ADB East Asia Director urges efficient use of Mongolia’s natural resources

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The UB Post sat down with the Director General of the ADB East Asia Department in Charge of Mongolia and China, Ayumi Konishi, during the ADB’s 50th Annual Meeting of the ADB Board of Governors taking place in Yokohama, Japan, to discuss ADB’s key areas of focus in Mongolia and prospects for future collaboration.

What are the focus areas of ADB in Mongolia?

The key focus for ADB is, really, to ensure social and economic stability during this period of crisis. What I’m saying is, let’s  face it, right now – economically – Mongolia is in a very difficult period. Maybe I shouldn’t really call it a crisis, but our focus is to help Mongolia sustain and ensure social and economic stability during the “difficulty”. That’s probably a better expression.

With huge fiscal deficit, the government – for the mid-term – is trying to reduce the fiscal deficit, and also, there are very big balance of payment pressures because of the repayment of large foreign loans. The next three or four years will not be an easy time for Mongolia, but at the same time, we want to make sure that this period of difficulty will not really affect people’s wellbeing too much.

Particularly, we want to make sure that poor people – vulnerable people – won’t really suffer much. That’s why, yesterday [May 3] we already started talking about the loan we approved: 66 million USD for phase 2 of the Ger Area Redevelopment Program, because the living conditions in that area are so bad. Unless you keep improving the living conditions there, it will be difficult. We think the air pollution issue in Ulaanbaatar is very bad; that’s partly because the heat supply and such things are not really going to the ger areas. So, by improving the living conditions in the ger areas, we do hope that will help address the essential living standards and welfare of the people.

Very soon, we will be looking at supporting the education sector. Right now, we realize that many schools in Mongolia, particularly in Ulaanbaatar – the schools are overcrowded, many schools operate in triple shifts. Because of the fiscal and economic difficulties, what will happen if the government stops the construction of a school? The thing is, that the number of children in schools is, despite economic difficulties, increasing by six to seven percent. This means that school construction programs will have to continue growing by at least that level. Otherwise, schools which are operating in double shifts will need to operate in triple shifts, and schools operating in triple shifts may go to operating in four shifts, which won’t work.

Then, at least just to ensure that social services, education, and school services won’t deteriorate during the period of difficulties, we do hope to support the government and to keep adding more classrooms and more essential teacher training programs.

The number of private schools in Mongolia is growing. Is that something ADB would be interested in investing in to address this issue?

Our current focus is, clearly, to support the government and to provide public schools. Of course, at the same time, we can look into public-private partnerships (PPP), meaning that the government doesn’t have to construct the schools; the private sector can build schools and rent them out to the government at a cheaper cost. That’s one form of collaboration between the public and private sector.

To that extent, if that will give the government a better and cheaper option, then we would not rule out that option as a possibility. We are going to be flexible. Same with the health sector.  I mean, should the government be the only one to provide health services? The answer is no. But, at the same time, if private health care is too expensive and out of reach for the people, then public hospitals need to have better capacity to accommodate more patients and provide better medical services. This could be one way. Now, if the collaboration with the private sector we provide is cost effictive for the government, we certainly would not rule out that option.

In our experience in many other countries, in things like water supply and water treatment, and many more areas, actually, the public sector can better collaborate with the private sector. Particularly, the private sector can provide efficient solutions.

Probably, power supply is another area where instead of the government being the only supplier of power, power generation is very often opened up to the private sector, and that’s going to give a more financially efficient solution.

Let’s discuss ADB lending and grants in Mongolia. ADB spending in Mongolia’s public sector management is the second highest area of spending, 248.24 million USD as of 2016. The public sector is perceived to be very nontransparent and corrupt, how does ADB ensure that the money going into the public sector is being spent for the right purpose?

I think what this really means – it’s partly the words “public sector management” – you know, this particular word may be misleading to some extent. Because, first of all, this is the cumulative lending, grants and technical assistance, so, everything added together, right? What we have done in the area of technical assistance grants, please know that we have been in Mongolia to do many things,  like procurement reform. We helped Mongolia to establish the National Procurement Agency, and that is counted as technical assistance for public sector management. ADB has provided technical assistance to strengthen anti-money laundering programs. We actually worked with the judiciary to strengthen court systems dealing with money laundering cases. Again, this technical assistance is considered public sector management.

Through many areas relating to public sector management, we have been providing grant assistance. That’s why, in terms of that number, you see a reasonably good number. At the same time, in terms of the amount, there were some difficulties within the government, and I can see that, actually, out of 248 million USD, 150 million USD is the policy-based loan we provided in 2015 for social welfare reform. So, that has already reduced this number – cumulative ADB lending, grants and technical assistance, to less than 100 million USD. So, this number combines lending, grants, and technical assistance, so it becomes a bit misleading.

With that particular loan, the social welfare loan in 2015, we were thinking that we had done something very important, and that’s an issue of social welfare, like the children’s money program.

Back in 2015, when the current Prime Minister was the Finance Minister, we started discussing the need for the fiscal tightening of Mongolia. Mongolia has 71 social welfare programs, there aren’t that many countries in the world with so many social welfare programs. Also, they were mixed up in the concept of real social welfare support, like the food program for the poor, and profit sharing from mining operations. Some of the programs in Mongolia, even though they use the name social welfare program, [were profit sharing schemes]. The children’s money program was originally a profit sharing program. Even though you are the child of a rich person, you still get paid. I call it a profit sharing program, even though it is social welfare program.

Would you say that the government is playing with words in these cases?

No, I’m not saying they are playing with words. When designing these schemes, there is a mix up with the concept. In a mining-based economy, of course, the mining sector generates additional revenue. The government wants to save that money for future generations, and the future generation should involve everybody. But that is different from a social welfare concept where you basically help poor people. So, if you are distributing money to all children,  regardless of whether or not they are rich or poor, it’s a different concept.

Profit sharing schemes in many other countries are done through sovereign wealth fund-type mechanisms. When there is big revenue, instead of spreading that to everybody, the government keeps that under a sovereign wealth fund, and then when revenue is low, the government releases that to support the budget. At the same time, social welfare programs in many other countries usually have what we call “means testing”, meaning that there is screening. You’ve got to be poor by certain standards, and then, only below a certain income level can you get support. That’s social welfare. If everybody gets support, that means it’s non-targeted.

So, when we started the social welfare program, we really had a clear mind about the fact that it’s about time that Mongolia start introducing means testing and targeting the people who really need support. When rich people get 10 USD a month, it’s not going to make much difference to them, but for poor people, a 10 USD allowance will make a big difference.

We are very happy to see that the children’s money program has now become targeted; 60 percent of children receive it. There is also a step towards reducing the number [of social welfare programs] and consolidating some of them, and avoiding redundancies. We think these are all necessary steps to make effective use of limited financial resources.

In Mongolia, because we are talking about young a young democracy, we do believe that a lot of support is needed. We have been providing a lot of technical assistance grants to help develop systems like the national procurement agency and so on.

As for corruption, improving government transparency is important. If you remember, in an effort to reduce spending, the government merged some agencies and abolished others. At that time, the National Procurement Agency was also in danger of being abolished, so,  we said to the government, please don’t abolish the agency, because it is such an important organization for preventing corruption.

In improving government transparency and reducing corruption, there is no magic solution. We just have to keep making incremental efforts to improve the system, and I think we have been doing that, and would certainly like to continue doing that.

Where do you see the most investment potential in Mongolia, besides mining?

The biggest potential I see is in agriculture processing, the meat industry, dairy products, of course, cashmere, leather, and other animal-related industries. I think they have good potential.

Mining also means the logistics area [needs to be developed]. Also, when Mongolia starts exporting these meat products and others, then you’ve got to be talking about cold storage, better shipping, quality control, and sanitary animal health, testing companies, packaging. A lot of industries related to that all have good potential. Those industries become the drivers of the economy.

Another area that certainly has good potential is tourism. It’s seasonal, true, but I actually like to go to Mongolia in the winter. Since I got this job, I usually go to Mongolia in January or February. First of all, you see the real lives of people. Actually, one of the biggest attractions for us is that big land and big sky, and nothing except some animals here and there. I, personally, find that fascinating. Actually, I even send my kid, who is a college student, to Mongolia just to have him see that.

Winter sports and other Nordic sports can also be developed to attract tourists, but you need better accommodations and good quality facilities. I think the market is there as you develop them with good quality. That’s not necessarily a huge market or mass tourism, but, as a specialized sort of tourism, I think it’s wonderful.

A lot of Mongolia’s economic problems are often attributed to its small population. There is a smaller labor force and limited resources to develop such a big area of land for development. Is that something you agree with?

Actually, so many other countries with too many people and small land are really struggling to develop livable cities. To that extent, so much land is something that people envy to some extent. Of course, the challenge is, that with this geographic situation, we often make the provision of social services more expensive, and that makes the provision of infrastructure more expensive. It can make things  more difficult for transport infrastructure to be economically viable. There are difficulties, and I agree. To that extent, we have to keep innovating the most cost effective solutions, there is no doubt about that. That’s a challenge, but at the same time, countries with too many people and small land are also struggling.

I should say that different countries have different challenges.

In countries with a large population, it’s a challenge just to keep feeding those people, and providing them a place to live and stay is inherently difficult and expensive.

Probably, in the case of Mongolia, you really don’t want to see your nature and natural beauty be abused too much. To that extent, not having big operations is a blessing.

Some people feel that the opposite is necessary for the economy to get back on its feet.

The bottom line is that Mongolia must make good use of its natural resources. I think that Mongolia is fortunate to have good reserves of natural resources. The key, still, is to make the best use of them to benefit everybody, and to make sure that natural resources are used in the most effective and efficient way to affect people’s lives, and also to create the basis of economic growth.

In a way, I don’t think the population will be such a big factor, particularly with new technology and information and communications systems developing. I think, even with the current population, there is a lot that can be done. Really, the focus is to make sure that the existing population will be more productive, and benefit from the resources that the country has. That’s why our next strategy and key message is, even during a  period of difficulty, we don’t want to see the education system in Mongolia deteriorate.

 

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