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http://zgm.mn/post/2620/

Mongolia’s economy needs diversification

30 years pass without the freedom of development

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http://zgm.mn/post/2620/


Mongolia’s unique feature or a particular thing that differentiates the country from others? Our special feature is a democracy and freedom of the press. Indicators of democracy are great enough. On papers and international reports, Mongolia is a beautiful country like a rose, a brilliant star of democracy. In reality, it is completely different.

Democracy is being separated from real life. It has been 30 years without a “freedom of development.”

Let us continue with the corruption-filled series of poverty alleviation of Mongolians, the emergence of populism, the issues in the independence of the judiciary, the obstacles of public institutions, and the societal stresses. Poverty did not improve significantly since 1995. Discussions on necessary improvement began in the XXI century. There are still no results. I am writing to make a conclusion about it.

Our economy needs only a few important factors. Let us look at the economy at a macro level. Only the mining sector growth is visible, but it is accounting for a big part of the economy. However, it is not a good thing in the long term as a macroeconomy. Why does the mining growth affect the economy? The IMF has implemented six programs in our country. IMF recommends that more flexible, budget-free economy and more importantly, higher employment, and profitable businesses. In the 1990s, the transition program was successful. The “Stand by” program has helped a lot in 2008-2009 during the global economic crisis. The next program started in 2016-2017. There is a light. The debt burden equaled 100 percent of GDP, which now stands at 70 percent. Mongolia has a GDP of USD 11 billion. The IMF’s sustainable development program is worth 5.5 billion. The economic growth has fallen from 17 percent to negative 2 percent when the IMF’s sustainable development program started. What has saved us improved the economy is actually the growth of China’s coal imports.

Our economy is dependent on many things. The infrastructure is not developed enough. Until now, almost 3 percent of the 1000 km of the road had pavement, the only line of the north-south railway, which is dependent on Russia’s geopolitics. When we try to build another railway, we will have to deal  with Russia’s geopolitical interest. As long as we have Ulaanbaatar Railway JV, there will be Russian interests. I do not want to blame it.

However, the multi-pillar foreign policy choice is invoking to be friendly with all countries around the world. There is no such relationship with all countries. Also, there is no noticeable economic relationship improvement with any country. Although it is the world’s least densely populated area, Mongolia is clumping in the capital. Huge social issues are created because of this.

The dissociation had already processed and different social conditions are growing rapidly. Social licensing issues are serious. Anti-mining conflicts and disputes tend to rise in mining-dependent countries, and civil movements trigger social disintegration. Even with 70 million livestock, agriculture does not strengthen social capital. Mining has also dominated other sectors, which is a negative impact. We only talk about a single line of cashmere to improve the non-mining sector. There is no ongoing activity in the development of rural areas and the overall turnover of agriculture. If our cashmere enters the world market, China will be our rival.

There is no coordination between mining and other economic sectors, so there is a war between mining and livestock. Disintegration is accompanied by populism. Populism has started to break the fundamental principles of democracy.

In addition, Mongolian politics is a restriction to economic and social development. The policy is unstable and uncertain. There are 140 development policies and programs to be followed. Most recently, the “National Program on Unemployment and Poverty Reduction” was adopted. It was supposed to promote economic growth, reduce unemployment, alleviate poverty, become an exportoriented country, and encourage other products, leading sectors, public-private partnerships, and implement the goal of reducing unemployment and poverty by human development and social protection policies. I hope these do not diverge and eventually be forgotten or changed by the next program.

There are 2000 draft documents, conventions, and recommendations. There is no mechanism to control the implementation of these documents. None at all

In fact, the economics of postcommunist countries that transcend Central and Inner Asia are even more profound. Mongolia is left behind by economic diversification. Mongolia has been marked as the country with the unspecified economy. Even worse than Tajikistan. When it comes to primary products, it does not go further than adding value to natural gas. That is why there is no diversity, just as President Battulga Khaltmaa said, it is simply an “inefficient economy.”

Those people who received loans from the SME Development Fund should diversify the economy. Government funds do not cover the SMEs, but international funding is effective. However, it does not reach the level of economic diversification. Having an export-oriented economy can save this country, and the government expects that poverty will be eradicated with an exportbased economy. They convince people to believe it. However, they do not go farther than talks.

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Construction of Tavantolgoi power plant to begin in 2020

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The Government of Mongolia and Oyu Tolgoi (OT) LLC have signed “Energy Regulatory Coordination” on 31 December 2018. According to the agreement, the construction of the Tavan Tolgoi power plant will start from March 2020 and be completed by 2023.

When the Tavan Tolgoi power plant with a capacity of 300 mWh commences, the power supply of OT will be improved along with the integrated power supply system of Mongolia. As of 2018, the OT mine project has paid approximately USD 150 million for generating electricity from Inner Mongolia's energy system annually. Tavan Tolgoi thermal power station will keep the invest in Mongolia. Furthermore, when the OT underground mine is commissioned, energy consumption will increase by 30-40 percent from current levels.

The plant will provide water from the Naiman valley and will use minimize water consumption via using an air cooling system for power plants. The Tavan Tolgoi power plant planned to use 1.2 million tons of coal annually and will use the thermal coal, which does not be exported and left at the  mines. The remaining coal will be in circulation in the economy, according to the spokesman.

Also, 200 permanent jobs will be created, following the increased housing and social buildings and improved urban development.

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World Bank report underscores importance of strong fiscal foundation

Mongolia’s capital expenditure has been among the highest in the world in 2010-2016

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According to the World Bank’s report on public expenditure, Mongolia’s over-expanded budget policy altered fiscal discipline. Therefore, the World Bank highlights the need for adequate fiscal resources by accumulating savings during economic growth.

“With high public debt, low tax rates and high exemptions, the Mongolian economy remains extremely vulnerable to external factors, including shifts in global demand, commodity prices, and exchange rate and interest rate shocks. There is a clear need to strengthen fiscal buffers through increased savings during years of prosperity,” said Andrei Mikhnev, World Bank Country Manager for Mongolia.

At an average of about 11 percent of GDP in 2010-2016, Mongolia’s capital expenditure has been among the highest in the world. However, the returns of this spending have been low due to poor project selection, long delays in implementation, high-cost overruns, and low maintenance budgets.

“The report lays out key actions the country can take to enhance the efficiency of public investment. Development and implementation of a national road map to improve the efficiency of these investments is the top priority,” said Jean-Pascal Nganou, Senior Country Economist and a lead author of the report.

Given Mongolia’s highly volatile revenue performance, the report also recommends reducing the dependence of government revenue on the mineral sector by embarking on a gradual reform of the tax system. This includes measures to increase low statutory tax rates, revise the number and size of tax exemptions, and broaden the tax base. The report illustrates that VAT and excise taxes in Mongolia are regressive in nature as their burden is larger among the poor than among the non-poor.

It also highlights special spending needs in health and education – key sectors that play an essential  role in the country’s long-term development and the fight against poverty.

The report highlights the urgent need to strengthen the pension system to meet the needs of Mongolia’s aging population. The government set the target for a maximum state subsidy for pensions of 2 percent of GDP by 2030. However, due to measures allowing many workers to purchase a pension for life at retirement age at a fraction of the cost that other workers have paid during their work lives, reducing herders’ retirement ages, and others, the current subsidy of 2 percent of GDP is projected to rise to 6 percent in 2030 and 11 percent in 2050 unless reforms are undertaken.

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World Bank: One in three people remain poor in Mongolia

Poverty rate fell by 1.2 percentage point since 2016

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The poverty rate in Mongolia, which was 29.6 percent in 2016, lowered to 28.4 percent in 2018, declining 1.2 percentage point. The National Statistical Office (NSO) biannually conducts the poverty indicators of Mongolia in cooperation with the World Bank. The two organizations have collaborated on poverty assessments through the Household Income and Expenditure Survey and the Living Standard Measurement Survey since 2002.

In 2018, the poverty gap was estimated at 7.2 percent, a decrease of 0.5 percentage points from 2016. Poverty severity has decreased to 2.7 percent from 2.9 percent in 2016. During the period between 2016 and 2018, the poverty rate declined by 4.1 percentage points in rural areas but increased by 0.1 percentage points in urban areas. While the poverty rate remains high in rural areas, with two-thirds of the total population of Mongolia living in urban cities, poverty has become more concentrated in urban areas. The percentage of the poor population in urban areas has increased from 62.1 percent to 63.5 percent in 2018. Also, more than 40 percent of the poor lived in Ulaanbaatar in 2018.

As of 2016, 29.6 percent of Mongolian citizens were living below the poverty line, indicating that one in three people or roughly one million people live in poverty. The rate, which was 21.6 percent in 2014, increased by 8 percent in 2016, showing 275,000 povertystruck people over this period.

The poverty line that indicates the amount of money required to provide the basic needs was MNT 146,000. In 2014, those who have moved above the line were back in poverty due to the negative impacts of the economy and society. The economy grew by 20 percent between 2012 and 2014, while the economy grew by 3.6 percent in 2015 and 2016. As a result of 2016, the GDP growth slowed by 1 percent. At the time, the deficit reached MNT 3.6 trillion due to the collapse of commodity markets in the world.



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World’s top innovation company leaders meet Mongolian innovators

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During the Innovation and Investment forum organized by the Parliament Speaker Zandanshatar Gombojav, the leaders of the world’s top innovation companies came and viewed Mongolia's innovation project and product launches. Participants in the forum exchanged views on how to exchange international experiences in order to strengthen startup firms and to support innovation products with banking and financial institutions.

Mr. Zandanshatar initiated the forum in May, after visiting academic institutions of some universities and the Mongolian Academy of Sciences to discuss innovative projects and products with competitiveness and seek solutions. The forum also intended to exchange experience in innovation projects and products successfully implemented in the market.

The Parliament Speaker highlighted in his opening speech, “According to the World Economic Forum in 2017, Mongolia is ranked 11th in the Global Human Capital Report by intellectual property, while ranking 111th in the knowledge of exported products out of 130 countries worldwide. This indicator shows that Mongolians have a high intellectual capacity, but we are left behind on using the knowledge and value-added products. The forum aimed to push the dissemination of innovation, as well as the possibility of involving scientists and private entrepreneurs to science-based development.”