Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 22691 MOG MONGOLIA Assessment of The Interim Poverty Reduction Strategy Paper September 7, 2001 Prepared by Staffs of the International Development Association and the International Monetary Fund This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION MONGOLIA Assessment of the Interim Poverty Reduction Strategy Paper Prepared by Staffs of the International Development Association and the International Monetary Fund Approved by R. Anthony Elson and Shigeo Kashiwagi (IMF) and Zafer Ecevit and John Page (IDA) September 7, 2001 1. Over the last eight months, the Government of Mongolia has developed an Interim Poverty Reduction Strategy Paper (I-PRSP) that takes stock of current policies and challenges facing the government and outlines the main strategy to reduce poverty. The paper presents the participatory process used in preparing the I-PRSP and outlines the future plan for a broader consultation process under the full PRSP. The paper meets the requirements for an I-PRSP and provides a sound basis for developing a fully participatory PRSP, and an adequate framework for continued Fund and Bank assistance to Mongolia. 2. This I-PRSP has four main strengths: (i) a good analysis of government policies designed to ensure macroeconomic stability and the impact of these policies on the government's poverty reduction objectives; (ii) a solid assessment of the existing poverty data and diagnostics and a good indication of knowledge and data gaps; (iii) early involvement of civil society and other major stakeholders in the preparatory process; and (iv) a satisfactory agenda for stakeholder analysis. Perhaps most notable of the strengths of the I-PRSP is the process in which it was developed; full country ownership of the document was established very early on and the poverty strategy developed is based on extensive inter-ministerial consultations. 3. The agenda of analytical work for the development and effective implementation of a full PRSP, however, remains challenging for several reasons. First, the mix between growth- promoting reforms that generate opportunities for the poor and income-support or transfers that are designed to provide safety nets will need to be carefully rebalanced. Given the concerns about the sustainability of Mongolia's fiscal position, much greater emphasis will need to be placed on reforms to institute the competitive and efficient market structures that are necessary to encourage private sector-led investment and growth. Second, the full PRSP will need to better articulate how the private sector is envisioned to become the main engine for reducing poverty, including the envisaged contributions of foreign and domestic investment and the role of public policies in providing an enabling environment for a more productive use of private capital. - 2 - Third, the full PRSP will need to identify, cost and prioritise the main public policies and programs that must be put in place to make a dent in poverty in the medium term and to place them in the context of a Medium Term Expenditure Framework (MTEF). This will allow for a systematic discussion of trade offs in the context of overall resource constraints. Fourth, the full PRSP will need to identify indicators to monitor progress and to establish realistic targets for poverty reduction. These are complex undertakings that will severely test the government's limited capacity both in analysis and implementation and will require substantial technical support from donors. 4. More specifically, the staffs recommend that the full PRSP * identify the sources of economic growth and the reform measures that are to encourage domestic and foreign investment without impinging on the budget, with particular reference to the reforms aimed at increasing the productivity of new investment; * identify within the context of the macro framework a set of priority public policies and programs that will have the greatest impact on poverty reduction while continuing to support Mongolia's transition to a market economy; X fully cost proposed programs, including donor-financed investments, and ensure that they are consistent with the agreed macroeconomic framework discussed with the Bank-Fund teams; X discuss the poverty and social impact of key structural measures, including trade policy, energy sector and civil service reforms and further privatisation of state-owned companies; and identify appropriate social safety nets to ease the impact of these measures on vulnerable groups and enhance risk management, especially in connection with terms of trade shocks and natural disasters; and e use the results of the 2002 Household Income and Expenditure Survey (HIES) to construct a reliable baseline for monitoring trends in poverty, inform resource allocation decisions, and evaluate the impact of government programs; * identify milestone outcome indicators to monitor yearly progress consistent with internationally accepted development indicators; * broaden the participatory process for the full PRSP to ensure an early involvement of Parliament and a more extensive representation of vulnerable members of society with no access to public institutions. 5. The I-PRSP relies extensively on the Government Action Plan and other government documents for its vision and has benefited from donor participation and Bank/Fund staff comments on earlier versions of the draft. In addition several donors participated in meetings of working groups preparing the I-PRSP. - 3 - I. BACKGROUND 6. The cuirent Government of Mongolia came to power in July 2000 with a strong mandate from the people, winning 72 out of 76 parliamentary seats. The GoverDnment's Action Plan, largely reflected in the I-PRSP, articulates the government's commitment to poverty reduction and growth. This commitment includes deepening the reform process and sequencing and prioritising development policies within the resource constraints of the government. Notwithstanding the progress made during the first decade of Mongolia's transition to a market economy, many challenges remain. Among them, maintaining prudent fiscal policies and strengthening human capital are perhaps the most important. The recently completed Consultative Group meetings in May 2001 recognized the authorities' capacity limitations in both identifying and implementing the needed policy measures. Donors pledged to support the government's efforts to build capacity and improve decision-making, provided that it remains strongly committed to accelerating the reform agenda. II. POVERTY DATA, ANALYSIS, AND MONITORING 7. The I-PRSP draws on a wide range of quantitative and qualitative information. In particular, the two Living Standard and Measurement surveys done in 1995 and 1998 (not comparable) and the annual Household Income and Expenditure Survey (HIES) conducted by the National Statistics Office (NSO) provide the basis for the quantitative analysis, while the recently completed Participatory Living Standards Assessment (PLSA) provides a qualitative diagnostic analysis of poverty. The results of the PLSA have enabled the government to draw on citizens' perceptions of poverty in Mongolia in all its multiple dimensions as they contemplate the full PRSP. 8. While the NSO has a long history of conducting household surveys, poverty analysis to inform policy decisions has been hampered by the lack of comparability of poverty data over time. Flaws in sampling design and use of multiple poverty lines severely limit the use of these data for policy analysis. The I-PRSP identifies this handicap and proposes that further work be done to reach agreement amongst stakeholders on methodological details for the upcoming HIES. The full PRSP would benefit from wider distribution of survey data to the research community and line ministries for analysis. More generally, the government is encouraged to provide open access to future household data to encourage further analytical work and a shared understanding of opportunities and constraints to poverty reduction. 9. Moving forward to the full PRSP, a Statistical Master Plan identifying the full menu of data requirements and a credible timeline for filling the gaps, including where additional donor support is required, will be important. A preliminary list of the data gaps in Mongolia is presented at the end of the I-PRSP, and using the General Data Dissemination System (GDDS) framework and in consultation with the government, the NSO could develop a comprehensive plan to fill the government's data needs. In the meantime, the staffs recommend that the government support the upcoming augmented HIES survey in Mongolia and establish this as the official baseline for poverty monitoring in the future. The upcoming HIES will benefit from the recently completed census to improve the sampling frame. Capacity building in data collection and management, and overall strengthening of the NSO are underway. At the request of the government, the UNDP, the IMF, the ADB, and IDA are providing support to the NSO. Progress in this area should be reflected in the full PRSP. The staffs welcome the government's decision to set up a research unit to conduct poverty monitoring and analysis. 10. The I-PRSP also identifies other analytical and data gaps that need to be filled, especially regarding labor markets, the business environment, the implications of trade liberalization on income distribution and employment, and gender issues. To better inform the policy discussion in the full PRSP, the HIES could be complemented by special-purpose surveys such as the Public Expenditure Tracking Surveys (PETS) and other specific surveys of vulnerable populations (e.g., street children). Information in these areas is crucial to developing a consistent and sustainable policy targeting the most vulnerable groups in society. 11. The I-PRSP makes a commendable effort at identifying monitoring indicators especially in the social sectors. However, the government's commitment to reduce poverty by 50 percent by 2005 is overly ambitious. To enhance the credibility of its program, the government is encouraged to set more realistic targets along with credible monitoring indicators for the full PRSP. Beyond the indicators that are part of the Millennium Development Goals, it would be useful to identify some additional indicators related to progress towards rationalizing the energy sector and improving infrastructure because the existing weaknesses in these sectors are strongly linked with poverty. The staffs welcome the government's intention to establish transparent mechanisms and strengthen other institutional arrangements for monitoring and evaluation. A public expenditure tracking survey and other methods of civil society involvement in tracking the achievement of development goals are currently under discussion. The UNDP, the ADB and IDA could provide some support to the government to strengthen civil society participation in this endeavour. III. POLICY AGENDA 12. The government's overall poverty reducing strategy rests on three pillars outlined in the I-PRSP: (i) macroeconomic stability; (ii) private sector-led growth, including through the promotion of export-oriented industries; and (iii) a more equitable distribution of the benefits from economic growth through delivering improved services, especially to the poor, and maintaining a social safety net that ensures that the vulnerable remain protected from undue adverse side-effects of the transition to a market economy. The government recognizes that the success of this agenda requires a strong partnership between the state and the population and is commnitted to ensuring civil society participation in the development of a full PRSP. Staffs of the WB and IMU are broadly in agreement with policies outlined in the document and especially endorse the government's commitment to improve public sector management by increasing transparency and accountability and adopting prudent fiscal and monetary policies. The core macroeconomic and structural policies agreed under the prospective Poverty Reduction and Growth Facility (PRGF) arrangement and the Financial Sector Adjustment Credit (FSAC) are consistent with the policies (i.e., public sector, financial and trade reforms) presented in the I-PRSP. 13. Moving to the full PRSP, however, will require improving the prioritisation and costing of the actions selected, and broadening the scope of policies in order to develop a comprehensive approach to growth and poverty reduction. Although the I-PRSP mentions the government's efforts to improve governance, including strengthening financial management and monitoring, - 5 - weaknesses persist, which need to be more forcefully addressed in the full PRSP as part of the reform agenda. 14. The medium-term macroeconomic framework set out in the I-PRSP was developed in close consultation with the IMEF and illustrates the government's commitment to creating a stable macroeconomic environment underpinned by continued fiscal consolidation, prudent monetary policy using indirect policy instruments, and a market-oriented exchange rate policy. The government aims to gradually raise the annual GDP growth rate to six percent to bring about a meaningful reduction in poverty, while reducing inflation to the low single digit range and containing the external current account deficit to protect the external position. A stable macroeconomic environment, together with broad-based structural reforms as set out in the I-PRSP, will be key in supporting more rapid private sector-led growth and poverty reduction. 15. The macroeconomic framework is, however, based on only preliminary estimates of several important elements of the program, including the costs of civil service reform and potential privatisation receipts. These will have to be refined in the context of the World Bank's ongoing Public Expenditure Review and as the analysis and costing of various public sector programs advance, and reflected in the full PRSP. The full PRSP could also have a more detailed discussion of the sources of growth, together with supporting measures, to achieve the medium- term objective of realising six percent annual growth rates. 16. The I-PRSP appropriately places importance on maintaining sound monetary and credit policy, and deepening banking system reforms. Recent years have seen several banking crises generated by imprudent bank lending to the private sector, particularly by some state-owned banks. The I-PRSP clearly attributes past macroeconomic instability in Mongolia to problems of weak governance in the financial sector (in particular, the state-owned banks). In addition, it reiterates the importance of not only avoiding a drain on public resources, but also developing a financial intermediation system that truly supports the efficient flow of savings and investment, including in the rural areas. The full PRSP could include a discussion of the government's current strategy to remove credit market imperfections and ensure that commercial criteria are used to allocate bank credit, consistent with the government's objective to increase both the level and productivity of private investment. 17. The staffs welcome the government's plans in the I-PRSP to speed up the privatisation of state-owned banks and to strengthen the legal and regulatory environment in the banking system. Consistent with the objectives of the FSAC, the Bank of Mongolia's (BOM) prudential standards and their enforcement are being strengthened. Asset classification, provisioning, accounting, and audit standards need to be brought into line with international best practices at the earliest, with technical assistance from the IMF and IDA. Looking ahead, the staffs urge the BOM to develop and adopt strict selection criteria for the licensing of new banks, including foreign bank branches. These criteria could usefully be articulated in the full PRSP, with a view to fostering the development of a sound banking system as indicated in the I-PRSP. Given the need to boost public confidence in the banking system, the full PRSP could also contain a detailed description of the relevant formal deposit insurance system under consideration by the government, including the envisaged mechanisms to minimize moral hazard, protect the integrity of the deposit insurance fund, and limit possible future burdens on the budget. - 6 - 18. The government's strong commitment to privatisation, as stated in the I-PRSP, is in line with an overall reform policy that attaches high priority to increasing private sector participation in the economy and to attracting foreign investment. The government's Privatisation Guidelines for 2001-04-which, among other things, abolished the negative list of large state enterprises approved by the previous Parliament-is an encouraging start. The staffs encourage the government, in the full PRSP, to propose a comprehensive medium-term time bound action plan to speed up the implementation of its privatisation program. It is expected that this plan would include the sale of several most-valued companies in the current fiscal year, and the presentation of a detailed medium-term program of energy sector reform and privatisation. 19. The proposed private sector-led strategy envisioned as the main basis for reducing poverty is not fully developed in the I-PRSP. The strategy to attract foreign direct investment, develop infrastructure, and simplify labor market polices, for example, is not clearly defined in the I-PRSP. The full PRSP will need to pay greater attention to these cross cutting issues and the sectoral impact of structural policies on the poor. This could include ways of improving access to markets for the poor, reducing regulatory barriers to private enterprise, and improving access to financial and non-banking institutions for different segments of the population. Furthermore, the full PRSP should include a discussion of the distributional impact of the current trade regime, including the export tax on cashmere, and assess the potential for poverty reduction from further trade liberalization. 20. A sound fiscal policy, in particular improved public expenditure management and a rationalized intergovernmental revenue sharing system, will be the cornerstone of macroeconomic policy over the medium term. The impact of improved public expenditure management on aggregate fiscal discipline will need to be developed further in the PRSP. Although the proposed Public Sector Management and Finance Law (PSMFL) would fundamentally change public sector management in Mongolia, the I-PRSP does not fully analyse the intended impact of the law on service delivery, on the roles and responsibilities of different levels of government, and on the risks associated with its implementation. In this context it will be important to reflect the findings of the Public Expenditure Review in the PRSP. The PER will propose actions to support the government's public reform agenda and ensure that these reforms will in fact pave the way for more efficient delivery of high quality social services, especially to the poorer segments of the population. But additional work will be needed to analyse the incidence of public spending and to evaluate the effectiveness of key public programs for poverty reduction. 21. The government has introduced far-reaching reforms to strengthen financial management reporting, accounting, auditing, and monitoring and has begun by taking important steps to improve treasury controls over budget implementation, including by creating a Single Treasury Account at the BOM. An IMF treasury advisor, an ADB Ministry of Finance advisor and an IDA Fiscal Technical Assistance project are supporting the government's reform agenda in this area. It is expected that these reforms will help strengthen the accounting and financial management system of the government and in turn improve the quality and efficiency of service delivery, especially to the poor. 22. Civil service reform is discussed in the I-PRSP in the context of the PSMFL. The government recognizes that an important component of the poverty reduction strategy is a civil - 7 - service that is professional, competent and efficient. The challenge for the government will be to rationalize human resource use, especially in the social sectors, in a manner that improves overall service delivery while ensuring that the wage bill is contained. However, no clear policy directions are proposed in the I-PRSP, and expectations of what the proposed law would deliver in terms of savings appear overly optimistic. The PER will help develop a framework for building a modem and professional civil service. On that basis the government is encouraged to adopt a clear strategy for civil service reforms, which can be articulated in the full PRSP. 23. The I-PRSP underscores the need to address poverty reduction from a complex, cross- sectoral perspective as evidenced by the discussion on energy, transport, regional development, and environmental protection strategies. However, the strategy outlined in the I-PRSP places too much emphasis on increasing infrastructure in the social sectors and contains little or no analysis of the current inefficiencies in the allocation of resources, the quality of services delivered, or the effectiveness of programs in achieving specified goals. If attention is not paid to these inefficiencies, the proposed infrastructure improvements would be neither cost effective nor sustainable. I'his is particularly true in health, where, though some investment in upgrading the current facilities is needed, there is a greater urgency to develop and fund the provision of basic health services for the poorer rural households. While the spread of HIV/AIDS is not a major source of concern for Mongolia, the government is encouraged to continue focusing its efforts on improving prevention especially through public education. In the education sector, the full PRSP needs to discuss the quality and access issues involved in providing education to nomadic populations in a more comprehensive manner, including the explicit budgetary implications of different policy options over the medium term. 24. The ][-PRSP recognizes the difficulty of reducing the gender gaps in educational attainment (in favor of women) and employment opportunity (in favor of men) in Mongolia. Females have had better access to primary education than their male counterparts during the 1990s as a result of the high demand for boys' labor in herding. Educational attainment at all levels is therefore also skewed in favour of women. However, women are not equally represented in the higher categories of the occupational scale. The full PRSP could discuss progress made in formulating policies to promote greater gender equity in terms of both educational and employment opportunity. Such a strategy could include a discussion of how women coulcd become more involved in formulating and monitoring public actions, especially in areas such as the design of labor market policies, safety nets, health and nutrition. The staffs welcome the govermnent's proposal for extensive consultations with women's NGOs in order to formulate a gender strategy. 25. Reducing unemployment is central to the government's poverty reduction strategy and the I-PRSP correctly identifies the need to improve labor market statistics to inform policy decisions. The I-PRSP rightly states that the main function of the government in this area is: creating a legal and regulatory environment that promotes greater private sector activity and protects labor, monitoring developments in the labor market, and providing effective training programs. Public works programs are proposed in the I-PRSP as a means of assisting the unemployed poor. However, the design of workfare programs is critical to their success, and a discussion of these issues in the full PRSP would be beneficial. The full PRSP also needs to contain a more detailed analysis of the impact, costs and benefits of the recently adopted Employmeni Promotion Law and other related laws, which include retraining components and - 8 - small business creation. As the I-PRSP notes, an adequate social safety net, including an affordable and well targeted system of cash transfers, will be needed to support the poorest and most vulnerable groups. There is a need to examine further how effective the current system of cash transfers (which accounts for over 7 percent of GDP) is in alleviating poverty among vulnerable groups. The full PRSP could contain a list of specific actions to reconcile the government's objectives of higher pensions and broader coverage with deficit reduction and no increases in the tax burden. 26. The I-PRSP appropriately places emphasis on the need for a comprehensive and well thought out infrastructure policy to reduce poverty. Mongolia's climatic conditions and vast territorial distances make the development of a sustainable growth and poverty reduction strategy impossible without a true infrastructure strategy. The govenment correctly highlights the need to link citizens to markets and services and provide greater protection from harsh weather through a more reliable and efficient system of energy supply. Some of these policies will require substantial investments that should be fully costed out in the full PRSP, with priority given to the maintenance of the existing energy and transport facilities while new and alternative solutions are being developed. In this context, the staffs recommend that the government revisit plans to construct a "millennium road". 27. The I-PRSP recognizes the need to develop policies to address issues of regional development in order to promote more balanced growth and reduce migration. But the strategy proposed does not provide a satisfactory framework within which this complex issue can be addressed. The proposed plan, for example, to resort to fiscal and trade incentives to promote regional and industrial development, including through the establishment of free trade zones, needs to be critically reassessed, paying due regard to the need to ensure fiscal sustainability. The Bank and Fund staff teams are prepared to help the authorities develop a regional development strategy that is better suited to Mongolia's precarious fiscal situation, taking into account lessons from global experience with such strategies. International experience suggests that tax and investment incentives and heavy public infrastructure investments are generally costly and ineffective, while reliance on directed credit, protectionist policies and restrictions on labor mobility generates distortions that can compromise overall growth and poverty reduction. The full PRSP could also provide a stronger analysis of the determinants of urban poverty, including the effects of rural-urban migration and, in this context, weigh alternative strategies to combat this poverty. 28. Two areas that receive little attention in the I-PRSP are rural development and risk management. Looking forward to the full PRSP, and building on the results of the PLSA, the government could provide a description of policies aimed at assisting the poor to increase and protect their asset holdings and to diversify their income sources. This could include a discussion of (i) integrated approaches to reducing vulnerability to drought/dzud, particularly in the pastoral livestock sector, and (ii) efforts to increase productivity in crop and livestock production. The Sustainable Livelihoods Project proposed for IDA funding aims to support the government's actions in some of these areas. 29. Donor support to Mongolia's transition has been unwavering, as reflected in the I-PRSP. However, despite broad consensus on the appropriate direction of policies, convergence is needed on the pace and sequencing of reforms between the donors and the government. In the -9- full PRSP, it would be important to include a discussion of the leadership role of the government in coordinating aid. Full ownership of a credible policy and implementation agenda would make aid a more effective element in the governnent's poverty reduction strategy. IV. PREPARATORY PROCESS 30. The government has fully owned and led the process of preparing the I-PRSP, and consultations within government on the I-PRSP have been remarkable. The Ministry of Finance and Economy (MOFE) led the technical working group responsible for drafting the I-PRSP which included members from every line ministry and representatives from the BOM and the NSO. The Minister of Finance and Economy and the Minister of Social Welfare and Labor chair the policy cormmittee on the I-PRSP. At the initial stages, IDA and Fund staff together with the MOFE jointly organized a workshop to discuss the PRSP guidelines and the available analytical tools, and to launch the I-PRSP process. The workshop benefited from broad participation of donors, private sector, rural and urban NGO representatives, and government organizations. The I-PRSP has been through seven drafts; with the third draft the government began sharing the document and requesting feedback from the donors and NGO community. The Bank and Fund staff closely supported the process, providing regular comments on the various drafts prepared by the government. 31. The I-PRSP outlines a detailed participatory process for developing the full PRSP which is based on broader debate and extended public consultations especially in the rural areas. The staffs encourage the continued involvement of all levels of government in the development of the PRSP and welcome the idea of a national media campaign and the proposed regional workshops. A vibrant and largely independent civil society is one of the strengths of Mongolia's political landscape and the staffs support the government's intentions to continue to involve civil society in the preparation, implementation and monitoring of the PRSP. Participation in the Development Debates and other conferences to discuss the I-PRSP enhanced civil society involvement and broad-based government support. Though some training has been offered to government officials, members of civil society, and parliament on involving civil society in the PRSP debate, the staffs agree with the views expressed in the I-PRSP that additional technical and financial support is needed for the consultative process. In developing the full PRSP, the government would be advised to seek early involvement of Parliament in the process. This will ensure that the strategic and policy planning processes of the PRSP are closely linked to the budget process, guarding against unrealistic proposals or expectations in the full PRSP. V. RISKS TO THE STRATEGY 32. The main risk to the government's strategy stems from the tensions between the government's ambitious social program agenda and the overall budget constraints that must be observed to secure macroeconomic stability. Better prioritisation and sequencing of the multiple objectives and programs laid out in the policy matrix will be essential to the success of the strategy. It is' important therefore to establish early on a transparent and systematic process for assessing the trade-offs among competing priorities. 33. There is a risk that the government might succumb to pressures to favour certain special interests which would weaken the business environment, reduce FDI, harm the poor and threaten - 10- fiscal sustainability. In particular, any policies of the government and BOM associated with directed credit, including administrative or moral suasion to direct credit to favoured industries and other activities, would undermine the efficiency and soundness of the banking sector and could eventually place new burdens on the budget. 34. Risks to the I-PRSP agenda from natural and external shocks are also large. Mongolia remains vulnerable to natural disasters (e.g., severe winter and droughts) and adverse developments in foreign markets, such as a decline in commodity prices, given Mongolia's heavy reliance on export commodities (i.e., copper, gold, and cashmere). Such shocks could endanger the maintenance of a stable macroeconomic environment and sustained growth, which are necessary to reduce poverty. 35. Another external risk relates to capital inflows. Medium-term external viability will depend on sustained implementation of policies to attract foreign investment and continued donor support, preferably through grants. Reliance on non-concessional debt inflows should be avoided except where a compelling case can be made that the expected benefits would outweigh the heightened risks for external sustainability. Although currently Mongolia is not a candidate for debt relief under the HIPC initiative, its external debt burden is high. Key to reducing the vulnerability of Mongolia's external position over the medium term will be the successful resolution of all outstanding issues with bilateral creditors, particularly in connection with the large stock of pre-1991 convertible ruble debts owed to Russia, and prudent external debt management. 36. The Bank and Fund staffs are aware that many of the objectives set out above may be too ambitious to be fully achieved within the limited time frame of the first full PRSP. Weak institutional and administrative capacity, in particular, have the potential to derail the implementation of the poverty reduction strategy, including the preparation of the full PRSP. A number of the proposed measures, including public sector management reforms and the MTEF, represent complex multi-year tasks. To measure success in these areas, both the government and the Bank and Fund staffs will need to look for incremental changes. As indicated in the I-PRSP, the government's capacity to develop and implement the poverty reduction strategy will also need to be augmented with external support. It is critical for donors to more effectively coordinate various capacity building efforts under the government's leadership. VI. CONCLUSION 37. The government's strong commitment to developing a comprehensive poverty-reduction strategy with broad civil society and stakeholder participation has been largely demonstrated in the I-PRSP process and document. Accordingly, the staffs of the World Bank and the IMF consider that the I-PRSP prepared by the government of Mongolia provides a sound basis for the development of a fully participatory PRSP and for IDA and IMF concessional assistance. The staffs recommend that the respective Executive Directors of the Bank and the Fund endorse this conclusion. - 11 - Mongolia: Key Bank/Fund Events Related to PRGF/PRSP, September 2001-December 2002 Institution Event Expected Time World Bank and IMF Interim PRSP and Joint Staff Assessment September 2001 IMF Board Approval of Three-Year PRGF Arrangement September 2001 World Bank, IMF and Public Expenditure Review February 2002 AsDB World Bank Sustainable Livelihoods Project March 2002 IMF 2002 Article IV Consultation and First Review March 2002 Under the PRGF Arrangement World Bank and IMF Full PRSP and Joint Staff Assessment September 2002 World Bank Country Assistance Strategy September 2002 IMF Second Review Under the PRGF Arrangement September 2002 World Bank Poverty Reduction Support Credit September 2002 - 12 - Annex I Summary of Staff Recommendations Poverty Diagnostics/Monitoring & Evaluation Donor Support * Use the results of the 2002 HIES as baseline for poverty monitoring IDA . Complement the HIES as needed with special purpose surveys - e.g. of vulnerable groups and for public expenditure tracking * Collect information needed to analyze the incidence of public spending and to IDA evaluate the effectiveness of key public programs * Analyze further the determinants of urban poverty, including the effects of rural-urban migration * Disseminate survey data widely to foster more analysis * Identify data needs and develop a plan to fill the gaps IDA/IMF/ADB/UNDP * Identify outcome indicators to monitor progress, including in the energy and transport IDAIUNDP sectors, and set realistic targets Economy-Wide Policies • Discuss in greater detail the sources of growth and supporting measures to achieve the growth targets * Identify a set of priority public policies and programs that will have the greatest impact on poverty reduction, fully cost proposed programs and ensure consistency with the macroeconomic framework . Reduce reliance on safety nets as the primary instrument for helping the poor and place greater emphasis on completing the agenda of unfmished structural reforms needed to underpin broad based growth * Develop more fully the elements of a private sector led growth strategy and their impact on the poor * Develop a medium-term action plan to speed up the implementation of the privatization program, including a timetable for the sale of several most-valued companies . Discuss the distributional impact of the current trade regime, including the export tax IDA/USAID on cashmere, and assess the potential for poverty reduction from further trade liberalization * Discuss the poverty and social impact of energy sectors reforms IDAIUSAID Fiscal Management * Firm up the estimates of the costs of reforms (e.g. civil service) and of potential IDA/IMF privatization receipts that underpin the macroeconomic framework * Examine the implications of the Public Sector Management and Finance Law for ADB/IMF/IDA service delivery and for the roles and responsibilities of different levels of government, taking into account the risks associated with its implementation * Develop a civil service reform strategy that aim to foster professionalism and IDA improvement in service delivery while ensuring that the wage bill is contained * Propose measures to rationalize the intergovernmental revenue sharing system IMF * Assess the fiscal and efficiency costs of the proposed approach to regional IDA/EIF development and examine alternative approaches drawing on international experience Sectoral Policies Financial Sector * Continue progress toward bringing prudential standards in the financial sector and IDA/IMF/ADB their enforcement in line with international standards * Include discussion of the need to foster application of commercial criteria to allocate bank credit - 13 - Summary of Staff Recommendations Social Sectors * Reduce emphasis on expanding infrastructure and focus more strongly on enhancing the efficiency of resource use and the quality of service delivery * Focus on developing and funding the provision of basic health services for the poorer ADB rural households and continue to emphasize public education for HIV/AIDS prevention * Consider dleveloping different policy options, including the associated fiscal costs, for ADB improving the access of nomadic populations to quality education * Discuss policies and measures under consideration to promote greater gender equity in terms of educational and employment opportunity * Assess the impact, costs and benefits of the newly adopted Employment Promotion Law * Examine the effectiveness of the current system of cash transfers in alleviating poverty IDA * Formulate measures designed to reconcile higher pensions and broader coverage of the pensioner population with deficit reduction * Pay attention to the design of workfare programs to take full advantage of self-targeting Infrastructure * Focus on the maintenance of existing energy and transport facilities in the first instance and revisit plans to construct a "millennium road" Rural Development * Provide a description of policies aimed at assisting the poor, particularly the rural poor, to increase and protect their assets and diversify their income sources Participatory Process * Broaden the participatory process to ensure an early involvement of Parliament and a UNDP more extensive representation of vulnerable members of society * Include a (liscussion of the leadership role of the government in coordinating aid FROM : PHONE NO. : DEC. 20 1999 12:29AM P2 14-AUG-2001 TUE 18:10 N0OE VGOL1M +36 ;1 320247 P. 01 MONGOLIA OMLISTRY OF F-INANCE AD ECNOM Daema Aupat Is, 2001 Rep§. 0/UIy Mr. Wolfensha PraSident World Bank Fax: Dear Mr. Wolfensohn, As you know the Government of Mongolia has been worklng with Me eAd World Bank ntaff to develop a reform paogram that will ncrue economic growh., rtduec povel*y and ihprove the livellhood of nil Ike peopk of MtSorngli In 1hut conte$ I am Pleased to transmit to you the Government of Mongolia's Interim Povety Reduction Stratogy Papr. Tho enclosed I-PAS? ha been pruJdu% by diwii O, ean^r of Moaigelia thraugh a hiahl2 articipatory process involving a1l relevant governmwl agencies. NGOs and other man oqpniza?lons. While produced entirely by te govanment, It h benefted as well ftrn frequent tnirections with IMF and World Bank taff. The I-PREP oets out the flrst phse of the Governmaent's progra. to dizmatixuily reduce the inoidence of povety in Mongolia over the next decade by mo'ving Mongolia's tcornoy to a high kyel of suszan*bi growth and by m*provin& the number and quality of ctoral intrtentlona end txgeted povorty alleviation progms. We look forward to working wftb IMF vd Bank ctff to transfm this T-PRSP Into a flil PRSP over the newt 12 to 18 months. Th. Govewnmane2 Aotion program ets out ambitious but mualabl .o1st for economic growth and poverty reduction, The l-PRSP outlinces oritcal reforms needed to meat theso goals in the aras of banking, state owned enterprises, trade, and piyvsa sector development During tho Inplemenation of this program we assure you of our determination to carry out a prudBnt and sutalnLble pmgram of meoroecononmo insnagemen I am also plaased to inform you That the Govemment of MonpoliA ha no objection to the publication of the I-PRSP, includirng posting on the IMF end World Bank websits follawing eireulatle te tho Fund cad Rank lkoa'dc. We ltto have no objactlon to the publication of the Joint Staff Assessn;ent of the I.PRSP and the Chalrrinm's Summiqg Up following the discussion ofthe I-P'RSP by the Fund and Ban'K Bosads. On behalf of the Govemment of Monplia. kr me aure you of our deternination to implement the program of reFcams sa out In the l-PRSP. Wo look formc.'d to working Ith you mid your stAff In meeting the chalenge: that lie ahead. ytO sinc ;, Ch.Ulan Ministo of PinncO ad Ecoorny 0 k4L' F t4 ?o.Qt ..i Meao Upnrw 91 Ln/Ct' A 9TF ESVY Co>Rq .A -dt A M/T.,QV GOVERNMENT OF MONGOLIA INTERIM POVERTY REDUCTION STRATEGY PAPER Ulaanbaatar, JUNE 2001 CONTENTS I. Introduction .......................................1 11. Mongolian Economy and poverty .........................................2 A . E conom y ............................................................................................................ .................................2 B. Poverty ....... .4 111. Main Components of Poverty Reduction Strategy ..................................................... 10 A. Overall Poverty Reduction Strategy and Macroeconomic Framework ............................................. 11 Economic Restructuring .................................................. I I Promotion ofPrivate sector led growth .................................................. 13 Fiscal Policies .................................................. 14 B. Sustainable Human Development .................................................... 16 B-l. Education .................................................. 17 B.2. Health .................................................. 20 B.3. Employment .................................................. 23 B. 4 Social Protection .................................................. 25 C. Infrastructure Development .................................................... 26 C. ] .Energy supply .................................................. 26 C.2 Transportation .................................................. 28 C-3. Information and communication ................................................... 29 C-4. Public and community services .................................................. 29 D. Regional and rural development ........................................................................................................ 30 E. Environment Protection ........................ 32 F. Governance ......................................................................................................................................... 36 G. Medium te rm targets .......................................................................................................................... 37 IV. The organizational arrangement of the PRSP formulation ...................................................................... 39 V. The extension of participatory approach in formulating PRSP ................................................................ 40 VI. Monitoring indicators ............................................................................ 40 Tables 1. Table 1. Mongolia: Poverty Indicators .............................................................................4 2. Mongolia: Gender of the Poor Households Head, by Location 1998 (percent) ..........................................5 3. Mongolia: Structure of Population of Working age, by Location, 1998 (percent) .....................................9 4. Mongolia: Employment Rate, 1998 .............................................................................9 5. Social Sector Total Expenditure ............................................................................ 16 6. Mongolia: Employment Status of Working age Population, by Education Level, 1998 (percent) ........... 17 7. Mongolia: The Concentration of Poverty by Heating and Drinking Water Sources; (percent) ............. 22 8. Mongolia: Average Income Shares by Consumption Groups (percent) .................................................... 24 9. Mongolia: Population Employment, End of the Year, 1992-2000, TH/persons ........................................ 26 10. Mongolia: Pension from the Social Insurance Fund (by December 31, 200) . . 26 11. Mongolia: Poverty Incidence by Lighting and Fuel Sources and Location . . 27 12. Mongolia: Macroeconomic Framework 1997-2004 ............................................................................ 38 13. Mongolia: Selected Macroeconomic Indicators, 1997-2004 ..................................................................... 42 14. Mongolia: Health Sector Indicators, 1990-1999 ............................................................................ 43 15. Mongolia: Educational Sector Indicators, 1990-1999 ............................................................................ 44 Boxes: Types of Insecurity and Vulnerability ............................................................................ 10 Annexes: I-VI 1. Monitoring Indicators 2. Economics and Social Policy Matrix 3. Joint Order of the Finance and Economy Minister and Social Welfare, Labor Minister 4. List of Technical Working Group Participants 5. Data Gap Filling Between I-PRSP and F-PRSP 6. Road Map for Development of the Poverty Reduction Strategy Paper (PRSP) CURRENCY EQUIVALENTS (As of January 2001) Currency Unit = Togrog 1097 Togrog = US$ 1 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank BOM Bank of Mongolia CG Consultative Group COMECON Counsel for Multi Economic Cooperation EU European Union FAD Fiscal Affairs Department FAO Food and Agricultural Organization FGP Family Group Practice GDNT General Department of National Taxation GDP Gross Domestic Product GEF Global Environment Facility GGHS Good Governance for Human Secunty GNP Gross National Product GOM Govemment of Mongolia HIES Households Income and Expenditure Survey HMP Health Master Plan HSDP Health Sector Development Program IDA Intemational Development Association IMF Intemational Monetary Fund I-PRSP Interim Poverty Reduction Strategy Paper LSMS Living Standards Measurement Survey MEFP Memorandum of Understanding of Economic and Financial Policies MIT Ministry of Industry and Trade MJIA Ministry of Justice and Intemal Affairs MOAF Ministry of Agriculture and Food MOD Ministry of Defense MOFA Ministry of Foreign Affairs MOFE Ministry of Finance and Economy MOH Ministry of Health MOI Ministry of Infrastructure MOSTEC Ministry of Science, Technology, Education and Culture MOSWL Ministry of Social Welfare and Labour MLS Minimum Living Standard MNE Ministiy of Nature and Enviromnent MP Member of Parliament NIC Neft Import Concem NGO Non Govermnent Organization NSO National Statistical Office NPAP National Poverty Alleviation Program ODA Official Development Assistance OECD Overseas Economic Cooperation Department UNDP United Nations Development Program PER Public Expenditure Review PLSA Participatory Living Standards Assessment PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper SLP Sustainable Livelihood Project SME Small and Medium Enterprises SPC State Property Committee TACIS Technical Assistance for Common wealth of Independent States TB Tuberculosis TSA Treasury Single Account VAT Value Added Tax WB World bank WHO World Health Organization Aimag province Soum provincial (rural) district Bag provincial (rural ) sub district Duureg Ulaanbaatar city district Khoroo Ulaanbaatar city sub-district Ger traditional Mongolia felt tent Dzud abnormally severe winter weather with sheet of snow and ice covering pastures Currency Unit Togrog I. INTRODUCTION 1. Mongolia in 1990s has done a great deal to build a democratic society where respect for human rights is considered a valuable social treasure and is committed to developing a market economy as evidenced by macroeconomic stabilization and structural reforms underway in all spheres of social life. 2. The Government of Mongolia with the assistance of international financial organizations has made substantial progress over the last 10 years of democratic restructuring in developing a sustainable macroeconomic agenda and in creating a private sector led open economy. 3. To enhance the transition the following policies are being adopted: liberalization of prices, flexible exchange rate and liberal trade policies, reform and restructuring of banking sector, privatization of state owned enterprises, creation of a legal environment for management of economic activities, improvement of aggregate fiscal discipline, development of an appropriate social safety net system and stabilization of macro economy. 4. During the decade of transition unemployment, poverty and crime increased partly as a result of the withdrawal of Soviet assistance and the lack of comprehensive accompanying policies to mitigate the impact of the transition. Access to and the quality of basic education and health services especially worsened in the early part of the transition. Slow economic activities in rural areas has led to huge migration of the population to urban areas resulting and increasing the depth and severity of poverty in recent years, especially in urban areas. 5. On the basis of an evaluation of the current economic and social condition, the newly formed Government of Mongolia as outlined in the Government Action Plan and other policy documents is committed to reducing poverty in the medium term. The Interim Poverty Reduction Strategy paper (I-PRSP) would outline the main priority policy issues of the government: reduction of unemployment, public sector management, improvement of access and delivery of basic services, and increase of living standards of the population. The Government of Mongolia recognizes that this policy document would play an important role in creating consistency between economic policies and the social development trends, as well as in increasing the participation of NGO's, civil society and donors in poverty reduction efforts. 6. In order to achieve the poverty reduction targets the Government of Mongolia has adopted the International Development Goals and is making efforts to identify its main poverty reducing strategies and adopt a consistent macro-economic framework aimed at ensuring sustained growth and support private sector development. 7. The I-PRSP consists of five sections, including economic and poverty situation in Mongolia, poverty reduction strategy main components, institutional arrangements of PRSP formulation, and extension of participatory approach, monitoring indicators, and policy matrix. The first section describes the overall path of transition in terms of economic and social development, in particular analysis of poverty situation using various survey data. The second section outlines the government's overall strategy of poverty reduction, including medium-term macroeconomic framework, social, infrastructure and environment sectors development. The next two sections describe the institutional arrangement of PRSP formulation and 1 implementation and wide involvement of civil society in whole process of preparation of the strategy. The last section consists of annexes, illustrating the monitoring indicators, policy matrix, statistical tables and other relevant documents. II. MONGOLIAN ECONOMY AND POVERTY. A. Economy 8. The withdrawal of former Soviet Union assistance, and collapse of COMECON left the Mongolian economy in an extremely difficult situation at the beginning of the 1990s. During 1990-1992 GDP decreased by more than 20 percent. GDP per capita decreased by 20 percent between 1990-92. Imports also decreased substantially for this period from US$ 924 million in 1990 to US$ 388.4 million in 1992. The rate of investment as percentage of GDP decreased from 32 percent in 1990 to 11 percent of GDP in 1992. In 1992 inflation reached 325.5 percent per annum. There were 54 thousand unemployed people in 1992, who were registered at the Labor Regulation Office and actively seeking employment. 9. To address this economic situation the Government of Mongolia launched a series of reforms including: liberalization of state controlled prices and tariffs, privatization of public sector assets, establishment of two tier banking system, trade liberalization, adoption of floating exchange rate, tight monetary and fiscal policies to reduce inflation, creating favorable environment for private sector development by enacting relevant laws on fair competition and creation of new social welfare system. 10. As a result of above policy measures taken by the Government economic recovery began. GDP growth rate increased to 2.3 percent in 1994 from negative 2.5 percent in 1992, and has remained positive since. In 2000 it dropped to 1.1 percent due to severe weather conditions, and spread of foot-and-mouth disease. Hyperinflation of 325.5 percent in 1992 declined to 66.3 percent in 1994, and has averaged to 27 percent in 1995-1999, with further decline to 8.1 percent by the end of 2000. The trade deficit turned into surplus in 1994 going from US$ 32.0 million deficit in 1992 to US$ 102.6 million surplus in 1994, and has averaged at US $ 110 million deficit since 1996. Level of net official international reserves reached US$ 40 million in 1994 compare to US$ 4.6 million reserves in 1992, thereafter has increased substantially reaching US$ 80 million during 1995-99. By the end of 2000 it amounted to US$ 140.6 million. Since 1996 unemployment rate gradually decreased and it accounted to 4.6 percent of the labor force at the end of 2000 according to the Labor Regulation Office statistics. The 2000 population and housing census data report that the unemployment rate is 17 percent. 11. Sharp fall in world prices of main export commodities as a result of Asian financial crises has caused great harm to the export earning of our country that has a few main exporting commodities. The price of copper, Mongolia's main export commodity accounting for 33 percent (1999) of the country's total export earning, declined from US$ 3,000 which was in 1995 to US$ 1,480 per ton in 1999. In addition prices of gold and cashmere dropped during the same period. Trade deficit widened from US$ 3 million in 1995 to US$ 150 million in 2000. 12. In addition to these external influences drastic weather changes and natural disasters "Dzud" hit Mongolia during the winter and spring of 1999-2000 in combination with heavy 2 snowfall and as a result 3.5 million, or 10.4 percent of total livestock perished and 2.7 million female livestock miscarriage. This led to a substantial decrease in animal husbandry production, the major component of total national production of Mongolia, slowing down the speed of economic growth and worsening the living conditions of hundreds of herder's households. 13. Mismanagement and poor institutional capacity worsened the already fragile macroeconomic enviromnent. The privatization process was not so actively supported by people because of lack of adequate knowledge of nature of privatization process, new owners suffered from lack of management skills and insufficient knowledge of market environment. In addition, the weak financial system could not provide adequate support to new entrepreneurs, especially for upgrading of equipment. Interruption in the supply of some raw materials and technology due to closure of some enterprises led to the stoppage of operations in other efficient enterprises. 14. Total budget tax revenues, in particular corporate income, dividends decreased from 164.0 billion togrogs out of which 54.9 billion togrogs of corporate income tax revenues in 1997 to 154 billion togrogs, including 31.3 billion togrogs of corporate income tax in 1998 due to external trade shock. This has had a harmful effect on budget expenditures as well as on the overall condition of the budget as the government at all levels did not respond accordingly by curtailing unnecessary expenditures. The financial in particular banking sector crisis triggered budget expenditures. Since 1996, 12 banks were bankrupted and the Government paid additional 9 billion togrog as an interest payment for Government bonds to cover losses of some of those banks causing increased fiscal burden on the budget. About 14 percent of total loans are extended by commercial banks considered as non-performing loans in 2000. Although investment of 28.9 percent of GDP by 2000, its productivity is still low. 15. Due to the above mentioned unfavorable external environment and high public expenditure budget deficit to total GDP increased annually and reached to 14.3 percent in 1998, 12.2 percent in 1999 from its level of 7.9 percent in 1996. Budget deficit accounted for 6.8 percent of GDP in 2000. In other words the combination of persisting drop in revenue and high cost of economic restructuring diverted already scarce resources from pro-poor programs. Over the same period, external debt of Mongolia accounted for 46 percent of GDP in 1996 increased to 94 percent of GDP in 1999. 16. Substantial progress has been made in the transition to a market economy over the last 10 years. The economy of Mongolia has been growing for six consecutive years and inflation has been brought down to single digits. As a result of economic restructuring share of private sector is broadened and now accounts for over 70 percent of total GDP. Mongolian economy has become more open and all citizens of Mongolia have the right and the opportunity to set their goals for their lives and a free and competitive environment for any private initiative has been created. 17. Many serious challenges remain to be overcome to increase the living standards of the population and overall social development. Due to the structure of the economy with its relevance on a few export commodities the Mongolian economy remains highly vulnerable to external shocks and economic growth rate is not high enough to meet the required needs. The weak banking system, which plays an important role in the economy remains fragile, and largely in the hands of the state, weakening private sector confidence, specially foreign investment 3 opportunities. Efficiency of the privatized enterprises is still low, as human capacity and private sector management skills are not fully developed. Lack of strong public sector management and control has led to poor access and quality of basic services, such as education, health. In addition, the targeting mechanism of social welfare system is weak and inefficient. B. Poverty 18. Currently 36 percent of Mongolian population is poor according to the 1998 Living Standards Measurement Survey (LSMS). While between 1994 and 2000 the poverty appears to have stabilized, depth and severity of poverty has increased, and inequality widened. From the various surveys (LSMS, PLSA) five categories of population are likely to fall into poverty; (i) single parent headed households with many children, (ii) households with less 100 heads of livestock (depending on size and structure of households), (iii) unemployed, (iv) uneducated (without basic education), (v) vulnerable groups (elderly, disabled, street children and orphan children). Table 1. Mongolia: Poverty Indicators (Percent) Incidene, P0 Deth, P1 Severity, P2Pi 19950000000i0y 1998 19095 1998, 1995 I9 Urban area 38.5 39.4 12.2 13.9 5.7 7.1 Ulaanbaatarcity 35.1 34.1 10.4 13 4.5 7. Rural area 33.1 32.6 8.9 9.8 3.6 4.4 National 36.3 35.6 10.9 11.7 4.8 5.6 Source: Mongolia: Living Standards Measurement Survey, 1998 19. According to the 2000 population and housing census 541.1 thousand households with 2373.5 thousand permanent residents are living in Mongolia. Out of them 56.6 percent is urban and 43.4 percent is rural population. 50.4 percent of population is female, and 49.6 percent are male. 20. In Mongolia the Household Income and Expenditure Survey (HEES) has been conducted since 1966. Sampling size has varied from 1000 from 1500 households with increase of the number of households. The HIES not only produces data on income and expenditure, but also serves for analysis of sources of income, patterns of expenditure and levels of living and determining the minimum living standards. It is necessary to improve the HIES's methodology, design, size and scope, because the particular survey provides inputs for main statistics, such as poverty line, inflation, and national accounts. Currently the NSO with the assistance of the World Bank and UNDP is preparing to improve HIES towards use it as base for poverty assessment. The first data on poverty is from Poverty Assessment conducted in 1994 by NSO. The report illustrated that in 1994, 26.5 percent of population was poor. The Minimum Living Standard (MLS) is used to establish the poverty threshold. According to the "Law on Defining the Minimum Living Standard", Togrog of 14,700-19,300 (as of end December of 2000) per capita per month is considered as the minimum living standard. People with income per member 4 of household lower than 40 percent of the minimum standard or cannot provide food needs are considered extreme poor households. 21. The Government of Mongolia conducted several living standards surveys with the support of international agencies. The first Living Standards Measurement Survey (LSMS) was conducted with the assistance of the World Bank in 1995. The result of this survey revealed that 36 percent of the total population of Mongolia was poor. The next LSMS was carried out in 1998 with UNDP assistance, where it revealed that poverty rate is 35.6 percent. The results of these surveys and EIES are not entirely comparable. For indication purposes some comparison will be made in the text. Between 1995 and 1998, the percentage of poor people declined in Ulaanbaatar city, howeveir it more concentrated in aimag centers. The results of LSMS show the followings: * The depth of poverty, consumption differential, increased from 9.8 to 13.9 percent, and the severity of poverty increased from 0.8 to 2.9 percent from 1995 to 1998. * Income inequality-Gini coefficient increased from 0.31 percent in 1995 to 0.35 percent in 1998. * Poverty has direct relation with the employment. 27.3-38.8 percent of employment age poor people in towns and settlements were unemployed. 60 percent of unemployed people of employment age are poor. D Specific results of LSMS show that cost for education and health services become a heavy burden on the poor families and therefore those families most likely will not able to receive the basic services of health and education. For example, the percentage of household expenditures for education in total household budget has increased by 4.5 times in 1998 comparing to 1995 and its percentage in total non-food consumption expenditures has increased by 9.3 points. School enrollment rate for children 8-15 ages is 87.3 percent and dropouts about 9.3 percent. Dropouts are more evident in rural than in the urban areas and 43.8 percent of them dropped out school due to poor living condition and the necessity for employment. * MIoreover, wealthier households benefit more from health services than poor households. Monthly expenditures on health services per person for different categories of income groups is 9 times higher in wealthier households than that in poor families. Frequency of visits by the poor to the health centers is low too. Regardless of a household's location, a household with many children or female- headed households are more affected by poverty. For instance, 24.6 percent of total extreme poor households and 18.3% of total poor households are female-headed households. Table 2. Mongolia: Gender of the Poor Households Head, by Location, 1998 (percent) Head of household Aimag Capital city center Soum Rural area Male 21.4 39.1 28.5 25.2 IFemale 43.8 53.2 51.7 23.6 Source: Mongolia: Living Standards Measurement Survey, 1998 * The income of the population is composed of the following main categories: 1/3 from wage, pension, benefit and incentives, more than 20 percent from agriculture 5 and non-agriculture production income, 30 percent private business income and 10 percent from free consumption taken from others, moreover this income composition largely depends on a given household's location. For instance, for the urban population 40-60 percent of total income is composed of wage, pension and benefits whereas, in rural area only 7 percent of the total income is composed from wage, pension and benefits and more than 60 percent are composed from household business revenue. However, for poor people wage, pension and benefits still remain main source of income. Depending mainly on population density and employment specifics the population housing types and consumption varies. Majority of rural population dealing with animal husbandry live as nomads throughout the 4 seasons of the year, living in Ger- dwellings, where as certain percentage of the urban population live in apartments. Due to the cost of apartments the majority of the urban poor live in Gers. Significant portion of rural households live in Ger- dwellings with fire heating and 27-30 percent of them consume water from unprotected wells. 22. At the time of losing past achievements in the health and education sector, decrease of people's income followed by occurrences of difficulties in family life and increase the number of crimes the Government of Mongolia approved and commenced the National Poverty Alleviation Program (NPAP) in June, 1994 as a result of multiple consultations with specialized UN agencies, international institutions and donor countries. The goal of this Program was to stop the declining trend of living standards and human capacity utilization based on the principle of decentralization and public participation covering broad range of sectors. 23. Within the NPAP more than 13 thousand small scale projects have been undertaken in remote soum, khoroo and bags to create temporary and permanent jobs, to support pre-school and basic education, to enhance basic medical services of rural population, to provide professional training for adult disabled people, to involve them in income generating activities as well as to provide education to disabled children through an income increase of vulnerable groups of the population, and a development of social infrastructure. 24. Results of program implementation show the following achievements: * Income of over 30 percent of poor families has increased by certain amount through creation of permanent jobs by expansion the scope of income generating projects and public activities. * For the purpose of sustaining the living standard of herdsmen households 107 thousand heads of livestock have been distributed to 2002 households. In parallel with the restocking project some families increased their living by working on crop sector and vegetable growing activities. * Female participants benefited more from income generation project. 65 percent of income generating project participants were females. At the same time female participants were benefited from projects on project development and management implemented by non-governmental organizations, rural health improvement projects, especially project so called the Maternity house restoration project. * Projects for the public have had a positive effect on creation of temporary employment in addition to the long-terrn impact on the development of local economy and public health. 6 * Bridges, road, dam and water canals for irrigation are giving sustainable benefits to rural population. Also projects for the fresh water supply, public hot water facility, and heating system contributed to the healthy and cheerful life of the community. * Projects on strengthening of basic and preschool education and rural health improvement were implemented all over the country and had effected in increasing the number of enrollment in the kindergartens, secondary schools and in decreasing dropouts and mortality rate as well. 25. Parallel to the NPAP the Government of Mongolia with the assistance of the international banking and financial institutions and donor countries has implemented many projects in the health, education, infrastructure, and environment sectors. Although the speed of poverty has slowed down as a result of the above projects, poverty has not been reduced significantly and it still stays as one of the critical problems facing Mongolia. 26. We have learned that programs and projects for poverty reduction and social welfare should be implemented in conjunction with a broad range of policies for sustainable economic growth, intensification of structural changes, stabilizing of inflation level, and strengthening of financial discipline, improvement of banking and financial sector service as well as improvement of social safety services. It means that a poverty alleviation program, no matter how sound in it is concept and principles, may not alleviate or eradicate poverty unless it is harmonized with and supported by broad-based, people-oriented and labor-intensive growth strategies. Within this overall frame the development and strengthening of the banking sector to provide fast financial services to the rural communities is crucial. Rural banks could also help to solve the problem of liquidity and barter by injecting cash into rural communities and encourage at the same time the mobilization of rural savings. On the other hand it is important to maintain and strengthen already existing institutional structure and capabilities. 27. Between 1994 and 1999 poverty was basically assessed using the quantitative methods, while the recently completed Participatory Living Standards Assessment provides an opportunity to analyze poverty dimensions from a qualitative perspective. The whole survey is based on a participatory approach, giving an opportunity to the government to listen to the voices of the poor and their assessments and judgment of their livelihood situations, its nature and pursuing polices to improve this. 28. The National Statistical Office conducted "Participatory Living Standards Assessment" with the assistance of the World Bank and other donors in 2000. The purpose of the assessment was to enrich poverty statistics by qualitative indicators and provide supplementary information an upcoming "Poverty Assessment" and "Living Standard Measurement Survey" made in 1995 and 1998. This is the first assessment been made using a participatory approach at the national level. 29. According to this assessment living standards of the people were comparably similar until 1992. During 1992-1995 new poor and rich people emerged, and the gap between the poor and rich has increased for the period of 1995-2000. The assessment also discovered that the poor and extreme poor people became predominant among urban population. The assumption that during 1992-95 the share of middle level households has decreased and share of poor and extreme poor households 'has increased was confirmed by an assessment of the participants of the survey 7 indicating that the number of poor and extreme poor households has increased substantially during 1995-2000. 30. As this assessment states the criteria-indicator for determination of well being of people can be categorized as economic, social, health, physical and mental status. Economic indicators include number of livestock, distance to water source and pasture, doing/running reasonable job or business, apartment/house owning, debtless and in time access to pension and benefits. Social indicators include number of family members, access to children's education, self-sufficiency, ability of helping to the relatives and friends, having reliable spouse and a guaranteed living, and peaceful environment. However, the above indicators have heavy dependence on the special features of living style and conditions of people. For instance, while the number of livestock and access to water and pasture are important factors for rural people, job opportunities, business environment, health and mental security are important for people living in urban areas. Participants of this survey determined the "Good life" and "Bad life" as followings: "Good life is to build one's own life on his/her own way, make a decisions independently about your own life, have children be educated and be healthy" group of women from Bayanzurkh soum of Khuvsgul aimag "We will be having a good life if we have good work, be healthy, have sufficient food and clothes, and be on the same path with the society. " Another group of women from Khukhmorit sum of Govi-Altai aimag "Bad life means illiteracy of children and youth, suffering from illness, having a shortage in physical and mental needs and being uncertain on their future". Group of men and women from Tuv aimag "I'm heavily indebted and have lost control over the amount of the debt I have, which is adding up like the like the number of stars in the sky". Poor lady from Sevrei sum of Unmugovi aimag said 31. In all places the number of poor people was reported to have increased as indicated in the assessment and the reasons explaining this were bankruptcy of enterprises; unemployment; closure of cooperatives; some technical mistakes in privatization process; abandonment of old trade network; and introduction of fee for health and education services. People were confirming that the main source of income for living is now pension and social benefits. Most of the categories of reasons are similar to LSMS, especially in terms of unemployment, lack of favorable business environment, and mismatch of private sector requirements for job vacancies and existing capabilities of unemployed. Participants of this survey listed the main negative consequences of poverty as followings: children's dropouts from the school, deterioration of health, disability, mental stress, violence, crimes, homelessness, divorce, increasing number of female or male only headed families, wide spread alcoholism, debt and malnutrition. 32. As this assessment demonstrates the source of poverty is the decreased opportunity of being employed during the transition from the centrally planned to the market oriented economy, and low level of income. Deepening of income poverty leads to other types of poverty such as 8 human insecurity, and poor access to institutions, weak governance and corruption, and the emergence of such phenomenon should not be neglected. Table 3. Mongolia: Structure of Population of Working age, by Location, 1998 (percent) Income groups Employed Unemployed Other Total Urban area 1. Very poor 37.6 38.8 23.6 100.0 . Poor 48.3 27.3 24.4 100.0 3. Not poor (little) 49.9 19.3 30.8 100.0 4. Notpoor (middle) 55.2 13.2 31.6 100.0 5. Not poor (wealthy) 58.6 9.0 32.4 100.0 Total 49.8 21.4 28.8 100.0 ural area 1. Verypoor 58.4 26.5 15.1 100.0 2. Poor 79.6 11.9 8.5 100.0 3. Not poor (little) 83.3 6.5 10.2 100.0 4. Not poor (middle) 81.3 7.2 11.5 100.0 5. Not poor (wealthy) 80.8 4.4 14.8 100.0 otal 77.9 10.3 11.8 100.0 tLfional 65.0 15.4 19.6 100.0 Table 4. Mongolia: Employment Rate, 1998 (percent)* Very poor Poor Not poor {L) Not poor (M) Not poor (U) Urban 1995 44.7 66.0 75.8 78.7 92.8 1998 49.2 63.9 72.2 80.7 86.8 Rural 1995 65.0 85.9 92.9 95.8 92.7 1998 68.0 87.0 92.7 91.8 94.8 *In accordance to 1995 LSMS methodology calculated as a ratio of employed of working age to population of working age. Source: Mongolia: Living Standards Measurement Survey, 1998 33. In addition to economic insecurity the PLSA has showed the other forms of insecurity: environmental], social, and physical. Public action and investment to reduce risk in livestock production and agriculture declined, and environmental insecurity acquired new significance, particularly for those new to livestock production. The effects of natural disasters were exacerbated by a growing over-concentration of grazing pressure, as the numbers of herders and livestock increased while pastoral mobility declined. Social insecurity derived from changes in kinship. The 1990s saw a weakening kinship network and rise in semi-commercial forms of intra-household transfers. The most vulnerable of all those were those excluded from kinship and other social networks. Many households were also prone to physical insecurities, particularly among the poorer groups. Unemployment and economic insecurity led to widespread social malaise, alcohol abuse, rising crimes, domestic violence and marital breakdown. These 9 insecurities shape the context within which households could be afflicted by various shocks and longer-run stresses. Box 1. Types of Insecurity and Vulnerability Economic Unemployment, isolion rermoteness firm markts poor terms of trade, price instabili, "':late payment of salaries and pensions, cash deficit, loss of assets, Environmental Ovegain over-conceratiton of pasr land! use. declinig a o mobility, conflct overM pastr, dziu,00 dogt, 1 fl ding dus t- nd sstorms, steppe fire, rodent infestaiown, prers, htagesof wells and. winter,shelters fori livestock Physical Alcohl abuse, dbmestic& yviolene theft p0aulr livestoci theft); poor quality of iwater, imported foodstufs andnmedicines; lac of sanitation and hygiene, health isks in ______ ______ prostitution Source: PARTICIPATION LIVING STANDARD ASSESSMENT 2000 34. In Mongolia GNP per capita was US$ 390 in 1993 dropped to US$ 380 in 1998 and Mongolia ranked 165 of 209 countries in the WB report. Mongolian human development index 0.669 of 1995 changed to 0.628 in 1998 removing Mongolia from 101st place in 1995 to 117t in 1998 among 174 countries. III. MAIN COMPONENTS OF POVERTY REDUCTION STRATEGY 35. The Government of Mongolia is committed to its goal of reducing poverty and putting Mongolia on a sustainable development path. As part of this effort, Mongolia is determined to make every effort to meet the international criteria on poverty reduction and human development stated in the "Strategy-21" of the OECD and included in the Poverty Reduction Partnership Agreement between the Government of Mongolia and the Asian Development Bank. The Government of Mongolia fully accepted and is making efforts to fulfill the International Development Goals that are to reduce by at least 25 percent the proportion of people in extreme poverty by year 2005, and half by the year 2015; reduce by at least half the proportion of people below the government's officially defined poverty line by the year 2005, and by a further 25 percent by the year 2015; achieve universal primary education by the year 2005, reduce by half the mortality rates for infants and children under 5 years of age. 36. In order to increase private-sector-led economic growth and reduce poverty the Government has produced an economic policy agenda within the framework of the medium term macroeconomic stabilization program. Mongolia's poverty reduction strategy focuses on directing the benefits from the economic growth to social development and delivering improved services to the population. High economic growth can be achieved through macroeconomic stabilization, deepening of economic reforms, creation of favorable environment for private business and promotion of export-oriented industries. 10 37. On the one hand economic growth is an important factor in the reduction of poverty among population, on the other, a strong partnership between the state and population is fundamental to achieving poverty reduction goals. Government will pay increased attention to citizens' participation in society and to support citizens' initiatives through creation of favorable economic and social environment. PRSP requires a strong partnership between the state and population based on the system of rights and duties that protect the population, especially the poorest. Therefore, the Government's goal to increase access to education, health and social services, this can be achieved through close cooperation between the state and the NGOs. Much of the poverty reduction work to be done with herders will focus on activities with herders' groups or local cooperatives and the strengthening of these local groups to undertake improved grassland and livestock management and income-earning activities. A. Overall Poverty Reduction Strategy and Macroeconomic Framework 38. The Government's macroeconomic policies have been developed in the context of a medium-term framework aimed at supporting more rapid, private-sector led growth and poverty reduction. The three-year PRGF program will aim to create a stable macroeconomic environment conducive to higher private investment, with a view to gradually raising the annual rate of GDP growth to 4-6 percent over the program period, 2001-2004, while reducing the rate of inflation to the single diglit range. The external current account deficit will be targeted to be restrained to about 6 percent of GDP by 2004. This should serve to ensure that the external debt service burden remains manageable, while helping to raise the import cover of gross official reserves to 16-17 weeks of imports. 39. The Government's structural reform program will be guided by the need to strengthen the institutions of macroeconomic management, while also creating an enabling environment for private sector development. In the fiscal area, the highest priority will be given to reforms to improve transparency, accountability, and enforcement mechanisms in budget implementation and to ensure a more efficient allocation of public expenditure. Banking sector reforms will aim to consolidate the shift to a market-oriented system of indirect monetary management, including through measures to strengthen bank supervision and accelerate privatization of state-owned banks. Efforts will also be stepped up to reform and privatize non-financial public enterprises, establish a sound legal and regulatory framework, and maintain an open trade and investment system, including in the strategic energy sector, so as to enhance opportunities and incentives for private participation in infrastructure projects and limit reliance on debt-creating aid inflows. Acceleration of the privatization process, privatization of valuable entities and improvement of efficiency in privatization is expected to increase the role of the private sector to 80 percent of GDP. Economic restructuring 40. In medlium terrn, the private-sector-led economic growth will be ensured by acceleration of privatization, implementation of a policy on land ownership reform and utilization, deepening and continuation of structural adjustments in energy, banking and financial sectors. The Parliament has approved Guidelines of Privatization for 2001-2004. Privatization of state owned commercial banks and commercialization of the energy sector will be implemented in the first place. In the framework of structural adjustments in the energy and banking sectors, 11 comprehensive policies are to be implemented in order to properly provide and serve rural areas with energy, heating, gasoline products, and financial intermediation. Moreover, measures will be taken to analyze and implement policies toward lessening the impact of electricity, heating and gasoline price increase on poor. Privatization adjustment measures to support employment promotion program will be implemented in consistency with the privatization and other related programs and projects. Within the framework of this program the Government shall promote initiatives and beginnings on creation of new jobs, public works and private entrepreneur-ship. 41. A constructive solution towards privatization of large, valuable entities that play major role in Mongolian economy will have an important influence on further economic development. In privatizing the entities the Government hopes to attract potential strategic investors that will be capable to increase the entities' economic and financial efficiency by bringing new technology, know-how and new export markets. In connection with the privatization of valuable entities appropriate measures have been taken prior to the privatization to abolish the negative list of firms not to be privatized, passed by the former Parliament. The Trade & Development Bank, NIC Corporation and Gobi factory are in the list of the first stage privatization plan. 42. Banks with full state ownership or partial state participation will be privatized. The main objective in banking sector privatization is to establish a reliable financial system capable to support the economy. Regarding the privatization of commercial banks, the main focus will be directed to attracting strategic domestic and foreign investors. To enhance confidence in the banking system, the government plans to introduce a deposit insurance system over the medium term. 43. The interim objective in restructuring the banking and financial sectors is to establish a banking system capable of rendering financial services that can respond to the demand of customers, community, businessmen, and citizens etc. The government will continue to strengthen the legal and regulatory environment in the banking system. In particular, the legal environment will be created to support non-banking financial institutions aside with the commercial banks. The legal procedures will be tightened with amendments to the Bank law concerning the direct responsibility of debtor and creditor to each other. Bank management, especially the credit management will be improved through the intensive advancement of staff capability "The main reason for poverty is the rise in prices. We are suffering very much from the increase in fuel pricse. There is no help out of our pension and allowance, because increases in the prices of flour and rice are much higher than our pension increase " A group of men in Herlen sum of Dornod aimag. 44. Monetary policy will aim to bring down inflation to low single digit levels, while facilitating the achievement of the external reserve objective. The targeted continued improvement in the fiscal position, that will reduce the government's reliance on banking system credit will provide adequate room for a healthy expansion of credit to the private sector. 'The bank loans seem to be granted either to prosperous people or to the poorest. What I think is a loan should be extended to a person who is able to repay it. One should 12 distinguish the difference between loan and aid. Aid must go to the poorest of poorest" determines a group of women at Songinohairhan district, Ulaanbaatar city. 45. The floating exchange rate policy will be continued. In order to manage money supply and keep prudential requirements at the adequate level the non-direct monetary instruments and open market operations will be utilized widely by the Bank of Mongolia. Building a sound banking system is one of the priority objectives of the Government of Mongolia and the measures to increase confidence of the banks will be taken step by step. In addition the government will refrain from either administrative measures or moral suasion to subsidize and or/ direct credit to favored industrial and other activities, as such measures would undermine the efficiency and soundness of the banking system and could eventually place new burdens on the budget. As progress is made towards fiscal consolidation, disinflation, and banking system reforn, there will be room for decline in nominal interest rates, while still keeping real interest rates at positive levels. The current, very high spreads between deposits and lending interest rates will also be addressed by encouraging competition in the domestic financial market. 46. The government is revising the Land laws and preparing for their implementation in order to intensify land reform enabling economic relations in respect of land. In this process the main focus will be on long-term entitlement, improvement of land fee system, and using appropriate incentives to develop production and crop farming industry. 47. In the restructuring of social sectors the Government will create legal environment for social sector privatization (educational, cultural institutions, hospitals). Promotion of private sector led growth 48. Mongolia's liberal trade regime has served the country well in recent years and will remain key to promoting efficient investment and growth during the next stages of the transition. To encourage export-led growth and enhance rural incomes, customs controls and licensing for imports will-be simplified. The government will introduce no new taxes, quantitative restrictions, voluntary restrains or other measures to discourage exports or imports during the program period. The current account deficit is to be narrowed from 71/4 percent of GDP in 2001 to 6 percent in 2004. 49. Open economic policy will be intensified and efforts will be made to attract increased foreign direct investment. In developing of industries the foreign direct investment plays an important role. In order to attract the foreign investment the Law on Foreign Direct Investment is being amended. The amendment underlines the issues to create mechanism for establishment of a stable environment for foreign investors activities through stable contracts. 50. The Government will pursue a policy of promoting of industries with competitive advantages. In order to create enabling environment for private business development special focus will be drawn on issues of simplified licensing procedures, government and private sector partnership issues. * Currently most of Mongolian enterprises' capacity utilization rate is very low. In order to improve the utilization, the Enterprises Structural Restructuring project is implemented under the UNDP support. The main objective of the project is to assist 13 domestic entities in developing business plans and enhancing management capabilities. As outcomes, 10 entities (such as Darkhan sheep coat factory) started their operations. * The government supports a close partnership with private sector through regular dialogue in the form of information exchange, advertising business opportunities abroad and domestically. * Human capacity building is strengthened public and private sector partnership. * Another important aspect of private sector development is simplification of licensing procedures. The Ministry of Industry and Trade (MIT) jointly with relevant agencies is conducting survey on licensing procedures development of unified standards of licensing. Fiscal policy 51. A stable macroeconomic environment, underpinned by a sustainable fiscal position and greater fiscal transparency and accountability, will be key to achieving the government's macroeconomic and poverty reduction objectives. The approved general government budget for 2001 aims to build on the recent improvement in the fiscal position by containing the general deficit to 7.4 percent of GDP in 2001 and reducing it to around 6 percent by 2004. In the medium term, fiscal policies shall be directed to macroeconomic stabilization, reduction in public sector size, stabilization of financial sector, improvement of delivery of and access to public services, and improvement of pro poor orientation of the budget expenditures. The Government of Mongolia jointly with the World Bank, Asian Development Bank will implement the comprehensive program on public sector reform based on the ongoing Public Expenditure Review aimed to develop a rational and efficient structure of public expenditure. Improved budget planning, increased efficiency of the budget expenditure and increased assistance to low income people are the expected results of the implementation of these programs. 52. The areas of high priority in fiscal management reform and the nucleus of fiscal management improvement strategy for the short to medium terms are as follows: * Review of government policies to ensure realistic budgeting for fiscal activities * Strict enforcement of reporting, accounting and banking requirements of the budget law to achieve high data quality and reporting standards * Improving management of government cash balances and other assets * Implementation of integrated accounting system * Implementation of basic requirements for fiscal transparency to inform policy- makers, the legislature and the public of the intention and impact of fiscal policies * Selective development of performance measurement and monitoring of key sectors (such as Health and Education) 53. Realistic budgeting. Public sector management reform needs to establish a disciplined and clearly understood budget process. Many of issues faced by the Government arise as the current process is not sufficiently comprehensive, systematic and well disciplined. Steps are being taken to establish a medium term framework of budget but systematic procedures for an effective medium term framework are not yet in place. As a first step in this process the 2002- 2004 budget formulation process started to establish a ceiling for overall expenditure and sector allocations on the basis of macroeconomic and fiscal forecasts, an estimate of the continuing 14 costs of the government and clear directions from the government on priorities for new policies. A clear, phased plan of action needs to be established to fully develop medium term budgeting framework. 54. To improve the overall fiscal situation and fiscal federalism in Mongolia the Government has reviewed the existing fiscal relationships between the central and local governments with the assistance of the Fiscal Affairs Department of the IMF and further actions on enhancement of budget efficiency and control in regard to intergovernmental fiscal relationships have been formulated. The current tax assignment is being revised in order to achieve a sound basis of own budget revenue at the local government level, promote horizontal equity and provide incentives to exploit the full potential of the tax base. The government intends to centralize VAT and to reassign taxes in particular, corporate income tax and excise tax on alcohol by type rather than by taxpayers starting in 2002. Moreover, a reform of the current system of transfers from the central to local governments will be designed to replace existing system of negotiation with a new distribution system based on a transparent formula within a clear legal framework. 55. The recent steps toward more realistic budgeting will be complemented by decisive action to strengthen transparency, accountability, and enforcement mechanisms in budget implementation. The treasury reform measures are enhancement of accountability of fiscal managers, establishment of the single treasury account, enforcement of international accounting standards in Government statistics, and creation of integrated treasury management information system including debt management. 56. A new treasury department has recently been established. A professional accounting cadre is being created in the Treasury department and extensive training programs to train accountants in application of international accounting standards are being introduced. Some steps have been tak.en to establish the cadre by amending the budget law to ensure that budget governors appoint chief accountants in consultation with the Ministry of Finance and Economy. Regulations specifying the roles of chief accountant have recently been issued by the Cabinet. The Government has taken a range of actions to establish an effective fiscal reporting system which gives clear assurance of high data quality standards. 57. To ensure the reliability of fiscal accounts government and monetary records will be reconciled. As an initial preparation for this reconciliation the government has conducted an inventory of central budget entity bank accounts and is to prepare for an inventory of all local. budget entity bank accounts. 58. As initial step toward establishment of single treasury account of the government 11 budget entities have been selected as pilot agencies to initiate "zero" balance bank accounts and centralized palyment system at the BOM. Based on the outcomes of the piloting further steps will be formulated and implemented. 59. Fiscal transparency: The government completed a self-assessment report against the IMF fiscal transparency code and on this basis plus additional material, a draft Report on Observance of Standards and Codes has been prepared by the IMF mission. It is expected that the report will be a basis for setting long-term objectives for improving fiscal transparency and monitoring progress. 15 60. Performance measurement and monitoring: A basic principle of output oriented budgeting is that budgets are to be formulated on the basis of contracts for results to be achieved rather than inputs provided. Developing performance indicators is an important element to achieve this objective and considerable amount of work has been done under the ongoing public administration reform program toward this end. Within the overall framework of the program 5 pilot agencies were selected and started introducing output based budget formulation by identifying their outputs and developing relevant performance indicators. With recognition that the process will take some time to establish output based budgeting at all levels of government the government will focus on those that are most likely to be immediately useful for government decisions. Health and education sectors will be focus in this area where improved performance data will be of direct relevance to government decision-making on poverty reduction. B. Sustainable Human Development 61. The Government is pursuing a policy of increasing the efficiency of the budget allocated to the social sector. The comparison of budgets spent in social sector in last 3 years according to the budget expenditure performance is shown below: Table 5. Social Sector Total Expenditure Share in udget Pereentage of GDP 1998 19990 2000 1998 1999i O2000 Social sector total expenditures 46.2 48.4 52.3 19.4 19.1 21.5 Education 17.1 17.8 19.1 7.1 7.0 7.9 Health 9.6 9.8 10.5 4.0 3.9 4.3 Social security and social welfare affairs 15.1 16.4 17.2 6.3 6.5 7.3 Housing & communities amenities 1.1 1.3 1.6 0.5 0.5 0.7 Recreation and cultural affairs 3.3 3.1 3.3 1.4 1.2 1.4 Source: Ministry of Finance and Economy, 2000 62. Improved public expenditure management will be key to the achievement of the fiscal sustainability objective. To that end, the 2002 budget will include efficiency-enhancing reforms associated with civil service pay and employment, including targets for public employment reduction and wage decompression in 2002 and beyond. The Government in consultation with the World Bank will design and implement a plan to rationalize the delivery and targeting of social services, with a view to redistributing them in favor of poverty-reducing programs. Policies on public pensions will be guided by the need to protect the solvency of the social security funds. 63. One of the main priority areas of the government is formulating a sustainable human development agenda, ensured by improving education and health, basic services access and quality, reducing poverty and strengthening the social welfare system by promoting people's employment and income generating initiatives. Within this framework the following objectives are to be met in the education and health sector. 16 B.l. Education "Herdsmen, especially poor families, and some not poor families with large numbers of livestock, and families with few adults tend to take their boys out from school. In last five years we are buying foodstuff on credit and our accumulated debt is already over 300 thousand togrogs. Our relatives in the countryside were supporting us a little bit in food and clothing but now it has also lessened. One of my sons dropped out from 4h grade and is now helping my relatives in breeding livestock and this is the way that he feeds and clothes himself " A citizen of Huhmorit sum, Gobi-Altai aimag. 64. According to 1998 LSMS the educational level is an important determinant of poverty in Mongolia: 60.3 percent of people who did not complete secondary school are poor, while only 17.7 percent with higher technical and vocational education are poor. According to the 1989 population and housing census, 1.5 percent of children aged 8-15 were illiterate, while in 2000 the illiteracy rate increased to 4.9 percent. This means that it is necessary to provide literacy education to these children and to provide subsequent follow-up education to them. Table 6. Mongolia: Employment Status of Working age Population, by Educational Level, 1998 (Percent) Primay Secondary Vocational Tertiary Uneducated education education education education Urban employed 26.7 37.1 38.0 51.6 67.5 unemployed 23.3 22.9 28.3 23.0 11.3 Rural employed 68.3 79.9 77.0 78.3 80.1 unemployed 4.9 7.3 11.5 12.6 9.6 65. Education levels are lower in the rural areas. Duration of pre-school education in Mongolia for children aged 3-7 is five years. The gross enrollment rate in pre-school education in 2000/2001 is 32.1 percent. Coverage of pre-school education is higher in the cities, coverage in Ulaanbaatar is 48.4 percent, while in aimags and soums it is only 24.6 percent. Results of 2000 census illustrate that 9.1 percent of children aged 8- 1, and 18.3 percent of children aged 12-15 drop out of schools. 13.5 percent of children aged 8-15 years drop out of school and have no chance to enjoy their right to education. 16.5 thousand of children aged 8-15 out of school in urban areas as opposed to the 51.7 thousand in the rural areas. 66. Preschool enrollment rates for boys (29.4 percent) and girls (31.9 percent) is similar 30.6 percent are enrolled, according to the annual statistics (2000/2001). Between the ages of 8- 11 the gap in enrollment widens between girls and boys from 119 thousand for girls to 117 thousand for boys. The gap is highest for ages 12-15, 94.2 thousand for boys 105.3 thousand for girls. The difference is bigger between the rural and urban populations. In the rural areas drop out rate of boys 12-15 is 23.3 percent and for girls it is 13.2 percent. In academic year 2000-2001, 52.3 percent of primary and secondary school students were female, of which 50.1 percent in primary, 53.4 percent in middle and 59.4 percent in higher secondary schools were female. This shows that starting from middle secondary school, female students prevail. Of these, 61.7 percent of 17 boys dropped out of schools, between the ages 8-15. In other words, drop out rate differs by gender. 67. The rural people, including soums have less access to education. In 2001, out of 307 soums it is reported that in 203 soums gross enrollment is lower than 80 percent. Due to large territory and nomadic life style children do not have access to schools. Research conducted in 2000 by the Ministry of Technology, Education, Sciences and Culture shows that 15.1 percent of children in rural areas responded that they do not study because they are employed in agriculture sector (need to herd their livestock), while in cities this percentage is 8.3 percent. In addition 6.4 percent of children in rural areas responded that they do not study because they are employed in urban settlements, while this percentage is 1.2 in cities. Majority of those who leave school are boys. The same study shows that the correlation between drop-outs and the number of livestock is higher in areas where the number of livestock is also high. 68. There is a real difficulty in providing herdsmen's children with dormitory facilities. Due to low population density in the rural areas compared to the national average, there is only one school in each soum and it is located 10-300 km away from the herdsmen's home. In order to increase the school attendance dormitories (in most soums temporary buildings) were built at sum schools and the Government provided all tenant with meals and other necessary goods during 1960-1990. These measures played an important role in educating herdsmen's children. As a result, by 1989 the number of tenants of the school dormitories reached up to 75 thousand and basic educational attendance increased up to 90 percent. But since 1991 over 50 dormitories were closed due to economic difficulties related to maintaining the infrastructure. 69. A decision taken by the government in 1994, "That half of school children's food consumption shall be paid for by their parents", led to an increase of school dropouts in the rural areas. In 1995, the number of children in dormitories dropped from 75 thousand to about 19.6 thousand as a consequences this decision. In 2000, the Government decided to cover all the costs of the dormitories. This decision became a good facilitating condition for expanding school attendance and improving the education. In year 2000/2001, 38 thousand children submitted their request to live in dormitory, while only 27.4 thousand were provided with it. 70. On the other hand, the poor leaming environment, inadequate living conditions in dormitories, poor food supply, as well as poor quality of education reduce willingness of parents to send their children to school. Students of rural areas report on difficulties of living far from their family for a long time, with almost nothing to eat; and since schools collect money from parents of students for reconstruction, renovation and cleaning of classrooms, this imposes hardship on parents. Leaming achievements of students living with their parents were higher (55.2%) compared to those living with relatives, friends or in dormitory. Lower achievement of students living in dormitories (42.2%) proves once again that poor low living conditions and little attention paid by the teachers affect their study. "In order to let our children go to school we had had to be divided. My wife is lives together with children at sum centre, but I stay at home to look after our livestock. Thus our annual expenditure increases twice." Explains a man from Dashbalbar sum, Dornod aimag. 18 71. In recent years the quality and accessibility of basic education is decreasing. School seating capacity satisfies only 56.6% of the demand. The sharp increase of citizens' migration from rural areas to central locations caused over density of population in the city of Ulaanbaatar and other big cities, settlements, and central areas where now many schools are running classes in three shifts with 45-50 children in a class thus losing their normal procedures and making it difficult to organize classes and out-off-class activities. Furthermore, 30% of children of age 3-7 years old attend kindergartens with capacity of 70.3 thousand seats. The ratio of students to teachers is 25: 1, this ratio is 33:1 in primary, and in middle and upper grades is 20:1. 72. The low quality of teachers is affecting education outcomes. 8.6 percent of all teachers are not professional. Every fifth teacher in Umnogovi and seventh in Bayankhongor, Dornod and Selenge aimags are not professional. Majority of non-professional teachers teach drawing and labor education, English, information science and Kazakh language. Data of the first half of 2000/2001 academic year demonstrates that 62.2 percent of teaching staff have bachelor's degree and 31.3 percent have university or college diploma. A total of 719 teachers are needed for secondary schools of which 11 percent should be teachers for primary schools and 10 percent should be mathematics teachers. There is an acute need for teachers of information sciences, Mongolian language, literatures, English language and music. Teachers have low motivation due to low pay. A study by Monitoring Learning Achievements on learning outcomes shows that out of 264 teachers, 103 teachers or 39 percent say that they are ready to leave their jobs as soon as they find a better paid job. 73. Prior to 1999, learning achievements were not monitored in accordance with international methods, it is difficult to do an accurate assessment and comparative study of teaching and learning quality in Mongolia. Such study was conducted in 1999 under the UNESCO project in grades 4 and 8. The study showed that learning achievements of student in grade 4 are acceptable, while performance of students in grade 8 is rather low. For instance, only a few of the tested students could solve the given mathematical problems. Specific attention should be paid to this problem. Studies that compare duration of secondary education showed that 7 countries including Mongolia offer 10 years of secondary education, while 43 countries offer 11 years education, 123 countries offer 12 years education, 43 countries offer 13 years education and 4 countries offer 14 years of secondary education. These findings justify the need to prepare to move the secondary education system in our country to 11-12 years. 74. Because of the deterioration of building condition and heating facilities, 51.6% of kindergartens, 88.2% of all schools and 80% of dormitories are unable to run activities in winter period. There are many problems due to lack of financial sources even for ordinary, routine renovation and capital repair of buildings of secondary schools and dormitories. A total of Togrog 12.4 billion is required for capital repair of 409 school buildings and 298 dormitories in rural areas. Deterioration of school buildings and quality of teaching equipment deteriorates the teaching environment. Due to little expansion and renovation of school buildings in the last decade, their deterioration is causing problems for normal teaching and learning environment. Without physical improvements in schools and especially dormnitories, it is insufficient to undertake education activity at sufficient level. 75. Vocational and technical schools are not able to meet labor market needs determined by the private sector, and as a result, the number of their students has almost halved compared to 19 1990. It is necessary to renew curriculums of vocational and technical schools and to train and re-train their teachers. Equipment in technical and vocational schools has been in use for 24 years on average, necessitating their urgent replacement. 76. The above findings suggest that more attention should be paid to improvement of the teaching and learning environment and reducing disparity between rural and urban areas in order to improve learning achievements of students. 77. The main priorities of education sector are: (a) To expand the reach of pre-school education and to improve pre-school learning conditions in rural kindergartens. To introduce methodology of providing pre- school education to children at home. (b) To increase an opportunity for children of herder families and poor families to obtain basic education by improving living conditions in dormitories. (c) To improve teaching capacity and facilities of dormitories of secondary education schools. (d) To improve supply of teaching materials to rural schools. (e) To support and develop all forms of education for children who dropped out from schools. (f) To improve the curriculum, methodology, structure and quality assessment systems in primary and secondary education. (g) To improve training and re-training of teachers. (h) To develop vocational education system in line with interests of consumers, social needs and market demand. 1.2. Health "'Medical service is poor. Lack of doctors. As for service it is only name. In case of hospitalization we have to provide necessary medicines and syringes ourselves. Since we can not often travel to Ulaanbaatar there is no way but to buy medicines and syringes from small traders. Quality and expiration date usually do not meet the need. It is dangerous for rural people health as I think. It seems the product without an quality certification is sold in rural areas. " A woman from Builsen bag, Sevrei sum, Omnogobi aimag. 78. Currently there are three main concerns in the health sector. * Maternal mortality is high and not decreasing. According to 2001 Ministry of Health (MOH) evaluation report on National Reproductive Health program, the maternal mortality ratio per 100,000 live births was 121 in Ulaanbaatar and 175 in rural Mongolia on the average of 1996-2000. The 1998 Reproductive Health Survey shows that infant and under five mortality is much higher among babies born from mothers with lower education compared to mothers with secondary or higher education. Respiratory diseases such as acute respiratory diseases and pneumonia have remained the main causes of infant mortality. * The incidence of infectious diseases such is TB, STD, infectious hepatitis, and brucellosis is growing. As of 1999, the rate of viral hepatitis was 21.6, tuberculosis 13.2, bruselliosis 6.1, syphilis 4.5, gonorrhea 9.0 respectively per 10,000. At the 20 moment Mongolia is included in the first group of countries where the tuberculosis rate is high and one of the seven countries in this category according to the classification by WHO Western Pacific Region. 2000 TB statistics by National TB center showed that 53.89 percent of TB patients are unemployed. Malnutrition is one of the predisposing factors for certain infectious diseases. * During the last 10 years an epidemiological transition has occurred in death causes of the population from the predominance of respiratory and digestive tract diseases and infectious diseases to the higher incidences of deaths due to circulatory disorders / stroke and ischaemic heart diseases/, cancer and accidents and injury. 79. The rnain challenge for health sector is to improve accessibility and quality of health services efficiently targeting poor and vulnerable. Access to health services is declining particularly for those in rural areas and poor. According to a recent survey (Health Management Information and Education Center 2000), utilization of both inpatient and outpatient services decreases as living standard falls. Causes of poor accessibility of services are mostly related to financial accessibility (i.e. costs of health services, drugs and transport), and poor communication and distances. Declining public health expenditure has not been replenished by alternative sources. Recently implemented health insurance has been funding mainly expensive hospital care. Therefore existing benefit package is being revised and changes to health insurance law are underway in the view of improving primary health care through subsidizing Family Group Practices and other public health services. The health insurance system still needs more comprehensive approach for further improvement to occur. 80. Quality of health services is also in need of improvement. The limited financial resources are mainly used for building maintenance and heating rather than improving services. Quality of care is affected by deteriorating facilities and, insufficient essential medicines and basic medical supplies. Diagnostic capacity of government hospitals is very poor. Currently 60 percent of the 320 soums hospitals (primary health care units) are unable to reliably provide their services. MOH recognizes that the Soum Hospital Development program is to be a part of the Health Master Plan. With this program, soum hospitals will have better medical equipment and supplies, doctors will be trained and essential health package will be revised along with standard protocols. 81. An independent health unit that provides primary health care for 3,800 to 5,200 people is defined as Family group practice (FGP). Family group practices will be established mostly in the aimag and city centers. Within the frame of ADB Health Sector Development program pilot FGP's are being implemented in Ulaanbaatar, Dornogovi, Khovd, and Khuvsgul aimags. Currently there are over 990 family doctors and 99 practices. Moreover primary health care provision through family group practices will be expanded in all aimags with the HSDP. 21 Table 7. Mongolia: The Concentration of Poverty by Heating and Drinking Water Sources (percent) Nation-wide Very poor 100 13.8 4.9 81.2 100 16.0 12.0 21.8 16.6 11.7 31L7 22| Poor 100 17.2 1.5 81.3 100 17.9 13.6 209 13.9 10.6 34.8 1 8 Not poor (little) 100 21.1 2.7 76.2 100 21 7 174 16.1 15.9 9.7 36 0.8 Not poor (middle) 1OO 25.5 2.3 72.2 100 28.3 22.2 15.0 17.5 6.1 30.8 2.3 Not poor (wealthy) 100 31.1 2.4 66.4 100 333 29.7 16.3 15.3 4.6 304 0.0 Average 100 22.5 2.8 74.8 100 24.2 19.7 17.5 16 8.3 32.8 1.4 Urban area Very poor 100 26.2 6.5 67.3 100 28.6 22.6 34.5 3.6 22.0 8.9 2.4 Poor too 36.4 3.1 60.5 100 38.0 28.7 34.9 4.7 19.4 2.3 0.8 Not poor (little) 100 49.1 5.9 45.0 100 50.5 40.9 26.8 3.2 16.8 2.7 0.0 Not poor (middle) 100 59.3 5.0 35 7 100 64.3 50.3 20.6 2.0 8.5 2.5 2.0 Notpoor(wealthy) 100 66.3 4.1 29.5 tOO 70.5 63.2 18.1 1.6 6.2 36 0.0 Average too 49.0 5.1 46.0 100 51.9 42.6 26.2 2.9 14.1 4.0 1.0 Rural area Very poor 100 0.6 3.2 96.2 100 2.5 0.6 8.3 30.6 0.6 56.1 1.9 Poor 100 0.0 0.0 100.0 100 0.0 0.0 8.3 22.2 2.8 63.9 2.8 Notpoor(little) 100 0.3 0.3 99.3 100 0.3 0.0 8.1 25.3 4.4 60.6 1.3 Notpoor(middle) 100 1.1 04 98.5 100 2.2 1.8 10.9 28.7 4.4 51.3 2.5 Not poor twealtny) IUU U.1. 0.Y 99.1 100 (.J U.( 14./ 21.) ..2 X 74.1 u.u| Average 0o0 0.5 0.8 98.7 100 1.1 0.6 10.2 27.0 3.4 56.7 1.7 Source: Mongolia: Living Standars Measurement Survey, 1998 82. Inefficiency is a major drawback of the health sector. This is mainly due to current health care financing that is too fragmented. Health care services are owned by national and local governments that is separated from the supervision and monitoring provided by the MOH. There is lack of nation-wide health information system that maintains national priorities and policies. EU TACIS funded Financial Management project was implemented in 4 aimags, 2 districts and 3 tertiary hospitals of Ulaanbaatar to create health financial management system that provides critical decision making financial data at operational levels. Work is currently underway to expand it at nation-wide and develop further National Health Accounts system. Project proposals have been presented to recent CG meeting in Paris. The WB Participatory Public Expenditure Review emphasizes the importance of developing facilities master plans based on population health needs and utilization pattern. PER has also suggested to identify outputs of the sector, priorities among products and sub-products, and costs of these products. In this regard, work has already been piloted at the MOH and three other tertiary health facilities through ADB Public Sector Management and Financing project. 83. The concept of Health Master Plan is adopted as a basis for determining the type and nature of ODA inputs and to guide the design, planning, implementation and monitoring required for supporting development and reform in the health sector. Recent experience has shown that to develop such a framework for supporting health development and reform, additional preparation 22 is required, particularly in carrying out a more detailed and focused review of the health sector as a prerequisite to the development of Health Master Plan through a more candid determination of government and donor priorities. This activity is characterized by the employment of combination of approaches and types of cooperation activities within the Japanese ODA programs to give rise to an optimum mix of approaches to technical assistance. Objectives of the HMP includes: review of the health sector; establish strategic planning framework in the MOH; establish donor coordination mechanism to facilitate donor inputs into the planning process; develop appropriate planning and monitoring instruments; develop Health Master Plan; develop a list of projects for short, medium and long term ; develop capacity in the health sector in terms of human resources, research, sector management and planning skills. B.3. Employment "Many people lost their jobs because of bankruptcy of factories and downsizing of budlget entities. Some people who were able moved away and those who were not stayed. - Group of women of Eson Bulag sum Gobi Altai aimag. "The living standard of people who were in normal condition 8 years ago is becoming worse and worse and they are entering into the poor people group. The wrong privatization is the main reason of closing many industries which increased the number of unemployed" Residents of the Dalanzadgad city of the Omnogobi aimag. 84. The unemployment rate in Mongolia is high, estimated at about 15% in 1998 according to LSMS, however official statistics indicate that unemployment is 4.6%. This disparity is mainly related to registration coverage, lack of incentives to be registered, poor development of labor market (lack of information, availability or opportunity to be employed). The annual growth of people of working age is 1.5 times more than the population growth rate. However, work force participation rate has decreased from 75.8 percent to 62 percent through 1992-2000. Over 65 percent of unemployed are young people, half of which have no professional skills, but have secondary education. The unemployment rate is high due to unavailability of professional training. Unemployment rate differs in rural and urban areas depending on the availability of professional training and job occupancy. For example, by the end of 2000 the unemployment rate is 2.8 in Ulaanbaatar while the average is 4.5 percent. The employment rate decrease among the population is the main reason causing income poverty. 85. During the centralized planned economy the workers were used to the permanent jobs at the state enterprises in the cities and local places or at the agricultural cooperatives and state farmns and in fact the production downfall, restructuring and privatization started since 1990 caused a heavy impact on people's living increasing unemployment thus eliminating a reliable revenue source. Therefore there is a need to match the employment promotion policy in consistent with the poverty reduction activities. 86. The government approved the "National Program on Reduction of Unemployment' in 1995. This program was envisaged to be implemented in two phases, from 1996 to 2000 and from 2001 to 2010. The objective of the first stage of implementation was to reduce the number 23 of unemployed to 5.8 percent of the total workforce through creation of favorable enviromnent conducive to economic growth leading to creation of new job vacancies, enhancement of skills for people, promotion of SME and cooperatives, especially in rural areas, organization of public works, strengthening of employment services. Although, based on the official statistics, this objective appears to be met, the real unemployment rate is still high. At the time of implementation the projects were quite successful, however the sustainability of projects were inadequate. Table 8. Mongolia: Average Income Shares by Consumption Groups lNatbo 1all Very poor 100 50.6 36 1 1 3.6 0.8 2.8 0.2 a. 1 21.1 1 3 3A4 Poor 100 37 29.1 6.7 1.3 0.5 5.4 0.2 12.8 32.4 B.7 2.91 Non poor(l) 100 32.1 26.4 4.9 0.7 0.4 4 0.3 16.5 341 8.2 4 5 Nonpoor(m) 100 32.5 27.6 4.5 0.4 0.2 99 0.2 16.1 29.8 77 3.5 Nonpoor(u) 100 29.4 24.8 4.2 03 0.1 12.4 0.2 99 28.8 13.4 5.9 Average loo 33 27.2 5.1 075 0.29 8.5 02 133 30.1 10.1 44 Urban Verypoor 100 71.1 52 15.3 3.8 1.3 4.9 0.1 1.4 45 11.6 5.1 Poor 10o 61 So.1 9 1.8 1 11.2 0 44 59 12.6 3.9 Nonpoor(l) 100 591 51.2 6.9 1 0.6 9.4 0.3 3.1 56 122 9.6 Nonpoor(m) 100 57.1 51.4 5.3 0.4 0.2 17.3 0.1 3 4.2 11.5 6.6 Non poor(u) 100 45 40.5 4.2 0.3 0.1 22.1 0.2 1.2 3.8 17.2 10.4 Average 100 54.6 47.4 6.4 0.9 0.4 15.9 0.2 2.4 4.5 13.8 8.2 Rural Verypoor 100 25.8 16.6 5.8 3.4 0.2 0)3 0.2 16.2 41.3 14.7 1.2 Poor 100 15.7 10.3 4.6 0.8 0.1 0.4 0.4 20.2 56 5.2 2 Non poor(l) 100 13.6 9.5 3.6 0.6 0.2 0.3 0.2 25.7 53.5 5.5 1 Non poor(m) 100 14.8 10.4 3.9 0.5 0.2 4.5 0.4 25.6 48.4 4.9 1.2 Non poor(u) 100 13.3 8.8 4.3 0.3 0.1 2.5 0.3 18.7 54.4 9.4 1.2 Average 108 14.8 10.1 4.1 0.6 0.2 2.3 0.3 22.6 51.7 7 1.2 Source: Mongolia: Living Standards Measurement Survey. 1998 87. The Technical Assistance for Commonwealth of Independent States (TACIS) program has made contribution in employment promotion in Mongolia through enhancement of capabilities of Labor Regulation Office through providing equipment, conducting training, creation of labor market infornation network. 88. The Government's responsibility in employment promotion is the creation of a legal environ-ment and appropriate conditions for employment. The "Law on Employment Promotion" was past by the Parliament and it is effective from 1st of June, 2001, this Law aimed: * To provide technical orientation, consultation and information, * To provide professional training and re-training, * To support private entrepreneur-ship and cooperatives, * To support employers; and * To carry out public works 89. The Law on Exportation and Importation of Labor (effective on 15t June, 2001) will have an impact on improving job security and social security of employees in foreign countries and on reducing unemployment domestically, devoted to the decrease of unemployment, the main cause of the income poverty, and appropriate coordination of employment. 24 90. Based on the extra need of professional training in rural areas regional professional training centers shall be established within the framework of the "Social Security Sector Development" program which will be implemented with the assistance of the ADB. The training shall be based on participation of the community as well as private sectors. In addition the legal environment for restructuring of technical education and professional training in accordance with market policy shall be established. In this respect the project on the strengthening of professional training will be implemented. B.4 Social Protection "We are fed by elderly persons and relatives on pension. We want to work" expresses a group of young people from Bayantsogt sum, Tuv province. "The cost for wedding is not affordable, that is why many young people live in their parents 'family on their pension " Group of women and men from Tariat sum, Arkhangai aimag. 91. Social care allowance is an integral part of the social security system aimed at supporting the vulnerable. According to the provisions 3,1,2 of the Law on Social Care Allowances (i) elderly people who can not be survive on his/her own or without children and/or relatives, (ii) disabled people, orphan children, (iii) very poor elderly, (iv) very poor people with many children are considered to be vulnerable. Mothers with many children and mothers caring for their babies and orphan children (200 thousand beneficiaries in total) get benefits from the social assistance fund. Social care is provided to more than 400 vulnerable persons. Table 9. Mongolia: Population Employment, End of the year, 1992-2000, TH/persons 1992 1993 1994 1995 1996 1997 1998 1999 2000 1.Populationofworkingage 1134.6 1133.6 1165.7 1186.7 1212.8 1229.9 1256.8 1279.3 1347.4 2. Economically active population 860.0 837.3 834.7 812.7 825.0 828.8 842.4 853.4 847. 3. Employees* 806.0 765.4 759.8 767.6 769.6 765.1 792.6 813.6 809.0 4. Number of unemployed registered at Employment Reg. Office (ERO) 54.0 71.9 74.9 45.1 55.4 63.7 49.8 39.8 38. 5. Number of students of working age 104.9 100.5 94.4 102.0 116.3 120.8 125.4 149.5 153. 6. Disabled population of working age 106.1 111.7 136.9 136.2 138.0 82.0 80.2 79.8 77.9 7. Unemploymient rate, % 6.3 8.6 9.0 5.5 6.7 7.7 5.9 4.7 4.6 Note: * excluding people working abroad Source: National Statistical Office 92. Social insurance is playing a major role in the social protection system. At present 91.8 percent of hired workers are covered by mandatory insurance and 22.5 percent of herdsmen and private entrepreneurs covered by voluntary insurance and 92.2 percent of total population covered by health insurance. Average pension per person for 254.2 thousand pensioners amounted to 18.2 thousand togrogs (end of 2000), which is a little bit higher than the minimum wage level. 25 Table 10. Mongolia: Pensions from the Social Insurance Fund (by December 31, 2000) Pension type:0 Retired 0 Deathialed Mitiar IAWI* Total penision Number of people, thousand person 171.6 34.8 32.7 9.3 5.7 254.2 Average Pension, thousand togrog 18.7 14.9 14.0 31.7 26.9 18.2 *Insurance for Accidence on Work Injuries Source:MOFE 93. Currently the number of people covered by the social security is rising. Therefore due to financial constraints there is a need to develop an efficient mechanism for payment and coverage possibly by shifting some services provided to the private sector and community, decentralization of social care institutions, and improved targeting of services. 94. The Government sets forth an objective to improve the availability and efficiency of social care services to be rendered to the vulnerable group of the society, especially to women, children, elder and disabled persons through the enhancement of social insurance system and proper determination of social care scope. The following policies shall be implemented with the cooperation of the ADB in the framework of the "Social Security Sector Development" program: * Introduce alternative ways of centralized social care service based on the community * Determine appropriate scope of social care service in order to direct the source of the social care fund to the vulnerable group. * Expand services of social workers and improve the quality of services. C. Infrastructure development C.1. Energy supply "Some the consumers do not pay for electricity. And it is common to be cut out of electricity because of those people. In general energy supply is insufficient. T'he diesel generator capacity is very low. " said citizens of 4t bag of Bayandun sum, Dornod aimag. 95. A reliable and continued supply of energy is needed in rural areas in order to develop small and middle-size enterprises, to increase employment, to improve living standards of the people and to enable hospitals, schools and other organizations to operate in an environment that meets occupational health and technical requirements. Families with no access to basic services such as electricity and heating are in a high-risk category to slip into poverty. Currently, 14 percent of the population lives in soums and they are not connected to the centralized energy system. These soums operate diesel generators whose cost of input is extremely high and, therefore, consumers in these soum centers are supplied with electricity only a few hours a day. As a result, during the winter schools, hospitals and other organizations in these soum centers cannot operate in normal conditions and small enterprises cannot operate continually. In addition, herder families constituting about 40 percent of the population are not supplied with electricity regularly, of which supply to about 10 percent is limited to small power sources that can generate energy only enough to use electric lights. 26 Table 11. Poverty Incidence by Lighting and Fuel Sources and Location (percent) - - - ^ iThii |.:Lig:- Ful .n- PoiOrty -of Idd& by.!4=~'qf T;6 i-, ofhcfrby ype of fwl 1-v-:-:--. EW Kefsi I Cales I -Ohr I X*Ccr National Verypoor 16.3 16.9 26.4 15.0 0.0 16.3 11.0 16.7 37.3 14.5 28.9 Poor 13.7 13.5 15.1 13.8 0.0 13.7 11.9 16.1 13.4 12.3 11.3 Non poor(l) 25.9 23.6 26.4 28.6 25.0 25.9 24.7 28.4 14.9 25.2 23.2 Non poor(m) 23.7 23.7 20.8 23.7 50.0 23.7 25.0 22.4 25.4 26.4 16.2 Non poor(u) 20.6 22.3 11.3 18.9 25.0 20.6 27.4 16.4 9.0 21.7 20.4 Total 100 100 100 100 100 100 100 100 100 100 100 Urban Verypoor 18.5 17.4 23.1 28.6 0.0 18.5 10.6 25.6 41.1 27.4 22.5 Poor 14.2 14.2 7.7 15.5 0.0 14.2 12.0 18.0 14.3 19.2 7.5 Non poor(l) 24.2 24.3 23.1 23.8 0.0 24.2 24.1 25.6 14.3 27.4 25.0 Nonpoor(m) 21.9 22.0 15.4 21.4 0.0 21.9 25.3 18.0 19.6 16.4 17.5 Non poor(u) 21.2 22.2 30.8 10.7 0.0 21.2 28.0 12.8 10.7 9.6 27.5 Total 100 100 100 100 0 100 100 100 100 100 100 Rural Verypoor 14.4 15.5 27.5 13.5 0.0 14.4 19.0 12.6 18.2 12.3 31.4 Poor 13.2 11.4 17.5 13.7 0.0 13.2 9.5 15.2 9.1 11.1 12.7 Non poor(l) 27.2 21.2 27.5 29.1 0.0 27.2 38.1 29.8 18.2 24.8 22.5 Non poor(m) 25.2 29.0 22.5 23.9 0.0 25.2 19.0 24.4 54.5 28.1 15.7 Non poor(u) 20.0 22.9 5.0 19.8 0.0 20.0 14.3 18.1 0.0 23.8 17.6 Total 100 100 100 100 0 100 100 100 100 100 100 96. About 50 percent of the population is supplied by electricity and heating from the centralized energy system; however, this is a 100 percent state-owned monopoly that is too centralized. This system has inherent weaknesses that affect poverty, including inability to monitor costs of generation, distribution and supply; difficulties in adopting a tariff system and a flexible payments system conformant with market principles; overlapping management functions; increasing burden of payables and receivables resulting from technical and non- technical losses and financial problems; allocation of investment sufficient only to repair existing equipment in order to operate all systems simultaneously. All of this necessitates formulation of a legal framework for restructuring of the entire sector and commercialization of energy operators. 97. The Law on Energy was adopted in February 2001. This law provides a legal framework for commercialization of generation, transmission, distribution and supply systems; determining relations between generators, supplier and consumers, licensing of energy operators based on certain requirements and their regulating, establishing the Energy Regulatory agency responsible for setting energy prices and tariffs based on purchasing power of consumers, impact on the people, economic growth and profitability of energy operators. 98. Coal mines are publicly listed companies with majority government ownership; coal prices are determined by their Boards of Directors and coal is sold at these prices. Measures are being taken to reduce debts of the energy system to coal mines, including requirement for immediate payments for coal supplied after October 2000 and payment of debts accumulated prior to that in accordance to an established schedule. The issue of collecting payments from consumers of energy has a direct impact on repayments of energy system's debts. 27 99. The government, in order to increase the impact of the energy sector on alleviation of poverty, has planned in its action plan to connect 40 soums to the centralised energy system, to implement a program called "100.000 sunny gers", to build and operate hydroelectric power stations in Ulaanbom, Durgun, Chargait, and Uuench and a power station in Bayanteeg, and to implement a project "Reduction of losses in the distribution system". The government also pursues a policy to privatize all energy sectors except the transmission network, and to increase private participation in the energy sector. Currently, 15 percent of all losses in the energy system is due to non-technical reasons, such as, stealing and the inability to pay by poorer consumers. Systematic measures will be taken in order to reduce these losses by renovation of the distribution grid, establishing a flexible tariffs system based on careful research, and clearance of accumulated debts of poor and low-income families. As of 2001, 54 percent of the population had access to energy. By taking the above measures, this rate will increase by 14 percentage points and creating an environment for development of small and middle-size enterprises and increase of employment in both rural and urban areas. C.2 Transportation "The cost of transportaton is high. We have limited places for summer camping, the pasture is deteriorating year by year. "Lack of water. Mountains are very high. So we need to pass 45 km on rented car to get to our summer place. One way cost is 35,000 togrogs. " Group of woman of rural bag in Tosontsengel sum, Zavkhan aimag. 100. The main objective of the transport sector is to influence the economic and social development of isolated and remote regions and assist in overcoming the isolation and remoteness of such areas. Currently 13% of the state road network and 3% of total road network is paved. The Government of Mongolia is paying more attention to the investment of new road construction and maintenance of existing road as well as on the enhancement of the efficiency of them. 101. Transport service will contribute to poverty reduction through connecting people with the market, delivering social and state services to the population appropriately, and creating new jobs in urban and rural areas. Also bad roads, bad transport and bad drivers increase number of accident that becomes one of the factors of poverty occurrence. Analyzing this, attention shall be paid to the elimination of remoteness, providing safety, improvement of transport infrastructure and service as well as on the reliability of operation. 102. Objectives of the transport sector are to continue privatization of urban city and local transportation services, increase contribution of private sector service, encourage competitiveness, form legal environment, improve regional and rural road, enhance the accessibility and quality of transport service. To achieve these objectives we will rehabilitate and develop road infrastructure, increase the efficiency of existing infrastructure, make organizational restructuring, and improve and strengthen the sector operation. Also measures will be taken to decrease cost of railway transportation and improve the smoothness of its service. 103. Within the framework of the "Millennium road" project income of poor people shall be increased through extensive mobilization of unemployed people in the labor-intensive works. 28 Also attention shall be paid to the development of larger settlements along the road in complex. The "Millennium road" will provide a base for the development of transport connecting Europe and Asia and be a good motivation for the economic development of soums and villages. C-3. Information and communication "Make information distribution faster, build an information center and make the Russian TV channel available" said by people from Booroljuut, Tariat sum, Arhangai aimag 104. Currently aimags and soums are connected through 30 thousand km long airline, 900 km long digital and 2100 km long analog radio relay line, and 4200 km long fibre cable line. 332 communicating stations with a capacity of 131 thousand telephone lines are also in use. 55% of all stations have digital technology. Regarding the density, 4.6 telephones are per 100 persons. A cellular phone station with the capacity of 100 thousand subscribers is operating and it has now over 100 thousand customers. 105. The communication sector objective is to improve the quality and accessibility of its service through renewing the technology and techniques of cities, aimags and soums. Within this context of these objectives, project on equipping radio and TV studios, transmission network, and TV program transmission. General plan shall be developed on the development of postal service and introduce new technology in some soums and settlements. Produce solar battery and provide the soum post offices with that battery. Within the framework of the "Communication 2" and "Communication- 3" projects digital automatic telephone stations and shall be introduced in the centers of Bayan-Ulgii, Hovd, Gobi-Altai, Bayanhongor, Uvs, Zavhan, Arhangai, Hovsgol, Tov, Nalaih, HIentii, Suhbaatar, Domod, Dornogovi, Dundgovi, Omnogovi aimags, and radio communication systems in the soums of Tuv, Selenge, and Darkhan-Uul aimags shall be transferred from single to multiple spots. Cable lines of all aimags shall be extended and be commissioned. In some aimags FM radio stations will be installed. A fiber cable network, connecting the centers of Hentii, Sukhbaatar and Dornod aimags will be established and communicationl equipment will be replaced with digital technology. 106. Through development of information infrastructure services such as electron mail, distance learning, health service, electron services and other social services shall be accessible to the remote areas. As a result people will not need to go to the cities or towns in order to provide their need and at the same time service cost will decline accordingly. New types of electron services shall be expanded. C-4. Public and community services "There are many cases of liver disease due to bad quality water. Some people take good quality water from a long distance, while others still use the bad quality water" cited a lady from Huhmorit sum Gobi-Altai aimag. 73. Urbanization is taking place very fast in Mongolia. During the last decade the migration coefficient from rural areas to urban areas has increased from 0.8 to 4.4. As a result 56.6 percent of the population are living in urban areas in 2000. Migration from rural areas to 29 cities is continuing and today 33 percent of the population is living in Ulaanbaatar. The results of the 1998 LSMS indicate that annual aimag centers population growth is negative 1.6 percent, while the number of poor people grew by 5.8 percent, which explains relatively high poverty level in aimag centers. This concentration of poor population in urban settlements leads to health problems in those areas: there is a need to improve citizen's hygiene condition, first of all, in the Ger district. 107. Currently in Mongolia only 30.8 percent of the population has access to fresh water through the centralized network, 24.8 percent through mobile transportation services, 38.5 percent through water distribution units and 9.1 percent are using water from river, springs, and snow for their day-to-day consumption in 1998. The number of public bath houses has decreased to 66 from 259 with the capacity of serving 1533 people in one shift. Only 19.7 percent of the sum and village level population have access to bath houses. According to the population and housing census of 2000, 50.6 percent of all households live in gers, 48 percent in apartments and 0.6 percent have no shelter. The 1998 LSMS indicated that 24.6 percent of total population have access to canalization, 49.5 percent to water disposal garbage and 78.6 percent to dry garbage disposal facilities. 108. Main priorities: * Activities, such as disposing waste and used water, and modernizing/providing toilets, related to the hygiene of the urban areas, particularly Ger districts, shall be implemented. * Measures will be taken in a systematic way for the improvement of accessibility and quality of fresh water to the public, softening and purifying of hard and mineral water in the midterm. * Programs and projects for the increased housing will be developed and implemented. * Objectives of providing all aimag and soum centers with public bath will be implemented step by step. D. Regional and rural development "Big migration wave has started in 1996 and many families from Govi-Altai aimag moved to Ulaanbaatar, Herlen sum of the Herlen aimag, Selenge, Baganuur, Erdenet, Darhan-Uul and Bornuu. Most of these moved families had relatives or friends in their destination place in addition to being able to bear the cost of moving. " Group of men from Ulaanbaatar. 109. In 2001 the Parliament discussed the Regional Development Concept doctrine. The main objective of the Concept is to create favorable environment for narrowing the disparities in urban and rural development, within regions, accelerate economic growth and support social progress through efficient utilization of natural, agricultural and crop originated resources in line with capabilities of the particular region leading to decentralization of population concentration. 110. The regional development concept provides equal opportunities for inhabitants of the particular region to study, live, have a good access to information, actively participate in life of the particular region, which leads to an expansion of basic social services such as education, health, culture, information, community utilities. Within this frame in the medium term the legal 30 environment to support regional development will be created, specific priority sectors for the particular region will be determined, infrastructure network will be improved. 111. Favorable legal environment shall be formed in regions with fast developmental potential to attract foreign investment. In the first stage, measures for the establishment of free trade zones in Altanbulag of Selenge aimag and Zamiin-Uud of Dornogobi aimag, located close to external market, development of certain cities as a regional center will be undertaken. Mining and tourism industry in the areas with potential resources will be developed through attraction of foreign direct investment. "The 1997 summer drought and dry spring of 1998 with late pasture greening worsened the pasture livestock died. There was a case that one family lost 50 cattle, 30 sheep and 15 goats. Some families lost all their cattle and darkened their fence " Herders from the Munkhhairhan sum of Hovd aimag. 112. According to 1999 statistical data, 83.6 percent of the total 267-thousand herder households had up to 200 heads of livestock, from which 42.7 percent had less than 50 heads of livestock. Last 2 years drought and zud heavily affected the living standard of herder households, especially those with a few heads of livestock. The previous year's (1999-2000) dzud covered 15 aimags and 158 soums, while last year (2000-2001) dzud occured in every place. 2.4 million heads of livestock was lost and 2.4 thousand of herdsmen - households left without livestock and thousand left with just 100 and less heads of livestock. Livestock census is planned in Jlne 2001 in order to precisely assess the consequences of dzud and develop appropriate policies in time. The results are under the processing. " Well is very important for us. The pasture is worsening now. If we have well we could've go more than 20 km in order to pasture our livestock along the good grazing field" said by herders from the Huhmorit sum of Gobi-Altai aimag. 113. To better implement poverty reduction programs in the rural areas, aimag development plans focus on greater consideration to infrastructure development, such as repairing of roads, development and rehabilitation of wells, and development of irrigation system. Improved management of pasture, improving veterinary services, and fodder development should also be an important part of aimag development plans. Rationalizing and grazing capacity of the land will be necessary to prevent environmental degradation. 114. The proposed Sustainable Livelihood project (SLP) by IDA aims to support a shift in emphasis under the national anti-poverty strategy towards operational approaches that promote secure and sustainable rural livelihoods. The proposed project will consist of three main components: 115. Pastoral Risk Management: an integrated strategy will be developed and adopted for managing covariant risk in pastoral livestock production, including dzud, drought, disease and price-related risks. In combination with other project components, this component will aim to assist in addressing the underlying causes of rising vulnerability to drought and dzud. 31 116. Rural Micro-Finance Service: the project component will aim at improving the outreach of financially and institutionally sustainable micro-finance services (saving and credit) to poor and vulnerable households and individuals in rural areas with the possible inclusion of micro-insurance instruments to help manage idiosyncratic risks and as a form of guarantee for credit. 117. Community Investment Funds: efficient, socially, inclusive, and transparent community-driven mechanisms will be identified and established to facilitate community prioritization, selection, co-financing and execution of investments in basic infrastructure and social services provision, combining local resource mobilization with matching government grants. 118. All three components of the project are inter-linked and will enhance the capabilities of poor and vulnerable households and individuals, assure their access to income-generating assets, and facilitate investment in community-level infrastructure and social service provision. " We are isolated from the market, so traders just come to us. They discriminate people by wealth and number of livestock. Herders using their binoculars visit the herder's house where the traders stopped by because they do not visit those who have few heads of livestock. Although we know that they have cash they just do barter trade. Sometimes when they are trading with wealthy families they pay in cash. The traders take the best ones from our livestock by choosing themselves but in exchange they give very little. It is difficult to trade with them because they trade unfairly. We miss very much the old trade network. " Male herders from the Dashbalbar sum of Dornod aimag. 119. The old trade and procurement system collapsed by transferring it in to private sector and a new one still has not yet been put in place. In most soum centers kiosk type trading is prevails. Traders from central region travel to rural areas and trade during the cashmere collection and winter food-stocking season. The main problem is the big gap between prices in city and rural areas. Therefore the governnent intensified measures to improve market information (including prices, demand, quality) dissemination to rural population and producers. Agriculture bank started its lending to traders of aimag and sum in order to develop banking service in rural areas systematically. Also the "Gobi region economic growth initiative" under the USAID project and "Golden Fund of Development" with UNDP and Finish Government support non-banking institutions are extending their rural-oriented banking service through their local 12 branches. In overall 4 billion togrogs were lent from these institutions. E. Environmental protection "There are so many roads. Creating new roads should be prohibited in order to protect the pasture and environment. " Citizen of Kherlen sum, Dornod aimag 120. Social and economic development of our country is broadly dependent on the use of natural resources. Proper environmental management will create jobs, improve the health condition of population and ensure protection of biodiversity. Nomadic style animal husbandry and crop industry relying on the nature, as well as extract natural resources (minerals) are dominated in industrial sector. During the transition to the market economy many people lost 32 their jobs and started to excessively interact with the nature and surrounding environment, like breeding livestock exceeding the pasture land capacity, extracting mineral resources, hunting and collecting fruit and nuts, for their living. It reduces the natural resources and degrades the environment. So it is important to determine poverty reduction strategy rationally correlating with increase of economic situation of people on one hand and environment protection on the other hand. 121. Desertification and land degradation affects the living standard of 40% of total herdsmen. 70% of pasture has been grazed to certain extend and yield per hectare dropped by 19-24%. Increase in numbers of livestock and herder households create a deficit of wells and fence as well as they overload the pasture exceeding the carrying capacity of it. There is a real threat of emerging poverty of thousands of families by losing their animal that eliminates the existence of herdsmen. Complex of measures in combating with the desertification and reducing the overgrazing of the pasture and halting sand migration shall be taken including the real activities such as building green strips, replanting drought resistant native plants, using pasture by turn and holding land reform with the participation of local administration and citizens. " Today, cost for moving is so high. Place for summer pasturing is limited and the pasture condition is worsening year by year. Due to lack of water and mountainous area we need to move over 45 km hiring a track. It costs about 35 000 togrogs on one way. (Group of Females of the Tosontsengel soum of the Huvsgul aimag. 122. Mongolia through its constitution passed in 1992 confirmed the right of citizen's to live in healthy and safe environment, and stated that the land and natural resources should be under public ownership and protected by the state. Based on this fundamental principle Mongolia is guided by sustainable development of the society in harmony with the nature and eco-oriented economic development policy. Creation of legal basis for the environmental protection, appropriate use of natural resources and rehabilitation of the nature were at the center of specific attention and therefore Legal package with 25 environmental laws were passed by the State Great Khural since 1994. In addition to this nearly 20 national programs including programs on protecting biological species, Combating with the desertification, Water, and on Special protected areas were approved and are under implementation. Mongolia has joined to 10 international environmental conventions since 1994. Although the legal environment has been set the implementation of them is inadequate due to lack of financial resources, participatory role of citizens and entities in environmental protection, weak responsibility and capacity of local administration in this area, and inadequate state regulation and supervision of use of natural resources and rehabilitation of damaged environrment. Within the framework of objectives set forth in the "Environment and Sustainable Development", and " Equity and Social Policy" components of the "Good Governance for Human Security", the Program on Poverty Reduction through Environment Initiatives has been developed. This program consists of activities such as, combating desertification, replanting of forest, reducing pollution of city surroundings and intensifying land reform. These activities have the additional impact of creating pernanent and temporary employment. Through incorporated implementation of these measures poor people get real benefit while the degradation of environment removes slightly. 33 123. Air pollution limits human right to live in a healthy and safe environment, especially endangers environmental security of the population. 75 thousand Ger community families use over 200 thousand tons of coal, 160 thousand meter3 of wood and dispose the ash and waste in an open environment polluting the air and increasing the illness. A survey found that each citizen inhales annually 90 kg of toxic smoke in Ulaanbaatar city. As a result respiratory diseases are dominating among the population especially among children's disease. Ger districts are the main source of this pollution. Following a successful pilot project to reduce air pollution initiated by the British Embassy, the Government with the assistance of GEF is taking measures to improve the legal environment to control air pollution, introduce eco-friendly and efficient stoves in 75000 poor households of Ger-districts, control the vehicle gas emission and provide power stations and steam boilers with smoke filter. By combined implementation of these measures the poor people will get the real benefit in addition to improving overall ecological condition. 124. Proper solid waste management is one of important issues in Mongolia. Wastes are disposed in 447 official open spots which cover 3,145 hectares of land and over 11,115 hectares of land has been polluted in the country. According to 1999 reports from local administrative units data there are 3 centralized waste disposals in UB, however the daily waste solid is 500 thousand cubic meters, which is inadequate for waste absorption. Incineration of waste adds to air pollution. Therefore seeking a solution on solid waste issue is an urgent problem. Any types of initiative for reduction of air pollution and improvement of waste management made by citizens, NGOs and entities will be encouraged. Waste sorting entities and waste recycling factories shall be established. These measures will create jobs and improve health of population living close to waste disposal areas, particularly children will benefit from proper solid waste management. "They live in what ever they found on the waste. There are many young and old people called Tojils or waste diggers. Most of them have no job, money, relatives that can extend their hands, and education and they have no interest of doing anything for their living" Woman from Baganuur district, Ulaanbaatar. 125. 8. 1% of Mongolian territory is covered by forests and this is about a half of what used to be in 1990. According to the survey made by FAO, Mongolia is considered to be one of the countries with least amount of forest in the world. Due to unemployment and poverty illegal logging (fire wood) increased substantially during last 10 years. In addition about 6 million hectares of forests had been hit by fire since 1996 resulting in substantial decreases of forest resources. It is possible to increase significantly the number of permanent and temporary jobs by mobilizing low income and poor people in establishment of forestry, replanting of forest, utilization of semi-burnt trees and tree coal, building fire protective strips and fire preventive measures. Appropriate use of natural resources such as fruits, nuts and medical plants for income source shall be encouraged. "This year there was a black zud. We were afraid that we will loose all livestock. It will affect our life" Citizen from Huhmorit sum, Gobi-Altai aimag "1997 summer drought and dry spring of 1998 with late pasture greening worsened the pasture and took many lives of livestock. There was a case that one family 34 lost 50' cattle, 30 sheep and 15 goats. Some families lost all their cattle and darkened their fence " Herders from the Munkhhairhan sum of Hovd aimag. 126. Over 10 different types of natural disasters such as dzud and drought, step and forest fire, flood, locusts and rodent occur in Mongolia and the frequency of such disasters has increased. The natural disasters cause an enonnous loss to the economy of the country and increases number of urban poor. Therefore the Government needs long-term policy measures to mitigate and prepare to reduce the vulnerability of the population to such disasters. 127. Mongolia has 4113 large and small rivers with a total length of 67000 km; over 3060 large and small ponds with total volume of 500 cubic km; over 7000 permanent springs, over 262 permafrost rivers with total area of 659 square km, 120 mineral springs and 139 underground water deposits. Total water reserves on the territory of Mongolia equal 38.8 square km, of which usable reserves equal 34.6 cubic km. 22 cubic km, or 64 percent of all usable water reserves is surface water, while 12.6 cubic km, or 36 percent is underground water. Water usage rate per capita is 3-4 times lower than the world average. Studies show that an average person who lives in ger quarters in large cities and urban establishments uses 8-10 liters of water per day on average, which is 5 times less than the acceptable health standard. As of 1999, water supply in many soum centres in desert and steppe regions has been very limited due to lack of water reserves. Content of drinking water of the population living in 38 percent of the territories of soums and urban establishments does not meet health requirements by one or more measures. 128. The Law on Environmental Assessment of Mongolia was approved in 1998 and is currently in force. This law provided for establishment of the Ministry of Environment and for assessment of the impact on environment of existing enterprises, services, buildings, their expansion and other forms of projects that use natural resources. Environmental assessment is a relatively new concept in our country and, therefore, there are considerable difficulties in implementation of the law. For instance, there is a need to conduct environmental assessment of businesses and organisations that existed prior to adoption of the law. Studies show that relatively few environmental assessments get done in state-owned enterprises due to limited funds. In addition, the legal framework for environmental assessments is poor, the mechanism of implementation of the law and control over assessment does not meet current needs. Therefore, in order to improve the Law on Environmental Assessment, a draft law amending the existing law has been drafted, discussed at the Cabinet meeting and submitted to the Parliament. 129. Community initiative and their work have a crucial role in nature conservation. Government has always encouraged community participation in nature conservation. The Law on Nature Conservation, article 32, says that government institution responsible for nature conservation may delegate its certain functions to civil organisations or citizens. Currently, there are over 100 non-government organisations operating in environmental fields, of which some 40 NGOs are working actively. Also, there are community councils under Citizens' Representatives Khurals in aimags and the capital city that support initiatives of local communities and their activities and help them to organize. However, due to limited initiative of communities in nature conservation, limited knowledge of laws and poverty, the use of natural resources (cutting trees, hunting) unlawfully is widespread. Therefore, a need arises to educate people, especially poorer ones, in ecological issues and to involve people on a large scale in training and promotion on enviromnental issues. 35 130. The Cabinet adopted an Environmental Impact Assessment Plan in 1995, and has been ensuring implementation of this program and other activities that were specified in Concept papers on economic and social issues each year. This program is being revised by the Parliament in order to make it consistent with policy papers in environment and other sectors that have been adopted since 1995, within the framework of the "Environmental Impact Assessment Plan" with the support of Trust fund of Norway through the World Bank. The objective of the Environmental Impact Assessment Plan is to support sustainable social and economic development that is adapted to the environment; and to improve living standards of the people and reduce poverty by sustainable use of natural resources. The Environmental hnpact Assessment Plan consists of 11 chapters. The program is aimed at meeting 5 strategic objectives: improvement of legal framework and policy regulation on environment; improvement of environmental management and management of natural resources; creation of a system of environmental examination, analysis, assessment and information; improvement of ecological education and community participation; pollution control and increase of investment aimed at protecting bio-diversity. The program also specifies directions of priority projects and measures to be taken in environmental fields. F. Governance 131. Since 2000, Mongolia has initiated and implemented a national program on "Good Governance for Human Security". It is essential to reach a consensus among policy makers and stakeholders. The program will facilitate policy focus, coherence, and sustainability for the Poverty Reduction Strategy through the achievement of truly national policies with the support of powers of the state administration, scientific organizations, media and press, private sector and civil society. 132. It is far easier to promulgate a Government policy or even law approved by the Parliament than to involve and commit the media, academia, other opinion formers, the private sector, civil society and public opinion. The reward, however, is societal ownership of a policy that can lead to extensive collaboration between the sectors in implementation and greater policy effectiveness, in addition to greater policy continuity and sustainability. This is what can create a good governance enabling environment for human security. 133. In order to ensure good and proper governance the government states two main goals: * To remove governance crisis and create good governance for human security, * To develop a democratic civil society with strong ethics that secures citizens' basic rights, and fundamental democratic principles by facilitating independence of the judiciary and free mass media. 134. To achieve the above-mentioned goals the government is committed to implement the following actions: * To improve efficiency and effectiveness of state entities' business processes, to improve mechanisms for performance management, finance and planning, reporting and responsibility., to ensure quality of and responsiveness of public services, improve the image of the civil services. 36 * To establish a public management information system network, ensure its timely and reliable nature on the basis of modem technology and improve the executive branch's decision-making and implementation mechanisms. * To create appropriate mechanism for internal and external monitoring of state organizations. * To undertake comprehensive measures to improve legal basis for authority and structure of judiciary, to deepen the judiciary reform to ensure independence of judiciary and to improve its reputation. * To facilitate outreach of state policy to citizens by improving legislation related to mass media freedom and underpinning its responsibility mechanisms. * To improve responsibility mechanisms of public service and to decisively combat corruption, bribery, and crime. * To improve management of public relations, to ensure transparency of public organizations and to provide the utmost support to the establishment of good relations with NGOs within partnership scheme. G. Medium term targets 135. The following table summarizes the main macroeconomic indicators which are consistent with PRGF program. 37 Table 12. Mongolia: Macroeconomic Framework 1997-2004 1997 1998; 1999 2000* 2001**t 2002** 2003** 2004** I. TOTAL REVENUE AND GRANTS 25.5 27.6 27.2 33.6 33.6 32.7 32.6 32.6 II. CURRENT REVENUE 24.7 26.5 26.5 33.2 33.1 32.0 32.0 32.0 1. Tax revenue 19.7 18.8 19.7 25.0 25.7 24.9 24.9 24.9 1.1 Income tax 7.5 5.1 4.2 6.0 5.7 5.8 6.0 6.2 1.2 Social security contributions 2.6 3.2 3.3 3.8 3.3 3.3 3.3 3.3 1.3 VAT 4.6 5.6 6.5 7.3 8.0 7.9 7.9 7.8 1.4 Excise tax 2.4 3.0 2.9 3.9 4.0 4.0 3.9 3.8 1.5 Taxes on special services 0.6 0.8 0.7 0.7 0.7 0.7 0.7 0.7 1.6 Taxes on foreign trade 1.1 0.2 1.0 2.1 2.7 2.0 2.0 1.9 1.7 Othertaxes 1.0 1.0 1.0 1.1 1.3 1.2 1.1 1.1 2. Non-tax revenue 5.0 7.7 6.8 8.2 7.4 7.2 7.1 7.2 III. CAPITAL REVENUE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IV. GRANTS 0.7 1.0 0.7 0.5 0.5 0.6 0.6 0.6 1. TOTAL EXPENDITURE AND NET 34.5 41.9 39.4 40.5 41.0 39.8 39.2 38.6 EENDING 11. CURRENT EXPENDITURE 23.1 27.2 26.7 30.1 30.5 29.0 28.6 28.1 1. Goods and services 15.4 19.0 17.8 20.2 19.8 18.7 18.4 18.0 1. I Wages and salaries 5.4 6.8 6.9 8.2 7.5 7.1 6.9 6.7 1.2Purchaseofgoodsandservices 10.0 12.2 10.9 11.9 12.3 11.6 11.5 11.4 2. Interest payments 2.5 1.4 1.9 1.7 1.7 1.7 1.5 1.5 3. Subsidies and transfers 5.2 6.8 7.1 8.1 8.0 7.6 7.6 7.5 3.1 Subsidies to public enterprises 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 3.2 Transfers 5.2 6.8 7.0 8.1 7.9 7.6 7.6 7.5 Dzud contingency allocation 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0 III. CAPITAL EXPENDITURE ANDNET 11.4 14.6 12.7 10.4 10.5 10.8 10.6 10.6 LENDING Current Balance 1.6 -0.7 -0.2 3.1 2.7 3.1 3.4 4.0 Overall Balance -9.1 -14.3 -12.2 -6.8 -7.3 -7.1 -6.6 -6.0 Financin-: 9.1 14.3 12.7 6.8 7.3 7.1 6.6 6.0 1. Foreign (net) 11.1 8.4 11.4 6.4 4.9 6.8 6.1 5.7 2. Domestic (net) -2.1 5.9 1.2 0.4 0.3 -1.6 -0.4 -0.1 3. Financing gap 0.0 0.0 0.0 0.0 2.2 1.9 0.9 0.5 Source: MOFE; Note: **Prelitninary projection. 136. The table illustrates the main targets to be achieved as results of macroeconomic policy pursued during the medium-term that focuses on: * Poverty reduction main strategy will be achieved through an increase of economic growth and social sector development, facilitating infrastructure development, improvement of governance. * Accelerating economic growth based on private sector development through intensifying the structural adjustments, appropriate fiscal and monetary policy, enhancement of enabling environment for business development, and competitive industries promotion. * In the fiscal area the highest priority will be given to reforms to improve transparency, accountability, and enforcement mechanisms in budget implementation and to ensure a more efficient allocation of public expenditure. * Banking sector reforms aimed to consolidate the shift to a market-oriented system of indirect monetary management, including through measures to strengthen bank supervision and accelerate the privatization of state owned banks. 38 IV. THE ORGANIZATIONAL ARRANGEMENT OF THE PRSP FORMULATION 137. A joint workshop of the World Bank / IMF and the Government of Mongolia was organized in October 2000 for the purpose of preparing the development of the Poverty Reduction Strategy Paper. With the extended participation of NGO's, donors, regional representatives the direction, guidelines and main issues were discussed. This was the starting point of the paper development. 138. Ministry of Finance and Economy and the Ministry of Social Welfare and Labor have established technical working group consisting of representatives from ministries, Mongol Bank, National Statistical Office, research institutions and NGOs (the Resolution is attached herewith). The technical working group developed the first draft of the paper by October 2000 and sent to the World Bank. Since that time the finalization process is continuing on the non-interruptible and participatory principle. 139. The Development Debate organized on the national and regional basis by the World Bank and the Soros Foundation was a good exercise in exchanging information. Concentration of broad public participation was one of the features of the National debate for development. MPs, representatives from the ministries, departments, local authorities, donors, NGOs, and public, particularly from the groups of poor people were invited to participate to this debate. The Government of Mongolia participated actively in this action and took of the outcomes of this debate, and some proposals are incorporated into this document. 140. The Government of Mongolia is paying high attention to the capacity strengthening of the paper development through extended participation of governmental and non- governmental institutions in seminars and debates organized by international organizations. The Government of Mongolia and the World Bank has organized a seminar with the NGOs and exchanged views on providing participatory role. 141., Government institutions are participating in the development of that paper in accordance of their mandates/functions in the government. The MOFE working group is reporting its progress in this paper to the other members and its directly reporting authorities constantly and incorporating their comments followed by re-submission of the revised versions. In this way the working group is cooperating closely with other ministries. Comments of ministries, NGOs, as well as international institutions and donor countries are incorporated into this paper. Through precise discussion and exchange of views with NGOs the cooperation activities have been described in detail, such as poverty, education, health, social welfare, labor, environment sections. During May and June the working group has met several times and discussed strategy priority issues, monitoring indicators and policy matrix. Each sector has identified data gap to be filled out for the full PRSP. In addition drafts were sent to donors for their valuable comments. Special attention was paid from the World Bank Resident office and Headquarter office. The World Bank staff and concerned national experts had several joint meetings. Special attention was paid on consistency of PRGF and I-PRSP, amendment budget documents. 142. Poverty related recommendations and proposals noted at the last CG meeting, organized recently, and pre-agreed macroeconomic indicators and policy measures of the PRGF program with the IMF are also incorporated into this paper. 39 V. THE EXTENSION OF PARTICIPATORY APPROACH IN FORMULATION OF PRSP 143. The Government will set up a Coordinating Committee responsible for arranging the development of PRSP. The Coordinating Committee will be made up of representatives of the Parliament, ministries, and governmental and non-governmental organizations, donor community and will be accountable to the Government. The Minister of Finance and Economy will lead the committee. The cross-sectoral working group will be set up to draft the PRSP. The Working group will be accountable to the Committee. Representatives from ministries of Economy and Finance; Infrastructure; Food and Agriculture; Industry and Trade and the central bank will compose a sub-group on macroeconomic issues; representatives from Education; Health; Social Welfare and Labor and Environment will compose a sub-group on Social issues; sub-groups on justice, governance and civil society participation will be set up. These sub-groups will be responsible for drafting completely the components of the PRSP. The working groups in charge of for the integral parts of the "Good governance for human security" will also be responsible for coordination and compliance of program and projects. 144. Participatory approach will be widely used in the process of developing and implementing the PRSP agenda. Participation in the development of this strategy paper shall be performed through conducting of surveys in certain sectors and issues by the NGOs as well as through active participation of them in the regional meetings. In addition organizing consultative meetings of the NGOs, releasing recommendations, and including representatives from the NGOs in the sub working groups and National Coordinating Committee shall provide the participation. Organization of participation will be based on the same type of procedures that have been applied to the management, organization and working group of "Good governance for human security" program. Any duplication of existing structures, which will weaken, policy, consistency and stability should be avoided. 145. Government high position officials, members of Parliament and Government, local governors, donors, private entrepreneurs, NGOs, citizens, especially representatives of poor and vulnerable group must be involved in the consultative and view exchange meetings at local and national levels, working meetings and other activities. 146. In order to ensure a broad public participation in formulating PRSP, the content, the direction and planned measures will be disseminated via media throughout the country and a cooperation must be established with media and press to listen to the public opinions of and views. 147. During the PRSP formulation several interactive actions with involvement of all stakeholders are scheduled. (Please refer to Annex). VI. MONITORING INDICATORS 148. The pre-condition for the successful implementation of the poverty reduction strategic goal of the government is effective monitoring. For this purpose the Government will undertake gradual measures to collect, analyze data on living level indicators required for monitoring progress on the F-PRSP, and shall develop and improve appropriate publishing procedures. The 40 National Statistical Office will finalize the Participatory Living Standard Assessment, and enrich the poverty data with qualitative indicators. This information is to be published. 149. The Government will give an assessment to the implementation of the national program on main guidelines to develop children undertaken jointly with UNICEF. A survey on theme "Children and Development" was conducted in as a preparation to the world sunmmit for children to be held in 2001. The data on maternity and infant health, education, nutrition, vaccination coverage, fresh water supply as well as other related information will be processed and results will be published. 150. The Government will set up a research unit to conduct poverty monitoring and analysis. This unit will be responsible for monitoring and evaluation of the poverty reduction strategy implementation. On voluntary basis NGOs with appropriate experience shall be mobilized in the implementation of this poverty reduction strategy. This evaluation shall form a part of set of evaluations on the implementation of policies of "Good governance for human security" program that includes Government priority directives and policies. 151. The Government will make efforts in monitoring the poverty reduction strategy implementation based on indicators such as average life expectancy of males and females, maternity and infant mortality, children mortality below age 5, coverage ratio in primary and secondary schools as well as vaccination indicators during the implementing process in order to achieve expected results. 152. There were some difficulties in working out the Interim PRSP, including insufficient availability of information. A. Figures prepared by the statistical, and other institutions and international organizations were available but not differentiated according to classification like poverty and vulnerable group etc. particularly, there is a record on service availability and coverage with no possibility to make analysis on how it impact the poorest; B. The first priority objective set forth by the Government is to reduce poverty through economic growth. However, the theoretic and methodological concept on its implementation not yet formulated; C. The national system and capacity are not sufficient to involve appropriate organizations and citizens in the development, implementation and monitoring of the Strategy. Therefore, the technical assistance is required for the purposes stated above. 41 Table 13. Mongolia: Selected Macroeconomic Indicators, 1997-2004 GDP growth(%) 4.0 3.5 3.2 1.1 1.4 4.0 5.0 6.0 Industry (%) -3.3 4.2 1.1 7.5 6.6 5.5 5.7 5.8 Agriculture (%) 4.3 6.4 4.2 -16.8 -8.7 0.5 3.0 5.3 CPI (12 month, end ofperiod) 20.5 6.0 10.0 8.1 8.0 6.0 5.0 5.0 CPI (average) 36.6 9.4 7.6 11.6 8.8 6.0 5.0 5.0 Gross international reserves (US$ mn) 137.5 124.6 156.7 190.9 209.2 237.1 259.8 284.2 (inweeksofimports) 12.3 11.4 11.9 14.2 14.8 16.0 16.5 17.0 In percent of GDP Total revenue 25.5 27.6 27.2 33.6 33.6 32.7 32.6 32.6 Current revenue 24.7 26.5 26.5 33.2 33.1 32.0 32.0 32.0 Tax revenue 19.7 18.8 19.7 25.0 25.7 24.9 24.9 24.9 Total expenditure and net lending 34.5 41.9 39.4 40.5 41.0 39.8 39.2 38.6 Current expenditure 23.1 27.2 26.7 30.1 30.5 29.0 28.6 28.1 Currentbudgetbalance 1.6 -0.7 -0.2 3.1 2.7 3.1 3.4 4.0 Overal budget balance -9.1 -14.3 -12.2 -6.8 -7.3 -7.1 -6.6 -6.0 Financing 9.1 14.3 12.7 6.8 7.4 7.1 6.6 6.1 Foreign 11.1 8.4 11.4 6.4 4.9 6.8 6.1 5.7 Domestic -2.1 5.9 1.2 0.4 0.3 -1.6 -0.4 -0.1 Financing gap 2.2 1.9 0.9 0.5 Foreign trade, USS million Export 569.5 462.3 454.3 537.1 549.2 601.0 647.5 692.9 Import -538.3 -582.4 -567.3 -687.3 -698.9 -733.2 -771.1 -819.2 Tradebalance 31.1 -120.1 -113.0 -150.2 -149.7 -132.2 -123.6 -126.3 In percent of GDP Current account balance (including official transfers) 7.1 -7.8 -6.3 -7.0 -7.3 -7.1 -6.1 -5.9 Current account balance (excluding official transfers) 1.3 -13.2 -13.7 -17.2 -16.7 -14.7 -13.4 -12.7 Public and publicly guaranteed external debt 57.4 77.4 93.9 88.0 89.4 93.6 94.2 93.1 NominalGDP (Tugbillion) 832.6 817.4 925.3 1044.6 1152.4 1270.4 1400.6 1558.9 GDP deflator growth (%/.) 23.8 -5.2 9.7 11.7 8.8 6.0 5.0 5.0 Exchangerate(endofyear) 813.2 902.0 1072.4 1097.0 ... ... ... ... Exchange rate (average) 790.0 840.8 1021.9 1076.7 ... ... ... ... Population,thous.persons 2311.3 2344.5 2373.5 2407.5 2443.6 2480.2 2517.4 2555.2 GDP(US$ nmn) 1054.0 972.1 905.5 970.2 1019.9 1077.8 1156.1 1256.9 Note: * - prelimninary, ** - projection Source: MOFE 42 Table 14. Mongolia: Health sector Indicators, 1990-1999 Measuring unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Life expectancy - - 62.8 - - 63.8 - 64.3 65.1 male years - 60.7 - 62.1 - 61.1 62.7 female - - 64.9 - - 65.4 - 67.7 67.6 Underweight less 2.5 kg,% 4.4 5.0 6.3 6.0 6.6 6.4 5.5 5.9 5,1 5.0 Bom Infants udgetallocationto %ofGDP 5.5 5.8 4.1 3.8 4.1 3.7 3.6 3.8 3.3 3.8 health sector Mortality per 1000 live Infant mortality births 64.4 62.6 59.5 61.2 48.0 44.4 40.0 39.6 35.3 37.3 Child mortality births under 5 years - - - 82.6 67.8 62.0 56.4 55.6 47.8 49.0 Matemal nortality perlOO.OOOof 119 131 203 240 212 185 175 145 158 175 live births Birth under doctor's % 99.0 99.0 99.0 98.0 98.0 99.0 99.5 99.8 99.3 99.0 control Availability of %- - 15.0 - - 28.0 38.0 42.0 44.2 - contraceptives per 1000 women 59.5 60.5 52.8 35.3 29.5 30.7 25.3 20.3 14.0 15.5 Number of abortions Source: Ministry of Health] 43 Table 15. Mongolia: Educational Sector Indicators, 1990-1999 (percent) A. PRIMARY Gross enroiment rate - total 105.8 91.0 81.5 78.7 86.0 93.4 95.3 102.2 102.9 103.8 female 106.4 91.5 82.4 79.8 86.6 93.6 96.1 103.2 103.4 104. male 105.3 90.5 80.6 77.5 85.4 93.1 94.4 101.2 102.5 103.1 Entrance age, yeau: 8 8 8 8 8 8 8 8 8 l Duration, years 3 3 3 3 3 3 4 4 4 B. LOWER SECONDARY Gross enrolment rate - total 94.1 84.6 79.1 81.5 80.2 77.2 65.9 60.8 70.9 76.1 female 97.6 n/a 90.4 91.0 89.4 85.1 72.3 66.5 76.9 82. male 90.7 n/a 68.0 72.2 71.1 69.3 59.4 55.0 65.0 71.1 Entrance age, yeas: 1 11 11 11 11 11 12 12 12 1 Duration, years 5 5 5 5 5 5 4 4 4 C. UPPER SECONDARY Gross enrolment rate - total 41.9 30.9 30.3 29.7 31.5 34.4 50.1 49.3 31.2 34.1 female 51.0 n/a 39.5 39.5 41.8 45.0 63.3 61.0 38.1 40. male 32.8 n/a 20.9 19.7 21.0 23.6 36.7 37.3 24.2 27. Entrance age, yeai: 16 16 16 16 16 16 16 16 16 1 Duration, years 2 2 2 2 2 2 2 2 2 8 BASICO (A+B) Gross enrolment rate - total 98.7 87.1 80.1 80.3 82.8 84.3 82.4 82.3 87.5 90. female 101.0 n/a 87.1 86.1 88.1 88.8 85.7 85.6 90.6 93. male 96.4 n/a 73.2 74.5 77.4 79.7 79.1 79.0 84.4 87.5 ntrance age, yeas: 8 8 8 8 8 8 8 8 8 8 Duration, years 8 8 8 8 8 8 8 8 8 8 GENERAL SECONDARY ( B+C ) Gross enrolment rate - total 79.2 67.4 64.1 65.0 63.9 63.4 59.9 56.9 58.0 63.2 female 84.1 71.7 74.5 74.5 73.4 72.1 68.9 64.6 64.2 69.0 male 74.2 63.0 53.7 55.7 54.5 54.6 50.9 49.1 51.8 57.2 Entrance age, yeais 1 1 1 1 1 1 1 1 1 1 1 12 12 12 12 Duration, years 7 7 7 7 7 7 6 6 6 6 Source: Ministry of Sciences, Technology, Education, Culture 44 REFERENCE DOCUMENTS 1. Action Program of the Government of Mongolia, 2000 2. Policy paper of the "Good Governance for Human Security" program of the Government of Mongolia, 2001 3. "National Poverty Alleviation Program" Final Summary Report 1994-2000, National Poverty Alleviation Program Office, 2001 4. Living Standard Measurement Survey, NSO, 1995, 1998 5. Participatory Living Standard Assessment, NSO, 2000 6. Poverty Report, NSO, 1994 7. Poverty Reduction Partnership Agreement, GoM, ADB, 2000 8. Draft of standard evaluation on the current situation of Mongolia, UNDP, 2000 9. Development Assistance Framework of the UN to Mongolia, UNDP, 2000 10. Public Service Improvement Project, WB, 1999 11. Population census results of Mongolia, NSO, 2000 12. Draft of the Memorandum with IMF on the MEFP, 2001 13. Nutrition Survey report, 1999 14. Primary and secondary schools data for academic year of 2000-2001, MOSTEC, 2000 15. Statistical Yearbook, 1998, 1999 16. Statements of the 8'h CG meeting, 2001 17. Aid Memorie on the Public Expenditure Review, WB, 2001 18. Regional Development Concept, 2001 19. Law on Employment Promotion, 2001 20. Law on Exportation and Importation of Labor, 2001 21. National Environment Action Plan, 2000 22. UNElSCO Annual Statistics, 2000-2001 23. Mongolia: Confronting Twin Challenges, Strategic Options for Rapid Growth and Reducing Poverty, .World Bank, 2000. 45 Annex I: Monitoring indicators of poverty reduction strategy implementation Type of Interim indicators 2000 Final outcome indicators 20 indicator 04 Macroecono Exchange rate depreciation (-), appreciation Economic growth, % 6.0 mic (+) % 2.3 Budget deficit to GDP, % 6.0 stabilization Money growth, % 17.5 Inflation rate, % 5.0 External current account deficit to GDP, % 7.0 Unemployment rate, % 4.5 Budget current balance to GDP, % 3.1 Education Gross enrollment rate of children at age of Decrease the gap between urban basic education, % 88.6 and rural areas and improve all Percentage of households enrolled in living current data of the survey on skills training programs against total number evaluation of quality of primary of households, % an base education school and Percentage of children provided by 29.7 analyzing monitoring of dormitory against total number of education outcome. herdsmen's children needed for it, % Percentage of first grade school children enrolled in time, % Health Coverage ratio of vaccination of 0-1 age infants, % 94 Matemal mortality rate , per Percentage of 0-5 age children with diarrhea, 100,000 % 18.9 Percentage of 0-5 age children with infectious respiratory disease, % 66.3 Percentage of mothers gave birth at home, % Decrease the percentage of pregnant women with anemia from 40 to 30, % less I Improvement in the supply and availability of TB drugs, % 40 Improvement of diagnosing and curing capability, % Number of patients visited the sum medical center Employment Number of registered unemployed at Labor 38.6 Poverty ratio, % and social Regulation Office, thous. welfare Workforce Participatory rate, % Regional Level of power supply, % Migration rate (from rural to UB development Level of communication,% city), % Level of water supply,% Govemance Access to information and Intemet, % Percentage of women elected to capacity Number of TV and Radio stations 3 the Parliament and local self- building, Detailed publication of budgetary goveming bodies, % citizen information, times p.a. 4 Percent of voters voted in participation elections (by gender), % Percentage of women employed __ __ __ __ __ __ __ _ __ __ __ _ __ _ __ _in the government,% 46 Annex II: Economic and Social Policy Matrix Objective Measures =Responsible agenc Deadline 1. Ensure 'Increase economic growth up to 6 percent in 2004 through deepening of structural reform Govemment of 2001-2004 macroeconomic l n energy and financial sectors, accelerating privatization, improving environment for Mongolia (GOM) 2 stability and high private sector growth. economic growth _____ Decrease current account deficit from 17.2 percent in 2000 to 12.7 percent in 2004. GOM 2001-2004 Favorable condition for foreign trade shall be set and negatively affecting tariff and non- l tariff barriers shall be decreased. X _ intensify structural adjustment process of the banking sector, in particular to undertake GOM, Bank of 2001-2004 measures to cure banking and financial sectors. Mongolia (BOM) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ii Improve ODA coordination and debt management |MOFE, BOM ] 2 reate favorable legal environment for economical regional development, improving GOM 2001-2004 nfrastructure development. _ Reduce the government budget deficit to GDP ratio up to 6 percent by 2004. Broaden tax MOFE 2001-2004 bases and improve tax collection system. 2. Improve budget i_ management and tax budget planning, recording, supervision and information systems. Formulate MOFE 2001-2004 system a x edium Term Fiscal Framework Statement. - 2 120 Improve budget financing and introduce an output based financing. Enhance accountability MOFE 2001-2004 of budget managers. Pass PSMFA. [Audit Erdenet state enterprise's financial statements. GOM 2001-2002 lfiEnhance accountability of tax institutions and build capacity of tax inspectors. MOFE, GDNT, 2001-2004 ( , ~~~~~~~~~ ~~ ~ ~ ~~~~governors 1 jStrengthen local tax institutions and improve collection, sharing and monitoring of VAT. MOFE, GDNT, ||2001-2004 governors 11 l Exempt commercial banks' loan loss fund from tax. GOM 2001 47 l Objective || Measures Responsible agency Deadline 3. Reform and Conduct Public Expenditure Review with the assistance of the WB and implement the MOFE |2001-2002 improve Government frecommendations resulted from this review and action plan for further implementation. expenditure I_ management Develop and implement reform program of the government institutions. To test, introduce a MOFE 2001-2004 p single account system into treasury management. i 4. Pursue sound IPursue a policy to bring down inflation to the low single digit number. MOFE, BOM 2001-2004 monetary and credit . policies Reduce net banking system credit to government to provide adequate room for a healthy MOFE, BOM 2001-2004 expansion of credit to the private sector _ l |Pursue prudent monetary and regulatory policies to enhance confidence to the banking 1BOM 12001-2004 Isystem 11 11 Continue to implement a market determined exchange rate system || BOM || 2001-2004 . Build up sound Accelerate structural reform process in the banking system, and begin to privatize state GOM 2001-2004 banking and financial wned commercial banks. sectors Support development of non-bank financial institutions GOM, BOM 2001-2004 Undertake measures to make bank services available to rural areas. BOM 2001-2004 Broaden insurance coverage and increase accountability of insurance companies. GOM ||2001-2004 Create favorable environment for development of securities market and expand its scope. GOM, BOM |2001-2004 Standardize banking restructuring bonds. 6. Intensify structural ,Intensify privatization and privatize most valuable enterprises. 01OM 0-2004 reform ____________________ he most valuable enterprises intended to be privatized to strategic investors that are GOM 2001-2004 apable of improving financial efficiency, introducing new equipment and technology and -onnecting with new export markets. 48 Objective Measures Responsible agency Deadline ~~~~I- _ I n partnership with private sector train and assist newly privatized companies in transition GOM 2001-2004 lrocess l larry out structural adjustment in energy sectors, and shift to the commercial regime GoM 2001-2004 aradually. Take measures to decrease the effect of tariff rise for energy and heating on poor people. Pass law on land reforms GOM 2001-2004 7. Create favorable lIn order to provide private sector led growth utilize public and private investment, ODA GOM 2001-2004 environment for lfor communication, transport and other infrastructure sector development. private sector led | growth IExpand market information dissemination MOFE, MIT _7 2001-2004 8. Accomplish a policy xpand a scope of pre-school coverage, with special emphasis on poor families children MOSTEC, Govemors 2000-2004 towards strengthening hare increase. . IL he systems of reschool and overall Enroll handicapped children in kindergarten and schools, create an environment that MOSTEC, MOSWL, 12000-2004 ublic education, j nables them to study with normal children. ovemors mprove educational ..----- --...-------. -- --.-................ ............... . ....-.--. . -. ......... ......... .. . . ..... ......... enviromnent of rural arry out short-term centralized training to prepare children from herders families for jMOSTEC, Govemors |2000-2004 schools, expand scope IF____ enrollment and develop them._33 _____ of technical education c and professional tiefurbish rural schools and student dormitories and resolve heating and energy problems. IMOSTEC, Governors 1-2004 |Develop and implement a program designed to improve educational opportunities for MOSTEC, MOSWL, 2003-2004 extreme poor and poor families children. Support, within the program framework, the jGovemors |upply of food, school supplies and uniform to extreme poor and poor family children of ire-school and primary school age. __ _ _ _ a|Carry out training for dropped out children and youngsters, and reduce illiteracy of people.||MOSTEC, Govemors 000-2004 |Expand scope of livelihood improvement, technical skills and professional orientation MOSTEC, MOSWL, 2001-2004 |acquiring training. |Govemors 49 Objective Measures Responsible agency Deadline 9 Improve Revise benefit package and develop primary health care system. [MOH, MOFE, 2001F-2004 accessibility and |Governors i quality of primary i _ health care more Develop essential health package and criteria for Health Insurance Fund. fMOH, MOFE, |2001-2004 fficiently targeting |Governors I rural poor and ___._. I . I _ _ vulnerable groups of Develop standard protocol at each health facility levels. MOH, MOFE, 001-2004 population oGovemors i IPrepare master plan for health sector with main focus on soum and maternal hospitals |MOH, Governors . 2001-2004 lthrough renovating hospital sites and providing necessary equipment, medical supplies I _ ... . _ _ 1~~~I i lDevelop and implement maternal mortality reduction strategy ||MOH, Governors |2001-2004 evelop and implement national programs on TB, STI, AIDS, EPI and infectious diseases H, Governors 00012004 l|Establish vaccination fund MOH, Governors [2001-2004 10. Reduce a number Pass the Law on employment, Law on export and import of labor. IMOSWL, MJIA, 2001-2002 of unemployed throughj ||Governors |intensive labor | promotion policy. evise the law on Labor and the law on Unemployment Insurance. ||MOSWL, MJIA 2001-2002 mprove a legal base IL :_ --------------_--_-- for labor market Undertake a training program through Employment regulation office for people from the MOSWL, Governors 2001-2004 operation. vulnerable group of population who are not insured by unemployment insurance and r emained unemployed for a long period of time. Arrange public works in infrastructure development, environment protection and MOSWL, Governors 2002-2004 restoration as well as local needs activities Develop and implement projects for increased employment of disabled people. [MOSWL, National 2001-2004 [Union of Disabled I_________________________________________________________________________________ !I eople li___pl Ilmprove job opportunities through expanding micro finance [MOAF, MOSWL, f 2001-2004 Igovernors [ I 50 Objective j Measures [ Responsible agency Deadline Set up training program in conjunction with private sector, especially for employment of SPC, MOSWL, 2001-2004 privatized SOEs. Governors _ 11. Formulate a new Examine feasibility of expanding social insurance to self-employed and herders MOSWL 2001-2004 system and legal ii environment for the ! l efficient provision of l social insurance 1 1......2001 pincrease pensions from the social security fund in phased manner. [MOSWL, MOFE 2001 IRevise legislation in order to improve accountability of payment of social insurance fee or MOSWL 2001-2002 _ontribution. 12. Strengthen self- l|Cover all herdsmen, private entrepreneurs, students of the professional skill acquiring [MOSWL, 2001 sufficiency of health 3chools, and people with low income in the health insurance. Equalize fee rate paid by those nsurance and w,eople as well as the state. Take measures to rationalize health insurance fund. MOH rationalize health . _ __.. ........................ _.. _.__ .. _ _. _ |insurance |Equalize the number of participants from the Government, employers and insurers in the MOSWL, 2001 i aealth insurance council. Revise the legislation in order to manage and monitor health i i_nsurance policy coherently with the social safety issues. j[MOH 13. Set definite scope Improve legal framework for social care; implement project on establishment of training MOSWL, 2001-2004 of social care services center for social workers who can assist people to overcome social challenges and work |and improve wvith children. |MJIA accessibility, quality and efficiency of the social care service l Provide favorable condition that children be raised in their home under parents care 2001-2004 Provide children from extreme poor and poor families by dormitory, school supplies, MOSTEC, MOSWL, 2001-2004 uniform and primary medical service free of charge and insurance. Extend medical if 00 eatment, nursing and recovery services to the retired and disabled people. MOFE, MOH 14. Expand activities evelop legal basis for investment and industry growth in regions through simplification of GOM 2001-2004 supporting regional ustoms procedures. 51 Objective Measures | Responsible agency Deadline ~development ]n.'aactanpouainscnupinseiiiyI__________J20104 tPromote small and medium enterprises and services in a compliance with a given region's GOM 2001-2004 environmental capacity and population's consumption specificity. 15. Increase llnvolve poor and low income people in forest rehabilitation, combating desertification and MNE, Governors 2001-2004 environment protectionl ity greening activities in wide range. _ nd restoration activities Enhance mitigation of damaged land during utilization of natural resources. MNE, MIT, 2001-2004 I ~~~~~~~~~~~~~~~~~Governors Increase involvement of citizens in raising of rare and endangered species of flora and MNE 2001-2004 16. Promote initiatives Provide consumption need of wood for fuel and everyday life through proper management MNE, Governors 2001-2004 of local entities and f burnt ad insect affected forests. people on rational __ tilization of natural Support households in growing fruits and mushrooms, running apiary and utilizing by- MNE, Governors 2001-2004 esources and by- roducts. roducts. rganize training for citizens to improve their living standard and rationally utilize the IMNE, MOSWL, 2001-2004 atural resources. Governors 17. Organize activities Support sorting and recycling activities of city wastes and take measures to mobilize | Governors II 2001-2004 to decrease air- unemployed people in these activities. ] __ j ollution, sorting recycling and burying Create temporaryjobs through mobilizing unemployed people in burying of wastes. |Governors 2001-2004 of city wastes. , l1 Reduce air pollution through placing filter in the power stations and steam boiler and 'MNE, MOI, 2001-2004 provide poor families with fuel-efficient stoves |Governors 1- 18. Improve Improve quality of water sources in rural areas |MNE, MOI, 1 2001-2004 natural protection Govemors activities and Increase number of water sources at the soum level j1 ove imorove livine !1 1 52 Objective Measures Responsible agency Deadline environment for i1 19. Improve legal | Amend law on environment assessment MNE, Governors 2001-2004 basis for environment Involve state entities in environment impact assessment activities assessment, Improve law enforcement supervision undertake measures to protect natureil 20. Expand ijRecover public bath facilities at all aimags and soums. MOI, Governors -2004 accessibility of aimag a . 2 and soum community evelop and implement project on providing poor and homeless people with housing. MOI, Govenors 2003-2004 servicei seveprove fresh water supply for the capital city and aimag centres' people living in Ger ||MOI, Governors 2001-2004 53 Unofficial translation Annex: III: Joint Order of the Finance and Economy Minister and Social Welfare, Labor Minister Date: October 16, 2000 N. 56 / 28 Ulaanbaatar Concerning the Interim Poverty Reduction Strategy Paper development as a component of the Poverty Reduction an Growth Facilities Program to be agreed with the International Monetary Fund: 1. To approve the Technical Working Group, including: Head: N.Ayush Director, Strategic Planning Department, Ministry of Social Welfare and Labor Members: D.Baasankhuu Advisor to the Finance and Economy Minister B.Lkhagvasuren Advisor to the Mongolbank Governor D.Tsedenbal Leader of the Working Group on Social Issues, Ministry of Finance and Economy Ts.Bolorchimeg Officer, Economic Policy and Planning Department, Ministry of Finance and Economy S.Onon Director, National Poverty Alleviation Program Office D.Oyunchimeg Director, Social Statistics Department, National Statistical Office Ts.Bumkhorol Advisor, "Social Safety Network" MON-2978 project B.Enkhbat Executive Director, Consulting Unit 2. To complete and present the Interim Poverty Strategy Paper by October 23 of year 2001. Finance and Economy Social Welfare, MINISTER Labor Minister Chulan Shibatbaya 54 Annex IV: List of I-PRSP Technical Working Group Participants Ministry of Finance and Economy Mr.J.Jargalsaikhan - Director, Economic Policy and Planning Department Ms.D.Baasankhuu - Director, Fiscal Policy and Coordination Department Mr.E.Sandagdorj - Deputy Director, Fiscal Policy and Coordination Department Mr.D.Byasgalan - Director, Sector Development Policy Coordination Department Mr.Ts.Davaasuren - Director, Treasury Management Department Ms.O.Enkhariunaa - Deputy Director, Economic Policy and Planning Department Ministry of Industry and Trade Mr. Ch.Ganzorig - Minister, Ministry of Industry and Trade Ms.Oyuntsetseg - Director, Trade and Intemational Cooperation Department Mr.Badarch, Director Mr.V.Enkhbold - Senior Officer Ministry of Nature and Environment Ms.N.Sarantuya - Director, Strategic Planning Department Mr.Dashdavaa - Officer Ankhmaa - Officer, Intemational Cooperation Department Ministry of Science, Technology, Education and Culture Mr.Batjargal - Deputy Director, Economic, Supervision, Monitoring Department Purev-Ochir - Officer Myagmarsuren - Officer Ministry of Infrastructure Mr. Batrenchin - Officer, Energy Section Ms.Myagmar - Officer, Public utilities Ms. Oyunbileg - Officer, Roads, Transport, Information-Communication and Tourism Policy and Coordination Department Ministry of Health Mr.D.Chimeddagva - Director, Strategic Management and Planning Department Ms.Erdenechimeg - Head, Planning Division Ms.Tsolmon - Officer, Strategic Management and Planning Department 55 Ministry of Social Welfare and Labor Mr.Zorig - Officer Ministry of Food and Agriculture Mihtiv - Officer Boldkhuyg - Officer, Strategic Planning Department 56 Annex V: Data gap Filling between I-PRSP and F-PRSP Title Time Executing agency Possible donor Household Income and Expenditure Survey 2001-2002 NSO World Bank, UJNDP Treasury information system improvement 2001-2002 MOFE Fiscal Framework Statement 2001-2002 MOFE ADB Data on number of employees of budgetary organizations 2001-2002 MOFE Information inflow between MOFE and BOM 2001-2002 MOFE, BOM Informal sector survey 2001-2002 NSO, MOFE UNDP Reconsolidating of fiscal and monetary data 2001-2002 MOFE ___ _ Debt information management 2001-2002 MOFE, BOM Final reports of population census - 2000 2001-2002 NSO Labor force sample survey 2001-2002 NSO ADB Regional development studies 2001-2002 MOFE Civil Service Reforms studies / Budgetary Framework / Treasury Reforms 2001-2002 MOFE ADB, WB Public Expenditure Review / Public Expenditure Tracking Survey 2001-2002 MOFE WB Studies on Privatization of social sector SPC, MOFE Amendments to Health Insurance Law November, MOH 2001 _ Study on privatization of NIC and energy distribution system on poor 2001-2002 MOFE, MOI WB Land reforms 2001-2002 MOFE, MNE Licensing easing survey 2001-2002 MIT Textile industry studies 2001-2004 MIT Business Enterprises Survey 2001-2004 MIT USAID General Data Dissemination Survey 2001-2004 NSO IMF, WB, EU National Accounts Data 2001-2003 NSO IMF, WB Gender Assessment data 2001-2004 MOFE, NGOs, UNIFEM NSO _ Infrastructure Privatization Study 2001-2004 SPS, MOI WB Pension reforms 2001-2004 MOSWL WB Integration of Equity and Poverty Reduction Concerns into Development Strategy 2001 MOFE, MOSWL UNDP Information systems 2001-2002 MOFE, BOM, NSO 57 Annex VI: Road Map for Development of the Poverty Reduction Strategy Paper (PRSP) Activity Responsible agency & Time Expected outcomes participants I Establish a technical working group, headed by Mr. MOFE October, 2000 Technical working group Ch.Ulaan, Mr. Shi.Batbayar MOSWL established 2 Deliver a draft of I-PRSP to the World Bank MOFE, Working group 26.10.2000 First draft of I-PRSP produced 3 Revise draft of I-PRSP in accordance to the World MOFE, Working group November, 2000 Revised draft of I-PRSP Bank comments produced 4 Revise of I-PRSP incorporating the WB and other MOFE, Working group November, 2000 - May Revised draft of I-PRSP international agencies, donor countries comments 2001 produced 5 Conduct seminar on results of the Participatory Living NSO, Government December, 2000 Workshop organized and Standards Assessment agencies, NGO, donors PLS Report discussed 6 Organize meeting with representative s of civil society WB, MOFE December, 2000 Meeting organized, main on participation in PRSP formulation process guidelines for I-PRSP formulation discussed 7 Participate in Regional and National Development WB, Soros Foundation, February - April, 2001 Meeting participation, Debate Government, NGO, paper on development donors, media (with web site presentation), video prepared 8 Present I-PRSP to the Cabinet for discussion MOFE, Working group April, 2001 Discussions at the Cabinet, comments on I- PRSP presented 9 Revise I-PRSP based on Cabinet meeting comments MOFE May, 2001 Revised draft prepared 10 Present I-PRSP at the CG meeting GOM, Minister May, 2001 Briefing on CG meeting made 11 Discuss I-PRSP and disseminate to Ministries, WB, MOFE, Working group May - June, 2001 Ministries signing on I- IMF, other international agencies, donor countries, PRSP sections NGO comments, complete I-PRSP 12 Submit I-PRSP to the Wold Bank and IMF mission MOFE June, 2001 Approval of I-PRSP, PRGF 13 Publish I-PRSP and disseminate through organization MOFE August, 2001 Dissemination to civil _of regional workshops society 14 Brief about I-PRSP at the Parliament MOFE October, 2001 Comments presented 58 15 Set up working groups August 2001 Working groups set up .__________________________________________ _____________________ _____________________ and TOR approved * Coordination committee * Intra-sector working group * Working unit on macroeconomic issues * Working unit on social issues * Working unit on legal, governance, participation issues 16 Draft work plans for working groups and adopt Coordination committee, August, 2001 Work plans approved working groups 17 Workshop on poverty by topics and open discussions Coordination committee, September, 2001 Discussion on I-PRSP, among civil society: working groups differences between I- * From I-PRSP to F-PRSP PRSP and F-PRSP * Sustainable Human development October, 2001 Discussion how to * Women and women with many children NGOs prioritize strategy issues, * Herders priority issues for social * Youth and children sector components * Unemployed determined * Local governors Summary of suggestions * Specific groups / disabled persons and proposals presented * Universities/ higher educational institutions to the GOM * Private sector Trade Unions 18 Conduct Household Income and Expenditure Survey NSO July 2002 Reports produced with LSMS module (release primary results by January 2002) 19 Conduct public campaigns on PRSP * TV program on PRSP Inter-sectoral working Oct, December, 2001 TV programs conducted group, Coordination June, 2002 committee * Radio program and discussions Inter-sectoral working Oct, December, 2001 Radio programs group, Coordination June, 2002 broadcasted _____________ committee * Radio distance training on development of Working groups, NGOs December, 2001 Trainings conducted poverty issues 59 20 Organize meetings with stakeholders on data gap and Intra-sector working October, 2001 Review of schedule discussion on possible ways to address group, working units, surveys and outcomes civil society and agencies to be representatives involved 21 Complete PER, discuss results and disseminate report PER working group October 2001 Recommendations and to relevant bodies plan of further actions 22 Conduct debate on Poverty and Economic growth Macroeconomic and November, 2001 Debate organized and Social sector Working summary of discussions groups 23 Hold meetings with various stakeholders Intra-sector working December, 2001 Recommendations and (government, NGOs, business community) about group, working units, summary of discussions progress of PRSP formulation, donor, civil society, prepared, next steps and business community actions agreed representatives 24 Organize donors meeting on Energy sector Government, donors and December 2001 Meeting held, proposal restructuring civil society for energy sector restructuring prepared 25 Produce NGO policy paper on Poverty NGOs December, 2002 Policy Paper 26 Produce I" draft of PRSP Intra-sectoral working January, 2002 1tt draft of PRSP group __ produced 27 Discuss about the 1st draft PRSP with key Intra-sectoral working February, 2002 Summary of comments stakeholders group, donor, civil society, business community representatives 28 Revise PRSP based on comments Intra-sectoral working March, 2002 Revised draft of PRSP group produced 29 Organize donors meeting on Poverty Government, donors, March, 2002 Meeting held, NGOs commitments 30 Revise iteratively PRSP based on comments Intra-sector working April - August, 2002 Revised PRSP draft I_______________________group prepared 31 Organize series of regional consultative meetings on Intra-sector working April - May, 2002 Comments and PRSP: group, donor, civil recommendations on * Western society, business PRSP * Eastern community * Central representatives, * Steppe governors 60 * UB 32 Prepare revised draft of PRSP Intra-sector working June,2002 Revised PRSP draft group -prepared 33 Submit PRSP to donors and discuss potential projects GOM, WB, donors, June,2002 Presentation of program NGOs and project proposals 34 Organize National Consultative Meeting Intra-sector working June,2002 Discussion about F-PRSP group, donor, civil document draft, society, business recommendations community produced, possible donors representatives, or other sources of governors financing proposed 35 Organize Intra-ministerial discussion Intra-sector working June, 2002 Comments on revised group draft provided 36 Complete PRSP Intra-sector working June, 2002 Final document prepared group 37 Present to the Cabinet PRSP for discussion MOFE July, 2002 Comments received 38 Revise PRSP based on Ministers' comments Intra-sector working July, 2002 Document finalized group 39 Submit to the World Bank/ IMF mission GOM August, 2002 Document sent 40 Present to the WB/IMF Board Meeting Mission September, 2002 PRSP approved 41 Discuss and approve PRSP by the Parliament GOM September, 2002 Approval resolutions passed 42 Publish and disseminate F-PRSP Intra-sector working October, 2002 Published final document group Note: * The above mentioned activities are tentatively planned. * Estimated cost is US$ 300 thousand. • Detailed information and financial estimation will be available on request. 61