A. Mikhnev: The key thing we want to see is Mongolia becoming a prosperous country

Mongolian Economy spoke with Andrei Mikhnev, the World Bank’s Country Manager for Mongolia since April 2019. He has more than 25 years of development professional experience working across the world. At the World Bank, he has worked in many different countries covering issues related to economic development. Before coming to Mongolia, A.Mikhnev worked in the Middle East, North Africa, Sub Saharan Africa, Europe, Central Asia, and Latin America. He holds a PhD degree in international economics.

-Mongolia joined the World Bank Group in February 1991. At that time, Mongolia was transitioning from a centralized and planned economy to a free-market economy and faced enormous obstacles. In addition to donor countries, the World Bank Group became the first international organization to offer its help and support to Mongolia during that difficult time. Could you tell us a bit more about those first projects?
-As you know, this year, we’re celebrating 30 years since Mongolia joined the World Bank Group. On February 14, 1991 Mongolia became a member of the World Bank (the International Bank for Reconstruction and Development, and the International Development Association), and the International Finance Corporation. Five months later the country also joined the International Centre for Settlement of Investment Disputes and later in 1999 Mongolia joined the Multilateral Investment Guarantee Agency thereby joining all five entities of the World Bank Group.

In the beginning of the 1990s, Mongolia and some other transitional countries faced quite a few serious problems. The whole economy needed to be changed. And that required a very thoughtful but decisive transition from a command driven and planned economy to a more market-oriented approach. To support this transition, we first focused on supporting Mongolia to restore production in key economic sectors such as agriculture, energy and transport and build market-oriented institutions.

Not just government institutions but businesses as well needed to be transformed. There were a lot of state-owned enterprises in Mongolia, which needed to be privatized. So, the first two projects that were approved were the Economic Rehabilitation Program and the Technical Assistance Project. These two projects have really helped to rebuild the foundation for economic development, while at the same time provide technical assistance to the government. The first few projects also focused upon essential support to vulnerable groups to ensure that people could continue to receive an income and have jobs during this transition period.

Another project we financed among the firsts helped with the transport connectivity. Mongolia is a vast country that needs to be connected not only to the outside world but also between different locations within the country to build “arteries” for the economy to function and grow.

But as you may recall, the GDP per capita was very low, just over USD1,000, at the beginning of this 30 years’ journey. Therefore, most of the projects were focused on how to ensure that there is opportunity for income growth in Mongolia.

-What were the main challenges in implementing those projects?
-At that time, there was very little experience and even fewer specialists with the right skills who could run market-oriented institutions, both in the public and private sector. So, a lot of effort was needed to be put into place clear regulations and how a private business should operate.

Another challenge my colleagues recall is that the total economy needed to be moved around within a very short timeframe. Instead of focusing on production, the need was much more focused on how goods could be sold. Ensuring that sufficient goods and services were available in the markets to service the people of Mongolia was paramount.

Making this transition smoother and faster was the main idea. But the challenge was how could we do all this, and how to ensure that there still is a market, how to make sure people will still have paid employment. I would say these were main challenges that Mongolia faced in the early 1990s.

-The World Bank was one of the first organizations to support Mongolia’s vital infrastructure sector including power plants and mining. Looking back on those early years of partnership, how do you see the importance of those projects implemented back then?
-I think building critical infrastructure was very, very important for Mongolia. Looking back over 30 years, we can see now that a lot has been achieved but there are still many other projects need to be developed.

Mineral resources are the driver for Mongolian economy. We understood that basic infrastructure should be in place to secure the lives of the people and to build the foundation for future development. Thus, we supported a lot of infrastructure projects throughout the thirty years. Currently we are focusing on a project to develop renewable energy, to ensure that Mongolia not only has a full and uninterrupted access to electricity, but also develop this sector in an environmentally friendly way using state-of-art technology. As we progressed over the last 30 years, more and more sophisticated projects have been developed. We are not only talking about building roads to move goods and connect different economic players within the country, but we are also considering how to link Mongolian made products ready for export to other countries and how to link different economic players.

-How does the World Bank prioritize its projects to be implemented in Mongolia?
-The World Bank’s projects are guided by a Country Partnership Strategy we develop in consultation with our counterparts and stakeholders in Mongolia. The strategy is formulated through a broad consultation process with all stakeholders such as the government, private sector, and civil society who all express their challenges and priorities for reforms. At the same time, we conduct a thorough analysis, either in one specific sector or across various sectors which help us understand what the underlying constraints are faced by Mongolia. Combining the stakeholder feedback and our analytical work, we then develop the most appropriate solutions for overcoming such challenges through our projects or other forms of appropriate support. Definitely, we would like to finance those projects which have the most impact and at the same time rely on approaches that have been proven in other countries.

-Mongolia has recently become a lower middle-income country and graduated from the International Development Association (IDA). What are the key changes in the assistance and lending program of the WBG?
-The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) are two windows of the World Bank providing sovereign lending to member countries. IDA provides highly concessional financing to low and some lower middle-income countries. When the country graduates from IDA, it gains access to loans based on IBRD terms, which are still concessional comparing to market rates, but provide the country with more flexibility in how they could use the loans and the choice of relevant financial instruments.

From a country’s development perspective, the graduation from IDA to IBRD is a cause for celebration. It is a recognition of the country’s level of development as a middle income country.

It also demonstrates the country’s ability to manage more sophisticated foreign borrowing and its enhanced creditworthiness that can help accessing international capital markets. We are pleased Mongolia was able to join the group of IDA graduates after almost thirty years of development.

The first project, fully financed on IBRD terms, was approved in June 2021. That was the Ulaanbaatar Sustainable Urban Transport Project.

-Poverty reduction is one of the World Bank Group’s twin goals. Can you please share your views on the progress in reducing poverty in Mongolia over the last 30 years and what more do you think should be done in the future?
-Good question. Yes, indeed, we have two very specific goals. One of them is poverty reduction, and by 2030 we aim to have eradicated extreme poverty so that it will affect fewer than 3 percent of the global population. We can see that extreme poverty, which is equivalent to living on less than USD1.90 a day, has been almost eliminated in Mongolia already.

However, if you look at the poverty line for lower middle-income countries, which is about USD3.20 a day, about five percent of the population is living below that poverty line in Mongolia. And of course, we have a national poverty line which is higher and more applicable to Mongolia.

Over the years, the percentage of the population living below the national poverty line has been reduced to 21.6 percent in 2014. And then during the economic crisis of 2016, it went up again to around 30 percent of the population, and since then it has again dropped to below 27 percent. We’re working closely with the National Statistics Office to ensure that we understand what’s happening, what the trends are and what is really affecting poverty. In our most recent poverty assessment, we can see that urban poverty reduction has stagnated while rural poverty has reduced significantly.

Another important thing to mention is that during the COVID-19 pandemic, poor families were particularly affected. But we’ve learned that certain measures including stimulus measures of the government were able to alleviate some of this risk.

Interestingly, the analysis shows that despite the high level of economic growth in the past, it didn’t have a visible impact on those who are in poverty trap. So, going forward we should continue focusing on reforms benefiting the poorest part of the population.

-Can you please share how the World Bank Group contributed to boosting shared prosperity in Mongolia, the other twin goal of the institution?
-When we’re talking about shared prosperity, we want to be sure that the growth is benefiting the whole population, especially the poorest. In Mongolia we can see that GDP is growing. But the wealth and income gap between the richest and the poorest is also increasing. Hence, although the country’s economy is growing, the poorest are most likely not to benefit from that growth. That’s why the World Bank is looking at how growth is distributed to the bottom 40 percent of the population with the lowest incomes.

We believe that much more could be done in Mongolia to ensure that the poorest benefit more from this economic growth. Development policy lending, which we provided in in 2017 and 2019, are good examples of how we supported the key policy actions of the government to boost shared prosperity.

Going forward, we will continue to do that. With each of our projects, we want to be sure that it’s benefiting some of the poorest parts of the population. And  impact is really measured through the improvement in the incomes of the poorest population.

-The World Bank Group has recently approved a new Country Partnership Framework for Mongolia over the next four years. Can you share with our readers, the main goals and strategies of this policy document?
-As I mentioned earlier, Country Partnership Framework, or CPF, is a strategic document that sets up priorities of our support to the country, usually for a five-year period. Our team started preparing the document more than a year ago and it was supported by our Board of Directors in May 2021.

The CPF came at an important juncture of the country’s economic development. The COVID-19 affected every single part of life here in Mongolia. But we also want to be sure that Mongolia can overcome immediate problems and build a strong foundation for a more sustainable and inclusive growth. That’s why our objective is to promote a resilient recovery from the pandemic but also focus on more sustainable and inclusive growth.

Handover of the emergency and intensive care units to the State Third Central Hospital in response to COVID-19 (October 2021)

We used a lot of inputs from civil society, the private sector, different ministries and regional stakeholders to help us crystallize the key priorities of the strategy. Based on these inputs, the CPF is built on three main pillars. First is strengthening economic governance. Second is boosting competitiveness. And third is improving the quality of life. So, all the projects that we are planning to implement should support these three main pillars. We also have more specific objectives for these pillars. For instance, strengthening fiscal management institution, improving financial sector stability and governance, strengthening efficiency and accountability of government service delivery are the objectives of the first pillar. The second pillar includes boosting competitiveness, improving the business  environment, promoting sustainable mining investments, increasing productivity in the nonmining sector and improving connectivity through sustainable  infrastructure. And the third pillar aims at improving the quality of life, enhancing efficiency and sustainability of a social protection system and improving livability of urban centers. Across the pillars, addressing climate risks and creating productive jobs are two underlying themes. These pillars and underlying themes are aligned with the objectives of the government program and Mongolia’s long-term development vision under Mongolia 2050.

I would like to mention that this is the first time that the CPF is developed after Mongolia became a fully IBRD country. That’s why we will increasingly focus on projects that are larger in size and more impactful to support the most important investments, such as transport infrastructure. Another feature that I would like to mention is that the CPF is now aligned with the political cycle of Mongolia. We believe that this will help us ensure that the reforms we are supporting would have continuous ownership from the government over longer time horizon.

-What are the main challenges and bottlenecks in collaborating with the Mongolian government, public institutions, and the private sector?
-At the current state of our partnership, we have very good partners, very capable, especially highlevel officials that understand the strategic priorities for the country. So, we wish that our projects continue with strong support of capable reform champions form the government, civil society, and the private sector, and that they have continuity.

We do, however, have a few lessons from previous experiences. Practically nearly all the projects we have in Mongolia do not finish by the end date originally planned at the beginning of the project. So we have an implementation challenge. More realistic planning in terms of project durations and more focus on execution is something we want to focus on for upcoming projects.

One important point I should mention is that the World Bank does not implement projects. A project is always implemented by a government agency or subnational agency. We only provide financing and knowledge expertise to support their implementation.

-I think you have pretty much covered the past and current focus of the World Bank. Let’s talk about how do you see WBG’s priorities for the next 30 years?
-Honestly, I wish that the World Bank office could close in Mongolia as soon as possible, because that’s what happened with some countries when they graduate completely from the World Bank support. In some countries in Central Europe and East Asia, for instance, we closed our offices, because there was no need for financing from the World Bank.

I think Mongolia would still receive financial and knowledge support from the World Bank for some years to come, but I genuinely hope it to be for fewer than 30 years. The key thing we want to see is Mongolia becoming a prosperous country. We would like to be part of the development journey of Mongolia until it becomes a high-income country, when poverty is eradicated, when people will have equal opportunities for income generation, and when Mongolia will be known for many things beyond just coal and cashmere exports. And we will be excited to support this journey.