicing and the economy remained vulnerable to fluctuations in commodity prices. Governance also continues to be an issue. However, the onset of the COVID-19 epidemic had a severe negative impact on all macroeconomic variables.

Figure 2: Fiscal Balance 2014–2018

GDP = gross domestic product. Source: Ministry of Finance.

Rationale and Context 5

2. Financial Sector

15. Private sector credit. The ratio of private sector credit to GDP in Mongolia in 2019 was equivalent to about 50% of GDP, slightly above the average for lower middle-income countries of 44.3%. 16 Lending to the private sector in Mongolia has increased rapidly. In 2000, the ratio of private sector credit to GDP was less than 7%; it rose to 34% by 2010, and then to 60% in 2013 in association with rapid economic expansion, before declining to just under 50% in 2019 (Figure 3). Nonetheless, access to credit remains a severe constraint for many businesses in Mongolia, particularly SMEs.

Figure 3: Private Sector Credit as a Percentage of Gross Domestic Product: Mongolia and Lower Middle-Income Countries

Source: World Bank. Data. Domestic Credit to Private Sector (% of GDP) (Accessed 12 October 2020).

16. Asset quality decline. The rapid lending growth led to a decline in asset quality with corresponding concerns regarding the stability of the banking system. The IMF pointed out that “weak management and supervision of the banking sector has contributed to the frequent boom and bust cycles including the most recent economic crisis.” 17 It suggests that improved management and supervision is an urgent priority to forestall weak banks that have insufficient capital due to the expansion in lending that led to overheating of the financial system as a whole and contributed to the shortfall in reserves. It ascribes these problems to weak corporate governance, a lack of transparency in terms of beneficial ownership of financial institutions, and insufficient regulation of lending.

17. Asset quality review. An asset quality review in 2017 identified a capital shortfall within the banking sector of about 2% of GDP. The review identified seven banks as having capital shortfalls. Of these, one bank was closed with an estimated fiscal cost of 1% of GDP, while the remaining six banks have raised additional capital, although the IMF voiced concerns regarding whether the capital-raising transactions were compliant with international best practice as well as local regulations. 18 This prompted

16 World Bank. Data. Domestic Credit to Private Sector (% of GDP). (Accessed 12 October 2020). 17 IMF. 2019. Mongolia—Selected Issues. IMF Country Report No. 19/298. Washington, DC. 18 IMF. 2019. Mongolia—Staff report for the 2019 Article IV Consultation. Country Report 19/297. Washington, DC. 6 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

an agreement with the Bank of Mongolia to undertake in-depth audits of the institutions in question as part of the prior actions agreed upon under the EFF.

18. Strengthening the banking system. The fragility of the banking system, arising from the boom- and-bust lending cycles, contributes to the vulnerability of the economy. Non-performing loans (NPLs) in the banking sector doubled from 2014 to 2018, and by the end of 2019 amounted to 10.1% of all outstanding loans. This has led to significant concern regarding the asset quality of a number of banks, with the possibility that NPLs are substantially higher than reported. 19 In 2017–2019, the Bank of Mongolia, which is the bank regulator, introduced a number of measures to improve financial stability, including raising capital requirements.

3. External Accounts

19. Mongolia's external accounts are characterized by a trade surplus and a large current account deficit; typically financed by FDI. Following the economic crisis of 2016, strong export growth together with a significant deceleration of import growth, which grew by over 45% year-on-year in May 2018, led to a significant improvement in the trade balance (Figure 4). As a result, there was a sharp improvement in the trade balance from a deficit of $141 million in 2018 to a surplus of $453 million in 2019. Mongolia's international reserve position strengthened to the equivalent of about 7 months of imports by the end of 2019.

Figure 4: External Position

GDP = gross domestic product. Source: Bank of Mongolia.

20. The IMF 2019 staff report (footnote 18) suggests that the external position is significantly less robust than suggested by a casual examination of the fundamentals. In particular, the high proportion of foreign currency denominated debt implies a delicate balancing between depreciating the exchange rate in line with and increasing outstanding foreign debt liabilities in local currency. Mongolia's real effective exchange rate appreciated during 2018–2019 because higher inflation in Mongolia was not offset by a corresponding depreciation of the national currency, the tögrög.

19 World Bank. 2020. Mongolia Economic Update. Washington, DC. p. 29 states “Estimating the size of Mongolian NPLs [non- performing loans] is not easy; estimates vary from the official figure of 10.1% in December 2019 to two to three times the number cited by local experts.” Rationale and Context 7

4. The Vulnerability of the Mongolia Economy

21. Vulnerability to shocks. The Mongolia economy is vulnerable to shocks for several reasons. Its heavy dependence on natural resources exposes the foreign debt position to fluctuations in commodity prices. The share of mineral exports in total exports rose from 45% in 1995 to some 70% during the first decade of the 21st century, to over 80% by 2018; it could well increase further as additional large mining operations begin. The PRC is by far the largest importer of Mongolia's natural resource exports, accepting over 40% of total mineral exports. This makes Mongolia vulnerable both to fluctuations in natural resource prices and to fluctuations in the PRC’s demand for minerals, which may change in response to macroeconomic issues or technological changes in the PRC as it switches to greener methods of power generation.

22. Public debt profile. Mongolia’s public debt profile has improved but it remains vulnerable to shocks in the form of exchange rate changes, lower than expected growth, disruption to financial and other systems, and Mongolia’s reliance on external concessional financing from development partners. Furthermore, public debt, at over 70% of GDP at the end of 2018 (Figure 5), remains high, although the IMF forecast a decline in the public debt ratio to less than 60% of GDP by 2024 as a result of high growth, strong fiscal performance, and concessional financing (footnote 19). This forecast was made prior to the COVID-19 pandemic, and the growth and fiscal performance assumptions on which the debt sustainability analysis was based are no longer applicable in the short term.

Figure 5: Mongolia Domestic and Foreign Public Debt

GDP = gross domestic product. Note: Includes Bank of Mongolia foreign liabilities. Sources: Ministry of Finance and Bank of Mongolia.

23. High external debt. A further source of potential vulnerability is the very high level of public and private external debt, which reached 220% of GDP at the end of 2018. Mongolia's current account deficits have averaged 20% of GDP over 2010–2020 and this has resulted in a sharp rise in external liabilities, which are denominated in foreign currency. The outstanding debt denominated in domestic currency is therefore vulnerable to exchange rate changes. National savings have been substantially below the amount needed to finance investment in the mining sector which has resulted in significant foreign borrowing by the mining sector and a historically accommodative monetary and fiscal policy. A further debt analysis of public and external debt will be necessary once the impact of COVID-19 on the economy becomes fully apparent. 8 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Key Challenges

Figure 6: Inflation and the Exchange Rate

Source: Bank of Mongolia.

24. Exchange rate implications. profitably. This has been referred to as “Dutch disease” and is characterized by an appreciation of the exchange rates of countries with substantial mineral resources are largely determined by their mineral exports, which in turn depend on international commodity prices. Typically, appreciation of the real exchange rate as a result of mineral exports changes the composition of the output that the private sector can produce the exchange rate (Figure 6) that makes local manufacturing industries and other traded goods producers less competitive considering the production of either exports or import competing products. At the same time, services become relatively more competitive. In Mongolia, the entry into operations of more mining projects will place additional upward pressure on the exchange rate, as will the recent recovery in world commodity prices. 20 This poses a key challenge in the development of the country. The mining industry is highly capital-intensive and employs relatively small amounts of labor per unit of capital—thus mining investment creates few jobs. Furthermore, mining companies’ inputs are typically import intensive, both for capital equipment and for ongoing supplies.

25. Creating employment opportunities in its highly concentrated economy is one of Mongolia’s main economic challenges, which is compounded by Mongolia’s relatively limited endowments of skilled labor and capital outside the mining sector. This suggests that economic diversification and job creation will be a long-term process.

26. Economic diversification. Mongolia needs to diversify its economy to reduce its vulnerability to natural resource shocks and to expand employment opportunities. This will involve creating a business environment that is conducive to non-mining investment and entrepreneurship. ADB private sector assessments have identified that it is challenging to do business in Mongolia. There are many contributing factors, but the weakness of institutions associated with private sector development (PSD) is an ongoing theme. The commercial law framework for doing business is weak. Regulations are poorly publicized, contradictory, and unclear. As a result, corruption is perceived as being widespread. Transparency International ranks Mongolia as 106th in the world in terms of corruption. A sound business environment also requires a financial system that funds investment and trade. While credit to the private sector has

20 The impact of “Dutch disease” on Mongolia's economy is discussed in M. Helbe, et al, eds. 2020. Mongolia’s Economic Prospects: Resource-Rich and Landlocked Between Two Giants. Manila: ADB. Rationale and Context 9

been expanding rapidly, there are numerous weaknesses in the banking sector, which is critical for promoting access to credit for sound businesses. Efforts are underway to promote financial sector reform, which have the potential to improve financial intermediation.

27. Infrastructure. Infrastructure presents a pressing and urgent problem that will require assistance from development partners to address both capital projects and maintenance. The inefficiencies associated with infrastructure are exacerbated by the very low level of private sector participation in infrastructure projects, even in the form of public–private partnerships. The very large role of the state in infrastructure provision makes infrastructure investment especially sensitive to budget constraints related to macroeconomic concerns; this has affected both capital investment projects as well as ongoing infrastructure maintenance. The poor quality of Mongolia’s transport system has delayed its integration into global trade. ADB is assisting Mongolia with the construction of the Western Regional Road Corridor that will link western Mongolia to the Russian Federation in the north and the PRC in the south. 21

28. Energy Infrastructure. Investment in Mongolia's energy infrastructure has increasingly failed to keep pace with the rapid economic growth. More than 10% of the population lacks access to electricity and about 25% of the population lacks access to direct heating. This results in excessive reliance on the burning of raw coal, which leads to high levels of air pollution in larger urban areas during winter. Furthermore, the electricity grid is extremely inefficient, with power line losses exceeding 11%.

29. The challenge for infrastructure will be to catch up with the rapid growth of the Mongolia economy that has occurred over the past 20 years. However, given the need for macroeconomic stability, it is unlikely that this can be accomplished by the state alone. Opening infrastructure investment to the private sector will be increasingly important.

30. Poverty. Although the economy has grown rapidly over the past 25 years, poverty remains a significant problem as the country struggles to ensure the poor also benefit from the economic expansion. The difficulty of creating jobs given the very high levels of investment in the mining sector is an important challenge.

31. Managing mining revenue. Mongolia’s government derives nearly 25% of its budget revenues from mining and associated activities, and effectively managing this revenue is a key governance issue. Mongolia is addressing this through establishment of a governance structure for state-owned enterprises and fiscal rules. A number of special funds—such as the Fiscal Stability Fund and the Future Heritage Fund—serve to direct these revenues to specific uses, and these are included in the budget.

1. The Impact of the Coronavirus Disease Pandemic

32. The Pandemic. Mongolia has dealt with the COVID-19 pandemic in a highly capable fashion. As of February 2021, Mongolia had recorded about 2,200 total cases of COVID-19 and 2 deaths. 22 To combat infection, the government closed all educational institutions, from kindergarten to universities; banned public gatherings; and closed public spaces. The government also limited travel, including a complete closure to all international travel.

33. Recovery. In the short term, the key challenge for Mongolia will be to recover from the impact of COVID-19. To help offset the economic impact of COVID-19, the government has implemented economic relief and stimulus measures equivalent to more than 7% of GDP. These include tax relief, higher health and social spending, cash benefits to vulnerable groups, and deferrals of mortgage and other loan payments. The Bank of Mongolia has eased monetary policy, including a reduction in interest rates.

21 ADB. Mongolia. Western Regional Road Corridor Investment Program. 22 Worldometers. (accessed 12 February 2021). 10 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

34. The longer-term impact on the economy is yet unknown but is likely to be substantial. Estimates of GDP for the first quarter (Q1) of 2020 show that the economy contracted by nearly 11%. Government revenue for 2020 is estimated to have declined by 16.8% while spending will have expanded by 5.1% due to the economic stimulus and relief measures.

35. Economic forecast. Exports declined by 42% in Q1 2020, including a fall of 40% in mineral exports to the PRC, while imports fell by 10%. However, mineral exports began to recover in the second half of the year. ADB’s initial forecast was that overall growth in 2020 would be 2.1%, compared with an estimate of 6.1% made in 2019. 23 However, the IMF is projecting that real growth will fall to –2% for the year, 24 while ADB is now forecasting a decline of 1.9% in 2020 (Figure 7).

Figure 7: Forecast of the Impact of the Coronavirus Disease on Selected Economies

Gross Domestic Product Growth Rate, 2020 forecast (% per year)

Hong Kong, China –5.5% Mongolia –1.9% Republic of Korea –0.9% Taipei,China 1.7% People's Republic of China 2.1% East Asia 1.6% GDP = gross domestic product. Source: Asian Development Bank. Asian Development Outlook 2020 Supplement: Lockdown, Loosening, and Asia’s Growth Prospects. Manila (June 2020).

36. Development partner response. Mongolia’s development partners, particularly ADB, have responded swiftly to the crisis facing Mongolia arising from COVID-19. In April 2020, the World Bank approved a $26.9 million loan under an Emergency Response and Health System Preparedness Project. In May 2020, ADB approved a $100 million loan under the COVID-19 Rapid Response Program, plus two other loans consisting of $30 million additional financing for the Fifth Health Sector Project, a $100 million loan and a $3 million Japan Fund for the Joint Credit Mechanism (JFJCM) for the First Utility Scale Energy Storage Project. In June 2020, the Asian Infrastructure Development Bank approved a $100 million loan. In the same month, the IMF approved a $99 million disbursement under its Rapid Financing Instrument. Furthermore, in July 2020, ADB agreed to a $26.4 million loan under the Shock–Responsive Social Protection Project, a $3 million Japan Fund for Poverty Reduction (JFPR) grant of the Ulaanbaatar Community Food Waste Recycling project, and a $30 million loan for Developing the Economic Cooperation Zone Project.

Government Development Plans in the Context of the Country Partnership Strategy, 2017–2020

37. National Development Plans (NDP). Mongolia developed a series of NDPs prior to 2017. During 1996 to 2008, successive governments drafted and published six national development programs

23 ADB. 2019. Asian Development Outlook 2019: Strengthening Disaster Resilience. Manila; ADB. 2020. Asian Development Outlook 2020: What Drives Innovation in Asia? Manila. 24 International Monetary Fund. (dated October 2020). Rationale and Context 11

or strategies, and drafted or issued 304 policy documents. 25 The government’s 2001 Good Governance for Human Security 26 emphasized 11 priorities: (i) macro-economy, (ii) banking and financial system, (iii) export-oriented industry, (iv) regional and rural development, (v) equitable social environment, (vi) poverty and employment, (vii) ecological balance, (viii) land reform, (ix) reducing pollution, (x) good governance, and (xi) democratic civil society.

38. Assessment of development strategies. In 2005, a World Bank report presented a comprehensive assessment of the country’s development strategies. 27 It concluded that the country lacked a long-term vision with a relevant medium-term strategy to support progress towards the vision and achieving its specific development targets “with a holistic, balanced and well-sequenced strategy [as well as] the capacity and resources for implementation” (footnote 25). As a result, the government initiated a process to formulate a long-term strategy, led by the Ministry of Finance and Economy. It drafted the comprehensive National Development Strategy (NDS) 2008–2021, which was based on the Millennium Development Goals (MDGs) and adopted by the (parliament) in 2008. 28

39. Priorities. The NDS, 2008–2021 had six priorities: (i) achieve the MDGs; (ii) develop an export- oriented, private sector-led, high technology, and knowledge-based economy; (iii) exploit strategic minerals to build savings, growth, and a modern processing industry; (iv) develop regions and infrastructure to reduce urban-rural disparities; (v) halt ecosystem imbalances; and (vi) consolidate political democracy and implement an accountable system free from corruption.

40. The NDS was structured in two successive phases for achieving the MDGs and attaining middle-income status: the first ending in 2015, with the objective of achieving the MDGs and an HDI score of 0.83; and the second ending in 2021, with the objective of achieving the status of a middle-income country. The NDS was broad in scope and included all sectors under government responsibility. A further World Bank assessment of the NDS (footnote 28) concluded that it risked a loss of specificity with respect to the measures that need to be implemented and the steps to be taken. In addition, the document is not clear about the relationship between the NDS priorities and the MDGs themselves. As a result, the guidelines for planning and implementation in the action plan remained ambiguous. 29

41. Millennium Development Goal achievements. ADB noted that Mongolia had achieved only three of the MDG targets, namely (i) under-five child mortality, (ii) limiting and preventing the spread of HIV/AIDS, and (iii) developing new information and communication technologies and building an information society. With the release in April 2016 of the Sustainable Development Vision 2030, 30 the country signaled its intention to focus its development efforts on achieving the Sustainable Development Goals (SDGs). Mongolia was among the first global adopters of the SDGs.

42. The GAP, 2016–2020 (footnote 7) sets out a broad-based framework to place Mongolia on a more inclusive and sustainable development path. The GAP highlights the need to diversify Mongolia’s economic base, with particular emphasis on the food, agriculture, and light industry sectors. The main priorities are to revitalize the economy, restore economic growth, support social sectors, and improve livelihoods. Together with the Mongolia Sustainable Development Vision 2030, these documents provide a vision for transforming Mongolia into an upper-middle income country and eradicating poverty by 2030. Other aims include achieving broadly shared gains in human development while preserving the country’s ecological balance.

25 United Nations Development Programme. 2011. Assessment of Development Results, Evaluation of UNDP Contribution: Mongolia. New York. p. 14. 26 Government of Mongolia. 2001. Good Governance for Human Security: Policy document. Ulaanbaatar. 27 World Bank. 2005. Comprehensive Development Framework Progress Report. Washington, DC. 28 Government of Mongolia. 2008. National Development Strategy, 2008–2021. Ulaanbaatar. 29 Regarding the institution responsible for the NDS, the document only states that an institution will be established within the government structure. 30 State great Khural of Mongolia. 2016. Mongolia Sustainable Development Vision 2030. Ulaanbaatar. 12 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Country Partnership Strategy and ADB Portfolio

1. ADB Country Partnership Strategy, 2017–2020

43. In response to the government’s request for an ambitious program with broad sectoral focus, ADB prepared a full CPS for 2017–2020. It focused on three strategic pillars promoting economic and social stability, developing infrastructure for economic diversification, and strengthening environmental sustainability, with a major cross cutting theme of improving the transparency and accountability of PSM systems to help ensure appropriate and effective use of ADB and government financial resources. The CPS also sought to progress gender issues across all ADB operations. The CPS directly targeted 17 of the SDGs.

44. The CPSFR reflected at the outset “that the Country Partnership Strategy, 2012–2016 did not do enough to recognize the major socio-political changes happening in Mongolia at the time and particularly Mongolia’s increasing ambitions and presence on the global stage, including its debut in international debt markets through the Chinggis Bond.” These changes included a view that international organizations should shift away from a more traditional donor-recipient relationship to a new phase of engagement, based on partnership.

2. ADB Approved and Active Portfolio

45. Coverage. The validation covers all investment projects that were either ongoing at the outset of the CPS or completed by 2020. During the CPS, ADB approved 34 loans and grants, and 65 TA projects, with a combined financing of $1.95 billion ($1.6 billion from ADB and $353 million in cofinancing). Sovereign projects (30 loans and grants, including 64 TA projects) accounted for 94% of the total ADB approved amount. Four nonsovereign projects were approved with a combined total of $110 million (Figure 8).

Figure 8: ADB-Approved Projects in Mongolia, 2017–2020 by Type of Assistance ($ million)

Technical assistance $53.61m

Nonsovereign loans $110.20m

Sovereign loans and grants $1,788.91m

0 500 1,000 1,500 2,000

ADB = Asian Development Bank. Sources: Asian Development Bank databases.

46. Overall, PSM; water and other urban infrastructure and services (WUS); transport; finance; and health were the main sectors supported, accounting for almost 80% of the total (figure 9). There were also 26 ongoing loan and grant projects and 41 ongoing TA projects approved prior to 2017; financing for the ongoing projects totaled $887.8 million, including $817.0 million from ADB and $70.8 million in cofinancing (Figure 9 and Appendix 1, Table A1.1). Rationale and Context 13

Figure 9: Active Portfolio, Share by Sector (Volume, %)

EDU: $103.8m (4%) ANR: $191.7m (7%) ENE: $194.9m (7%)

FIN: $328.7m (12%) WUS: $547.6m (19%)

HLT: $255.2m (9%)

IND: $102.1m (3%) TRA: $406.3m (14%)

PSM: $710.3m (25%)

ANR = agriculture, natural resources, and rural development; EDU = education; ENE = energy; FIN = finance; HLT = health; IND = industry and trade; PSM = public sector management; TRA = transport; WUS = water and other urban infrastructure and services. Source: Independent Evaluation Department.

3. Comparison with Planned ADB Country Program

47. Actual vs. planned operations. There were substantive differences in actual versus planned operations in almost all sectors. Country operations business plans (COBPs) have been produced annually, 31 but the portfolio saw many changes; some sectors had substantial increases in funding, while some had deferment or decreases. Increases occurred in energy, health, PSM, and transport. In energy, the Ulaanbaatar Air Quality Program loan size was increased by $40 million. In health, additional financing was added for the fourth and fifth Health Sector Development Program. In PSM, budget support of $100 million for COVID-19 response, countercyclical support facility COVID-19 Pandemic Response Option (CPRO), and $26 million for social protection boosted lending in the sector. In transport, the Regional Road Development and Maintenance Project loan size increased by $58 million. Loans in other sectors were decreased or deferred, e.g., decreases in education and WUS. Planned and approved lending were very similar in industry and trade (Table 1 and Appendix 2). While portfolio and sector share reflect the newly approved projects and TAs in 2020, the IED evaluation aligned with the self-assessed CPSFR (covering operations between 2017 and 2019) that the 2020 approved projects are not assessed in this validation as they have just been approved.

Table 1: Comparison of Planned and Approved Sovereign Loans and Grants for the Mongolia Country Partnership Strategy, 2017–2020 Allocation in Share of Share of Compared Approvals Sector CPSa planned Approved to Planned ($ million) ($ million) (%) (%) (%) Public sector 405.0 24 431.4 29 107 management WUS 302.8 18 210.1 14 69 Energy 260.0 15 300.0 20 115 Finance 220.0 13 100.0 7 45

31 ADB. 2017. Country Operations Business Plan: Mongolia, 2017–2019. Manila; ADB. 2018. Country Operations Business Plan: Mongolia, 2018–2020. Manila; ADB. 2019. Country Operations Business Plan : Mongolia, 2019–2021. Manila; and ADB. 2020. Country Operations Business Plan: Mongolia, 2020–2021. Manila. 14 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Allocation in Share of Share of Compared Approvals Sector CPSa planned Approved to Planned ($ million) ($ million) (%) (%) (%) ANR 203.0 12 78.0 5 38 Health 105.0 6 149.6 10 142 Education 80.0 5 50.0 3 63 Transport 60.0 4 118.5 8 198 Industry and trade 60.0 4 57.0 4 95 Total 1,695.8 100 1,494.6 100 88 ANR = agriculture, natural resources, and rural development; COBP = country operations business plan; CPS = country partnership strategy; WUS = water and other urban infrastructure and services. a Country partnership strategy, 2017–2020 allocations as listed in ADB. 2017. Country Operations Business Plan: Mongolia, 2017–2019. Manila; ADB. 2018. Country Operations Business Plan: Mongolia, 2018–2020. Manila; ADB. 2019. Country Operations Business Plan: Mongolia, 2019–2021. Manila; and ADB. 2020. Country Operations Business Plan: Mongolia, 2020–2021. Manila. The portfolio figures exclude cofinancing. Sources: Independent Evaluation Department and Asian Development Bank databases (Controllers database as of 31 December 2020, ADB e-Operations and project website, as of 31 December 2020).

CHAPTER 2

Assessment of the Mongolia Country Program

48. The evaluation takes a matrix assessment approach by assessing sector relevance, effectiveness, efficiency, and development impacts and integrating these with the assessment of the three strategic pillars. These pillars are: (i) promoting economic and social stability, (ii) developing infrastructure for economic diversification, and (iii) strengthening environmental sustainability. Two additional cross-cutting areas were: improving transparency and accountability of PSM and reducing gender inequality. Pillars (i) and (ii) accounted for about three fourths of the invested portfolio. The evaluation findings and recommendations are intended to feed into the design of ADB’s next country strategy for Mongolia.

49. The CPS, 2017–2020 was developed against a background of a weakening external environment and a sharp decline in Mongolia's GDP growth. This had precipitated a balance of payments and debt sustainability crisis and eroding incomes of the poor and vulnerable. There were also deep-seated structural problems. The CPSFRV of the previous CPS stated, “Mongolia’s economic difficulties were compounded by weak economic governance, recurring boom-and-bust cycles inherent in the economically dominant mining sector, and the country’s geographic isolation and poor infrastructure.” In 2017, Mongolia urgently needed to restore macroeconomic stability in the near-term while taking steps to develop a more resilient and diversified economy able to consistently deliver rapid, inclusive, and sustainable growth over the longer term. These issues were a factor in program design.

50. Limited data are available on project results. This evaluation is therefore partly based on observations of ongoing projects through virtual missions, and review of project mission documents and progress reports. Of the 48 active projects during the validation period, only 6 were completed as of end 2019. Three of the completed projects are nonsovereign projects; all three were self-assessed, and two were validated by IED (Appendix 2). At the time of validation, for sovereign operations only one PCR was available to IED (a small-scale emergency loan for Dzud), making validation of the results of the sector programs and thematic priorities challenging.

A. Relevance

51. IED’s CPSFRV, 2014–2016 (interim CPS) rated the program less than successful.32 The previous IED validation recommended that in the next CPS, ADB should (i) promote diversification of the economy with a focus on improving the productivity of agribusiness SMEs, (ii) reduce the delay in the implementation of projects, (iii) improve the value addition of projects in response to government needs by embedding innovative and knowledge solutions as part of the financing, and (iv) prioritize and support maintenance expenditure of the government in infrastructure and health and prioritize social protection activities as part of the new CPS.

52. While CPS, 2017–2020 stated that ADB considered the recommendations of the CPSFRV, 2012– 2016, there was no direct correlation between recommendations and the priorities of the CPS.

32 IED. 2017. Mongolia: Country Partnership Strategy Final Review Validation, 2012–2016. Manila: ADB. 16 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

The three broad strategic goals and the additional cross-cutting areas were set at a very high level rather than focusing on specific sectors or issues. The CPS describes the strategic pillars as “all encompassing,” requiring “wide but more nuanced sector coverage,” while at the same time applying strict selection criteria “based on comparative advantage and value addition” (footnote 2, p. 10). However, the pillars and these statements are sufficiently general to justify almost any intervention. In addition, precisely defining the causal chain, between infrastructure and economic diversification would have clarified how the CPS promoted diversification.

1. Alignment of the CPS Objectives with Mongolia's and ADB’s Strategic Priorities

53. The program was partly aligned with Mongolia's development priorities. At the time of the design of the CPS, the NDS, 2008–2021 and the GAP, 2016–2020 provided a broad policy framework. The NDS emphasized meeting the MDGs; promoting mineral export-oriented, private-sector led growth; and tackling urban–rural disparities. The GAP emphasized a more inclusive and sustainable development path as its overriding theme, with the aim of diversifying the economic base with particular emphasis on food, agriculture, and light industry. Both the NDS and the GAP sought to transform Mongolia into an upper-middle income country, with shared gains in human development, while preserving the country’s ecological balance. However, the CPS, 2017–2020 did not include a focus on PSD, or food and light industry.

54. Private sector development and “Dutch disease”. The program did not focus on the need to promote PSD, nor on the implications for the structure of the economy of the large mineral sector, which will continue to dominate economic activity in the foreseeable future. Typically, real exchange rate appreciation from mineral exports changes the composition of the output that the private sector can produce profitably. The appreciation makes local manufacturing industries and other traded goods sectors less competitive with regard to the production of either exports or import-competing products, while services are relatively more competitive (para. 24). This is a key challenge in Mongolia that was not addressed in the CPS, nor analyzed in the CPSFR.

55. The mining industry is highly capital intensive and employs relatively small amounts of labor per unit of capital so that investment is not employment intensive. Furthermore, mining companies’ inputs are typically import intensive both for capital equipment and ongoing supplies. Creating employment opportunities in a highly concentrated economy is one of Mongolia’s main economic challenges; it is recognized in Mongolia's development objectives, but not addressed by the CPS.

2. Relevance of the Country Program Composition

56. The CPS aimed to address the challenges set out in the NDS, 2008–2021 and the GAP, 2016–2020 (para. 53) by supporting investments, policy reforms, capacity building, and knowledge sharing to help Mongolia sustain growth. The objectives of CPS, 2017–2020 were based on the three strategic pillars (para. 4) and partly aligned with the GAP, 2016–2020, which set forth a broad-based plan to foster a more inclusive and sustainable development process. While the need for diversification in the economy was acknowledged in the CPS, 2017–2020, ADB’s lending to Mongolia did not reflect a focus on this issue and only limited effort was directed at improving the business environment.

57. Transport, finance, WUS, and health were the main sectors supported by the CPS and accounted for 70% of financing. Furthermore, the first and second pillars received close to 90% of total funding (split almost evenly between them), while the environment pillar received around 10% although the GAP emphasized “ecological balance.” The active portfolio during the validation period had a total approved financing of $2.4 billion. Figure 9 shows the composition of the portfolio. Overall, programs in PSM (25%), WUS (19%), transport (14%), finance (12%), and health (9%) constituted the bulk of the country program. Appendix 1, Tables A1.1–A1.3 summarize the operations portfolio reviewed by this validation; detailed projects lists are in Tables A1.4–A1.6. Rationale and Context 17

58. ADB justified the selection of sectors and subsectors in the CPS on the ground that they were critical to promoting inclusive economic growth. The CPSFR, 2017–2020 provided little justification for the allocation of sector investment beyond indicating that the CPS was “selective within selected sectors based on careful prioritization” but without explaining the basis for the priorities.

59. While the changes in lending reflected shifting priorities, the analysis in the COBPs for the 4 years covered by the CPS (footnote 31) did not fully justify nor explain why these priorities had changed apart from the CPS stating that programmatic flexibility would be necessary. More importantly, the results framework was not updated to reflect these changes. The results framework essentially contained outcomes and indicators that were not ultimately related to much of the lending program because it was different to what had been originally envisaged.

60. The CPSFR references PSD as a thematic element under the heading governance and transparency. There is ample evidence that the private sector faces significant constraints. Firms in the Enterprise Survey conducted in 2019 identified political instability, tax rates, and access to finance as the main constraints, although large firms also flagged issues with business licenses and permits. In addition, about one quarter of all firms indicated that corruption was an issue, particularly with respect to construction permits, and to a lesser extent to obtain government contracts and in meetings with the tax authorities. 33

61. Policy based lending. Policy-based loans (PBLs) made up a significant portion of lending, especially in PSM (Table 2). Two of the loans were for the Ulaanbaatar Air Quality Improvement Program; both were two-tranche PBL, Phase 1 for $130 million with $60 million cofinanced by the Exim Bank of Korea; and Phase 2 for $160 million. The Social Welfare Support Program Phase 2 PBL was provided in May 2017 to strengthen the provision of social welfare (Phase 1 occurred in 2016). All PBL had the goal of providing budget support, which linked to the IMF’s EFF rescue package and supported coherence in the ADB program.

Table 2: Loans under Public Sector Management ADB Loan Closing Cofinancing Status Project Name Approval Date Financing Number Date ($ million) ($ million) 3385 Active Strengthening Institutional 31-Mar-16 30-Apr-21 35.00 Framework and Management Capacity Project 3532 Closed Social Welfare Support 30-May-17 30-Oct-18 150.00 Program Phase 2 3648 Closed Ulaanbaatar Air Quality 23-Mar-18 30-Oct-19 130.00 60.00 Improvement Program 3709 Active Strengthening Information and 20-Sep-18 30-Mar-23 25.00 Communication Technology Systems for Efficient and Transparent Public Investment and Tax Administration Project 3880 Active Ulaanbaatar Air Quality 12-May-19 9-30-20 160.00 Improvement Program Phase 2 ADB = Asian Development Bank. Source: Independent Evaluation Department.

62. Nonsovereign operations. The Private Sector Operations Department’s Beijing team substantially increased business development missions. Four nonsovereign projects were approved with a combined total of $110 million. These initiatives are in accordance with the CPS priorities related to Mongolia's climate change response, inclusive economic growth, and regional cooperation, and are viewed as

33 World Bank Group, European Bank for Reconstruction and Development, European Investment Bank. Mongolia 2019 Country Profile. Enterprise Surveys: What Businesses Experience. Washington, DC. 18 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

relevant. ADB’s long-term local currency loan and COVID-19 response short-term working capital support added value to beneficiary projects. These projects achieved timely disbursement and contributed to the adaptation of international standards, such as environmental best practices, gender mainstreaming, and corporate governance, suggesting the potential of nonsovereign interventions for advancing these development objectives.

3. The Quality of Program Design

63. The CPS states that SMEs are important for diversification and job creation, which in turn necessitates structural reforms to improve access to finance, and infrastructure investments and regional integration to improve connectivity and access to external markets. Additional requirements for diversifying the economy identified in the CPS are improved human capital and better quality of life in urban areas.

64. Private sector development. The CPS also points out that there are many factors that contribute to an enabling environment, and states that Mongolia does especially poorly in terms of its public institutions, macroeconomic environment, financial market development, goods market efficiency, business sophistication, and innovation. These factors involve an improvement in the business environment, which was not directly addressed in the CPS design. While projects and TAs had PSD components, it is difficult to discern a coherent PSD strategy in these operations. There has been little strategic focus on fundamental institutional and policy reforms to promote a conducive business environment for the private sector. 34

65. Promoting economic diversification. It is unclear how the sub-pillars of the program’s second pillar—developing infrastructure for economic diversification—promotes diversification of the economy. The exchange rate implications of the predominance of minerals in Mongolia's exports implies that the price competitiveness of non-mineral exports will be lower than in a more balanced economy. Price signals will tend to favor the development of the service sector and other non-traded goods such as construction, which suggests that the road component of infrastructure development will not promote export diversification, although it could open the country to more tourism (which is also a service sector.) Nevertheless, the link between infrastructure and diversification is indirect at best.

66. Promoting economic and social stability. The key outcomes in the results framework for the first development objective are related to establishing new agricultural value chains, improving access to finance for SMEs, improving health and education services, reducing skills mismatches and skilled labor shortages, strengthening the resilience of the financial sector, and improving the fiscal sustainability of social welfare programs. While these outcomes are clearly important, they are relatively modest and are not transformative, and will do little to assist with economic diversification. Furthermore, for several of the outcomes the outcome indicators do not appear to be important, or the targets are overly modest. For example, for loans to SMEs, of which there were only 4,840 in 2016, the outcome target was an additional 726 loans over the CPS period, or a mere 182 loans per year. Similarly, the indicator for the health care budget was an increase of 30%, which neglects fiscal sustainability, and fails to address coverage or impact.

67. Developing infrastructure for economic diversification. The targeted outcomes for the second pillar were improved physical connectivity with international markets, increased exports of processed agricultural products, improved infrastructure and services in ger areas (a vast low-density peri-urban area), and improved urban infrastructure and coverage of basic urban services. The relationship between

34 Findings on factors that promote PSD are summarized in Organisation for Economic Co-operation and Development (OECD). 2007. Promoting Pro-Poor Growth: Policy Guidance for Donors. DAC Guidelines and Reference Series. Paris. It states that institutional and policy reforms are at the heart of efforts to reduce poverty through PSD; to increase the impact of PSD on poverty reduction, donors should support systemic change that encourages development of a more conducive enabling environment by the public sector. Rationale and Context 19

several of these indicators and the targeted outcomes is also weak. While those related to agricultural products appear relevant, others are much less so. The target for increased traffic on improved roads along Central Asia Regional Economic Cooperation (CAREC) corridors amounted to 40 vehicles per day, or 14,600 per year, over the CPS period, which would hardly make a significant contribution to the outcomes being achieved. On the other hand, the indicators for urban areas focus on achieving improved services. Nevertheless, whether their achievement contributes to economic diversification is questionable.

68. Strengthening environmental sustainability. The targeted outcomes for the third pillar were better aligned with the indicators. The target outcomes of strengthened governmental capacity for environmental management, reduced pollution, strengthened climate change response, strengthened disaster resilience, and strengthened disaster risk reduction capacity are captured by the indicators on increase in forest cover, share of renewable energy installation, reduction in greenhouse gas emissions, and improvement in the access of infrastructure and equipment for disaster risk management.

69. Air quality improvement. A major reason for the difference in composition between planned and actual lending was the PBL for air quality improvement in Ulaanbaatar. Particulate matter emitted by the burning of raw coal constituted a major health hazard in the city. While these loans constituted budget support and were part of an effort to restore macroeconomic stability, they also represented an opportunistic initiative by ADB, which seized an opening to support a controversial ban on the burning of raw coal in the ger areas of Ulaanbaatar. The ban led to a sharp fall in the concentration of particulate matter. 35 In the view of this validation, the reorientation of expenditure to take advantage of the opportunity was warranted.

70. Based on the CPS and other assessments and analysis, the validation identifies PSD, promoting more formal sector employment, and institutional reform as themes that warranted more focus in the country program.

4. Development Coordination

71. IED did not find a formal established development partner coordination mechanism for sector investments or development plans. Despite the lack of a framework, ADB participated in regular informal meetings with development partners, including monthly coordination and sectoral meetings. Cooperation in the urban sector was particularly strong. Primary development partners included the European Investment Bank, France, Deutsche Gesellschaft für Internationale Zusammenarbeit, Japan (including through the Japan International Cooperation Agency), Republic of Korea, the Millennium Challenge Account, the World Bank, and the World Health Organization. ADB also collaborated with Agence Française de Développement for the Cable Car Project in Ulaanbaatar. 36

72. Development partner priorities. Other development partners also emphasized diversifying the economy by promoting PSD, with the focus being enhancing the investment climate. 37 For example, the World Bank’s performance and learning review of its Mongolia CPS indicates that jobs and PSD are the fundamental problem for most Mongolians (footnote 14). This serves to highlight the relative neglect of this issue in the design of the CPS.

73. Extended Fund Facility. ADB’s cooperation with other development partners is illustrated well by the IMF’s EFF, which helped carry Mongolia through the economic crisis of 2016. ADB partnered with the IMF during the EFF negotiations and participated in crisis funding through its interventions in

35 Although air sampling indicates that concentrations of NO2 and SO2 have risen (paras. 133–135). 36 The project involves improving public transport bus services, increasing their variety and accessibility, and reducing traffic congestion. A cable car transport project is planned to be implemented in Ulaanbaatar and a working group was set up in preparation for the project as per the Capital City Governor's order. 37 For example, World Bank. 2012. Mongolia—Country Partnership Strategy for the period FY2013–2017. Washington, DC. (extended by a further 2 years) has one of its three core areas building a sustained and diversified basis for economic growth and employment in urban and rural areas, with outcomes that include investment climate and financial intermediation enhanced. 20 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

bolstering the stability of Mongolia’s banks. ADB’s PBL—the Banking Sector Rehabilitation and Financial Stability Strengthening Program; Social Welfare Support Program; and Ulaanbaatar Air Quality Improvement program—provided budget support in coordination with the disbursements under the IMF EFF.

5. Sector Program Assessments

74. CPSFR, 2017–2020 states “Selectivity within sectors was based on the priorities and comparative advantages identified in the sector assessments undertaken as part of CPS preparation.” However, it is difficult to ascertain the precise meaning of the CPSFR statement because no further details regarding selection criteria are provided.

75. PSM was the largest sector program through both PBL and standalone projects supported by TA, totaling 25% of the portfolio ($710.3 million). The PBL (Table 2) related to participating in macroeconomic stabilization, social welfare programs, and improving air quality in Ulaanbaatar; although air quality concerns were not addressed in the CPS, an opportunity arose to address the acknowledged problem of severe air pollution in the capital. This resulted in two PBL with a combined total of $350 million, including $60 million in cofinancing; an additional PBL of $150 million was approved relating to improving social welfare.

76. Two PSM projects were directed at improving governance in state-owned enterprises responsible for managing the strategic mining assets of the government and strengthening systems. These were also supported by TA, including assistance with a new procurement law that would make the procurement process more transparent.

77. Overall, the validation assesses the PSM program relevant, but with a caveat. The PBL for improving air quality justifiably took advantage of an opportunity to support the government in banning the burning of raw coal, the main source of the very high level of airborne particulate matter in Ulaanbaatar. The use of a PBL to enhance social welfare programs is less justified. PBL is an instrument that is ill-suited to improving social welfare programs, where granularity is a key feature that requires an extended time frame to come to fruition. The case for the relevance of the air quality improvement PBL is much stronger because they provided support to the government to undertake a controversial policy at a key moment and contributed to environmental sustainability.

78. Water and other urban infrastructure and services. Operations in the WUS sector accounted for 19% of the portfolio ($547.6 million) and spanned all three strategic pillars. The focus areas for this objective were improving the quality of life in ger areas surrounding Ulaanbaatar and promoting the livability of urban areas outside the capital city. Projects in this area included the provision of affordable housing as well as investment in urban services and ger area development. In addition, local governments in provincial capitals were supported through the construction of 10 wastewater treatment plants. WUS interventions are assessed relevant for all three of the CPS objectives.

79. Transport. Operations in the transport sector accounted for 14% of the portfolio ($406.3 million). The CPS objective related to transport was to increase physical connectivity along the important transport corridors between the Russian Federation in the north and the PRC in the south. Other interventions were to improve the productivity of border transit with respect to the processing of exports and imports. Additionally, projects supported the CPS objective of reducing traffic congestion in Ulaanbaatar and were related to an ongoing multitranche financing facility (MFF) approved in 2012. 38 While it was understandable that the project needed to be completed, the relationship between traffic congestion and economic diversification is not clear.

38 ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Grant to Mongolia for Urban Transport Development Investment Program–Tranche 1. Manila. Rationale and Context 21

80. An omission in the transport program was the lack of any focus on railways and rail traffic for the transportation of goods, 39 particularly as some 85% of goods transported between the Russian Federation and the PRC uses Mongolia's rail network. Mongolia has the potential to be a regional transport hub. 40 Furthermore, Mongolia is part of the shortest railway corridor between Asia and Europe. A 2018 ADB study noted the importance of the railway network, as well as the challenges arising from deteriorating rail infrastructure and rolling stock. The study estimates that, for example, transporting coal exports to the PRC by rail rather than by road over 2012–2018 could have yielded fuel savings of $100 million per year. 41

81. Rail lines emanating within Mongolia are primarily associated with mining development and connect with Mongolia’s border with the PRC. ADB holds the view that mining companies undertaking the development of mines should construct rail lines in conjunction with the Government of Mongolia. However, there are many areas where ADB could provide support, including on regulatory mechanisms, rolling stock maintenance, and public–private partnerships in railway investment. A more rounded transport sector program requires inclusion of the rail sector. This validation rates the transport program as operationalized less than relevant.

82. Finance. Finance accounted for the fourth largest share (12%, and $328.7 million) of the overall portfolio. The financial sector had been battered by the macroeconomic crisis, which was the backdrop against which the preparation of the CPS occurred. A key objective was therefore to strengthen the resilience of the banks to reduce systemic risk and to help start the resumption of lending. This resulted in a PBL that supported the restructuring of banks with aims of improving governance, reducing NPLs (officially estimated at 12%, but with the actual number significantly higher), and strengthening bank supervision. Trade finance was supported through a program with commercial banks. Additionally, there were two stand-alone projects: one aimed at strengthening the Credit Guarantee Fund to provide access to finance for SMEs, and one directed at modernizing the framework for Mongolia's payment system. In addition, four nonsovereign financial sector operations involved three projects for commercial banks and a project for a financial group. The goal of all of these was increased SME lending and expanded leasing finance. The validation assesses ADB's interventions in the financial sector relevant, with some caveats.

83. Health. Operations in the health sector accounted for 9% of the portfolio ($255.2 million). The CPS objective was to increase basic essential health services by extending the provision of primary health services and increasing the allocation of spending on primary health care. Support consisted of additional funding for two ongoing health sector projects; additional financing for a district hospital to deal with cost overruns; and increasing the supply of safe blood in Mongolia. Rapid urbanization in Mongolia over the past 30 years has increased the burden on the provision of health and social services in Ulaanbaatar and aimag (administrative subdivision) centers. Ulaanbaatar has been the main destination for migrants from Mongolia’s rural areas, and now contains more than 50% of the country’s population. About 60% of Ulaanbaatar’s population live in ger areas, with limited access to running water, sanitation, and social services, including primary health care. Access to health care is challenging, especially for the poor. Out-of-pocket health expenses are high and account for 41% of total health expenditures; one-third of household out-of-pocket health expenses are for medicines because of high prices and the inappropriate use of drugs. The need to reform the hospital sector was identified more than 10 years ago; little has been achieved, although it is clearly reflected in the government's Health Master Plan (2006–2015). 42 This validation assesses ADB support to the health sector relevant.

39 Given the very low population density of Mongolia, rail passenger transportation is not economic. 40 Mongolia’s lack of high-quality transport infrastructure has hindered its development as a regional hub (World Bank. 2018. Mongolia: Systematic Country Diagnostic, Washington, DC.) Transit Mongolia is a major initiative by the government of Mongolia to take advantage of its strategic location between the PRC and the Russian Federation as a “land bridge” between Asia and Europe (ADB. 2020. CAREC Corridor Performance Measurement and Monitoring Annual Report 2019. Manila.) 41 ADB. 2018. Breaking Barriers: Leveraging Mongolia's Transport and Logistics Sector. Manila. 42 Government of Mongolia. 2005. Health Sector Strategic Master Plan. Ulaanbaatar. 22 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

84. Agriculture, natural resources, and rural development (ANR). ANR sector operations accounted for 6.8% of the portfolio ($192 million). ADB support for ANR is clearly related to the CPS objective of economic diversification. There were four stand-alone projects involving rural livelihoods, two that supported SMEs in agriculture, and two related to sustainable tourism. There were two small projects to assist with the fallout from a Dzud (cold winter storm), 43 and to strengthen disaster relief capacity more generally. There was also some crossover with the two PBLs related to improving air quality in Ulaanbaatar. The validation assesses the ANR program relevant.

85. Education. Education sector operations accounted for 4% of the portfolio ($103.8 million). ADB's support for education as stated in the CPS was to (i) improve basic education services with respect to both access and quality, and (ii) to reduce the shortage of skilled workers and skills mismatches in the labor market. There were three projects related to education services improvement, seeking to reform the higher education system, upgrade dormitories for primary students in the western region, and sustain the quality of the education system during the period of economic downturn. Skills mismatches and shortages were addressed through Mongolia's technical and vocational education and training system by strengthening the curriculum and facilities. This validation assesses the education program relevant.

86. Energy. Energy sector operations accounted for 6.9% of the portfolio ($195 million). ADB support related to Mongolia's climate change initiatives consisted of promoting renewable energy and energy efficiency. A project was approved to support the development of distributed renewable energy systems and upgrade the regulatory framework to encourage private sector participation in renewable energy. ADB also provided a nonsovereign loan for a solar power project. Both initiatives were in their early stages in the first half of 2020. These initiatives are in accordance with the CPS priorities related to broadening Mongolia's climate change response and are assessed relevant.

87. Industry and trade. Industry and trade sector operations accounted for 3.6% of the portfolio ($102.1 million). Three operations spanned the evaluation period; two were approved prior to 2017 and were ongoing, and one was approved during the CPS period. The focus of industry and trade was to improve the efficiency of border crossings with respect to sanitary and phytosanitary (SPS) procedures. Additional financing for the regional improvement of the Border Services Project was approved to upgrade border crossings with both the Russian Federation and the PRC. An additional project on Cross- Border Economic Zones was approved after the evaluation period. These measures were in line with the goal of diversifying the economy. Furthermore, the cost of trading across Mongolia was high, effectively serving as an export tax. Reducing these costs would improve the competitiveness of potential export activities. The validation assesses the industry and trade sector highly relevant but notes the limited priority given to these activities.

6. Summary

88. Pillar alignment. The three pillars of the CPS program were very broad and could justify focusing on almost anything. The CPSFR statement that sectors and projects were based on comparative advantage was not apparently based on Mongolia's overall comparative advantage, which lies in the mineral and energy sector. Nor was it based on statements in the CPS that agro-business was a sector with great potential that needed nurturing and promoting (spending on ANR was just 5% of the total).

89. Continuing dominance of mineral exports. A central factor in the future development of the Mongolian economy will be the continued dominance of mineral exports. This has profound implications for the exchange rate and the competitiveness of various sectors. A consideration for the program design is that any diversification of the economy will be towards services because expansion of the non-mineral traded goods sector will be restrained by a strong exchange rate. This issue was not explicitly analyzed or addressed in the CPS. Furthermore, the program did not focus sufficiently on efforts to promote private

43 An especially cold winter that devastates livestock. Rationale and Context 23

sector businesses or create jobs, which are especially pressing issues given the capital intensity of the mineral sector.

90. Relevance of country program. The balance between sectors in the program was not clearly justified. Four sectors—PSM, WUS, transport, and finance—accounted for 70% of the loans in the program. While this balance may have been warranted, there is no clear justification in the CPS program why this should have been the case. For example, in the transport lending program, there are several references to the need to promote the agricultural export sector, yet little of the program was directed towards this end.

91. Quality of program design. In many cases the CPS failed to address the constraints identified in the analytical work. While some interventions were related to the constraints, they were not made a focus of specific project-linked reforms. This weakened the relevance of the program. In addition, the results framework was weak, and many indicators had only a tangential relationship with the objectives; even where they were related, the targets of several of the outcome indicators were excessively modest.

92. Development partner coordination and sector assessment. The IED validation noted the lack of formal development partner platforms; IED interviews with development partners and former ADB staff indicated there used to be such mechanism in the early 2000s. Some sector projects (such as the Supporting the Development of an Education Sector Master Plan TA) have been followed up with programs by other multilateral development banks and bilateral aid agencies, but there is room for further improvement in the form of a more coherent approach to geographical area selection, better sequencing of sector assessments, and sector master plans that identify financing priorities.

93. Ratings Summary. The CPSFR, 2017–2020 posits that the program was highly relevant; this validation rates the program relevant, for the following reasons.

(i) The CPSFR states the CPS objectives were timed to coincide with the parliamentary cycle, which ensured close alignment with Mongolia’s priorities; however, in a number of areas—such as promoting diversification and the private sector—it was not closely aligned. (ii) The CPFSR states the CPS targeted the five core areas in ADB’s Strategy 2020, and was closely aligned with ADB’s Strategy 2030. 44 However, one of the core areas of ADB’s Strategy 2020 was PSD, which was not a focus of the CPS. (iii) The CPSFR states that the program was based on careful prioritization and innovative programming through NSO and new areas such as gender-based violence, disabilities and tourism. However, operations over the course of the program changes substantially, which belies the claim of “careful prioritization.” (iv) The CPSFR states that a combination of PBL that focused on restoring economic stability and a well-coordinated mix of investment projects meant a strong focus on achieving inclusive growth. However, the causal chain underlying this assertion was not explained.

B. Effectiveness

94. The CPSFR, 2017–2020 program rating of effective was based on the progress towards achieving the CPS development outcomes, the effectiveness ratings for the projects completed in the 2017–2020 period, the probability of ongoing projects achieving their development objectives, and the substantial proportion of TA interventions that were highly rated. The CPSFR states that ADB interventions contributed to the achievement of 2 of the 3 impact indicators and 10 of the 14 strategic pillar targets in the results framework.

44 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila; and ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient and Sustainable Asia and the Pacific. Manila. 24 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

95. This validation also rates the CPS effective, based on the aggregate scores of the various sector programs (Table 3). The performance of the sector programs is discussed below. The evaluation was hampered by the large number of ongoing projects and the lack of PCRs (para. 6). In such cases the effectiveness rating was based on an examination of project documents such as progress reports, staff review meetings, and back-to-office reports.

96. In accordance with IED country assistance program evaluation guidelines, the program’s effectiveness will be discussed in two sections: (i) achievement of physical sector outputs and/or outcomes against CPS targets; and (ii) non-physical sector outputs and outcomes against CPS targets, including institutional development in sectors.

1. Performance of the Infrastructure Program

97. Unverifiable indicators or targets. The CPS results framework contains unverifiable indicators or targets, and the CPSFR, 2017–2020 did not provide quantified indicators for these. In most cases it states “on track” or “too early to assess,” or reports on the status of contract awards and disbursement of funds together with a narrative description on the overall implementation status by project components. IED was able to assess the progress of some projects in transport, energy, and ANR, but the largest WUS project, particularly the Ulaanbaatar Urban Development and Ger Areas MFF, is still in the middle of implementation and cannot be considered as part of the assessment of effectiveness.

98. Water and other urban infrastructure and services. None of the WUS operations (four ongoing projects and three new projects) were completed during the CPS period. There were also three ongoing TA projects and six that were approved during the CPS period.

99. The longest-running project is the Southeast Gobi Urban and Border Town project. The project has an ongoing component for a public–private partnership with public utility service organizations; 11 wastewater treatment plants are being constructed and are expected to be completed in September 2021. The Asian Development Fund (ADF) and ordinary capital resources (OCR) loans have only awarded contracts equivalent to 75% of the total; ADF disbursements total about 65%, and OCR disbursements about 31%. This project has an attached TA on sludge treatment. 45

100. As a result of the project, the number of users of water supply stations that were connected to the water supply pipeline substantially increased. The number of households connected to the water supply pipeline grew by a factor of four from 2011–2019, and the number of households using water from the water supply stations connected to the pipeline grew by a factor of three in the target aimags and soums (lower-tier local authority districts).

101. Water quality also improved over the 8 years of project implementation. A user survey in the draft PCR showed that the share of a respondents who assessed the water quality as satisfactory grew by 66.5% from 2011 to 2019. Following project implementation water quality improved and difficulty in obtaining water declined. In 2019, 11% of respondents said female family members benefited from the improved water supply service, compared to 3.2% in 2015. This was in line with the participation of female family members in tasks related to toilets, waste, and water in the household.

102. Ulaanbaatar Urban Services and Ger Area Development. The Ulaanbaatar Urban Services and Ger Area Development MFF led to completion of 10 municipal facility plant contracts, including a water

45 The original project also had an ADF grant and two additional financing loans (Loan 3388 approved in 2016, and Loan 3713 approved in 2018). Grant 0204 and Loan 3388 were ongoing. Two additional financing loans to construct nine wastewater treatment plants in aimag centers were approved in 2016 (ADF loan) and 2018 (OCR loan), respectively. The tenth plant was added to the project scope in 2019. The grant was kept active to enable processing and approval of the additional loans. A single PCR covering all three projects is planned in 2023. As of November 2020, five plants have been commissioned, including one in 2018 and 2019, and three in 2020. Five more will be completed and commissioned in 2021. Rationale and Context 25

treatment plant with a supervisory control and data acquisition system; a heating network, kindergarten, and vocational training center in Bayankhoshuu subcenter; sewage collector mains in both subcenters; and rehabilitation of the sewerage network and central wastewater treatment plant. However, a total of 18 construction initiatives are ongoing, just 8 of which have more than 50% physical progress.

103. Key issues raised by Ulaanbaatar officials. Two key issues were raised during the IED interview with Ulaanbaatar officials: ADB’s involuntary resettlement policy on non-title holder rights is not in line with local legislation. Although those being moved were provided with social housing, many complained regarding their compensation, the value of which was hard to determine because there is no land market. A further issue was that relending terms were unfavorable, since the government imposes a 3-percentage point premium on onlending to the city of Ulaanbaatar. Ulaanbaatar’s own counterpart financing has to be approved by the City Parliament, which is only possible at certain times of the year. In 2020, it appears to have not fully secured the budget.

104. Water and other urban infrastructure and services assessment. Based on the good progress in several areas; the nearly completed Southeast Gobi WUS project, the slow but steady progress on the ongoing Ulaanbaatar Urban and Ger Areas project, and ongoing efforts (described during interviews and in project documents) to develop innovative financing through application of a blended finance strategy under the new Ulaanbaatar Green Affordable Housing and Resilient Urban Renewal project (which is at very early stage of implementation), this evaluation rates WUS interventions effective.

105. Transport program. There were six transport projects; four were carried over from the previous period and two were approved during the CPS period. In addition, there were six ongoing TA projects approved before the CPS period and four TA projects approved during the CPS period. The objective in the CPS was to improve physical connectivity and integration in the most important transport corridors as well as reduce border processing times at the most important border crossing points. An additional objective was to reduce traffic congestion in Ulaanbaatar.

106. Regarding connectivity, ADB support consisted of an MFF and three stand-alone projects that would enhance existing road corridors and develop new ones in the western region. Additionally, it supported the construction of an intermodal terminal at the most important border crossing with the PRC.

107. The Western Regional Road Corridor Investment Program satisfied the outcome criteria, in particular the doubling of the average traffic speeds through the construction of roads and bridges as well as establishing maintenance units. As of April 2020, the road section had been constructed and the urban road and bridges had been partially constructed. In addition, it reduced border processing times between Mongolia and the Russian Federation as well as between Mongolia and the PRC.

108. The Urban Transport Development Investment Program MFF related to urban roads and urban transport in Ulaanbaatar was aimed at the CPS objective of reducing traffic congestion through the expansion of Ulaanbaatar’s public transport network. However, no progress is so far reported— the project documents reveal that the lack of progress could be attributed to a combination of inexperience and lack of political agreement regarding the bus corridor routes.

109. Transport assessment. This validation assesses the transport program effective in spite of the complete lack of progress on reducing urban traffic congestion in Ulaanbaatar based on improved traffic speed and connectivity in the transport corridors.

110. Agriculture, natural resources, and rural development. There were six ANR projects, of which four were carried over from the CPS period and two were approved during the CPS period. There were also eight ongoing TA projects and nine new TA projects in the CPS period.

26 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

111. There was good progress on value chain investments with respect to ANR projects. The Agriculture and Rural Development Project (additional financing) has undergone some scope changes to (i) include additional subsectors, (ii) adopt a regular on lending modality, and (iii) expand the range of sub-loans by lowering the minimum eligible amount. The project focused on subsectors for both export-oriented and domestic markets as well as on smaller-scale agro-enterprises and cooperatives. As of 30 June 2020, value chain investments sub-loans had been approved for about 80 targets.

112. The Integrated Livelihood Improvement and Sustainable Tourism in Khuvsgul Lake National Park Project achieved all 10-output-level indicators, and the 3 outcome-level indicators and social and gender plans have also been achieved. The emergency assistance grant for the 2015 Dzud reached 2,466 herder households in 8 provinces; 16% of these beneficiaries were female.

113. Most ANR projects were JFPR initiatives and had the characteristics of pilots. They were scattered across different ministries involving a diversity of ADB staff. Most were directed at enhancing agriculture productivity and effectiveness. IED interviews with relevant ministry officials involved in these projects revealed that they had not had a large portfolio with ADB in the past. Towards the latter half of the CPS period several JFPR projects triggered follow-on loan investments.

114. The Ministry of Food, Agriculture, and Light Industry expressed strong appreciation for ADB support since 2018 because it augmented the government’s focus on: (i) food and agriculture sectors and light industries to create jobs and reduce poverty; and (ii) economic diversification (e.g., into non- mining exports such as cashmere, meat, leather, oil crops, and wool) and rural development. The Ministry emphasized that substantial additional intervention is needed to promote these activities. This validation assesses the ANR program effective.

115. Energy. There was only one energy sector project (the Ulaanbaatar Air Quality PBL Phase 2 is assessed under PSM), which was for renewable energy. It amounted to $160 million, or 5.6% of the portfolio. It commenced towards the end of 2019 and insufficient progress has been made to assess its effectiveness. With the benefit of doubt, IED rates effective, based on the newly approved project prospect.

2. Non-Physical Sector Program Performance

116. Industry and trade. In the industry and trade area, three operations spanned the evaluation period. Two projects were approved before 2017 but were ongoing in the CPS period. The projects involved the regional upgrading of SPS measures, improving border services to accelerate the clearance of goods, and improving regional border services. There were four TA projects, two of which had commenced before the CPS period.

117. Improving SPS measures. In 2014, agriculture accounted for some 14% of Mongolia's GDP and 28% of its employment and is the backbone of the rural economy. The primary agricultural activity revolves around livestock and animal husbandry, particularly with respect to meat and wool production. In order to promote cross-border trade, the Regional Upgrades of SPS Measures for Trade Project is aimed at reducing the number of documents necessary for importing and exporting agricultural products is in progress. 46 While a process for reducing the necessary documentation has been established, the project is waiting for final government agreement on exactly how to reduce the number of documents required for approval. Delays resulted from a substantial turnover in counterpart staff as well as changes at the ministerial level. However, interviews with the operations department revealed that government is committed to reducing documentation by up to 50%. Furthermore, while different countries have different documentary requirements for agricultural imports, an aim of the Mongolian authorities is to

46 ADB. Regional Upgrades of Sanitary and Phytosanitary Measures for Trade Project. Project Assessment Sheet. (Internal). Rationale and Context 27

have a common template that will provide all necessary documentary evidence for all the destinations of Mongolia's agricultural exports.

118. Cross-border trade. An additional industry and trade project involved improving the efficiency and reducing the costs of the processes necessary to undertake cross-border trade. 47 Import- and export- related costs remain relatively high in Mongolia even though transport connectivity has improved. For example, in 2018 the Logistics Performance Index 48 ranked Mongolia as 130th out of 160 countries and gave it one of the poorest scores with respect to delays involving customs clearance and border crossings primarily because of the excessive numbers of physical inspections. The project aims to reduce the time and cost of border crossings by 30%. The internal project progress system noted that progress has been made with respect to achieving the outcome, with a steady decline in the average time and costs involved. Although there were significant project delays during startup, which resulted in an extension of the completion of the project to 2023, outputs, contract awards, and disbursements were on track. This project also has a PSD component. Because high costs of trade processing are essentially a tax on exports, this project will have contributed to improving the environment for doing businesses.

119. Boarder services. Additional financing for the Regional Improvement of Border Services Project was approved to upgrade border crossings between both PRC and the Russian Federation and to provide additional capacity development for the Mongolia border agencies.49 This project was part of the goal of promoting industry and trade within Mongolia as well as part of the wider framework to enhance regional cooperation and integration projects in the region. Interviews revealed that although progress has been slow, it was partly due to the need to share plans with the Russian authorities, the results of which has led to improved lanes and crossings on the Russian side of the border.

120. Industry and trade assessment. IED is only able to assess partially the effectiveness of these TA projects. One was rated successful, while one TA project was associated with a decline in costs and time of border crossing. One TA associated with SPS documentation and costs was judged to be at risk, while there was insufficient information on which to base an assessment for the others. Overall, this validation assesses the industry and trade program effective.

121. Finance. Under the objective of increasing access to finance, there were three sovereign operations totaling $180 million, four NSO totaling $110 million, and nine TA projects amounting to $8.4 million. Of the three sovereign operations, two were directed at enhancing Mongolia’s institutional framework.

122. The Banking Sector Rehabilitation and Financial Stability Strengthening Program (a PBL) supported efforts by the government and development partners to stabilize the banking industry following the crisis in 2016 when the public debt had ballooned to over 90% of GDP and weaknesses in a number of banks had come to light. Finance policy actions involved restructuring the banking industry by developing a roadmap for bank rehabilitation, resolving NPLs, and assisting with corporate debt restructuring. Outputs included enhancing financial sector stability and strengthening competition and governance in the financial sector, which involved supporting the and restructuring of bank, a systemically important financial institution that was 100% state-owned.

123. The Banking Sector Rehabilitation and Financial Stability Strengthening Program PCR rated the program less than effective because of only partial achievement of the goal of strengthening and stabilizing the banking industry.50 Developing a legal framework to deal with NPLs occurred only slowly. However, the economic recovery to some extent reduced the urgency of dealing with this issue. The PCR

47 ADB. Regional Improvement of Border Services. Project Assessment Sheet. (internal). 48 World Bank. 2018. Logistics Performance Index. Washington, DC. 49 ADB. Regional Improvement of Border Services Project (Additional Financing). Project Assessment Sheet. (Internal). 50 ADB. 2020. Project Completion Report: Banking Sector Rehabilitation and Financial Stability Strengthening Program in Mongolia. Manila. 28 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

noted the contribution of the program to stabilizing the banking sector but also pointed out the need for further reform in order to maximize the benefits of what had already been achieved. Overall, this validation assesses the finance program less than effective.

124. Non-performing loans. Evidence suggests that the number of NPLs is higher than official figures indicate. An internal report in October 2019 indicates that problem loans could be as high as 30%–35% of total outstanding loans, with the underreporting due to the forbearance of the Bank of Mongolia. 51 Interviews with ADB staff revealed that by the end of September 2020, NPLs had risen to 15% and that a significant number of consumer loans that were not performing will only be classified as such at the end of 2020.

125. Nationwide payment system. The objective of the ongoing Payment System Modernization Project is to develop a nationwide payment system, which will contribute to financial system stability and promote intra-Mongolia trade. The Q1 2020 progress report indicated that the project was on track and that there were no major problems.

126. Access to credit. The Supporting the Credit Guarantee System for Economic Diversification and Employment Project aimed to improve access to credit for SMEs and was designed to compensate for Mongolia not having an effective system for pledging movable assets. This project supported a Credit Guarantee Fund that had been established by the government in 2013, which was not being widely used by SMEs. The CPSFR points to the project as being a “potential problem.” Internal reporting indicates that following initial delays in the project arising from the need to finalize legal agreements with participating financial institutions, the Credit Guarantee System prepared a detailed utilization plan and withdrawal application. However, a problem arose when the Ministry of Finance refused to sign the withdrawal application because the project had exceeded its lending cap, along with other objections. 52 It is clear some problems have still to be resolved to allow the project to proceed. Interviews with ADB staff indicated that these include that recipients of credit guarantees were several percentage points lower than businesses more generally. Because access to finance was a key constraint to the private sector, the fact that the guarantee scheme was delayed has had a negative impact on access to finance for businesses.

127. Nonsovereign portfolio. Three projects were validated during the CPSFR period. [Confidential information deleted]. 53 , 54 Because of the modest goals for the outcome indicators, IED rates these projects less than effective for NSO.

128. Education. There were four education projects, three of which commenced before the CPS period. There were also five TA projects, two of which commenced before the validation period. The Higher Education Reform project has supported capacity building of over 20,000 participants (administrators, managers, higher education specialists, experts, teachers, and faculty members) from the Ministry of Education, Culture, Science and Sports; the National Council for Educational Accreditation; and various selected higher education institutions. 55 Five distance education learning centers have been established in rural areas and Ulaanbaatar city with the support of the project to improve access to and the quality of higher education for rural students and faculty. Despite enrollment

51 ADB. 2019. Supporting the Credit Guarantee System for Economic Diversification and Employment Project. (Internal). 52 See EARD Back-to-Office Report, 25 October 2019, Bullet point 3 under Mission Findings, page 1, “Ministry of Finance has nonetheless cited that they cannot sign a withdrawal application as the project is in excess of its lending cap for 2019 set at approximately $3 million.” 53 [Confidential information deleted] 54 [Confidential information deleted] 55 Capacity building has been provided on governance; management; finance and accounting; learning and teaching; faculty development; accreditation; research policy; the National Qualification Framework & Credit system; partnerships; higher education responsiveness to the labor market; gender equality in higher education; and conceive, design, Implement and operate (CDIO) standards’ implementation, which supports higher education reform. Rationale and Context 29

of disadvantaged groups, especially poor and rural students, rural student registration decreased by 4.3% in 2020–2021 compared with 2013–2014 despite project interventions.

129. The Skills Development project is about 60% complete and the government has requested a 1.5-year extension.56 Overall, this validation assesses the education program effective.

130. ADB implemented TA and grants on gender-based violence and unpaid care work, which provided policy recommendations for the labor market and law enforcement. 57 For example, an emergency TA on gender-based violence was approved as part of ADB’s COVID-19 response in Mongolia in 2020.

131. As part of efforts to address deepening inequality, which might reverse some of developmental gains since Mongolia became a democracy, in 2019 the government conducted a voluntary national SDG review following the first 3 years of SDG implementation. ADB worked with the National Statistics Office to improve SDG data collection through a capacity development TA on Enhancing the Use of Multiple Data Resources to Monitor Progress Towards the SDGs. The review noted that while Mongolia’s HDI score had improved by 20.5% during 2000–2017, the inequality-adjusted HDI was 13.7% lower than the overall index, reflecting inequality in education, health, and income levels. 58

132. Public Sector Management. The PSM program included 8 loan projects and 27 TA projects. A total of 7 loans and 19 TA projects were approved during validation (with total funding of $605.1 million), while 1 loan project and 8 TA projects were approved before the validation period ($38.3 million in funding). Collectively these constituted 25% of the portfolio.

133. Ulaanbaatar air quality. Figure 10 shows the sharp decline in average atmospheric concentrations

of particulate matter ≤ 2.5 micrometers in diameter (PM2.5) in Ulaanbaatar over 2016–2020. However, concentrations of particulate matter are still significantly above international recommendations for air quality standards.

Figure 10: Monthly Average of Particulate Matter in Ulaanbaatar ≤ 2.5 Micrometers in Diameter (PM2.5), 2016 to 2020

AQS = air quality system, Mg/m3 = milligrams per cubic meter. Source: National Database of the Mongolia National Agency for Meteorology and Environmental Monitoring.

56 This was funded through project savings and helped provide all secondary education students with textbooks. 57 ADB. Mongolia: Combating Domestic Violence Against Women and Children. 58 Government of Mongolia, National Development Agency. 2019. Mongolia Voluntary National Review Report 2019: Implementation of the Sustainable Development Goals. Ulaanbaatar. 30 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

134. During the 2019–2020 cold season the highest concentration of sulfur dioxide (SO2) was registered in January 2020. The level was nearly double that in January 2019 and 2.4 times higher than the maximum concentration allowed under the air quality standard (Figure 11).

Figure 11: Average Concentration of Sulfur Dioxide during the Cold Season, 2016–2020

OH = period or year, µg/m3 = micrograms per cubic meter. Source: National Database of the Mongolia National Agency for Meteorology and Environmental Monitoring.

135. During the 2019–2020 cold season, the highest concentration of nitrogen dioxide (NO2) was detected in December 2019, when it was 27% higher than in December 2018 and 1.3 times higher than the maximum concentration allowed under the air quality standard (Figure 12). Globally, concentrations 59 of NO2 and SO2 are being increasingly recognized as a health hazard, particularly in Europe.

While increases in SO2 and NO2 have not been proven to be related to the use of briquettes for indoor heating, these could lead to long-lasting health issues. The reduction in particulate air pollution was a major achievement.

Figure 12: Concentration of Nitrogen Dioxide during the Cold Season of 2016–2020 60

3 5 /m 0 g µ 4 0

3 0

Concentration,

Nitrogen Dioxide (NO2) Maximum Allowable Concentration OH = Year or Period, µg /m3 = micrograms per cubic meter. Source: National Database of the Mongolia National Agency for Meteorology and Environmental Monitoring.

59 ADB’s EARD indicated that NO2 outdoor air pollution is caused primarily by road traffic and SO2 by fossil fuels from power plants and industrial facilities. Both of these measures of air pollution are from sources that are outside the scope of the project, and are less directly harmful to health that high concentrations of indoor PM2.5 air pollution caused by indoor burning of heating fuels. Rationale and Context 31

136. Managing state-owned assets. The Strengthening Institutional Framework and Management Capacity Project became effective in mid-2016. 60 The management company (Erdenes Mongol) was created to manage state-owned assets and to increase the effectiveness and strategic position of state investments. The entity is the holding company for four state-owned enterprises, which it manages. However, the internal project progress system notes that it effectively functions as a public agency rather than as an independent investment company with its own budget. As of April 2020, the project was judged to be at risk because of shortfalls in disbursements (29%) and contract awards (45%); there is also a need to reform its corporate structure to reform its corporate structure to improve governance, provide legal economic and market advice, and strengthen its asset and liability management capacity.

137. Strengthening the provision of social welfare. Phase two of the Social Welfare Support Program (para. 62) was provided in May 2017 (the first phase occurred in 2016), with the objectives of improving fiscal policy management and developing and implementing policy actions to support consolidation of 72 social welfare programs to improve their efficiency and effectiveness. The PCR for Phase 2 rates the program highly effective because social welfare expenditure exceeded the targets and intended program outputs were successfully completed, including expenditure on the food stamp program. 61 However, the program outputs were effectively inputs and there is no mention of the effectiveness of these program expenditures in terms of impacts on the targeted beneficiaries, other than that the incidence of poverty in urban and rural areas declined by 1.2-percentage points, which cannot be directly linked to the program.

138. Social welfare benefits are in the process of being consolidated to reduce complexity and increase effectiveness under the Social Welfare Support Program. Since 2009, proxy means testing (PMT) has been used to identify poor households eligible to apply for one of the social welfare benefit programs, including food stamps. Social welfare programs cover some 72 different benefits, many of which are overlapping and poorly targeted. The information core system is intended to provide real-time data on the beneficiaries to enable government officers to monitor eligible beneficiaries in real-time. The last PMT survey conducted by the government in 2017 used paper-based surveys and data entry was plagued by errors, delays, and insecure information. From 2017 to September 2019, 135,416 households were re-assessed for their eligibility for social welfare programs. As of the summer of 2020, the Integrated Household Database recorded 650,000 households in the system. 62 The next PMT was planned to take place in 2020 but was postponed due to the Parliamentary Election and COVID-19 pandemic. The new methodology for the PMT survey will be finalized within 2021 with the support of the World Bank.

139. Summary. Based on the decline in particulate matter, and the rapid response to an opportunity regarding improving air quality, this validation assesses the PSM program effective.

140. Health program. Of the five health projects, three commenced before the validation period; there were also nine TA projects, six of which commenced before the period under review. The fourth Health Sector Development Project made good progress in developing a legal framework for reforming the sector in Mongolia and improving hospital governance. To demonstrate a new concept for hospital care, the project is establishing a new 200 bed multifunctional hospital in the Songinokhairhan district of Ulaanbaatar city, which is the poorest and largest district of Ulaanbaatar city with 43 sub-district units. The existing hospital is operating and providing health services for the community of 321,000 people. The new hospital, the Multifunctional General Hospital (built under the project) will be a state-of-the-art hospital and will provide facilities for the care of COVID-19 patients. IED interviews confirmed that delays in construction work and equipment supply resulting from the COVID-19 outbreak have delayed the hospital’s completion. Partial handover of the hospital was expected

60 The project has a closing date of April 2021. 61 ADB. Mongolia. Social Welfare Support Program Phase 2. 62 According to EARD, receipt of the universal child benefits is conditional on being registered in the IHD. In registering all households with children, IHD covers about 60% of households and 80% of the population. 32 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

to take place in December 2020. The quality of construction is reported to be very high. The health program is rated effective.

3. Summary

141. Assessment of the effectiveness of the CPS program was based on the weighted average of the individual ratings for each sector program (Table 3). While there was limited information in the CPSFR and from PCRs on which to assess the effectiveness of projects, interviews by IED staff and review of project documents enabled sector outcomes to be evaluated. Overall, the program is rated effective by this validation.

C. Efficiency

142. Overview. The CPSFR, 2017–2020 assessed the program less than efficient. The CPSFR stated that Mongolia faces unique implementation challenges related to its long winters and resulting short annual construction window, as well as political volatility that has led to policy instability. The review also identifies the persistence of systemic implementation issues across the portfolio that resulted in startup and implementation delays that impeded the delivery of targeted results. ADB introduced several innovations to improve portfolio performance (e.g., the Financial Framework Arrangement, regular portfolio review meetings, and significant training on ADB rules and regulations). Consequently, substantial improvement was reported on key portfolio performance indicators during the CPS period, although most still lag behind ADB averages.

143. In accordance with IED guidelines, efficiency is usually assessed by (i) comparing the costs and benefits of the CPS program, taking into account the original objectives and the least-cost alternatives; and (ii) examining program implementation, cost disbursement, and contract award performance. However, with few PCR available, the assessment is based on completed projects as well as project implementation performance reviews of ongoing projects.

1. Non-physical projects, including budgetary support operations

144. Public Sector Management. PSM PBLs were rated efficient or highly efficient by the CPSFR, based on the speed with which the tranche conditions were met and the promptness with which tranche releases occurred. However, the targeting of conditionality in social sectors when the PBLs were directed at budget support raises the question of why these sectors were selected. Meaningful environmental and social sector results can generally only be expected in the longer term, and it would therefore have been better if the PBLs had focused on public financial management that complemented the IMF program.

145. Documentation of other PSM projects, including the information and communication technology (ICT) project and the Strengthening Institutional Framework and Management Capacity Project noted problematic issues with respect to implementation, and this concern was raised in the CPSFR. There were startup delays, a lack of progress with procurement, and extensions of loan closing dates.

146. Finance. The CPSFR notes that financial sector operations were rated borderline less than efficient. The Banking Sector and Rehabilitation and Financial Stability Program was rated efficient in the PCR, and IED concurs with this rating, while noting that an important part of the program was not completed (i.e., passage and implementation of a law to deal with NPLs). The CPSFR cited lack of government commitment, which is a recurring problem in the sector, as a reason for not moving ahead with this action.

147. Industry and Trade. The Regional Improvement of Border Services project experienced significant delays during startup, resulting in an extension of the project to 2023. Outputs, contract awards, Rationale and Context 33

and disbursements were assessed to be on track, but the latest progress data shows that the disbursement is around 65%.

148. Education. The Higher Education Reform project is on track as of December 2020 with both contract awards and disbursements standing at 99% against projections; COVID-19 prevented the capacity building and gender advocacy activities from being organized as planned. The Skills for Employment project was initially delayed but was on track later in 2020 (about 94% against the target); a 1.5-year extension of the implementation period was requested, and the project is expected to close in May 2021. The third JFPR loan (Improving School Dormitory) closed in March 2020 and the fourth loan (on Sustaining Access to and Quality of Education During Economic Difficulties) stood at around 20% disbursed as of January 2021.

149. Health. The fourth Health Sector Development Project loan was about 53% disbursed as of December 2020. COVID-19 delayed the civil works, but the hospital is expected for partial handover by the end of 2020. For the fifth Health Sector Development Project, implementation is delayed due to postponement of renovation works for an unspecified period because of COVID-19; hospitals are working on an emergency footing, and any work inside the hospitals has been stopped.

150. The additional financing of the Food and Nutrition Social Welfare Project was extended by 1 year to 30 November 2020 but has been delayed by the COVID-19 pandemic (disbursement reached 99% as of January 2021). The Business Intelligence System at the Ministry of Labor and Social Protection was undergoing testing in Q1 2020. The system is expected to support the databases of Child and Youth Development and two more programs’ servers and waiting to be in full use.

2. Physical infrastructure projects

151. Water and other Urban infrastructure and Services program. The MFF Ulaanbaatar Urban Services and Ger Area Tranche 1 is close to completion, with disbursement at nearly 90%. The Darkhan Wastewater project’s latest data showed implementation progress of 77% (with the time elapsed at 86%). The small-scale grant examining an onsite sanitation option was fully disbursed as of the end of 2020. 63

152. Tranche 1 of the MFF Ulaanbaatar Urban Services and Ger Area Development Investment has disbursed almost fully (as of October 2020), and Tranche 2 disbursement was at about 19%. Both have experienced delays, partly because of issues with Ulaanbaatar’s budgets, which complicated counterpart financing in some years. The MFF Tranche 2 has completed detailed design of a plant package and six civil works, of which five are in an advanced stage of the design process. Local development plans are being prepared, and redevelopment processes and community engagement will follow the same steps employed in the tranche 1. For the seventh Ulaanbaatar Green Affordable Housing project, as of October 2020 there had been an initial contract award for the first packages with about $3 million disbursed: this is also the case with the small Ulaanbaatar Community Food Waste Recycling project approved in October 2019, for which the first package contract has been awarded, with about 20% of the total disbursed. 64

153. Energy. The Upscale Renewable Energy project had awarded 15% of contracts as of April 2020 and disbursed about 5% of funding as of the end of 2020; the second phase of the Ulaanbaatar Air Quality Program loan ($160 million) disbursed in one tranche, but this was budgetary support, and should be assessed under the PSM sector along with the first tranche.

154. Transport. The only project (Western Regional Road Corridor Development Project, Phase 1) for which efficiency was calculated was rated less than efficient, because of a low economic internal rate of return (EIRR) that resulted from cost overruns, implementation delays, and lower-than-expected traffic

63 ADB. Mongolia. Managing Soil Pollution in Ger Areas through Improved On-site Sanitation Project ($2.8 million grant). 64 ADB. Mongolia. Ulaanbaatar Community Food Waste Recycling Project. 34 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

volumes. It is not unlikely that calculation of post-completion EIRRs for the other projects will produce similar results. IED rates the transport program less than efficient.

155. Agriculture, natural resources, and rural development. The Agricultural and Rural Development Project (additional financing) achieved 100% contract awards and disbursements by the end of June 2020. The small-scale Integrated Livelihood Improvement and Sustainable Tourism project in Khuvsgul Lake National Park has also been fully disbursed by mid-2020.

156. Dzud emergency grant. The original procurement plan for the Dzud emergency assistance grant proved not feasible because of time constraints and administrative issues in government procurement procedures. Instead, the corresponding amount was used for different items, including (i) emergency public health and social services for herder families in remote areas, (ii) dead animal removal, (iii) searching for people lost in heavy snowstorms, (iv) the purchase of fodder, and (v) fodder transportation costs to herders. The PCR reported that the project experienced a delay of 5 months in the provision of cash grants to affected herders due to identification and verification of target beneficiaries. The grant overall was rated partially successful for that reason.

3. Summary

157. The CPSFR provides some analysis of the EIRRs of the completed PBLs, which were the main completed projects. It also examines portfolio performance based on (i) average startup performance after approval, (ii) contract award and disbursement, and (iii) e-serve data on projects that are “on track” against the target. It reviewed the reasons for some of the improved performance from previous cycles, alluding to the Financial Framework Agreement required in the budget law for ratification by Parliament for loan projects through seeking parliamentary approval of the assistance pipeline rather than for individual operations. 65 This reduced the time needed for government to process ADB projects. However, three PCRs are available only in draft form, and only one PCR contains an EIRR analysis. Therefore, it is not possible for IED to assess the actual vs. projected EIRR. While some small-scale loans and grants in the portfolio have been implemented and delivered results within the planned timescale, the bulk of Mongolia projects face delays and slow implementation.

158. Contract award and disbursement status. As of 30 June 2020, out of 691 loans and 350 grants active in ADB, 100 projects (15.5%) were rated at risk, compared with 81 projects (12.4%) that were rated as an actual problem under the previous rating system. The deterioration was due to more rigorous criteria for financial management, outputs, and safeguard indicators, as well as the impact of the COVID-19 pandemic. Contract award and disbursement status are shown in Figures 13 and 14. The ADB quarterly portfolio review for Q2 2020 indicates that the overall portfolio is already showing the impact of COVID-19. 66 Mongolia’s performance for contract awards and disbursements was lower than for the ADB, but on a par with some departments. For Mongolia, as of June 2020, the loan contract award achievement was at 22.4% versus the yearly projection, which was lower than the South Asia Department average (41.6%), but higher than average for ADB’s Central and West Asia Department (CWRD) and SERD. For the latest full-year data available, 67 Mongolia yearly contract award achievement rate was 16%, which was lower than the ADB-wide figure (25%), East Asia Department (EARD) average (19%), or other departments.

65 Mongolian law requires that all loans be approved by Parliament. The Finance Framework Agreement was developed by the Ministry of Finance with ADB support, and brings all projects under the COBP together in one document for parliamentary ratification, thus delegating the approval of each individual loan project to the Cabinet. This is more efficient as each individual project does not need to be separately approved by Parliament. 66 ADB. September 2020. Quarterly Portfolio Update for Sovereign Operations as of 30 June 2020. Manila. 67 ADB. 2019. Annual Portfolio Performance Report. Manila. Rationale and Context 35

Figure 13: Sovereign Project Loans and Grants Contract Award and Disbursement Ratios, 2019 (%) 40

26 25 19 20 23 16 22 20 20 16 16 16 17

Contract Award Ratio Disbursement Ratio Mongolia EARD SARD SERD PARD CWRD ADB ADB = Asian Development Bank , CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department , SARD = South Asia Department , SERD = Southeast Asia Department. Source : Procurement Portfolio and Financial Management Department 2017–2019 Annual Portfolio Performance Reports.

Figure 14: Sovereign Project Loans and Grants Contract Award Ratio, 2016─2019 (%) 41 40 39 35 30 28 28 27 26 26 25 24 24 23 23 22 21 20 19 19 19 17 17 16 16 16 13 12

MONGOLIA EARD SARD SERD PARD CWRD ADB 2016 2017 2018 2019 ADB = Asian Development Bank , CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department , SARD = South Asia Department , SERD = Southeast Asia Department. Source : Procurement Portfolio and Financial Management Department 2017–2019 Annual Portfolio Performance Reports.

159. Disbursement Achievement. On historical base, the disbursement achievement for ADB reached 29.1% in 2019; the lowest rate since 2016 was 25.7% in 2017. As of June 2020, the figure was 17.4%. For Mongolia, loan disbursement (excluding PBLs) as of June 2020 were on par with other departments (e.g., South Asia Department 16.1%, Pacific Department at 17.1%). However, in 2019 (the last year for which full data are available), Mongolia’s achievement disbursement rate (covering both projects and grants) was low at 17%, below the EARD average (22%), or ADB overall (20%) and some other departments, but on par with SERD and CWRD (Figure 15).

36 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Figure 15: Sovereign Project Loans and Grants Disbursement Ratio, 2016–2019 (%) 27 26 25 24 23 23 23 22 22 21 21 20 20 19 19 19 18 18 18 17 17 17 16 16 16 15 14 11

MONGOLIA EARD SARD SERD PARD CWRD ADB 2016 2017 2018 2019 ADB = Asian Development Bank , CWRD = Central and West Asia Department, EARD = East Asia Department, PARD = Pacific Department , SARD = South Asia Department , SERD = Southeast Asia Department. Source : Procurement Portfolio and Financial Management Department 2017–2019 Annual Portfolio Performance Reports.

160. The CPSFR (footnote 3, p. 18) stated “despite best efforts at capacity building and other forms of outreach through the country program review mission (CPRM) action plans and quarterly portfolio reviews, procurement and financial management capacity still remain quite limited across executing agencies and project implementation units and continue to result in significant delays in procurement and recruitment of consultants, among other problems.” Sector program ratings and the weighted aggregate program rating of less than efficient are in Table 3.

D. Sustainability of the Country Program

1. Sector-Level Assessment

161. The CPSFR rating of the program is likely sustainable. IED validation assesses it likely sustainable on the borderline. The CPSFR justified the rating based on all four of the major lending operations completed during 2017–2019 being evaluated likely sustainable, although the PBL evaluations emphasized the need for follow-up.

162. The ongoing sector programs directly linked to income-generating activities such as agriculture and finance are most clearly sustainable. However, programs that rely on user fees or budgetary allocations face more challenges. Health, education, and WUS programs barely meet the likely sustainable rating with challenges in sustaining budgetary allocations to these sectors, with respect to issues of maintenance and cost recovery through user fees.

163. Transport program. The sustainability of road transport projects, which account for four of the six transport projects in total, will depend on the extent to which maintenance continues. ADB is heavily engaged in the road sector and maintenance is beginning to feature more prominently in project design. The passage of a Road Law Amendment in 2017 expanded road maintenance funding; this is a positive step that will improve operations in this area, but the actual benefits will depend on the extent to which the Road Law Amendment is implemented. A concern to date is the significant underinvestment in Rationale and Context 37

infrastructure maintenance, 68 which has resulted in substantial deficiencies over a large portion of the transport network. In the CPSFRV, 2012–2016, IED emphasized that it was necessary to “prioritize and support maintenance expenditure by the government in infrastructure” and that this needed to be given greater weight when new projects were being designed (footnote 6, p. xiv). This validation concurs with the CPSFR assessment of the transport sector of likely sustainable (on the borderline), based primarily on completed projects or projects that are close to completion, and extrapolates potential sustainability from these.

164. Infrastructure maintenance. The CPS, 2017–2020 includes only three mentions of infrastructure maintenance. It refers to the findings of the CPSFRV, 2012–2016, one conclusion of which was that greater emphasis was needed on the government’s capacity to finance infrastructure operation and maintenance. The development of rail access to new routes to promote transport from newly developed mines is not a priority in the government’s Sustainable Development Vision 2030 (footnote 30). During interviews conducted for this validation, the ADB Mongolia Transport Team stated that (i) the private sector should be responsible for constructing these links (this validation concurs); and (ii) ensuring funding for maintenance is difficult, although the new maintenance law may help. The current loan modality does not allow maintenance expenditures to be included in the loan, but this issue could be reconsidered.

165. Road Asset Management initiative. The transport sector program introduced a Road Asset Management initiative through TA under the Regional Road Development and Maintenance Project, the objective of which is to improve maintenance and asset management. 69 A feature of the initiative was embodied in the Road Law, namely that the provisions for Road Funds were changed to dedicate them solely to maintenance and protection of roads. A Management Information System has been introduced under the TA that comprises a set of procedures to accumulate data from the asset database and generate reports that provide inputs into the management of the road assets. Additionally, an axle load control system has been introduced to check on truck loads to limit the damage to the road transport network from resulting from overloaded trucks. 70 At this point, however, there is insufficient information to determine the effectiveness of these initiatives. Both the Management Information System and the Load Control Initiative are inputs into the maintenance program, and it is unclear how these translate into outputs in the form of improved maintenance. For these reasons, the validation rates the transport program less than likely sustainable.

166. Water and Other Urban Services programs. The Southeast Gobi Urban and Border Town project is rated sustainable in the mid-term based on the poverty level being 10% lower in 2019 than in the socioeconomic survey done by the National Statistic Office in 2016. The unemployment rate of the targeted geographical territories was recorded as 0.5–2.5-percentage points lower than the state average, meaning the project probably helped create jobs, particularly for women. On this basis the sector program, and particularly the Southeast Gobi project, is provisionally rated likely sustainable. The MFF for Ulaanbaatar Urban Development and Ger Areas is still in the middle of the implementation and is facing some challenges.

167. Agriculture, natural resources and rural development. Some small-scale projects have been completed (e.g., Dzud Disaster Response) or are close to completion. As of this writing, the Integrated Livelihood Improvement and Sustainable Tourism in Khuvsgul Lake National Park project is judged to have a high level of sustainability, as most of the project components are in operation, in particular the largest pilot feature, the establishment of six community revolving funds and the water quality program. These have been turned over to domestic agencies and are now being operated independently of the

68 Mongolia CPS, 2017–2020 (footnote 2); and OECD. 2019. Sustainable Infrastructure for Low Carbon Development in Central Asia and the Caucasus. Paris. 69 ADB. Mongolia: Regional Road Development and Maintenance Project. 70 ADB. 2020. Axle Load Control Report. Consultant’s report. Manila. 38 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

project. This led to the Sustainable Tourism Development Project, approved in May 2019. Overall, the ANR program is assessed likely sustainable.

168. Public Sector Management program. The government showed commitment to reducing air pollution in Ulaanbaatar. The banning of the use of raw coal was a major positive step as were the associated policy actions in the PBLs, although the full effect of these will only become clear over time. The reduction in the concentration of particulate matter is a positive outcome.

169. However, other PSM projects experienced problems. The Strengthening the Institutional Framework and Management Capacity Project to strengthen the management and effectiveness of state assets through the Erdenes Mongol Company has so far experienced problems (para. 136); the Erdenes Mongol Company will not be fully effective until it operates as an independent management company rather than a public agency. The Strengthening Information and Communication Technology Systems for Efficient and Transparent Public Investment and Tax Administration project appears to have financial compliance issues; while these have been noted they have been resolved, with the project remaining on track. However, it has not led to improvements in tax management, including tax arrears. It not possible to assess the sustainability of TA projects because of a lack of information. Overall, IED rates the PSM program likely sustainable.

170. Finance program. The PCR rates the Banking Sector and Rehabilitation and Financial Stability Program less than likely sustainable, in contrast to the draft CPSFR rating of sustainable. The difference between the two ratings arises because the PCR notes that "the program’s policy actions cannot be expected to create a strong and robust banking sector in Mongolia entirely on their own; at a minimum this will require the actions called for by the IMF program, which in turn require sustained and consistent commitment by the government and step-by-step change." 71 For example, some important banks remain severely undercapitalized, while proper capitalization is identified by the IMF as being incomplete. 72 In addition, there are a substantial number of overdue loans which may well be classified as NPLs at the end of 2020. If this occurs, total NPLs could quickly rise to over 30%.

171. The PCR also addresses the vulnerability of the economy to external shocks that rapidly pass through to the financial sector, leading to a high rate of NPLs and reducing the ability of the financial sector to effectively intermediate. In addition, there are a substantial number of overdue loans that could be classified as non-performing at the end of 2020. The PCR suggests that these substantial cyclical swings generate an appetite for reform during downturns, but which dissipate when the subsequent upswings occur. These observations can be applied more generally to financial sector reform issues.

172. The ongoing Payment System Modernization Project appears to be on track. No problems have been reported and it has the potential to substantially modernize the payment system in Mongolia and will benefit lower-income groups by reducing the need to carry currency.

173. Other sectors. NSO are also ongoing and have generated high rates of return even through the economic downturn of 2016–2017. These appear to be sustainable although the actual level of NPLs among the participating banks is uncertain. Transport and industry and trade have very little data. The energy, education and health sectors have fairly focused outputs that are track, and IED observes that these programs appear likely to be sustainable.

2. Cross-cutting Issues Affecting Sustainability

174. Cross cutting theme. One of the CPS, 2017–2020’s two cross-cutting themes is improving the transparency and accountability of PSM systems (paras. 4 and 43). ADB was able to address this need by buffering the impacts of external shocks (mining and FDI) and potential internal shocks arising from fiscal

71 ADB. 2020. Completion Report: Banking Sector Rehabilitation and Financial Stability Strengthening Program in Mongolia. Manila. 72 IMF. 2019. Article IV Consultation Report. Washington, DC. Rationale and Context 39

consolidation. However, there are questions with respect to the Social Welfare Support Program PBL— the project validation report raised the issue of the use of the PBL modality because it did not consider potential internal shocks due to poor governance. It further suggests that a single tranche operation that focused on budget support might have been preferable. 73 The self-rating of this operation was based on the fact that social spending increased. However, there was no indication of whether these spending inputs resulted in higher social welfare, or even whether the number of recipients and the amounts received actually increased. While social transfers increased over the validation period, the link between the PBL and higher social spending was not established. Furthermore, the ICT system has still not been implemented for day-to-day operations for all social welfare programs linked to ADB support, although some have been piloted.

3. Summary

175. The government has signaled its intent to address key reforms and has taken some important steps in this direction, supported by ADB operations, particularly in ANR, education, energy, health, and WUS. Initiatives that are making progress or are close to realization include reducing particulate emissions in Ulaanbaatar and renewable energy (installing solar panels) in the western region. Other sustainable projects include poverty-targeted income generation and tourism initiatives in the Khuvsgul Lake national park region. However, equally vital reforms in sectors of ADB focus have proceeded slowly and in small steps, and face obstacles as a result of government fiscal and debt management challenges. In particular, the reduction of infrastructure constraints may be undermined by unfinished institutional reform as well as lack of maintenance. This applies particularly to the transport sector, where the government has historically fallen short in providing sufficient funding for Operation and maintenance, which is a problem in many developing countries. Improvements in the investment climate and efforts to increase the number of skilled and productive jobs are overshadowed by gaps in policies to manage the transition to a market economy, as the mining sector does not create jobs for new graduates. Complementary policies have yet to be given specific government support in the areas of financial sector reform and providing support for SMEs, other than in the ANR sector. These challenges are exacerbated by the global economic downturn due to the COVID-19 pandemic, which initially lowered demand for mining industry outputs, and increased public sector debt because of borrowing for economic stimulus and relief. While there has been a significant improvement in the debt position, and commodity prices were recovering as of early 2021, further emphasis on maintenance would be welcome. IED assesses finance, transport and industry and trade less than likely sustainable, and the aforementioned four sectors likely sustainable. Overall, likely sustainable on the borderline (Table 3).

E. Development Impacts

1. Progress toward government’s Country Development Goals

176. The CPSFR assessed development impacts satisfactory. In making its assessment the CPSFR credits ADB’s (i) progress with pioneering projects in support of people with disabilities and addressing the issue of domestic violence against women and children; and (ii) efforts with respect to regional cooperation and integration, which made important contributions to the CPS’ strategic objectives, especially in helping to increase physical connectivity with international markets and diversifying Mongolia’s export base. The CPSFR assesses achievements in improving governance and transparency as mixed.

177. Based on IED’s guidelines, ADB’s overall contribution to development impacts was assessed based on progress towards selected country development goals, CPS objectives, cross-sector development objectives, unintended outcomes, and safeguards, as well as the ratings of individual

73 IED. 2020. Performance Evaluation Report: Social Welfare Support Program in Mongolia. Manila: ADB. para. 35 states “The standalone PBL model was not appropriate judging by the fact that the second tranche disbursed well ahead of schedule suggesting that the government urgently needed the financial support.” 40 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

projects that were assessed in terms of their development impact. The assessments are grouped under the main three CPS pillars, with corresponding sector assessments. As most project implementation performance reports lack results indicators, IED formed its judgments based on interviews and data that were available during the IED mission.

2. Promoting Economic and Social Stability

178. Public sector management program. The CPSFR notes that the development impacts of the three PBLs under PSM were satisfactory and that this was the primary reason for rating the overall development impacts satisfactory. Pillar 1 of the CPS directly links to two ADB operational priorities—priority 1: Addressing remaining poverty and reducing inequalities; and priority 6: Strengthening governance and institutional capacity. However, this validation report questions the Social Welfare Support Program PBL ratings, and the outcomes with respect to other PSM projects as well.

179. The development impact of the Social Welfare Support Program PBL is difficult to ascertain, because the key indicators were related to spending without focusing on how the recipients of the spending benefitted. The Strengthening Information and Communication Technology Systems project, and the Strengthening the Institutional Framework and Management Capacity Project (related to the Erdenes Mongol Company) had significant problems and therefore questionable development impacts. It was not possible to validate the impacts of the many TA projects because of very limited information provided in the CPSFR on their outcomes.

180. Under the Ulaanbaatar Air Quality Program, refined coal briquettes were introduced from the winter of 2019–2020 as a substitute for raw coal. The lab results hinted that coal briquettes released

higher concentrations of SO2 because of the source material. The recent commissioning of the Amgalan thermal power plant has also contributed to an increase in atmospheric SO2 and NO2 concentrations. The number of cars in use in Ulaanbaatar has also increased, and 80% of are gasoline-powered, and more

than 10 years old. In addition, the main gasoline used has a high SO2 and NO2 content. Nevertheless, the sharp drop in particulate matter and positive client satisfaction survey results from the Food and Nutrition program result in an IED rating of the development impacts of the PSM interventions of satisfactory.

181. Industry and trade program. Industry and trade operations will enhance the ability of the private sector in Mongolia to engage in non-mineral related trade, particularly in the agricultural sector, which remains an important part of the economy Improving the border crossings for goods with respect to time and cost with both the Russian Federation and PRC will enhance Mongolia’s role in regional trade, particularly with the Russian Federation, which has not so far been a focus of ADB assistance.

182. Finance program (including NSO). The PCR for the Banking Sector and Rehabilitation and Financial Stability Program rates the program’s development impacts less than satisfactory (footnote 71). Although the program helped increase the stability of the banking system, the government failed to pass important legislation related to dealing with NPLs, which is a major factor impacting the banking system that adversely affects the ability of the financial sector to intermediate effectively. In particular, there is an ongoing need to enhance the financial structure of the commercial banks and to ensure that they are fully capitalized. To date concerns surrounding the capitalization of some key financial institutions remain.

183. A major factor that limits the development impact of ADB interventions in the financial sector is the limited number of loans being supplied to businesses, especially SMEs. Outcome indicators in the CPS suggest that even if the milestones were achieved, the development impact on lending in the financial sector would be extremely limited.

Rationale and Context 41

184. Lack of focus on the business environment. While a number of projects included PSD components, the lack of a central focus on the business environment implies that ADB is not at the center of reforms in this area. Earlier analysis by ADB and other development partners has identified many areas that negatively impact the private sector in Mongolia. These include access to finance, property rights, contract enforcement, human capital and workforce development, and the large presence of the state in the economy. A coherent strategy is needed to address these issues if the is to diversify from its heavy reliance on minerals and mineral exports, which makes it especially vulnerable to changes in mineral prices and trading partner demand. While progress has been made through TA, overall ADB assistance to PSD has fallen short of the country’s needs. Overall, IED rates the development impacts of ADB financial sector interventions less than satisfactory.

3. Developing Infrastructure for Economic Diversification

185. Pillar 2 of the CPS (Developing Infrastructure for Economic Diversification) is directly connected to three Strategy 2030 operational priorities—Operational priority 4: Making cities more livable; Operational priority 5: Promoting rural development and food security; and Operational priority 7: Fostering regional cooperation and integration.

186. Transport. The CPS outcome indicators for Pillar 2 that relate to transport were described in the Relevance section. As referenced in the CPSFR (footnote 3, Appendix 1), performance against transport-related targets were as follows: (i) increase in traffic on improved roads along CAREC corridors 4a, 4b, and 4c—targeted increase of 20% by 2020, from a 2015 baseline of 206 vehicles per day; the actual increase (2018) was 118%, (based on a count of 450 vehicles a day); (ii) urban public transport use—targeted increase of 20% by 2020, from a 2017 baseline of 578,000 rides per day; actual result (2018) was a decline of 4.8% (based on a count of 550,000 rides per day %); and (iii) urban bus-based mass transport system construction—the target was 14 kilometers would be built by 2020, from a 2016 baseline of zero; actual result (2018) was none was constructed.

187. These figures indicate that urban public transport use declined, and there was no progress on urban bus-based mass transport systems, while there was a significant overachievement of the road use target. With two of the three transport indicators under Pillar 2 not achieved, IED rates ADB initiatives in the transport sector less than satisfactory.

188. Water and Other Urban Services program. In the WUS sector, IED has substantial information and data to assess the development impact for only one project: The Southeast Gobi Urban and Border Town Development Project. A 2019 survey of beneficiaries found that the travel distance and time spent to get the water from water supply stations reduced compared to 2011 and 2015 (para. 101).

189. The survey indicates that the quality of life for the majority of households has improved as a result of the ADB project. The survey responders identified the key benefits from the project as reduced time to get water, fewer health risks, less vulnerability to contagious diseases, and better conditions for doing business. In the 2019 survey, 11% of the survey responders said that female family members benefited from the improved water supply service, compared to 3.2% in 2015 survey.

190. Other sector programs. For the ANR sector, relatively small-scale JFPR grant projects have led to some larger new loan projects, demonstrating synergy between small grants and the preparation of larger projects. This has also occurred in the education sector. However, the health sector is under pressure, with the COVID-19 pandemic still disrupting civil works; however, ADB’s ongoing involvement is making a difference in poorer neighborhoods, as will the new hospital that will be fully completed within 2 years.

4. Sustainable Environment

191. Pillar 3 (strengthening environmental sustainability) is aligned with two Strategy 2030 operational priorities—Operational priority 3: tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability; and Operational priority 4: promoting rural development and food security.

192. Agriculture, natural resources, and rural development. The Integrated Livelihood Improvement and Sustainable Tourism in Khuvsgul Lake National Park Project achieved all 10 output-level indicators and the 3 outcome-level indicators (concerning livelihoods and sustainable tourism in five soums of the Khuvsgul Lake National Park Project area); social and gender plans have also been achieved. This grant project aimed to improve the income of the targeted ethnic minority community through community-based tourism, establish a revolving fund, and enhance waste management. The emergency assistance grant for the Dzud of 2015 reached 2,466 herder households in eight provinces, of which 16% were female beneficiaries. As part of the preparation of the project and grant from JFPR, 74 ADB also supported the government in assessing the projected impact of climate change on Khuvsgul Lak National Park in terms of biodiversity, livelihoods, and tourism.

193. Energy. Both energy projects (one of the two is the Air Quality PBL phase 2) are recent. When the Upscaling Renewable Energy Project advances and is complete, it is expected to deliver clean electricity to 70,000 households while annually avoiding 82,789 tons of carbon dioxide emissions. Mongolia has huge renewable energy (solar and thermal) potential which could meet long-term domestic demand. Promoting a diversified energy mix with a higher share of renewable energy is a core priority, both to reduce dependence on high cost imported electricity and to decarbonize the country's energy sector. The government has sought to develop the first-of-its-kind distributed energy system using renewable energy. While the development impacts have yet to be realized, the two projects may well lead to reductions in fossil fuel consumption.

194. Water and Other Urban Infrastructure Services. Under the Southeast Gobi Urban and Border Town Development Project, the quality of water supplied to households improved as documented in a 2019 survey. This also has a gender element, as it reduced the amount of time of female family members needed for tasks related to toilets, waste, and water. On the much larger and long-term ADB engagement in the Ulaanbaatar Urban Services and Ger Areas Development Investment Program, the project was slowed by both implementation delays and involuntary resettlement issues related to land title holder rights. Although the underlying principles of ADB’s safeguard policies were embedded in the loan agreements, these issues nevertheless surfaced during implementation. As a leading development partner in the sector, it is important that ADB ensures that there is fair economic compensation that considers the rise in property values for existing residents who had occupational land or residency rights.

195. Air quality improvement. PSM’s development impact will likely be positive in terms of environmental sustainability (pillar 3) over the longer term, because of the government’s commitment to reducing air pollution in Ulaanbaatar.

5. Gender Equity and Mainstreaming

196. The CPSFR highlighted ADB’s pioneering action in approving the first stand-alone grant project on gender to address domestic violence in Mongolia. The original loan and additional financing (still active) aim to: (i) provide multi-disciplinary response and livelihood support to domestic violence survivors, (ii) protect and rehabilitate services, and (iii) preventing and reporting. Additional financing was processed to expand the digital information technology platform for the domestic violence hotline. Mongolia also had several TA projects that helped implement the Gender Equity Law through civil society

74 ADB. Mongolia. Integrated Livelihoods Improvement and Sustainable Tourism in Khuvsgul Lake National Park Project. Rationale and Context 43

engagement and capacity building for government officials. In addition, other community-focused projects (e.g., small-scale agriculture projects and emergency Dzud support) had a primary focus on gender equity. There was some focus on gender mainstreaming in social welfare and health programs. This additional focus highlights ADB’s contribution related to Strategy 2030 operational priority 2: accelerating progress in gender equality. The Ulaanbaatar Urban Services and Ger Areas Development Investment Program-Tranche 2 (approved in 2017) also pioneered integrating a gender-based violence component into a large-scale infrastructure project. 75 In the education sector, under the Higher Education Reform Project, gender-related indicators were achieved (male student target of 35%) for enrollment.

6. Summary

197. Overall. The ADB program was supportive of the national development priority sectors that were the focus of the strategy. The prioritized sector programs were designed to link to the three pillars of the CPS, 2017–2020. However, clear and definite impacts were more identifiable for the smaller lending sector programs, such as in industry, education, ANR, and health. Results for the WUS program will depend upon the outcome of the Ulaanbaatar Urban and Ger Area Development Project. The nearly completed Southeast Gobi Urban and Border Town Development Project has shown ongoing impact. PSM interventions have led to a marked improvement in Ulaanbaatar air quality. However, the finance and transport programs are less than satisfactory. Overall, the validation assesses development impacts satisfactory on the borderline (Table 3).

F. ADB and Borrower Performance

1. ADB Performance

198. The CPSFR assessed ADB’s performance based on three key elements: (i) the extent to which ADB was responsive to Mongolia’s development needs, (ii) the diligence and comprehensiveness of ADB’s project administration activities, and (iii) ADB’s role as one of Mongolia’s leading development partners. The CPSFR notes ADB’s moderate accomplishments in program design and implementation as key considerations in the overall assessment, also noting that there were substantial political changes before the CPS period, which resulted in the structure of the CPS being sector-based—the portfolio spanned nine sovereign sectors plus nonsovereign interventions (in finance and PSD). There were large PBL loans focused on PSM (social protection) and MFFs on urban development in Ulaanbaatar.

199. Based largely on the feedback received during the IED mission from government and development partners, this validation assesses ADB performance satisfactory but qualifies some of the points made in the CPSFR. Most of the sector project management units noted the quick and responsive support from the resident mission and ADB headquarters. This validation notes that ADB is the leading external multilateral development bank, and that this role would have been enhanced if it had been more active in the cross-fertilization of knowledge that has been accumulated by the development partner community in the area of climate change. For example, in other DMCs, ADB is active in supporting governments in assessing trends in carbon dioxide emissions as well as engaging in sector assessments that contribute to preparing United Nations Framework Convention on Climate Change (UNFCCC) targets and strategies. Similarly, it could have better tailored its support for Mongolia by making use of its accumulated experience in areas of joint interest to CAREC program members (including in particular the PRC) and the Russian Federation.

200. The CPS only partly considered IED’s four recommendations in the 2017 CPSFRV. Projects did not always demonstrate the knowledge acquired in other projects and regions, as was evident from the

75 This experience was shared through T. Begzsuren and V. M. Joffre. 2018. Translating Women’s Voices into Action in Mongolia. ADB East Asia Working Paper Series, No. 14. Manila. 44 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

difficulty of effectively implementing the credit guarantee schemes. 76 Transport projects still experience challenges in securing budget for maintenance costs. On the other hand, ADB continues to focus on health and urban projects in which it has strong a strong track record and experience.

201. On gender, there were some innovative TA projects, particularly those highlighting the need for attention to issues of domestic violence. The resident mission indicated that its staff resources were stretched in providing project administration, particularly because of limited international staff. NSO relied on shuttle missions from ADB’s Beijing office. Government agencies and some local staff covering various sectors in Ulaanbaatar indicated that resources should be commensurate with needs with respect to strategies and projects to diversify the economy. Blended financing was introduced in a WUS project and in power storage in the energy sector, but IED could not discern innovative or highly “knowledge-based” initiatives on a large scale.

202. Because the GAP, 2016–2020 was very broad based and did not identify key strategic priorities, ADB structured its focus broadly on the pattern of its own past program portfolio and was not sharply focused on the assistance it would provide strategically towards the NDS, 2008–2021 or the GAP. Furthermore, both the CPS and the CPSFR had some shortcomings. The CPS pillars simply grouped related interventions largely under the headings of the two high-level pillars (Promoting Economic and Social Stability; and Developing Infrastructure for Economic Diversification), which could have justified almost any intervention. The CPS indicated that specific projects would be identified in the focus sectors of the CPS. As a result, the CPS also did not function as a useful strategic guide. Furthermore, several projects were developed during the CPS period that had little underpinning in the CPS or in sector assessments, and the evaluation results framework was not updated following project development. While the need for flexibility was noted in the CPS, a more strategically focused approach would have been welcome. Also, in the CPS period, four COBPs were issued, but none of these updated the country results framework or linked the new projects that were under preparation in the pipeline to the original design and monitoring framework results indicators. The same applied with respect to the operational priorities introduced in 2018 under Strategy 2030. The CPSFR analyzed the context, government policies, and specific projects but exhibited shortcomings in drawing balanced assessments at the sector and evaluative criteria levels. A consistent theme voiced in IED interviews with ADB counterparts was that the CPS period was not long enough for projects to come to fruition.

2. Borrower Performance

203. The CPSFR assesses the government’s performance satisfactory. It justifies the rating on the basis that the borrower experienced long-standing and persistent challenges in project implementation, although this improved in comparison with the previous CPS period. The CPSFR states that government counterparts consistently exhibited strong ownership across the spectrum of ADB’s operations, had been open and receptive to efforts at dialogue on policy issues and problem solving, and actively participated in training and other capacity building outreach. The CPSFR referred to some unrealized commitments, particularly that the government did not re-establish formal in-country development partner coordination mechanisms during the CPS period. However, there were regular meetings to review progress in achieving the SDGs and contributions to the targets set under the 21st Conference of the Parties to the UNFCCC. Staffing shortages in ADB’s key counterpart ministries, and the lack of a strong monitoring and evaluation mechanism in executing agencies, also posed challenges and are issues that should be raised by ADB.

204. Progress on reducing SPS regulations to reduce border crossing delays was delayed because of ongoing turnover in government personnel. However, the current government is committed to a substantial reduction in regulations and documentary requirements.

76 ADB. 2015. Credit Guarantees: Challenging their Role in Improving Access to Finance in the Pacific Region. Manila demonstrates the difficulties associated with successfully implementing credit guarantees. Rationale and Context 45

205. The government that came to office in 2017 continued to show a commitment to reforms across many sectors, which it outlined in the NDP. The new GAP spelled out a set of broad long-term aspirational goals aligned with the SDGs, including for Mongolia to reach middle-income country status by 2030. However, the government did not make a consistent effort to coordinate with development partners, which resulted in fragmentation without a strong sector development strategy around which development partner policies and interventions could be harmonized. At times this resulted in development partners having difficulty responding to government needs.

206. The validation assesses borrower performance satisfactory in spite of the lack of a formalized development partners’ platform that enhanced coordination and added value, other than the EFF package under the IMF.

G. Quality of the Country Partnership Strategy Final Review

207. The quality of the CPSFR would have improved if it had presented important ongoing progress with data in the key sector projects to qualify for satisfactory rating. The final review highlighted the volatile political environment and changes in the government priorities, that made the assessment of ADB operations primarily describing the ongoing situations, rather than presenting the outcomes supported by data. The most challenging and biggest shortcoming is the lack of an in-depth discussion of the monitoring of development results indicators while projects are under implementation. Large sectors, such as finance, health, PSM (especially social protection), transport, and WUS can have robust data monitoring during the implementation on key indicators (particularly on benefits to beneficiaries and business). The CPSFR could have discussed the recommendations of the previous 2017 CPSFRV in detail and compared with the CPS and the ensuing program, as those recommendations are still relevant and applicable.

208. Regarding content, the CPSFR, 2017–2020 covers the main areas and criteria required in ADB guidance for a CPSFR. It is justifiably critical of some aspects of the CPS, e.g., the results framework, which impeded the proper assessment and accountability of the ADB program. The CPSFR employed data where it was available but does not indicate whether there are comprehensive monitoring and evaluation indicators and whether performance evaluation is being undertaken for the ongoing projects, which left significant gaps. It fails to discuss the implications of the overly general pillars of the CPS. The CPSFR is quite thorough in presenting results of completed projects, and candid about shortcomings in implementation efficiency, but takes an optimistic view of these in its conclusion on the efficiency of the overall ADB program.

CHAPTER 3 Conclusions, Lessons, Issues, and Recommendations

Conclusions

209. The validation assesses the ADB program performance successful on the borderline. 77 The rating is derived from the matrix of strategic pillars and averages the individual sector program ratings in terms of their relevance, effectiveness, efficiency, development impacts, and sustainability. The results are summarized in Table 3.

210. ADB has adjusted its Mongolia program in response to evolving government’s priorities to achieve economic growth, expand connectivity infrastructure, and address the quality of life, mainly focusing on urban development in Ulaanbaatar. The CPS, 2017–2020 was relevant. However, the very high level of the pillars meant that they offered little strategic guidance, and when changes to the program were made, they were not reflected in revised results indicators. ADB extended budgetary support (public sector management) as part of the IMF EFF framework through the improving Ulaanbaatar Air Quality and social protection, and provided continuity through support for transport, health and ANR where ADB has traditionally had expertise in the donor community. It also was involved in the finance and industry and trade sector as well as with nonsovereign loans to local banks. Typically, ADB has not been strong in the health sector in most countries, but experience gained through generations of health sector programs in Mongolia have given ADB, a strong foothold in this sector. Its knowledge of the challenges faced by the country in its endeavor to improve the quality of medical services was of great value, especially for poorer neighborhoods in Ulaanbaatar. Assisting the government to consolidate its fragmented IT systems in the social protection sector will bring benefits.

Table 3: Program (Sector Emphasis) Ratings Comparison between the Country Partnership Strategy Final Review and Validation Relevance Effectiveness Efficiency Sustainability Impact Overall Sectors 20% 20% 20% 20% 20% Score Sector Operations (Weight) ANR (7%) 2 2 2 2 2 2.0 Energy (7%) 2 2 1 2 2 1.8 Transport (14%) 1 2 1 1 1 1.2 WUS (19%) 2 2 1 2 2 1.8 Education (4%) 2 2 1 2 2 1.8 Finance (12%) 2 1 1 1 1 1.2 Health (9%) 2 2 2 2 2 2.0 Industry and Trade (3%) 3 2 2 1 2 2.0 PSM (25%) 2 2 2 2 2 2.0 Weighted Average Score 1.89 1.8 8 1.4 4 1.71 1.74 1.73 Cross- cutting Themes Economic and Social Stability 2 2

77 As per the 2015 guidelines for the preparation of CPS final reviews (footnote 5), the rating of successful on the borderline is provided if the overall rating falls between 1.6 and 1.75, which is equivalent to 3 of the 5 criteria assessments being satisfactory (1.2 points), and two less than satisfactory (0.4 points) if no weighed sector assessment ratings are provided. This nomenclature will now be used in the executive summary as well. Conclusions, Lessons, Issues, and Recommendations 47

Relevance Effectiveness Efficiency Sustainability Impact Overall Sectors 20% 20% 20% 20% 20% Score Developing Infrastructure and 1 1 Economic Diversification Sustainable Environment 2 2 Weighted Average Score 1.67 1.67 Overall Weighted Average Score 1.78 1.88 1.44 1.71 1.70 1.70 Overall Rating Relevant Effective Less than Likely Satisfactory Successful Efficient sustainable (borderline) (borderline) (borderline) ADB = Asian Development Bank; ANR = agriculture, natural resources, and rural development; PSM = public sector management; WUS = water and other urban infrastructure and services. Notes: 1. PSOD (or nonsovereign lending and one PSOD TA) operations are subsumed in each project’s primary sectors (e.g., ANR, FIN). 2. Effectiveness rating of Energy is not possible, as there is only one main project, which just started. 3. Weights are the sector adjusted relative portfolio size based on the program portfolio under review (see Appendix 2, Table A2.3). 4. Highly successful: 2.5 ≤ s ≤ 3.0; successful: 1.75 ≤ s < 2.5; successful on the borderline: 1.6 ≤ s < 1.75; less than successful: 0.8 ≤ s < 1.6; and unsuccessful: 0.0 ≤ s < 0.8, where s is the overall weighted average score. Source: Independent Evaluation Team.

Lessons

211. Over generalized pillars and outcomes indicators that are insufficiently specific and relevant makes the development objectives of the CPS difficult to monitor. They provided little strategic guidance on how ADB could best help Mongolia to meet its development challenges. The pillars of the Mongolia CPS could have been used to justify almost any intervention. Ideally, the pillars of the CPS should provide strategic guidance for the entire assistance program. The overly broad pillars of the CPS, 2017–2020 did not contribute in this regard. Furthermore, the annual COBPs were not updated to reflect changed priorities, nor were the key outcome and output indicators.

212. Sector-based policy platforms and development plans can provide a framework that development partners can consider for future priorities and investment pipelines. In Mongolia, there was no established sector development program or development partner platform where partners could discuss future priorities and investment pipelines with the government and with each other, even though there was good informal consultation.

213. More focused reforms can improve the efficiency of PBL, and program design could have focused entirely on strengthening PSM. Using the PBL modality, ADB was able to opportunistically support the government in its controversial decision to ban the burning of raw coal in Ulaanbaatar, which resulted in a substantial reduction in particulate matter air pollution. The PBL was sharply focused, which contributed to its success. However, the use of PBL for social welfare reform was more questionable. The program provided budget support, nominally to bolster social programs, but the policy actions focused as much on improving fiscal policy management as on social welfare.

214. Promoting a close working relationship of Mongolia with its key neighbors, donor agencies, and regional bodies can minimize is geographic disadvantages. Close working relationship with its key neighbors, donor agencies, and regional bodies will help mitigate some of the geographic disadvantages. Since Mongolia is landlocked, it requires efficient transport and border processing. A close working relationship with its neighbors could help to minimize Mongolia’s geographic disadvantages in transport, regulation, environmental issues, and disaster risk management.

215. Without close coordination between ADB and relevant ministries and domestic agencies, project implementation can be compromised. Frequent staff changes in ministries severely delayed the implementation progress of some projects. For example, while the government was strongly committed 48 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

to simplifying phytosanitary and sanitary regulations for border trade, delays resulting from staff changes at the ministry level meant that little progress was made.

Investing in environmental sectors in Mongolia can have long term payoffs. ADB invested most heavily in two of the three pillar areas. Climate change impact assessment is vital in balancing economic growth through mining industry, rural regions dependent on agriculture and tourism, and serious urbanization and pollution in the capital.

Key Issues

216. The impact of the COVID-19 pandemic and the post recovery period could cause further erosion of the fiscal balance. The government has put in place economic stimulus measures amounting to the equivalent of 7% of GDP. Further stimulus may be necessary, but that could compromise the country’s debt position and may require full support from ADB and other development partners. As a result, there is substantial uncertainty regarding the appropriate formulation of policy in the immediate future.

217. Diversification of the economy remains an issue that was not sufficiently addressed during CPS, 2017–2020. The difficulty of creating jobs and diversifying the economy, while the majority of investment is in the highly capital-intensive mining sector, is one of the key challenges for the next CPS period. Without diversification, the economy will struggle to create jobs and alleviate poverty. The effect of the exchange rate on relative prices suggests that development of the services sector, including construction, will become increasingly important. Supporting job creation through a clear strategy is an important priority.

218. The business environment in Mongolia is challenging. Greater focus on promoting private sector development will promote diversification of the economy. This includes improving access to finance, strengthening the legal framework for business, competition policy, regulation, and land property rights.

219. Ongoing support for Mongolia’s social protection system will be an important component of the poverty alleviation strategy but it requires further reform, better targeting, and modern data systems. Targeting assistance at those who are most in need is an urgent priority. Both ADB and the World Bank have extended support for the modernization of information and data systems related to social services, but Mongolia’s 72 welfare programs are too complicated to be effectively tracked and managed.

220. Implementation capacity remains problematic in several areas, which leads to delays and low efficiency of projects. The effectiveness of the ADB resident mission is hampered by insufficient staff resources. This has contributed to implementation delays, particularly in an environment where there is significant staff turnover in counterpart ministries.

221. Underinvestment in and lack of attention to operation and maintenance risks longer-term infrastructure sustainability. Infrastructure vulnerabilities exist in many areas, particularly in the transport, water, and energy sectors. Over 80% of the freight transport between the Russian Federation and the PRC passes through the Mongolian rail system, but the rail network is badly in need of both maintenance and upgrading. Investment in Mongolia’s energy infrastructure has not kept pace with the rapid growth of the economy. The electricity grid is still very inefficient. The challenge for infrastructure will be to catch up with the rapid growth of Mongolia over the past 20 years and if it is to do that additional resources must be devoted to maintenance.

222. Lack of long-term donor coordination mechanism in key sectors and lack of efficient results monitoring affects the delivery of program. Due to the lack of a policy platform and a sector development platform, except in a few areas (e.g., air quality), donors’ interventions appear to focus on where they have prior experience and their own priorities. Conclusions, Lessons, Issues, and Recommendations 49

223. The current CPS period’s investment on the environment, pillar 3, was limited. Despite the CPS placing emphasis on Sustainable Environmental Growth, climate change impacts and risk are not monitored and had no clear results framework. While good progress has been made in improving the quality of air in Ulaanbaatar, risks remain.

Recommendations

224. This validation offers the following six recommendations.

ADB should:

(i) Place emphasis on supporting the national vaccination program and monitor the emerging COVID-19 related risks in Mongolia. With the economic downturn likely to be prolonged, ADB should prioritize support for the national vaccine program. The pandemic has resulted in a sharp fall in growth and a severe deterioration of macroeconomic variables. The development community may well need to provide ongoing budget support as well as social sector measures to alleviate the impact of the crisis on poverty. Continuing support for the provision of health services to vulnerable households in Ulaanbaatar is needed. A “business as usual” strategy for Mongolia should be avoided. Delaying a new CPS until the uncertainty over the short- to medium-term impacts of the COVID-19 become apparent is an option that should be seriously considered. There may be further spread of COVID-19 with various virus variants before community immunity is achieved through the government’s vaccination program. When the CPS is developed, ADB should ensure that its pillars are sufficiently delineated to provide strategic guidance to the program. (ii) Place a strong emphasis on job creation and economic diversification focusing on private sector development and the improvement of the business environment. This will require much more focus on promoting the private sector through reforms to: access to finance, property rights, the legal system for business, competition policy, regulation, and developing access to long-term capital in the non-mining sectors. Possibilities for job creation exist in value chains associated with the mining industry, tourism, construction, and transport, which are all in the non-traded goods sectors. However, diversification is a long-term process and requires a strategic time horizon that may be longer than a single CPS period, which implies this theme should continue through successive CPSs. (iii) Expedite support to the full operationalization of the social welfare digital monitoring IT systems to ensure that social assistance goes to those who are most in need. This will require supporting the government in streamlining the large number of different benefit schemes by finalizing and operationalizing the digital platform to correctly identify eligible households. In addition, ADB should incorporate into the platform the results of the postponed 2021 proxy means testing (PMT) survey. (iv) Ensure that the resources available to the Mongolia resident mission are commensurate with the ambition of the next CPS and the need for ADB to play a stronger role in donor coordination. It should focus on the key challenges hampering implementation of ssprograms and projects in the business environment, infrastructure provision, regulation, and safeguards, as well as in NSO. (v) Give a much stronger emphasis to infrastructure maintenance in the next CPS. While the focus should be on assisting Mongolia’s infrastructure investment so it can catch up with the country’s growth, without adequate maintenance, the benefits of infrastructure investment will be reduced. (vi) Ensure that the ADB environmental assistance to Mongolia consolidates gains achieved so far and that additional side effects (such as increased NO2 and SO2 emissions) do not compromise gains to date. ADB should build on the experience gained through its PBL support for clean air in Ulaanbaatar.

Appendixes

APPENDIX 1: ADB COUNTRY PORTFOLIO FOR MONGOLIA DURING THE COUNTRY PARTNERSHIP STRATEGY, 2017–2020

Table A1.1: Summary of Country Validation Portfolio: Loans, Grants, and Technical Assistance during 2017–2020a Approved before 2017–2019 but Ongoing and / or Completed During Approved During 2017–2019 Approved During 2020 TOTAL 2017–2019 ADB Support ADB Cofinanced Total No. ADB Cofinanced Total No. ADB Cofinanced Total No. ADB Cofinanced Total No. Approved Approved Approved Approved Approved Approved Approved Approved Amount Amount Amount Amount Amount Amount Amount Amount ($ million) ($ million) ($ million) ($ million)

Sovereign Loans and Grants 23 720.83 46.05 766.88 18 1,121.99 266.22 1,388.21 12 372.55 28.15 400.70 53 2,215.37 340.42 2,555.79 Technical Assistanceb 41 16.18 24.76 40.94 52 27.79 17.65 45.44 12 6.13 1.80 7.93 105 50.10 44.21 94.31

Subtotal 64 737.01 70.81 807.82 70 1,149.78 283.87 1,433.65 24 378.68 29.95 408.63 158 2,265.47 384.63 2,650.10

Nonsovereign

Loans 3 80.00 80.00 3 56.10 39.10 95.20 1 15.00 15.00 7 151.10 39.10 190.20 Technical Assistance 0 1 0.23 0.23 0 1 0.23 0.23

Subtotal 3 80.00 - 80.00 4 56.10 39.33 95.43 1 15.00 15.00 8 151.10 39.33 190.43 Total 67 817.01 70.81 887.82 74 1,205.88 323.20 1,529.08 25 393.68 29.95 423.63 166 2,416.57 423.96 2,840.53

ADB = Asian Development Bank. aIncludes projects approved during the CPS period (2017–2020), and those approved before the validation period but that were ongoing and/or completed during the validation period. Additional financing projects and technical assistance are not counted separately from original projects and technical assistance. There are 12 supplementary technical assistance projects, two of which were approved before the validation period. bIncludes stand-alone, attached, and regional technical assistance. Source: Independent Evaluation Department. 52 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Table A1.2: Summary of the CPS Portfolio by Sector Approved During the Approved Before the Validation Total Validation Period Period Sector ADB Approved ADB Approved ADB Approved Number Number Number Amount Amount Amount Percent to Total (LG|TA) ($ million) (LG|TA) ($ million) (LG|TA) ($ million) Sovereign Operations 1. TRA 2 118.5 4 274.9 6 393.4 17.76% 2. ENE 2 140.0 0 0 2 40.0 6.32% 3. PSM 7 591.4 1 35.0 8 626.4 28.28% 4. ANR 4 78.0 4 52.0 8 130.0 5.87% 5. WUS 5 210.0 4 102.9 9 312.9 14.13% 6. HLT 5 149.6 3 89.0 8 238.6 10.77% 7. EDU 2 50.0 3 45.0 5 95.0 4.29% 8. FIN 1 100.0 2 80.0 3 180.0 8.13% 9. IND 2 57.0 2 42.0 4 99.0 4.47% Subtotal 30 1,494.5 23 720.8 53 2,215.4 100.00% Nonsovereign Operations 10. ANR 3 31.5 0 0 3 31.5 20.85% 11. ENE 1 9.6 0 0 1 9.6 6.35% 12. FIN 1 30.0 3 80.0 4 110.0 72.80% Subtotal 4 56.1 3 80.0 8 151.1 100.00% Technical Assistance 1. TRA 4 1.5 6 3.5 10 5.0 9.98% 2. ENE 6 1.4 4 2.2 10 3.6 7.09% 3. PSM 19 13.7 8 3.3 27 17.0 33.95% 4. ANR 12 4.4 8 2.0 20 6.4 12.71% 5. WUS 7 1.5 3 0 10 1.5 3.05% 6. HLT 6 2.3 6 2.6 12 4.9 9.80% 7. EDU 3 1.4 2 0 5 1.4 2.79% 8. FIN 7 6.3 2 2.1 9 8.4 16.73% 9. IND 1 1.5 2 0.5 3 2.0 3.89% Subtotal 65 33.9 41 16.2 106 50.1 100.00% Total 99 1,599.56 67 817.01 166 2,416.57 ADB = Asian Development Bank; ANR = agriculture, natural resources and rural development; EDU = education, ENE= energy; FIN= finance; HLT =health, IND= industry and trade; LG/TA=Loan, grant/Technical Assistance; PSM = public sector management; TRA= transport; WUS = water and other urban infrastructure and services. Note: Data includes cofinancing component (both ADB and non-ADB administered). Source: Independent Evaluation Department. Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 53

Table A1.3: Summary of the CPS Portfolio by Sector (with cofinancing) Sovereign Nonsovereign Technical Assistance Total Overall ADB ADB ADB Cofinanced Cofinanced Project Sector Sector No. of Approved No. of Approved Cofinanced No. of TA Approved Amount Amount Financing Share Projects Amount Projects Amount Amount projects Amount ($ million) ($ million) ($ million) (%) ($ million) ($ million) ($ million) ($ million) ANR 8 130.00 11.50 3 31.50 0 20 6.37 12.35 191.72 6.75 Approved before the CPS 4 52.00 6.00 8 2.02 5.90 65.92 Approved during the CPS 4 78.00 5.50 3 31.50 12 4.35 6.45 125.80 Education 5 95.00 5.00 0 0 0 5 1.40 2.40 103.80 3.65 Approved before the CPS 3 45.00 3.00 2 1.80 49.80 Approved during the CPS 2 50.00 2.00 3 1.40 0.60 54.00 Energy 2 140.00 23.60 1 9.60 9.10 10 3.55 9.03 194.88 6.86 Approved before the CPS 4 2.20 4.50 6.70 Approved during the CPS 2 140.00 23.60 1 9.60 9.10 6 1.35 4.53 188.18 Finance 3 180.00 4 110.00 30.00 9 8.38 0.30 328.68 11.57 Approved before the CPS 2 80.00 3 80.00 2 2.05 0.30 162.35 Approved during the CPS 1 100.00 1 30.00 30.00 7 6.63 166.33 Health 8 238.64 6.15 0 0 0 12 4.91 5.50 255.20 8.98 Approved before the CPS 3 89.00 0.67 6 2.60 3.50 95.77 Approved during the CPS 5 149.64 5.48 6 2.31 2.00 159.43 Industry and Trade 4 99.00 0 0 0 3 1.95 1.10 102.05 3.59 Approved before the CPS 2 42.00 2 0.50 1.10 43.60 Approved during the CPS 2 57.00 1 1.45 58.45 Public Sector Managementa 8 626.40 63.00 0 0 0 27 17.02 3.86 710.28 25.00 Approved before the CPS 1 35.00 8 3.31 2.86 41.17 Approved during the CPS 7 591.40 63.00 19 13.71 1.00 669.11 Transport 6 393.40 5.00 0 0 0 10 5.00 2.90 406.30 14.30 Approved before the CPS 4 274.90 1.50 6 3.50 2.40 282.30 Approved during the CPS 2 118.50 3.50 4 1.50 0.50 124.00 WUS 9 312.93 226.17 0 0 0 10 1.54 7.00 547.64 19.28 Approved before the CPS 4 102.93 34.88 3 2.40 140.21 Approved during the CPS 5 210.00 190.29 0 7 1.54 4.60 407.43 TOTAL 53 2,215.37 340.42 8 151.10 39.10 106 50.11 44.44 2,840.54 100.00 Approved before the CPS 23 720.83 46.05 3 80.00 41 16.18 24.76 887.82 Approved during the CPS 30 1,494.54 294.37 5 71.10 39.10 65 33.93 19.68 1,952.72 ADB = Asian Development Bank; ANR = agriculture, natural resources, and rural development; TA = technical assistance; WUS = water and other urban infrastructure and services. a Under TA: includes one multisector TA approved before country partnership strategy period. Source: Independent Evaluation Department. 54 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Table A1.4: List of Sovereign Loans and Grants (including Cofinanced) Approved, Ongoing, and Completed During the Country Partnership Strategy Period Loan/ Total ADB Total Source Project Project Approval Closing Source of Lending Grant Status Project Name Financing Cofinancing of ADB Number Count Date Date Cofinancing Modality Number ($ million) ($ million) Fund Agriculture, Natural Resources and Rural Development Approved before the CPS period but ongoing and/or completed during the CPS period 39229-022 1 L3287 | Active Agriculture and Rural 23–Sep–15 30–Jun–21 50.00 OCR | DFI Project L3288 Development Project COL 48216-001 2 G9183 Active Integrated Livelihoods 7–Dec–15 30–Jun–20 3.00 JFPR Project Improvement and Sustainable Tourism in Khuvsgul Lake National Park Project 49441-001 3 G0475 Closed Dzud Disaster Response 6–Apr–16 6–Mar–17 2.00 APDRF SAG 48236-001 4 G9187 Active Strengthening Community 14–Sep–16 30–Apr–20 3.00 JFPR Project Resilience to Dzud and Forest and Steppe Fires Project

Subtotal (4) 52.00 6.00 Approved during the CPS period 50278-001 5 G9192 Active Community Vegetable Farming 4–Dec–17 30–Jun–22 3.00 JFPR Project for Livelihood Improvement 50278-002 6 G0684 Active Community Vegetable Farming 12–Feb–20 30–Jun–22 0.50 HLTF Project for Livelihood Improvement (Additional Financing) 50013-002 7 L3787 | Active Sustainable Tourism 24–May–19 30–Jun–25 38.00 OCR| Project L3788 Development Project COL 51423-002 8 L3985| Active Vegetable Production and 27–Feb–20 31–Mar–27 40.00 2.00 OCR | JFPR Project L3896| Irrigated Agriculture Project | COL G9205 G9025 JFPR: Supporting Irrigation Schemes in Central Mongolia Subtotal (4) 78.00 5.50

Sector Total (8) 130.00 11. 50 Education Approved before the CPS period but on–going and/or completed during CPS period 43007-023 9 L2766 Active Higher Education Reform 28–Jul–11 30–Jun–20 20.00 COL Project Project 45010-002 10 L3243 Active Skills for Employment Project 16–Dec–14 30–May–21 25.00 COL Project 49168-001 11 G9182 Closed Improving School Dormitory 26–Nov–15 4–Mar–20 3.00 JFPR Project Environment for Primary Students in Western Region

Subtotal (3) 45.00 3.00

Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 55

Loan/ Total ADB Total Source Project Project Approval Closing Source of Lending Grant Status Project Name Financing Cofinancing of ADB Number Count Date Date Cofinancing Modality Number ($ million) ($ million) Fund Approved during the CPS period 50091-002 12 L3594 Active Sustaining Access to and 20–Nov–17 31–Dec–21 50.00 OCR Project Quality of Education During Economic Difficulties Project 52103-001 13 G9208 Active Support for Inclusive Education 3–Jul–20 29–Feb–24 2.00 JFPR Project Project Subtotal (2) 50.00 2.00

Sector Total (5) 95.00 5.00 Energy Approved during the CPS period 50088-002 14 G0610 | Active Upscaling Renewable Energy 20–Sep–18 29–Feb–24 40.00 20.60 OCR JFJCM | SCF Sector G0611 | Sector Project L3708 53249-001 15 G0696| Active First Utility-Scale Energy Storage 22–Apr–20 31–Mar–25 100.00 3.00 OCR HLTF Project L3874 Project Subtotal (2) 140.00 23.60

Sector Total (2) 140 .00 23.60 Finance Approved before the CPS period but on–going and/or completed during CPS period 46312-001 16 L3072 Active Payment System Modernization 26–Nov–13 31–Dec–21 20.00 COL Project Project 48015-002 17 L3338 Active Supporting the Credit 27–Nov–15 31–Oct–21 60.00 OCR DFI Project Guarantee System for Economic Diversification and Employment Project

Subtotal (2) 80.00 Approved during the CPS period 51054-001 18 L3533 Active Banking Sector Rehabilitation 30–May–17 3–Aug–17 100.00 OCR Program and Financial Stability Strengthening Program

Subtotal (1) 100.00

Sector Total (3) 180.00 Health Approved before the CPS period but on–going and/or completed during CPS period 41243-012 19 G0236 | Active Fourth Health Sector 29–Nov–10 31–Dec–20 39.00 ADF| Project L2932 Development Project COL 45009-002 20 L2963 Active Fifth Health Sector 10–Dec–12 28–Feb–21 30.00 0.67 COL GFMH| Project Development Project WHO 56 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Loan/ Total ADB Total Source Project Project Approval Closing Source of Lending Grant Status Project Name Financing Cofinancing of ADB Number Count Date Date Cofinancing Modality Number ($ million) ($ million) Fund 42322-023 21 L3086 Active Additional Financing of Food 10–Dec–13 30–Nov–20 20.00 COL Project and Nutrition Social Welfare Project Subtotal (3) 89.00 0.67 Approved during the CPS period 41243-012 (19) L3802 Active Fourth Health Sector 12–Jul–19 30–Jun–21 16.00 OCR Project Development Project 48076-002 22 L3605 | Active Ensuring Inclusiveness and 28–Nov–17 31–Oct–22 25.00 2.00 COL JFPR Project G9191 Service Delivery for Persons with Disabilities Project 49173-004 23 G0672 | Approv Improving Access to Health 24–Oct–19 30–Jun–25 76.14 3.48 OCR | JFJCM MFF Project L3843 | ed Services for Disadvantaged COL L3844 Groups Investment Program – Tranche 1 54145-001 24 G0688 Closed COVID-19 Emergency Response 25–Mar–20 23–Oct–20 1.00 APDRF Spl Assistance 54145-002 25 G0734 Active COVID-19 Emergency Response- 3–Sep–20 15–Mar–21 1.50 APDRF Spl Phase 2 Assistance 45009-003 26 L3291 Active Fifth Health Sector 7–May–20 30–Apr–22 30.00 COL Spl Development Project Assistance (Emergency Assistance Loan for Additional Financing)

Subtotal (5) 149.64 5.48

Sector Total (8) 238.64 6.15 Industry and Trade Approved before the CPS period but on–going and/or completed during CPS period 46315-001 27 L3313 Active Regional Upgrades of Sanitary 12–Nov–15 30–Jun–22 15.00 COL Project and Phytosanitary Measures for Trade Project 47174-001 28 L3387 Active Regional Improvement of 22–Apr–16 31–Dec–23 27.00 COL Project Border Services Subtotal (2) 42.00 Approved during the CPS period 47174-002 29 L3810 Active Regional Improvement of 30–Aug–19 30–Jun–24 27.00 COL Project Border Services Project (Additional Financing) 51410-001 30 L3936 Active Developing the Economic 18–Jun–20 30–Jun–26 30.00 COL Project Cooperation Zone Project

Subtotal 2) 57.00

Sector Total (4) 99.00 Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 57

Loan/ Total ADB Total Source Project Project Approval Closing Source of Lending Grant Status Project Name Financing Cofinancing of ADB Number Count Date Date Cofinancing Modality Number ($ million) ($ million) Fund Public Sector Management Approved before the CPS period but on–going and/or completed during CPS period 49409-001 31 L3385 Active Strengthening Institutional 31–Mar–16 30–Apr–21 35.00 OCR TA Loan Framework and Management Capacity Project

Subtotal (1) 35.00 Approved during the CPS period 50302-001 32 L3532 Closed Social Welfare Support Program 30–May–17 30–Oct–18 150.00 OCR Program Phase 2 51199-001 33 L3648 Closed Ulaanbaatar Air Quality 23–Mar–18 30–Oct–19 130.00 60.00 OCR EXIM Bank Program Improvement Program of Korea 51084-001 34 L3709 Active Strengthening Information and 20–Sep–18 30–Mar–23 25.00 OCR Project Communication Technology Systems for Efficient and Transparent Public Investment and Tax Administration Project 51217-001 35 G9198 Active Combating Domestic Violence 15–Oct–18 31–Dec–22 3.00 JFPR Project Against Women and Children 53028-001 36 L3880 Active Ulaanbaatar Air Quality 5–Dec–19 30–Sep–20 160.00 OCR Program Improvement Program–Phase 2 54174-001 37 L3922 Active COVID-19 Rapid Response 12–May–20 30–Jun–21 100.00 OCR Program Program 54214-001 38 L3937 Active Shock-Responsive Social 19–Jun–20 30–Apr–21 26.40 COL Spl Protection Project Assistance Subtotal (7) 591.40 63.00 Sector Total (8) 626.40 63.00 Transport Approved before the CPS period but on–going and/or completed during CPS period 41192-013 39 G0240 | Active Regional Logistics Development 13–Dec–10 30–Jun–20 45.00 ADF | Project L2719 Project COL 41193-015 40 L2847 Closed Western Regional Road Corridor 22–Dec–11 14–Feb–20 45.00 COL Project Development Program-Tranche I 39256-024 41 G0315 | Active Urban Transport Development 8–Nov–12 28–Feb–20 59.90 1.50 OCR| GEF MFF Project L2934 | Investment Program-Tranche1 COL L2935 41193-019 42 L3129 Active Western Regional Road Corridor 14–May–14 31–Dec–20 125.00 OCR MFF Project Investment Program-Tranche 2 Subtotal (4) 274.90 1.50

58 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Loan/ Total ADB Total Source Project Project Approval Closing Source of Lending Grant Status Project Name Financing Cofinancing of ADB Number Count Date Date Cofinancing Modality Number ($ million) ($ million) Fund Approved during the CPS period 48186-005 43 G0644 | Active Regional Road Development 29–Jun–18 30–Sep–26 118.50 1.50 OCR HLTF Project L3679 | and Maintenance Project L3786 52374-001 44 G9204 Active Improving Transport Services in 10–Dec–19 30–Jun–24 2.00 JFPR Project Ger Areas Subtotal (2) 118.50 3.50

Sector Total (6) 393.40 5.00 Water and Other Urban Infrastructure Services Approved before the CPS period but on–going and/or completed during CPS period 42184-022 45 G0204 | Active Southeast Gobi Urban and 19–Apr–10 31–Dec–21 34.43 ADF| Project L3388 Border Town Development COL Project 45007-004 46 G0380 | Active Ulaanbaatar Urban Services and 17–Dec–13 30–Jun–21 50.00 32.08 OCR | UEIF–UFPF MFF Project L3098 | Ger Areas Development COL |EIB L3099 Investment Program-Tranche 1 37697-025 47 L3244 | Active Darkhan Wastewater 16–Dec–14 30–Nov–20 18.50 OCR| Project L3245 Management Project COL 49113-001 48 G9189 Active Managing Soil Pollution in Ger 10–Nov–16 30–Jun–21 2.80 JFPR Project Areas through Improved On-site Sanitation Project

Subtotal (4) 102.93 34.88 Approved during the CPS period 42184-022 (45) L3713 Active Southeast Gobi Urban and 26–Sep–18 30–Jun–22 20.00 OCR Project Border Town Development Project 45007-005 49 L3525 | Active Ulaanbaatar Urban Services and 31–Mar–17 28–Feb–22 66.35 19.64 OCR| MFF Project L3526 Ger Areas Development COL Investment Program-Tranche 2 49169-002 50 G0594 | Active Ulaanbaatar Green Affordable 24–Aug–18 30–Jun–27 80.00 48.00 OCR| GCF | HLTF Sector G0595 | Housing and Resilient Urban COL L3694 | Renewal Sector Project L3695 | L8348 51102-001 51 G9202 Active Ulaanbaatar Community Food 7–Oct–19 30–Jun–24 3.00 JFPR Project Waste Recycling Project 45007-009 52 L3946| Active Ulaanbaatar Urban Services and 26–Jun–20 11–Dec–23 43.65 18.65 OCR| EIB Project L3947 Ger Areas Development COL Investment Program - Tranche 3 Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 59

Loan/ Total ADB Total Source Project Project Approval Closing Source of Lending Grant Status Project Name Financing Cofinancing of ADB Number Count Date Date Cofinancing Modality Number ($ million) ($ million) Fund 52303-001 53 G9206 Active Managing Solid Waste in 8–Jun–20 31–Dec–22 2.00 JFPR Project Secondary Cities

Subtotal (5) 210.00 191.29 Sector Total (9) 312.93 226.17 Total approved before the CPS period but ongoing and/ or 720.83 46.05 completed during CPS period (23) Total approved during CPS period (30) 1,494.54 294.37 Total (53) 2,215.37 340.42 ADB = Asian Development Bank; APDRF = Asia Pacific Disaster Response Fund; COL = concessionary ordinary capital resources lending; CPS = country partnership strategy; DFI = direct financial intermediary; EIB = European Investment Bank; EXIM Bank of Korea = Export–Import Bank of Korea; G = grant; GCF = Green Climate Fund; GFMH = German Federal Ministry of Health; HLTF = High Level Technology Fund; JFJCM = Japan Fund for the Joint Crediting Mechanism; JFPR = Japan Fund for Poverty Reduction; L = loan; MFF= multi–tranche financing facility; OCR = ordinary capital resources; SAG = special assistance grant; SCF = Strategic Climate Fund; UEIF–UFPF = Urban Environmental Infrastructure Fund under the Urban Financing Partnership Facility; WHO = World Health Organization. Sources: Controllers database as of 31 December 2020; ADB eOperations and ADB's project website, as of 31 December 2020.

Table A1.5: List of Nonsovereign Operations Approved, Ongoing, and Completed during the Country Partnership Strategy Period Total ADB Total Invest- Loan Project Approved Cofinancing Source of Project Number ment Project Name Approval Date Status No. Count Amount Amount Funding No. ($ million) ($ million) Agriculture, Natural Resources and Rural Development Approved during CPS period 51370-001 7563 3682 1 Gobi Joint Stock Company (Value- 27–Jul–18 9.00 OCR Added Cashmere Production and Export) 53306-001 7611 3871 2 Milko Limited Liability Company 22–Nov–19 7.50 OCR (Gender Inclusive Dairy Value Chain) 54253-001 7646 3981 3 Tavan Bogd COVID-19 Supply 29–Sep–20 15.00 OCR Chain Liquidity Support Subtotal (3) 31.50 Sector Total (3) 31.50

Energy Approved during CPS period 52127-001 7585 3772 4 Tenuun Gerel Construction LLC 28–Jan–19 9.60 9.10 OCR (Sermsang Khushig Khundii Solar) Subtotal (1) 9.60 9.10 Sector Total (1) 9.60 9.10

60 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Total ADB Total Invest- Loan Project Approved Cofinancing Source of Project Number ment Project Name Approval Date Status No. Count Amount Amount Funding No. ($ million) ($ million) Finance Approved before the CPS period but on–going and/or completed during CPS period 47930-001 7401 3102 5 XacBank [Supporting Micro, Small, 12–Dec–13 30.00 XARR (2017) OCR Medium–Sized Enterprises and Leasing – S; XVR Finance] (2018) – LS 47930-001 7402 3103 6 TenGer Financial Group [Supporting 12–Dec–13 10.00 XARR (2019) OCR Micro, Small, Medium-Sized – S; Enterprises and Leasing Finance] 47934-001 7410 3136 7 Khan Bank [Supporting Micro, Small, 30–Jun–14 40.00 XARR (2017) OCR and Medium-Sized Enterprises] – S; XVR (2018) – LS Subtotal (3) 80.00 Approved during CPS period 53090-011 7605 3838 8 XacBank LLC (Micro, Small, and 9–Oct–19 30.00 30.00 OCR | B– Medium-Sized Enterprises Financing) Loan Subtotal (1) 30.00 30.00 Sector Total (4) 110.00 30.00 Total approved before CPS period (3) 80.00 Total approved during CPS period (5) 71.10 39.10 TOTAL (8) 151.10 39.10 ADB = Asian Development Bank, CPS = country partnership strategy, LS = less than successful, OCR = ordinary capital resources, S = successful, XARR = extended annual review report, XVRR = validated extended annual review report. Source: Independent Evaluation Department.

Table A1.6: List of Technical Assistance (including Cofinanced) Approved, Ongoing, and Completed during the Country Partnership Strategy Period Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing Agriculture, Natural Resources and Rural Development Approved before the CPS period but ongoing and/or completed during CPS period 47179-003 1 8560 Closed Tuul River Improvement Project 13–Dec–13 21–Sep–17 1.00 U PPTA JFPR 48062-002 2 8802 Closed Strategic Planning for Peatlands 12–Dec–14 9–Feb–18 0.40 HS CDTA JFPR 48060-001 3 8855 Closed Country Water Security 19–Dec–14 25–Aug–17 0.50 HS PATA TASF Assessment 48061-002 4 8874 Closed Sustainable Forest Management 13–Jan–15 17–Dec–18 2.00 S CDTA JFPR to Improve Livelihood of Local Communities 39229-022 5 8960a Active Agriculture and Rural 23–Sep–15 31–Dec–20 2.00 CDTA JFPR Development Project Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 61

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing 49299-001 6 9043 Closed Strengthening Capacity for 11–Dec–15 28–Mar–19 0.70 S CDTA TASF Environmental–Economic Accounting 49192-001 7 9066 Closed Fostering Value–Added Activities 16–Dec–15 28–Feb–19 0.82 S PATA TASF in Western Mongolia 50012-001 8 9233 Closed Conservation of Forest Genetic 18–Nov–16 17–Dec–18 0.50 CDTA JFPR Resources Subtotal (8) 2.02 5.90 Approved during the CPS period 51099-001 9 9440 Active Implementing Innovative 5–Dec–17 30–Jun–21 1.40 CDTA JFPR | HLTF Approaches for Improved Water Governance 51423-001 10 9607 Active Vegetable Production and 5–Oct–18 30–Jun–20 0.85 PPTA TASF Irrigated Agriculture 53029-001 11 9751 Active Unleashing the Private Sector to 28–Jun–19 31–Dec–21 0.60 PATA TASF Drive Inclusive Growth in Eastern Mongolia 53038-002 12 9775 Active Preparing the Climate–Resilient 30–Jul–19 28–Feb–21 0.75 PPTA TASF and Sustainable Livestock Development Project 52019-001 13 9808 Active Improving the Management of 26–Sep–19 30–Jul–22 0.75 CDTA JFIT Hazardous Chemicals 53036-001 14 9840 Active Cooperative–Based Sustainable 25–Oct–19 30–Sep–21 0.40 PATA TASF Agriculture Production 52021-001 15 9880 Active Strengthening Capacity on 2–Dec–19 30–Apr–22 2.00 CDTA JFPR Disaster Risk Assessment, Reduction, and Transfer Instruments in Mongolia 53035-001 16 9887 Active Sustainable Fodder Management 2–Dec–19 30–Nov–21 1.00 CDTA JFPR 52022-002 17 9899 Active Forest Sector Development 10–Dec–19 30–Jun–21 0.80 PPTA JFPR Program 53039-002 18 6534 Active Strengthening Integrated Early 14–Jul–20 31-Mar-22 0.55 0.50 PPTA TASF JFPR Warning System in Mongolia 54317-001 19 6584 Active Managing the Risks of Food 27–Oct–20 30–Apr–22 0.40 CDTA TASF Insecurity in Mongolia during the COVID-19 Crisis 51422-001 20 9988 Active Sustainable Tourism 0.80 PPTA TASF Development Project (Phase 2) Subtotal (12) 4.35 6.45 62 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing Sector Total (20) 6.37 12.35 Education Approved before the CPS period but ongoing and/or completed during CPS period 49020-001 21 8931 Closed Education Sector Development 16–Jul–15 31–Jul–18 1.00 HS CDTA JFPR 50091-001 22 9216 Closed Sustaining Access to and Quality 3–Nov–16 23–Dec–19 0.80 PPTA JFPR of Education during Economic Difficulties Subtotal (2) 1.80 Approved during the CPS period 51103-001 23 9376 Active Supporting the Development of 15–Sep–17 31–Jul–20 0.60 CDTA JFPR an Education Sector Master Plan 51123-001 24 9375 Active Strengthening Systems for 15–Sep–17 31–Dec–20 0.60 RDTA TASF Promoting Science, Technology, and Innovation 52013-001 25 9663 Active Research University Sector 3–Dec–18 31–Jan–22 0.80 PPTA TASF Development Program Subtotal (3) 1.40 0.60 Sector Total (5) 1.40 2.40 Energy Approved before the CPS period but ongoing and/or completed during CPS period 47091-001 26 8637 Closed Transaction Advisory Services for 9–Apr–14 2–Jan–19 1.45 PATA TASF the Combined Heat and Power Plant 5 46343-002 27 8649 Closed Energy Efficiency and Urban 12–May–14 31–Jan–19 2.00 LS PPTA JFPR Environment Improvement 48030-001 28 9001 Active Strategy for Northeast Asia 27–Nov–15 15–Nov–20 0.75 1.00 PATA CLCF | Power System Interconnection PRCF| EAKPF 50088-001 29 9224 Closed Upscaling Renewable Energy 9–Nov–16 1–Apr–19 1.50 PPTA STCF Sector Project Subtotal (4) 2.20 4.50 Approved during the CPS period 47091-001 (26) 8637 Closed Transaction Advisory Services for 28–Sep–17 2–Jan–19 0.60 PATA TASF the Combined Heat and Power Plant 5 52127-002 30 9527b Active Sermsang Khushig Khundii Solar 21–May–18 30–Nov–20 0.23 PPTA CFPS Project 51282-001 31 9569 Active Energy Storage Option for 21–Aug–18 30–Sep–20 0.50 PATA EAKPF Accelerating Renewable Energy Penetration Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 63

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing 53054-001 32 9884 Active Smart Energy System for 2–Dec–19 31–Dec–21 1.50 PATA HLTF| ACEF Mongolia 53028-001 33 9888* Active Ulaanbaatar Air Quality 5–Dec–19 30–Sep–21 0.75 CDTA TASF Improvement Program Phase 2 51285-001 34 9938 Active Methane Gas Supply Chain 26–Dec–19 31–Jan–22 1.00 PATA EAKPF | Development Master Plan PRCF 52240-002 35 9941 Active Supporting Renewable Energy 16–Jan–20 31–Mar–22 1.30 PPTA ACEF Development Subtotal (6) 1.35 4.53 Sector Total (10) 3.55 9.03 Finance Approved before the CPS period but ongoing and/or completed during CPS period 48015-002 36 9000 a Closed Supporting the Credit Guarantee 27–Nov–15 15–May–19 0.80 CDTA TASF System for Economic Diversification and Employment Project 50017-001 37 9180 Closed Supporting Financial Sector 26–Sep–16 6–Aug–19 1.25 0.30 CDTA TASF EAKPF Development and Stability Subtotal (2) 2.05 0.30 Approved during the CPS period 51054-001 38 9320a Active Banking Sector Rehabilitation 30–May–17 31–Jul–20 1.50 CDTA TASF FSDPSF and Financial Stability Strengthening Program 51082-001 39 9338 Active Establishing Sovereign Wealth 4–Jul–17 31–Dec–20 0.50 CDTA TASF Fund Management Institution 51367-001 40 9518 c Active Sustainable Infrastructure for 1–May–18 31–Mar–23 2.28 CDTA ATAG | Asia and the Pacific TASF | CFTA 51411-001 41 9654 Active Expanding the Capacity of the 26–Nov–18 31–Oct–20 0.40 CDTA TASF Nonbank Finance Sector to Support Financial Access 53006-001 42 9810 Active Supporting Development of a 27–Sep–19 31–Dec–21 0.40 CDTA TASF Resilient and Well–Functioning Money Market and Macroprudential Policy Framework 51413-001 43 9870 Active Green Finance Policy Framework 21–Nov–19 30–Nov–22 0.50 PATA TASF 51415-001 44 6613 Active Strengthening Banking Sector 26–Nov–20 30–Jun–23 0.75 CDTA TASF Stability and Performance Subtotal (7) 6.33 64 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing Sector Total (9) 8.38 0.30 Health Approved before the CPS period but ongoing and/or completed during CPS period 47007-001 45 8466 Closed Strengthening the Health 25–Sep–13 26–Jan–18 1.50 S CDTA JFPR Insurance System 42322-023 46 8544 a Closed Additional Financing of Food and 10–Dec–13 23–Aug–19 0.50 CDTA TASF Nutrition Social Welfare Project 48076-001 47 8850 Closed Ensuring Inclusiveness and 12–Dec–14 1–Mar–18 1.00 PPTA JFPR Service Delivery for Persons with Disabilities 49194-001 48 8967 Closed Improving Access to Affordable 29–Sep–15 23–Jan–19 1.00 HS CDTA TASF Medicines in Public Hospitals 49173-001 49 8970 Closed Improving Access to Health 2–Oct–15 14–Nov–19 1.00 PPTA JFPR Services for Disadvantaged Groups Project 49278-001 50 9037 Closed Strengthening Hospital 9–Dec–15 2–Dec–19 1.10 PATA TASF Autonomy Subtotal (6) 2.60 3.50 Approved during the CPS period 51134-001 51 9386 Active Development of the Health 21–Sep–17 30–Nov–20 1.00 CDTA JFPR Sector Master Plan, 2019–2027 51105-001 52 9438 Active Improving the Screening 5–Dec–17 31–Dec–20 0.80 CDTA TASF Program for Viral Hepatitis 51386-001 53 9701 Active Improving Health Care Financing 24–Dec–18 30–Nov–21 1.00 CDTA JFPR for Universal Health Coverage 54226-001 54 6553 Active Strengthening Institutional 17–Aug–20 31–Jul–22 0.35 CDTA TASF Capacity to Respond to COVID- 19 53061-001 55 6652 Active Enhancing Medicine Safety for 8–Dec–20 30–Nov–22 0.94 RDTA TASF Noncommunicable Disease Control 54102-001 56 9954 Active Support for Improving the 2–Mar–20 31–Dec–20 0.23 CDTA TASF Preparedness and Response to Novel Coronavirus Outbreak Subtotal (6) 2.31 2.00 Sector Total (12) 4.91 5.50

Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 65

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing Industry and Trade Approved before the CPS period but on–going and/or completed during CPS period 48267-001 57 8822 Closed Building Trade Policy Capacity: 16–Dec–14 28–Feb–17 0.50 PATA TASF Formulating an International Trade Policy 50013-001 58 9230 Closed Sustainable Tourism 14–Nov–16 21–Jun–19 1.10 PPTA JFPR Development Project Subtotal (2) 0.50 1.10 Approved during the CPS period 50013-001 (58) 9230 Closed Sustainable Tourism 1–Jun–18 21–Jun–19 0.65 PPTA TASF Development Project 51412-001 59 9679 Active Preparing Regional Cooperation 7–Dec–18 31–Oct–21 0.80 PPTA TASF and Integration Projects Subtotal (1) 1.45 Sector Total (3) 1.95 1.10 Public Sector Management Approved before the CPS period but on–going and/or completed during CPS period 46368-001 60 8255 Closed Strengthening the Anti–Money 11–Dec–12 21–Aug–17 0.36 0.36 HS CDTA TASF RTSFI Laundering Regime 47200-001 61 8742 Closed Transparency and Efficiency in 29–Oct–14 28–Feb–17 1.10 CDTA JFPR Public Financial Management 48187-001 62 8863 Closed Promoting Effectiveness of 12–Dec–14 3–Jan–19 0.70 LS CDTA TASF Development Cooperation 48467-001 63 8939 Closed Concessions for Ulaanbaatar's 11–Aug–15 28–Mar–18 0.70 CDTA JFPR Municipal Services 49189-001 64 8995 Closed Strengthening the Capacity of 20–Nov–15 16–Jan–19 0.50 S CDTA TASF Judicial Training 49193-001 65 9158 Active Strengthening of Public 19–Aug–16 12–Sep–21 0.75 CDTA TASF Procurement for Improved Project Implementation 50094-001 66 9261 Active Macroeconomic Advisory 8–Dec–16 30–Jun–21 1.00 PATA TASF Support Subtotal (7) 3.31 2.16 Approved during the CPS period 51238-001 67 9359 Closed Strengthening Information and 23–Aug–17 8–Oct–19 0.45 CDTA TASF Communication Technology Systems for Efficient and Transparent Tax Administration 66 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing 51136-001 68 9371 Active Developing an Information 8–Sep–17 31–Dec–19 0.50 CDTA TASF System for Development Policy and Planning 51135-001 69 9372 Active Improved Registry System to 14–Sep–17 31–Dec–21 2.50 CDTA TASF Strengthen the Delivery of Social Services 51199-002 70 9383 Closed Ulaanbaatar Air Quality 21–Sep–17 28–Feb–20 0.45 PPTA TASF Improvement Program 51084-002 71 9448 Closed Strengthening Information and 29–Nov–17 28–Jan–19 0.40 PPTA TASF Communication Technology Systems for Efficient and Transparent Public Investment and Tax Administration 51303-001 72 9468 c Active Supporting Policy Research and 15–Dec–17 31–Dec–22 0.75 RDTA TASF Knowledge Exchange 46186-006 73 9508c Active Country Diagnostic Studies in 19–Mar–18 31–Dec–20 1.50 RDTA TASF Selected Developing Member Countries (Subproject 4) 51397-001 74 9542 Active Enhancing the Use of Multiple 27–Jun–18 31–Dec–20 0.50 CDTA TASF Data Resources to Monitor Progress Towards the Sustainable Development Goals (SDGs) 52151-001 75 9551 Active Support for the Establishment of 30–Jul–18 28–Feb–21 0.50 PATA TASF a Supplementary Pension System 49193-001 (65) 9158 Active Strengthening of Public 5–Nov–18 12–Sep–21 1.30 CDTA TASF Procurement for Improved Project Implementation 52197-001 76 9662 Active Strengthening the 3–Dec–18 30–Jun–21 0.50 PATA TASF Anticorruption Regime 52285-001 77 9731 Active Strengthening the Supreme 2–May–19 31–Dec–21 0.65 0.50 CDTA TASF EAKPF Audit Function 50094-001 (66) 9261 Active Macroeconomic Advisory 29–May–19 30–Jun–21 0.50 PATA TASF Support 52330-001 78 9752 Active Improving Extractive Sector 28–Jun–19 31–Dec–21 0.50 PATA TASF Governance 52314-001 79 9750 Active Moving Gender Equality Forward 28–Jun–19 1–Aug–21 0.50 CDTA JFPR through Civil Society Engagement Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 67

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing 53004-001 80 9809 Active Promoting a Coordinated 26–Sep–19 31–Dec–21 0.50 CDTA TASF Framework for Financial Consumer Protection 53404-001 81 9885 Active Preparatory Work for Country 4–Dec–19 31–Mar–21 0.23 RDTA TASF Partnership Strategy 51387-001 82 9893 Active Building Capacity for an Effective 9–Dec–19 30–Apr–22 0.60 CDTA TASF Social Welfare System 54209-001 83 6530 Active Addressing and Preventing 25–Jun–20 31–Dec–21 0.40 CDTA TASF Domestic Violence in Mongolia during the COVID-19 Crisis 54082-001 84 6615 Active Support for Effective Public 26–Nov–20 22–Jun–24 0.75 PATA TASF Sector Management 54415-001 85 6622 Active Deepening ADB-Mongolia 30–Nov–20 31–Mar–22 0.23 RDTA TASF Partnership for its 30th Anniversary Subtotal (19) 13.70 1.00 Sector Total (26) 17.01 3.16 Transport Approved before the CPS period but on–going and/or completed during CPS period 45264-001 86 8080 Closed Logistics Capacity Development 22–May–12 21–Dec–17 0.90 S CDTA JFPR Project 45140-001 87 8212 Closed Ulaanbaatar Urban Transport 8–Nov–12 22–Sep–17 1.00 HS CDTA JFPR Capacity Development 48186-001 88 8852 Closed Regional Road Development and 19–Dec–14 22–Jan–20 1.00 PPTA TASF Maintenance Project 48329-001 89 8935 Active Bogdkhan Railway Bypass 29–Jul–15 29–Jul–20 1.50 PPTA TASF Investment Program 48082-001 90 9131 Closed Intelligent Transport Systems 1–Jul–16 25–Feb–19 0.50 HS PATA EAKPF Development for Mongolia 49139-001 91 9137 Closed Development of Road Safety 19–Jul–16 12–Apr–19 1.00 HS PATA TASF Policy and Action Plan Subtotal (6) 3.50 2.40 Approved during the CPS period 52171-001 92 9540*** Active Enhancing Gender Equality 21–Jun–18 30–Jun–20 0.23 CDTA TASF Results in East Asia 48186-005 93 9544 a Active Regional Road Development and 29–Jun–18 31–Jan–21 0.70 CDTA TASF Maintenance Project 48186-001 (88) 8852 Closed Regional Road Development and 22–Aug–18 22–Jan–20 0.18 PPTA TASF Maintenance Project 68 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017–2020

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing 51403-001 94 9579 Active Institutional Strengthening for 3–Sep–18 30–Nov–20 0.40 CDTA TASF Road Safety 52374-001 95 9906* Active Improving Transport Services in 10–Dec–19 31–Dec–23 0.50 CDTA EAKPF Ger Areas Subtotal (4) 1.50 0.50 Sector Total (10) 5.00 2.90

Water and Other Urban Infrastructure Services Approved before the CPS period but on–going and/or completed during CPS period 37697-025 96 8841 a Closed Darkhan Wastewater 16–Dec–14 2–Nov–17 0.40 HS CDTA UEIF– Management Project UFPF 49169-001 97 9030 Closed Ulaanbaatar Affordable Housing 10–Dec–15 28–Jan–19 1.00 PPTA JFPR and Urban Renewal Project 42184-022 98 9100 a Active Southeast Gobi Urban and 22–Apr–16 30–Oct–20 1.00 CDTA STF– Border Town Development WFPF Project Subtotal (3) 2.40 Approved during the CPS period 51270-001 99 9421 Active Ulaanbaatar Pro–Poor Urban 6–Nov–17 30–May–20 0.50 CDTA EAKPF Redevelopment Support System for Ger Areas 49430-001 100 9451 Active Preparing the Aimag and Soum 5–Dec–17 31–Oct–20 1.50 PPTA JFPR Centers Regional Development Investment Program 45007-010 101 9528 Closed Livelihood Support 23–May–18 27–Mar–20 0.13 CDTA TASF Demonstration in Ger Areas 51100-001 102 9591 Active Green Urban Planning 18–Sep–18 31–Mar–21 0.60 CDTA JFPR 51106-001 103 9666 Active Human Settlements 6–Dec–18 31–Dec–20 2.00 PATA JFPR Development Program 45007-011 104 9749 Active Capacity Building for Sustainable 20–Jun–19 31–May–21 0.66 CDTA TASF Livelihood Support in Ger Areas 54008-001 105 6634 Active Strengthening the Institutional 4–Dec–20 31–Dec–23 0.75 CDTA TASF Capacity of Public Utility Service Organizations Subtotal (7) 1.53 4.60 Sector Total (10) 1.53 7.00 Multisector Approved before the CPS period but on–going and/or completed during CPS period 50093-001 106 9201 Closed Gender-Responsive Sector and 5–Oct–16 9–Aug–19 0.70 HS CDTA JFPR Local Development Policies and Actions Appendix 1: ADB Country Portfolio for Mongolia During the Country Partnership Strategy Final Review, (2017–2020) 69

Total ADB Total Source of Source Project TA TA Approval Closing TCR TA Status Project Name Financing CoFinancing ADB of Number Count Number Date Date Rating Type ($ million) ($ million) Funding Cofinancing Subtotal (1) 0.70 Sector Total (1) 0.70 Total approved before the CPS period but ongoing and/ or 16.18 24.76 completed during CPS period (41) Total approved during CPS period (65) 33.92 19.68 Total (106) 50.10 44.44 ACEF = Asian Clean Energy Fund; ADB = Asian Development Bank; ATAG = Australian Grant; CDTA = capacity development technical assistance; CFTA = Cofinanced TA Grant; CLCF = Climate Change Fund; CPS = country partnership strategy; CFPS = Canadian Climate Fund for the Private Sector in Asia; EAKPF = Republic of Korea e–Asia and Knowledge Partnership Fund; FSDP = Financial Sector Development Partnership Fund; HLTF = High Level Technology Fund; HS = highly successful; JFIT = Japan Fund for Information and Communication Technology; JFPR = Japan Fund for Poverty Reduction; LS = less than successful; OCR =ordinary capital resources ; PATA = policy and advisory technical assistance; PPTA = project preparation technical assistance; PRCF = People's Republic of China Poverty Reduction and Regional Cooperation Fund; RDTA = research and development technical assistance; RTSFI = Cooperation Fund for Regional Trade and Financial Security Initiative; S = successful; STCF = Strategic Climate Fund; STF–WFPF = Sanitation Trust Fund under Water Financing Partnership Facility; TASF = technical assistance special fund; TCR = technical assistance completion report; U = unsuccessful; UEIF–UFPF = Urban Environmental Infrastructure Fund under the Urban Financing Partnership Facility. a attached technical assistance b nonsovereign technical assistance c regional technical assistance Sources: Controllers database as of 31 December 2020; ADB eOperations and ADB's project website, as of 31 December 2020.

APPENDIX 2: SOVEREIGN LOANS AND GRANTS PLANNED AND APPROVED IN THE MONGOLIA COUNTRY PARTNERSHIP STRATEGY, 2017–2020 FROM ADB FUNDS

Planned Approved Loan/ Loan/ Project/Sector Remarks Grant Year Grant Year ($ million) Planned ($ million) Approved Agriculture, Natural Resources, and Rural Development 1 Community Vegetable Farming for Livelihood [3.0] 2017 [3.0] 2017 Improvement 2 Community Vegetable Farming for Livelihood [0.5] 2020 Not planned. Improvement (Additional Financing) 3 Sustainable Tourism Development Project 38.0 2019 38.0 2019 4 Strengthening the Capacity on Disaster Risk Assessment [3.0] 2018 Initially planned for 2018 in COBP 2017– and Disaster Prevention Planning 2019 but was not realized during the CPS period 5 Vegetable Production and Irrigated Agriculture Project 40.0 2020 40.0 2020 6 Supporting Irrigation Schemes in Central Mongolia [2.0] 2020 [2.0] 2020 7 Strengthening Community Livelihoods in the Buffer [3.0] 2019 Initially planned for 2019 but was moved Zones of Mongolia's Protected Areas to 2021 8 Sustainable Tourism in Central and Eastern Mongolia 30.0 2020 Initially planned for 2020 in COBP 2018– 2020 but was not realized during the CPS period 9 Disaster Risk Management Project 25.0 2020 Moved to 2021 10 Community-Based Sustainable Forest Management and 40.0 2020 Initially planned for 2020 in COBP 2018– Policy Reform 2020 but was not realized during the CPS period 11 Climate-Resilient Livestock Sector Development Project 30.0 2020 Moved to 2021 Subtotal 203.0 78.0 Education 12 Sustaining Access to and Quality of Education During 50.0 2017 50.0 2017 Economic Difficulties Project 13 Support for Inclusive Education [2.0] 2020 [2.0] 2020 14 Research University Sector Development Program 30.0 2020 Moved to 2021 Subtotal 80.0 50.0 Energy 15 Upscaling Renewable Energy Sector Project 40.0 2018 40.0 2018 16 Ulaanbaatar Air Quality Improvement Program–Phase 2 120.0 2019 160.0 2019 Classified under PSM in COBP 2019–2021 17 Pro-Poor Rural Energy in Rural Remote Areas [2.0] 2020 Moved to 2021. 18 First Utility-Scale Energy Storage Project in Mongolia 100.0 2020 100.0 2020 Subtotal 260.0 300.0

Appendix 2: Sovereign Loans and Grants Planned and Approved in Mongolia Partnership Strategy, 2017–2020 from ADB Funds 71

Planned Approved Loan/ Loan/ Project/Sector Remarks Grant Year Grant Year ($ million) Planned ($ million) Approved Finance 19 Banking Sector Rehabilitation and Financial Stability 100.0 2017 100.0 2017 Strengthening Program– PBL 20 Financial Sector Reform Program (PBL) 120.0 2019 Initially planned for 2019 but was not realized during the CPS period Subtotal 220.0 100.0 Health 21 Ensuring Inclusiveness and Service Delivery for Persons 25.0 2017 25.0 2017 with Disabilities Project 22 Fourth Health Sector Development Project (Additional 16.0 2019 Not planned; original project was Financing) approved in 2010 and still active 23 Fifth Health Sector Development Project (Emergency 30.0 2020 Not planned; original project was Assistance Loan for Additional Financing) approved in 2012 and still active 24 Improving Access to Health Services for Disadvantaged 80.0 2019 76.1 2019 Groups Investment Program–Tranche 1 25 Upgrading Emergency Care Systems [2.5] 2020 Initially planned for 2020 in COBP 2018– 2020 but was not realized during the CPS period 26 COVID-19 Emergency Response 1.0 2020 Not planned 27 COVID-19 Emergency Response-Phase 2 1.5 2020 Not planned Subtotal 105.0 149.6 Industry and Trade 28 Regional Improvement of Border Services Project 30.0 2019 27.0 2019 (Additional Financing) 29 Developing the Economic Cooperation Zone Project 30.0 2020 30.0 2020 Subtotal 60.0 57.0 Public Sector Management 30 Social Welfare Support Program Phase 2, PBL 150.0 2017 150.0 2017 31 Ulaanbaatar Air Quality Improvement Program 130.0 2018 130.0 2018 32 Strengthening Information and Communication 25.0 2017 25.0 2018 Technology Systems for Efficient and Transparent Public Investment and Tax Administration Project 33 Combating Domestic Violence Against Women and [3.0] 2018 [3.0] 2018 Children 34 Improving Fiscal Management (PBL) 100.0 2020 Reclassified as 2020 standby in COBP 2019–2021 but was not realized during the CPS period 35 COVID-19 Rapid Response Program 100.0 2020 Not planned 36 Shock-Responsive Social Protection Project 26.4 2020 Not planned 72 Mongolia: Validation of the Country Partnership Strategy Final Review, 2017‒2020

Planned Approved Loan/ Loan/ Project/Sector Remarks Grant Year Grant Year ($ million) Planned ($ million) Approved Subtotal 405.0 431.4 Transport 37 Regional Road Development and Maintenance Project 60.0 2018 118.5 2018 38 Improving Transport Services in Ger Areas [2.0] 2020 [2.0] 2019 Subtotal 60.0 118.5 Water and other Urban Infrastructure and Services 39 Ulaanbaatar Urban Services and Ger Areas Development 66.4 2017 66.4 2017 Investment Program–Tranche 2 40 Ulaanbaatar Green Affordable Housing and Resilient 80.0 2018 80.0 2018 Urban Renewal Sector Project 41 Southeast Gobi Urban and Border Town Development 20.0 2018 20.0 2018 Project 42 Ulaanbaatar Community Food Waste Recycling Project [3.0] 2018 [3.0] 2019 43 Managing Solid Waste in Secondary Cities [2.0] 2020 [2.0] 2020 44 Ulaanbaatar Urban Services and Ger Areas Development 46.4 2020 43.7 2020 Investment Program–Tranche 3 45 Aimag and Soum Centers Regional Development 90.0 2020 Initially planned for 2019 but was not Investment Program (MFF, Tranche 1) realized during the CPS period Subtotal 302.8 210.1 TOTAL 1,695.8 1,494.6 ADB = Asian Development Bank; ANR = agriculture, natural resources, and rural development; COBP = country operations business plan; COVID-19 = coronavirus disease; MFF = multitranche financing facility; PBL = policy-based lending; PSM = public sector management. Note: [ ] = cofinanced amount; The list includes all projects approved during the CPS period 2017–2020. The total financing amount excludes cofinancing. Sources: ADB.2017. Country Operations Business Plan: Mongolia, 2017–2019.Manila; ADB.2018. Country Operations Business Plan: Mongolia, 2018–2020.Manila; ADB.2018. Country Operations Business Plan: Mongolia, 2019–2021.Manila; ADB.2019. Country Operations Business Plan: Mongolia, 2020–2021.Manila; Independent Evaluation Department and Asian Development Bank database (Controllers database as of 31 December 2020, ADB e–Operations and project website, as of 31 December 2020).

APENDIX 3: LINKED DOCUMENT

A. Country Partnership Strategy Final Review: Mongolia, 2017–2020

APPENDIX 4: SELF ASSESSMENTS OF COMPLETED PROJECTS

Total ADB Project Name Financing Overall rating Relevance Effectiveness Efficiency Sustainability ($ million) Banking Sector Rehabilitation and 100 less than relevant less than effective efficient less than likely Financial Stability Strengthening successful sustainable Program (PCR completed) Social Welfare Support Program 150 successful relevant highly effective highly likely sustainable Phase 2 efficient (PCR draft) Social Welfare Support Program 150 successful highly highly effective highly likely sustainable (PCR draft) relevant efficient Western Regional Road Corridor 37.36 highly successful highly effective less than likely sustainable Development Project, Phase 1 relevant efficient (PCR draft) Western Regional Road Corridor 45 (No rating as it is still draft) Development Program - Tranche I (Government PCR) Dzud Disaster Response Project 2 Asia Pacific Disaster Response Fund closing report does (Closing Report from MNRM and the not require ratings: This was a rapid emergency grant for government) Dzud, as it was only $3 million (grant for post-disaster related support from Asia Pacific Disaster Response Fund) ADB = Asian Development Bank, MNRM = Mongolia Resident Mission , PCR = project completion report. Source: ADB. 2020. Country Partnership Strategy Final Review: Mongolia, 2017–2020. Manila.