Document Stage: Draft July 2016

Mongolia 2012–2016

Country Partnership Strategy Final Review

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CURRENCY EQUIVALENTS (as of 1 July 2016)

Currency unit – togrog (MNT)

MNT1.00 = $0.00051 $1.00 = MNT1,957.50

ABBREVIATIONS

ANR – agriculture, natural resources and rural development ADB – Asian Development Bank CAREC – Central Asia Regional Economic Cooperation CHP5 – combined heat and power plant number 5 COBP – country operations business plan CPS – country partnership strategy DBM – Development Bank of Mongolia EA – executing agency EARD

EIRR ENV ESG

– – – –

East Asia Department economic internal rate of return environmental sustainability environmental sustained growth

GDP GEM GIZ

– – –

gross domestic product gender equity and mainstreaming Deutsche Gesellschaft für Internationale Zusammenarbeit

GOV – governance GWh

IA – –

gigawatts hours implementing agency

ICPS – interim country partnership strategy IED

JICA – –

Independent Evaluation Department Japan International Cooperation Agency

JFPR KfW

– –

Japan Fund for Poverty Reduction Kreditanstalt Für Wiederaufbau

MCUD MDG MFF MNRM MOF MSE MTR

– – – – – –

Ministry of Construction and Urban Development Millennium Development Goal multitranche financing facility Mongolia Resident Mission Ministry of Finance Mongolian stock exchange Midterm Review

MWe – megawatt electrical NDS – National Development Strategy OAI

OCR ODA

– – –

Office of Anticorruption and Integrity ordinary capital resources official development assistance

O&M – operations and maintenance PATA – policy advisory technical assistance PBL – policy-based loan PCR – project completion report PIU – project implementation unit PPP – public–private partnerships

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PRC PSD

– –

People’s Republic of China private sector development

PSOD – Private Sector Operations Department PVR

RCI – –

project validation report regional cooperation and integration

SME SPS SREP

– – –

small and medium-sized enterprise sanitary and phytosanitary Scaling Up Renewable Energy for Low Income Countries Program

TA TASF

– –

technical assistance Technical Assistance Special Fund

TFP – Trade Finance Program TVET – technical and vocational education and training WUS – water and other urban infrastructure and services

GLOSSARY aimag – administrative unit (provincial) ger – traditional tent dzud – local natural disaster soum – administrative unit (subprovincial)

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Director Y. Fernandez Lommen, Mongolia Resident Mission (MNRM), EARD

Team Leader M. Bezemer, Senior Country Economist, EARD Team Members I. Baatarkhuu, Senior Operations Assistant, EARD

T. Badarch, Senior Project Officer, EARD B. Battsengel, Operations Assistant, EARD Ts. Begzsuren, Associate Social Development Officer, EARD M. Bezuijen, Environment Specialist, EARD A. Bhargava, Director, Energy Division, EARD C. Bodart, Principal Health Specialist, EARD E. Enkhbold, Investment Officer, EARD D. Fay, Transport Specialist, EARD Ts. Galsanchoimbol, Project Analyst, EARD G. Giannetto, Senior Financial Sector Specialist, EARD R. Guild, Director, Transport Division, EARD M. Gunawardhena, Investment Specialist, PSOD A. Heckmann, Senior Urban Development Specialist, EARD A. Jigjidsuren, Senior Social Sector Officer, EARD A. Kim, Financial Sector Specialist, EARD S. Lee, Financial Sector Specialist, EARD J. Liang, Principal Economist, EARD A. Lkhagvasuren, Economics Officer, EARD I. Lonjid, Senior Social Sector Officer, EARD R. Mamatkulov, Senior Health Specialist, EARD A. Maruyama, Education Specialist, EARD T. Oi, Senior Energy Specialist, EARD K. Ozoa, Senior Operations Assistant, EARD M.C.F. Paña, Associate Knowledge Management Officer, EARD A. Pettersson, PAU Head, EARD S. Penjor, Urban and Social Sectors Division, EARD C.A. Png, Principal Counsel, OGC S. Pokharel, Investment Specialist, PSOD O. Purev, Senior Environment Officer, EARD O. Purevjav, Operations Assistant, EARD Y. Qian, Director, Public Management, Financial Sector and Regional Cooperation Division, EARD F. Radstake, Principal Environment Specialist, EARD P. Sarrat, Young Professional, EARD S. Saxena, Principal Transport Specialist, EARD H. Shiroishi, Financial Sector Specialist, EARD J. Sluijter, Transport Economist, EARD D. Sobel, Principal Results Management Specialist, EARD C. Sugden, Principal Public – Private Partnership Specialist, EARD B. Tsetsgee, Project Analyst, EARD T. Ueda, Senior Natural Resources Economist, EARD W. Walker, Principal Social Development Specialist, EARD Q. Zhang, Director, Environment, Natural Resources and Agriculture Division, EARD Y. Zhang, Senior Regional Cooperation Specialist, EARD

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NOTES

(i) The fiscal year (FY) of the Government of Mongolia and its agencies ends on 31 December.

(ii) In this report, "$" refers to US dollars. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

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CONTENTS

I. ASSESSMENT OF THE COUNTRY PARTNERSHIP STRATEGY PERFORMANCE......... 6

A. Introduction .................................................................................................................. 6

B. Strategic Positioning .................................................................................................... 6

C. Program Relevance ....................................................................................................10

D. Efficiency ....................................................................................................................16

E. Effectiveness ..............................................................................................................20

F. Sustainability ..............................................................................................................26

G. Development Impacts .................................................................................................31

H. ADB Performance .......................................................................................................36

I. Borrower and Executing Agency Performance ...........................................................39

J. Overall Assessment ....................................................................................................41

II. KEY LESSONS AND RECOMMENDATIONS ....................................................................42

APPENDIXES

1. Economic, Poverty and Social Indicators……………………………………………………….43

2. Key Portfolio Performance Indicators……………………………………………………………45

3. CPS Results Framework: Targets and Achievement………………………………………….46

LIST OF TABLES

Table 1: Overall Rating of CPS, 2012–2016 and ICPS, 2014–2016 ..........................................41

LIST OF FIGURES

Figure 1: Annual Volume and Number of Approved Loans ........................................................11

Figure 2: Project Performance by Year .....................................................................................17

Figure 3: 2015 Project Performance by Sector……………………………………………………...17

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I. ASSESSMENT OF THE COUNTRY PARTNERSHIP STRATEGY PERFORMANCE

A. Introduction 1. This review assesses the performance of the Asian Development Bank’s (ADB) country partnership strategy (CPS) for Mongolia from 2012–2016, and the interim country partnership strategy (ICPS) 2014–2016. The assessment covers all lending and non-lending programs that were ongoing and approved during 2012-2016. This review applies six criteria: (i) strategic positioning; (ii) program relevance; (iii) effectiveness; (iv) efficiency; (v) sustainability; and (vi) development impacts, and includes an assessment of ADB’s and the government’s performance. Lessons learned will inform the forthcoming new CPS.

2. CPS Overview. Preparations for the CPS consultations began in 2008, with preparation suspended in 2009 due to the need to respond to the severe financial crisis affecting Mongolia at the time. Preparations resumed in 2010. Discussions with the Government of Mongolia focused on the possible inclusion of the finance and agriculture sectors as core sectors, and a potential exit of the health sector at the end of the CPS. The CPS was approved in March 2012, three months before the country’s general elections. It has two strategic pillars: (i) competitive, sustainable, and regionally integrated growth; and (ii) inclusive social development. Its priority sectors are transport, energy, water and other urban infrastructure services (WUS), higher and technical and vocational education, and health. The CPS identified private sector development and good governance as thematic drivers of change, and regional cooperation, environmental sustainability, and gender equality were mainstreamed. 3. ICPS Overview. Prepared at the request of the incoming government following the elections in June 2012, the ICPS contains two strategic adjustments, reflecting changed government priorities. First, the inclusion of agriculture, natural resources and rural development (ANR), finance, and basic education. Second, scaling up both sovereign and nonsoverign operations to meet pressing development needs. The changes were intended to emphasize (i) employment creation through diversification and regional integration; (ii) environmental rehabilitation and protection, with adaptation to climate change; and (iii) renewed focus on basic education, social welfare reform, and support for people with disabilities. The ICPS has four thematic drivers of change: private sector development, governance and capacity development, gender equity and mainstreaming, and knowledge sharing. B. Strategic Positioning 4. The assessment of strategic positioning considers how well the CPS and ICPS guided ADB’s program, relative to conditions in Mongolia and to ADB’s policies and experience. It has five sub-criteria: (i) relevance to the country context and government development priorities; (ii) focus, selectivity, and alignment with ADB’s Strategy 2020 and the Midterm Review (MTR) of Strategy 2020; (iii) coordination with development partners; (iv) long-term continuity and the extent to which lessons learned were incorporated; and (v) appropriateness of resource allocation based on the CPS results frameworks.

1. Relevance to Country Context and Development Priorities 5. Country context. At the time of CPS approval, the Mongolian economy was experiencing a rapid transformation and high growth due to the discovery of large mineral deposits and development of the mining industry. A robust foreign direct investment-driven economic recovery saw growth accelerate from -1.3% in 2009 to 17.3% in 2011. Increased GDP

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per capita led ADB, and other development partners, to substitute grant financing for lending with increasingly less concessional terms, while bilateral partners considered scaling or shutting down operations in the country. Amidst optimism of the country’s future growth prospects and an improved credit profile, official development aid lost importance as the government explored alternative sources of finance, including tapping international financial markets at favorable terms, and financing from the newly established the Development Bank of Mongolia (DBM).1 6. Despite high economic growth that substantially boosted average incomes, 27.4% of the population still lived below the national poverty line in 2012 as mineral-led growth had failed to generate substantial employment, with just 4% of the labor force engaged in this sector (Appendix 1). Ensuring secure and diversified employment opportunities was needed to raise living standards for all and reduce the economy’s vulnerability to boom-and-bust cycles. This included, fostering exports to foster employment generation, and addressing critical constraints faced by small-and medium-sized enterprises (SMEs), in particular those in agribusinesses and tourism. Constraints included limited access to finance, high transportation costs and logistics, poor sanitary and phytosanitary standards, skill shortages or mismatches in most sectors of the economy.

7. Agriculture is a pivotal sector of the Mongolian economy, absorbing over a third of total employment. However, the livestock subsector, which accounts to over 80% of the output of the primary sector, is vulnerable to extreme climatic events, particularly dzuds (extreme winters). In absence of proper pasture and water resource management, an estimated 70% of grasslands had been impacted by desertification, primarily as a result of overgrazing, deforestation, and land conversion for agriculture. This was exacerbated by climate change, with average mean temperature increases of over 2°C and a doubling in the frequency of climate related disasters, including droughts, dzuds, and flashfloods, with high social and economic costs (particularly for herders). In addition, rapid rural-urban migration to Ulaanbaatar was overwhelming urban infrastructure and worsening living conditions, resulting in soil, air, and water pollution, overcrowded classrooms, housing shortages, and traffic congestion. The resulting increased life risks and vulnerability resulting from rapid internal migration and urbanization, rising inequality, and the growing informality of employment required a focus on social protection and improved access to affordable health services. 8. Alignment with Government’s Development Priorities. The CPS and ICPS were compatible with the Government’s National Development Strategy (NDS), 2008–2021 which has six priorities: (i) achieve the Millennium Development Goals (MDGs); (ii) develop an export-oriented, private sector-led, high-technology, knowledge-based economy; (iii) exploit strategic minerals to build savings, growth, and a modern processing industry; (iv) develop regions and infrastructure to reduce urban–rural disparities; (v) halt ecosystem imbalances; and (vi) consolidate political democracy and an accountable system free from corruption. Targets for 2021 include a per capita income of $12,000, expansion of manufacturing, and the near-elimination of poverty. Strong growth that capitalizes on the proximity of markets in the People’s Republic of China (PRC) and the Russian Federation is a key feature in the strategy. After the general elections of 2012, the new government retained the NDS while stressing the need for (i) green development; (ii) economic diversification, including SME development; (iii) balanced regional development, including the development of cities and towns, and new infrastructure. To meet these objectives, the government substantially increased public expenditure, which was

1 The government set up a $5 billion international bond program, of which $1.5 billion was sold in November 2012

and $0.5 billion in March 2016. The first Chinggis bond issuance followed a 5-year $580 million euro bond issued in 2012 by the DBM and guaranteed by the government.

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largely funded by external borrowing and channeled through the DBM. New government’s priorities were reflected in the ICPS.

2. Alignment with ADB’s Strategy 2020 and the Midterm Review 9. Alignment of the CPS with Strategy 2020 and the MTR. The CPS was consistent with Strategy 2020, with a distinct move to limit the number of sectors of engagement: transport, energy, WUS, and education were included, with planned withdrawals from agriculture and natural resources, finance, and basic education. Although health was classified as an ‘other area of operations’ in Strategy 2020—with ADB stepping back to allow other agencies to take the lead—strong demand from the government and limited assistance from other donors in the sector, led ADB to retain health in the CPS. Regional cooperation and environmental sustainability, private sector development, gender equity, and good governance and capacity development are key themes in the CPS, ensuring alignment with Strategy 2020. Major implications of the MTR included a strengthened focus on the private sector as well as climate change, both of which were fully incorporated to the ICPS, which was completed after the MTR. The increased lending capacity of the MTR was also reflected in the scaling up of lending operations from an annual $147 million in the CPS to $224 million in the ICPS.

3. Coordination with Development Partners 10. Coordination with Development Partners. The CPS was premised on ADB’s close cooperation with other development partners, under government leadership. The limited interest of the new government in 2012 official development assistance (ODA) negatively affected development parent coordination, as key government–development partner coordination mechanisms were dissolved. This included the annual donor coordination meeting chaired by the government and the World Bank, which was discontinued in 2012. Despite the setback, ADB maintained close coordination with key partners, especially Japan International Cooperation Agency (JICA), the United Nations, and Kreditanstalt Für Wiederaufbau/ Deutsche Gesellschaft für Internationale Zusammenarbeit (KfW/GIZ) Under Central Asia Regional Economic Cooperation (CAREC), ADB was the only international financial institution active in Mongolia, with close coordination with the United Nations Development Programme (UNDP). To help the government to get maximum value from ODA, ADB approved a TA on development effectiveness in 2014. 11. Cofinancing. The ICPS envisaged increased cofinancing, with an emphasis on securing grant or concessional funding. Key cofinanciers were the European Investment Bank, the World Health Organization, the Global Environment Facility, and GIZ. Close coordination was maintained with the PRC and the United States (US) on major infrastructure and health projects. ADB succeeded in mobilizing the first major climate finance for Mongolia, with a $29.7 million grant from the Climate Investment Fund, in cooperation with the World Bank. ADB made great use of the Japan Fund for Poverty Reduction (JFPR) with $8.5 million in grants and $20.1 million in technical assistance (TA) in 2012–2015, as well as mobilizing $10 million from the Japan Fund for Joint Crediting Mechanism. ADB was also successful accessing trust funds, securing support from the Gates Foundation to promote sanitation, from Australia, Japan and the US for anti-money laundering, from Canada to promote public–private partnerships (PPPs), and from Sweden to combat the increase in HIV/AIDS due to large mining projects.

12. Continuity in operations. Long-term continuity was ensured in ADB’s support during the CPS period. Transport, urban development, education, health and social protection continued with ADB as leading donor, with most having been areas of operation since Mongolia

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joined ADB in 1991. Changes were introduced within the sectors, with the CPS defining higher education and technical and vocational education and training (TVET) as the priority sub-sectors. Within transport, there was a shift in focus to add urban transport in Ulaanbaatar to complement provincial roads. With the exclusion of basic education, agriculture and natural resources, and finance in the CPS, there was a temporary interruption in ADB assistance in the sectors that resumed quickly following the implementation of the ICPS. ADB also maintained strong support for regional cooperation and integration, environment protection, and private sector development. Efforts were stepped up in gender and governance, with a focus on public procurement, financial management, and anti-money laundering on the latter. Greater resource availability under the ICPS opened up new sectors for ADB operations, including forestry, climate change, and tourism.

4. Appropriateness of Planned Resource Allocation 13. Resource Allocation. A shift in focus is visible when comparing CPS and ICPS results frameworks. While the transport, energy, and WUS sectors were allocated 91% of CPS resources, a more balanced allocation was made to these sectors (60%) in the ICPS despite an absolute increase in allocated resources by over $69 million. The combined effect of the strategic shift and increased resources in the ICPS, created greater room for the education sector (increased from 6% to 10% of planned allocation), and allocations to the newly introduced finance and ANR sectors amounted to 8% and 19%, respectively. Both the focus and selectivity of the CPS, and the broadened scope of the ICPS reflect ADB’s responsiveness and flexibility addressing government priorities and changing circumstances in the country.

5. Lessons Learned 14. Lessons and recommendations. The strategic positioning of the CPS and ICPS offers the following lessons:

(i) Sustainable development. ADB’s strategic positioning based on the three pillars of sustainable development—economy, social sector, and environment/ climate change—was highly appreciated by the government. ADB’s client orientation and responsiveness played an important role in the significant increase in ADB’s lending at a time when the government had opted to replace ODA with affordable commercial borrowing. A key feature of ADB’s assistance’s attractiveness is the focus on high priority problems, such as the urgent need to develop basic services in the ger area, where the large influx of rural migrants was rapidly settling. This pragmatic and focused approach was preferred to assistance provided by other agencies on generic themes with no direct impact on leaving standards. ADB’s focused approach is also illustrated by support to the government’s green development agenda. Examples include securing $29.7 million in grant funding for strengthening renewable energy regulation and an investment in megawatt scale renewable energy hybrid systems in western Mongolia; reducing air pollution in the ger districts in Ulaanbaatar by switching fuel to coal gasification; sustainable forest management to improve the livelihood of local communities; and making grasslands in Mongolia more sustainable to improve herder’s livelihoods. This strategic focused positioning on sustainable development is likely to remain highly relevant in the next CPS period.

(ii) CPS timing and process. Political volatility in Mongolia, which affected the CPS, suggests that the next CPS should be closely aligned with the political cycle and

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government objectives. Meetings with government officials highlighted the importance of conducting extensive consultations with the government for the preparation of the new CPS to ensure its participatory nature and continued ownership. Consultations should be as broad based as possible, involving relevant stakeholders from Parliament, civil society, academia, the private sector, and other development partners to ensure that priorities are identified and addressed. Media outreach can also play an important role in building broad political support for the overall country strategy, which will facilitate its subsequent implementation.

(iii) Gender mainstreaming. To consistently mainstream gender into infrastructure

sector operations—where at times there has been insufficient understanding, interests, and support from stakeholders—it is advisable to include gender design features, and monitor and follow up with gender-related targets and activities throughout project implementation. Further, gender-inclusive small grants could be sought for augmenting large-scale infrastructure projects.

6. Strategic Positioning Rating

15. Rating. In retrospect, approval of the CPS could have been better timed in light of the political volatility at the time of its preparation. Better timing would have probably prevented the exclusion of key sectors in the country, agriculture, finance, and mining. While focus and sector selectivity was in line with the thinking behind Strategy 2020, excluding ANR and finance from the CPS underestimated the importance of these sectors for inclusive economic growth. On the other hand, it should be stressed that ADB’s nimble responsiveness was crucial to reposition the strategic approach to match the new government’s priorities. By adding agriculture as a priority sector in the ICPS, ADB’s operations became better aligned with the main government priorities. Further, the addition of the finance sector was fully in line with the authorities’ emphasis on economic diversification and employment generation. The planned resource allocation under the ICPS across sectors adequately reflected such changes. The scaling up of ordinary capital resources (OCR) lending also mirrored the government’s emphasis on investment and pressing development needs. Since ad hoc programming and the subsequent ICPS swiftly corrected for some misalignments of the CPS, the ADB’s overall strategic positioning is assessed satisfactory. C. Program Relevance 16. The assessment of program relevance considers the extent to which ADB-financed projects, TAs, and knowledge products were pertinent to ADB’s strategy through the following sub-criteria: (i) relevance to key sector and thematic issues identified in the CPS in terms of the consistency between the program and the CPS and country operations business plans (COBPs); (ii) regional relevance; and (iii) the adequacy of technical or sector-specific aspects in project design.

1. Consistency of Program with CPS, ICPS, and COPBs 17. Relevance to key issues. Mongolia’s economic needs were well served by the program’s focus on diversification with emphasis on (i) employment generation through SME, agribusiness, and sustainable tourism, and (ii) trade facilitation through connecting infrastructure under the CAREC-program (e.g., the first paved road linking Mongolia with the PRC, its main trading partner), the regional improvement of border services, and upgrading of sanitary and

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phytosanitary measures to foster exports of meat and dairy products. Urgent social development needs were addressed through the provision of clean water and sanitation in 8 out of 21 aimags, improved education access and quality, support to achieve the health MDGs, and more effective social protection. Pressing environmental issues were addressed through pioneering ventures in forestry, peatlands, river improvement, and by securing the country’s largest ever climate-funding grant. While relatively small in volume, an array of JFPR grants and TAs played a highly relevant role in delivering practical services to the poor and vulnerable with the intention to scale these innovative concepts up in later CPS years. 18. Actual Versus Planned Lending Volumes. In 2012–2015, ADB approved $690.5 million for the public sector (13 loans and 5 grants), $80.0 million for the private sector (two projects), and $38.2 million for 45 TA grants (Figure 1). In addition, the Trade Facilitation Program supported between $16.6 million and $25.8 million in transactions each year. Approvals in 2012 fell with $61 million short of the total amount planned in the CPS as several projects slipped, but annual lending volumes have been on an increasing trend since, peaking at $275 million in 2015. In terms of lending volumes, transport, finance, and public sector management predominated. Health and social protection and WUS accounted for 10% and 13%, respectively, followed by ANR and education. In 2012–2015, the ANR and finance sector jointly accounted for nearly 30% of approvals evidencing that the main intended strategic shift of the ICPS was effectively implemented. With approval of a JFPR grant for Improving School Dormitory Environment for Primary Students in Western Region, a first step was taken to re-enter basic education.

Figure 1: Annual Volume and Number of Approved Loans ($ million)

ADF = Asian Development Fund, OCR = ordinary capital resources. Note: Figure 2013 includes $28.4 mln. European Investment Bank loan for the Ulaanbaatar Urban Services and Ger Areas Development Investment Program – Tranche 1 (parallel collaborative cofinancing).

Source: ADB database. 2016.

19. Comparing lending pipelines with actual approvals, all projects in the WUS sector and two multitranche financing facilities (MFFs) in the transport sector were approved as planned. Health sector approvals were five times larger than planned, partly utilizing savings in 2012 and partly responding to a shift in government priorities. Despite its non-inclusion in the CPS, finance was also substantially present in early CPS years mainly due to $80 million in approved private sector operations. In the added ANR sector, two projects were delivered as planned in

29.7 87.5

174.5

245.0

85.2

42.5

34.1

30.0

28.4

3

4 4

4

0

1

2

3

4

5

0

100

200

300

2012 2013 2014 2015

OCR ADF Other Number

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2015. Deviations between planned and delivered pipelines as of the end of 2015 exceeded 10% of the total resource envelope for transport (CPS), energy (CPS, ICPS), health (CPS), and finance (ICPS), although it must be noted that percentages for the ICPS can still shift depending on 2016 approvals. Except for the 2012 pipeline which had to be delivered in an election year, the CAREC Regional Improvement of Border Services project, and the Western Regional Road Corridor Investment Program, the first year of each COBP was delivered as planned . 20. Actual Versus Planned Nonlending Volumes. In 2012–2015, 45 TAs were approved totaling $38.2 million, of which 11 were project preparatory (27.2% in volume), 21 were capacity development (47.2% in volume), 13 were policy and advisory (25.5% in volume). Supported by increased Technical Assistance Special Fund (TASF) and JFPR availability, approvals expanded from $6.0 million in 2012 to $16.5 million in 2015. Project preparatory TA funding increased from 2014 to support expanded operations. JFPR funded 17 TAs totaling $20.1 million, which accounted for 37.8% of approved TAs and for 52.6% in terms of volume. ANR, health and social protection, energy, transport & information and communication technology, and public sector management prevailed in TA volumes in 2012-2015.

2. Regional Relevance 21. Context. Over the past 25 years, Mongolia experienced dramatic changes in terms of economic structure, social development, and urban-rural balance. Its capital city accommodates half of the country’s population, and rapid migration without adequate urban planning or the provision of social services or infrastructure has placed a serious burden on the capital and its peri-urban areas. The development gap between rural and urban poverty remains substantial. High-ranking government officials, including the Minister of Finance and the head of the Parliament’s Budget Standing Committee, expressed concern about a possible overconcentration of ADB operations in Ulaanbaatar. This section analyzes the regional focus of ADB’s operations during 2012–2015 to inform the next CPS. 22. Regional allocation of lending portfolio. The allocation of ADB’s lending portfolio (grants and loans) varies widely across regions. To some extent this could be expected given socioeconomic differences. Nevertheless, some important observations and lessons could be drawn:

(i) Number of projects is evenly spread. The regional lending allocation is fairly balanced in terms of the number of projects benefitting each region.

(ii) Nationwide projects dominate. With nearly two fifths of the total allocation, a significant share of lending ($392.4 million) was allocated to nationwide projects. The Social Welfare Support Program makes up more than a third of the allocation to this category. Public sector management, health and social protection, finance, and education were the main sectors with nationwide allocations.

(iii) Regional imbalances. Significant regional differences emerge when considering

allocated amounts. Ulaanbaatar, the West, and South were the main recipients with $200 million (19.0%), $130.7 million (12.5%), and $227.6 million (21.7%), respectively. The East, Central and North regions received shares in the amount of $10.2 million (1.0%), $36.9 million (3.5%), and $51.7 million (4.9%), respectively. While population density matters in this analysis, an uneven regional picture remains when considering per capita allocations. In 2012–2015,

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the South and West benefited most with a per capita allocation of $1.029 and $613, respectively, while the East benefited in the amount of $51 per capita. This implies that the Eastern region, which has the highest poverty rate in 2014, has benefited the least from ADB lending projects in the CPS period.

(iv) Sector concentration. Finance, public sector management, transport, and WUS

were the most regionally concentrated sectors while education, health and social protection, and ANR were more spread out. Sizeable infrastructure projects were a factor behind the relatively high allocation to the West and South.

23. Regional allocation of nonlending portfolio. While there could be more flexibility in regionally steering TA projects, the nonlending portfolio is less balanced with 92.3% of TA resources being allocated to Ulaanbaatar. Other regions—accounting for 54% of the population—range from 0.3% in the Central and East to 3.7% in the West. The picture is similar in terms of numbers with 44 TAs counted as nationwide, 22 TAs as Ulaanbaatar, and no more than four TA projects each for any of the remaining regions.

3. Adequacy of Technical or Sector-specific Aspects in Project Design 24. Project design. The design of ADB-financed projects, programs, and knowledge products was generally relevant to the objectives set in each sector and thematic area. Fifteen out of 21 lending operations (loans and grants) completed in 2012–2015 were self-evaluated, of which four were validated by the Independent Evaluation Department (IED). All project completion reports (PCRs), Implementation Completion Memorandums, and project validation reports (PVRs) concluded that evaluated projects were relevant and generally consistent with the government’s NDS and sector priorities, and ADB’s country and sector strategies. Taking into account validation, 6 projects were rated highly relevant, and 8 were rated relevant. Best practices in project design related to (i) utilization of the full range of available financing modalities (including financial intermediaries, nonsovereign operations, and policy based loans), (ii) a preference for specific issue-based projects that focus on addressing basic needs, and (iii) risks of focusing on overly generic approaches such as Managing for Development Results or PPPs. 25. Program lending. ADB delivered a policy-based loan (PBL)2of $150 million to maintain the country’s social welfare expenditures at MNT285 billion ($143 million) in 2015 by improving (i) fiscal policy management, and (ii) policies and regulations to support targeting and consolidation of social welfare programs. Although not included in the ICPS, the PBL’s objectives were well-aligned with its increased focus on social protection and the strengthening of social safety nets, and its two strategic pillars: (i) competitive, sustainable, and regionally integrated growth; and (ii) inclusive social development. They are also in line with the emphasis on inclusive economic growth in Strategy 2020 and on social protection in its MTR. The PBL is consistent with the government’s Comprehensive Macroeconomic Adjustment Program that was approved by Parliament in February 2015, pursuing fiscal consolidation and inclusive growth against a marked economic slowdown in light of falling commodity prices. 26. Private sector operations. The two types of nonsovereign operations that were conducted in 2012–2016 are discussed below in terms of their strategic relevance:

2 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan

to Mongolia for Social Welfare Support Program. Manila.

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(i) Trade Finance Program. Working with leading banks in the country, ADB supported $79.3 million in trade with over 194 transactions in 2012–2015 using guarantees and loans. Its emphasis on private sector development, regional integration, finance sector development, and partnerships was well aligned with the CPS and ICPS objectives of economic diversification and employment generation. Trade Finance Program (TFP) transactions included support for imports, which are important for inputs to export production. A large volume of TFP used for importing productive machinery, which plays an important role to boost the country’s competitiveness.

(ii) Banking sector. Two nonsovereign operations were approved to provide

financing to micro, small, and medium-sized enterprises. A $40 million loan to Khan Bank was approved in June 2014 for the exclusive funding of micro, small, and medium-sized enterprises in Mongolia. A second project provided $40 million for the Tenger Financial Group, including $30 million to support micro, small, and medium-sized enterprises through XacBank. This project’s relevance is strengthened by its linkage with the Ulaanbaatar Urban Services and Ger Areas Development Investment Program (MFF).3 4 As part of this project, $10 million was approved for TenGer Financial Group for onlending to XacLeasing to support leasing for SMEs ($7 million was disbursed from the approved loan). Such operations are relevant and consistent with the overarching CPS objective of private sector development (driver of change), the added finance sector in the ICPS, diversification, and the government’s SME development program.

27. Knowledge. Knowledge was mentioned in the CPS and identified as a driver of change in the ICPS. ADB provided a wide range of knowledge solutions that were closely aligned with the objectives of the CPS and ICPS. Areas of focus include studies on climate change adaptation and mitigation, industrial cluster development, macroeconomic policy advice, and sanitary and phytosanitary measures to facilitate trade of agricultural products. Anti-money laundering has been a key them under knowledge work. ADB has worked closely with the central bank in capacity development for prosecutors, law enforcement agents, and judges in the investigation and prosecution of money laundering and combating financing of terrorism. It also assisted with revisions to the criminal code to help Mongolia meet international requirements for money laundering and terrorism financing offences, and exit close scrutiny by the Financial Action Task Force in June 2014.5 28. A report specific to Mongolia—Demand in the Desert: Mongolia’s Water-Energy-Mining Nexus—showed how water availability is constraining development as energy facilities, mining operations, agriculture, and urban residents compete for scarce water resources. ADB also used a regional TA facility to quickly respond to government requests for knowledge products and services, proactively inform decision makers on emerging strategic issues, and disseminate research findings and knowledge more widely. Specifically, its activities aimed at providing succinct and practical recommendations on immediate policy options to address development

3 Of the funding provided to XacBank, $6 million was to be targeted to micro, small, and medium-sized enterprises

in the Bayankhoshuu and Selbe ger areas where XacBank has branches. 4 ADB. 2013. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility to Mongolia for Ulaanbaatar Urban Services and Ger Areas Development Investment Program. Manila.

5 Building on this successful outcome, the TA was extended for further capacity development as well as support for

the mutual evaluation of Mongolia's regime for combating money laundering and terrorism financing in October 2016.

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constraints; supporting an in-house policy research team at the Ministry of Finance (MOF); organizing meetings, seminars and training; and disseminating research to government agencies. Such knowledge products and services responded to pertinent and specific knowledge requests from government counterparts and are considered relevant to development needs.

4. Lessons Learned 29. Lessons and recommendations. The following lessons are relevant for the new CPS:

(i) Fully utilizing available financing modalities. The Social Welfare Support Program was a signal of changing country circumstances. In light of substantial refinancing needs, more PBLs with focused policy actions may be required to support the country during the next CPS period. Increased utilization of other financing modalities, including greater usage of financial intermediaries, nonsovereign operations, and results-based lending, may be explored as well to adjust to the changing country circumstances.

(ii) Geographical balance. The strategic positioning of the CPS and ICPS did not explicitly consider the geographical focus of ADB’s operations within the country. Although some national projects, CAREC projects improving the connectivity of certain aimags with neighboring countries, and JFPR-grants still ensured an ADB presence throughout the country, some regions in need received less support. This suggests that regional allocations should be consideration in future discussions with the government for the preparation of the next CPS.

(iii) High value-added projects. At a time when the government opted to rely on commercial lending, ADB maximized its relevance by focusing on complex projects that required more than merely funding, that were too difficult for the government to design or implement, and were structured to meet basic needs of the population (e.g., health, social protection, sanitary and phytosanitary standards). This successful approach explains why ADB was the only donor lending to the government at the time.

5. Relevance Rating

30. Rating. The delivered country program was broadly consistent with the strategic, sector, and thematic priorities of the CPS and ICPS. Whereas other development partners struggled to maintain lending levels while commercial borrowing at low cost sharply increased, a high degree of responsiveness to government needs and highly relevant projects allowed ADB to expand its operations. Being the leading development partner in Mongolia in this context is considered to be a clear sign of success. The increase in lending volumes in 2014–2015 was in line with the amounts planned in the ICPS, and conducive to deliver more development results. The added finance and ANR sectors jointly accounted for nearly 30% of approvals in 2012–2015, evidencing that the main intended strategic shift was effectively implemented. With the exception of two projects, the first year of each COBP was delivered as planned. For completed projects, PCR and PVRs assigned (highly) relevant ratings, although some shortcomings were identified. The PBL was not included in the ICPS, but responded to a government urgent request in the context of a drastic fiscal consolidation program threatening the sustainability of social welfare allowances. It was well aligned with the CPS two strategic pillars and focus on social protection. It was also in line with the emphasis on inclusive economic growth in Strategy

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2020 and social protection in the MTR. Nonsovereign operations were also prominent, covering the TFP and two loans to banks. Knowledge products were considered relevant to the country’s needs. In light of the above and taking into account ADB’s strategic positioning, ADB’s program is assessed to be highly relevant. D. Efficiency 31. The assessment of efficiency considers how well ADB’s and the country’s resources were used in ADB-financed projects. The evaluation assessed the efficiency of resource use relative to three sub-criteria: (i) the economic internal rate of return (EIRR) of projects and programs, where applicable; (ii) the performance of ADB’s portfolio in terms of contract awards, disbursements, and other portfolio performance indicators; and (iii) the quality and timeliness of monitoring and evaluation arrangements. 32. Efficiency of completed projects. Out of 21 lending operations (loans and grants) completed in 2012–2015, 15 were self-evaluated of which four were validated by IED. Taking into account validation, 2 completed projects were rated highly efficient, 11 projects efficient, and 1 less than efficient. The majority of PCRs and PVRs confirmed the efficiency of projects in light of their high EIRR or cost-effectiveness.

1. Economic Internal Rate of Return 33. EIRRs. EIRRs at appraisal for closed projects ranged from 16.2% for the Regional Road Development Project (supplementary financing) to 38% for the Social Sectors Support Program.6 7 EIRRs at appraisal for loan and grant projects approved in 2012–2015 were also above or close to the 12% hurdle rate used to screen operations.

2. Portfolio Performance 34. Project Implementation. The average time from project approval to effectiveness increased from 6.4 months in 2011 to 7 months in 2015 (Appendix 2). A record fast 0.16 months was achieved for the Establishment of Climate-Resilient Rural Livelihoods JFPR project in 2012, followed by 1.48 months for the Social Welfare Support Program in 2015. Project implementation speed picked up in the CPS period. The average life of projects that exited the portfolio during 2012-2015 was 5.7 years while the average project completion time beyond the original estimated completion date was 2.1 years.

35. Contract awards, disbursement and project performance. Mongolia became eligible for OCR lending in 2012, and annual lending steadily increased from $65 million in 2011 to $275 million in 2015.8 As expected with such increase, project loan and grant contract award ratios were low at 7.3% in 2013 and 5.4% in 2014. However, this improved substantially to 25.9% in 2015 as a result of major civil works contract awards under the Western Regional Road Corridor Investment Program (tranche 2). Project loan disbursement ratios over 2012-2014 fluctuated around 8-12% before falling to 5.7% in 2015 mainly due to increased OCR lending, while grant disbursement ratios have been consistently high at 31.4% and 43.9% in the 2012- 2015 period

6 EIRRs at completion deviated (e.g. 37.2% for the Customs Modernization Project versus 19.6% at appraisal).

7 ADB. 2014. Validation Report: Social Sector Support Program in Mongolia. Manila.

8 As of end 2015, ADB had an active portfolio of 20 loan and grant projects with a total net value of $835 million, out

of which 13 project loans with a total portfolio value of $573.6 million and 1 program loan of $150 million, the remainder being Asian Development Fund and JFPR grants. There were also 35 ongoing TAs with a total value of $31 million.

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in the context of a more mature and shrinking grant portfolio. Taking into account program loans, the disbursement ratio was 28.7% in 2015 due to the $100 million first tranche of the Social Welfare Support Program. This is a marked improvement compared to the 11.1% in 2012. As of end 2015, 15 out of 20 active projects were rated on track while 5 were rated as potential problem projects (Figure 2 and 3). ADB efforts kept the number of actual problem projects at zero. 36. Structural portfolio change. Over the CPS period, efficiency has benefited from a significant shift from project-based operations to a PBL, and utilization of 2-step on lending through financial institutions that was strongly supported by the government. Net resource transfers increased substantially from $25.8 million in 2012 to $100.0 million in 2015 with a peak of $104.4 million in 2014, largely due to this structural portfolio change. Pivotal projects improving net resource transfers include (i) nonsovereign loans to Tenger Financial Group ($40 million) and Khan Bank ($40 million), (ii) the Social Welfare Support Program ($150 million), (iii) the Agriculture and Rural Development Project (additional financing,9 $50 million), and (iv) the Supporting the Credit Guarantee System for Economic Diversification and Employment Project 10($60 million).

Figure 2: Project Performance by Year

Figure 3: 2015 Project Performance by

Sector

ANR = Agriculture, Natural Resources and Rural Development, EDU = Education, ENE = Energy, HLT = Health, TRA = Transport, WUS = Water and Other Urban Infrastructure and Services Note: The figures in the bars refer to the number of projects being categorized as "on track", "potential problem" and "actual problem". Source: Asian Development Bank.

37. Steps to improve project efficiency. ADB regularly provided guidance, targeted training, and intensive project supervision to executing agencies (EAs)/implementing agencies (IAs)/project implementation units (PIUs) in an overall environment of partnership and trust. Mongolia Resident Mission (MNRM), in close cooperation with the Operations Services and Financial Management Department, Controller’s Department, and Office of Anticorruption and Integrity staff, conducts annual procurement, disbursement, and good governance seminars.

9 ADB 2015. Report and Recommendation of the President to the Board of Directors: Proposed Loans for Additional

Financing and Administration of Technical Assistance Grant to Mongolia for Agriculture and Rural Development Project. Manila.

10 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to Mongolia for Supporting the Credit Guarantee System for Economic Diversification and Employment Project. Manila.

23 20 18 15 16

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2011 2012 2013 2014 2015

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The outposting of international staff in the transport, health and social protection, and urban sector has helped to facilitate implementation. In an effort towards using more realistic project timeframes, ADB has adopted larger MFF projects with longer project implementation duration to avoid project extensions such as the Ulaanbaatar Urban Services and Ger Areas Development Investment Program,11 and the Western Regional Roads Corridor Investment Program.12 Through better planned and targeted project delegation to MNRM, integrated cross-EARD sectorial quarterly project reviews, and annual portfolio action plans, ADB and MOF made gains to address problem projects and apply stricter project readiness actions, such as MOF review and endorsement of candidates for key positions in PIUs. 38. To address procurement capacity constraints in line ministries, ADB successfully lobbied to preserve the centralized Government Procurement Agency, and agreed with MOF to gradually shift procurement responsibility from line ministries to the Government Procurement Agency for future projects. Counterpart financing constraints for some projects were resolved or prevented by working closely with EAs/IAs to identify shortfalls, by reallocating funding where needed, and by minimizing counterpart financing requirements for new projects. To counter the effects of frequent changes in some EA/IA13 and PIU staff, ADB stressed the importance to retain qualified and skilled PIU staff for follow-up projects where the preceding project was particularly successful. Examples of such strong PIUs retained for follow up projects included the Agriculture and Rural Development Project14 and the Southeast Gobi Urban and Border Town Development Project.15

3. Monitoring Arrangements 39. Monitoring. Average project supervision improved and intensified from 26.5 staff days per project in 2015 compared to an ADB average of 21.4 staff days per project in 2011.16 An active role for MNRM in monitoring of and constant real-time engagement in projects also played a pivotal role to keep track of implementation progress and provide support where needed. Annual portfolio reviews and quarterly review meetings have been held as planned to consistently track project implementation progress and to take timely remedial action when necessary. Since 2014 MNRM coordinated quarterly portfolio meetings and project review for the Urban and Social Sectors Division; Transport and Communications Division; Environment, Natural Resources and Agriculture Division; and MNRM administrated projects to take a One ADB approach to project implementation.

11

ADB. 2013. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to Mongolia for Ulaanbaatar Urban Services and Ger Areas Development Investment Program. Manila.

12 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche

Financing Facility to Mongolia for Western Regional Road Corridor Investment Program. Manila. 13

The number of dismissed or transferred state employees has gradually increased from 8,000 after the 2008 election to 15,000 (2012), to 18,000 (2013), to 21,000 (2014), affecting institutional memory and capacity.

14 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Asian

Development Fund Grant and Technical Assistance Grant to Mongolia for Agriculture and Rural Development Project. Manila.

15 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Grant Assistance

to Mongolia for Southeast Gobi Urban and Border Town Development Project. Manila. 16

They are limited to formal project review missions and considered underestimates for actual supervision intensity.

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4. Lessons Learned 40. The following lessons and actions were identified to improve efficiency:

(i) Financing modalities. Flexible use of PBLs and utilization of 2-step on lending

through financial institutions throughout 2012–2016 has helped to effectively deliver CPS objectives, rapidly increase disbursements and net resource transfers, and avoid procurement related issues or capacity constraints. The government particularly appreciated the inflow of foreign currency at a time of balance of payments pressures and the revolving nature of 2-step lending to ensure recurring benefits. While recognizing that such financing modalities are more suitable for specific sectors, their continued use should be considered for possible inclusion in the next CPS given their positive track record and quick disbursement of foreign exchange that could help address expected fiscal and balance of payments pressures in 2017–2018.

(ii) Project duration. As the average project completion time beyond the original estimated completion date was 2.1 years, more attention is needed to ensure realistic project timeframes. Positive steps to build on include the use of larger MFF projects with longer project implementation duration to avoid project extensions (e.g., the Ulaanbaatar Urban Services and Ger Areas Development Investment Program and the Western Regional Roads Corridor Investment Program).

(iii) Targeted capacity building. In a project implementation environment

characterized by frequent changes to some key EA/IA positions, ADB must continue to provide guidance, targeted training, and intensive project supervision. One option to be considered to build and retain implementation capacity for key projects involves more intensive on-the-job training of PIU staff for core project implementation work—e.g., procurement and consultant recruitment, financial and contract management—benefiting from a day-to-day presence of an international consultant. In addition to building core skills, this could facilitate implementation. This approach would be in line with how other development partners, such as JICA and KfW, work in Mongolia. Assuming the availability of sufficient TASF resources, this initiative could be financed through either a standalone or piggybacked TA.

5. Efficiency Rating

41. Rating. For nearly all loan and grant projects approved in 2012–2015, EIRRs at appraisal were above the 12% hurdle rate to screen operations. For projects closed during this period, EIRRs ranged from 16.2% to 38%. As a result of increased lending, project loan and contract award ratios declined to below the ADB average in the early stages of the CPS period. However, they significantly recovered in 2015 largely due to targeted and intense day-to-day interaction with EAs/IAs/PIUs on consultant recruitment, procurement, and contract management. Project loan and grant disbursement ratios remained steady at the ADB average in initial years, but dropped in 2015 largely due to increased OCR lending. Including PBLs, the disbursement ratio in 2015 exceeded the ADB average benefiting from the Social Welfare Support Program. As many projects were moving as planned, ADB assistance is assessed to be efficient in spite of challenges that were successfully countered.

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E. Effectiveness 42. The assessment of effectiveness considers the extent to which ADB contributed to intended or expected outcomes identified in the CPS. It was assessed through two sub-criteria: (i) achievement of physical and non-physical outputs and outcomes of projects; and (ii) achievement of outcomes in the results frameworks of the CPS and ICPS.

1. Achievement of Results at the Project Level

43. Effectiveness of completed operations. The PCRs, Implementation Completion Memorandums, and PVRs covering completed lending operations (loans and grants) concluded that projects generally achieved most expected outcomes. Taking into account validation, three projects were rated highly effective, and nine projects were rated effective.17 For example, a JFPR-grant was effective in creating Medicard systems that addressed health needs of the poor through minimizing their financial burden, and in the adoption of a targeting methodology. As a result of the project, 96,501 beneficiaries received targeted health care services in the form of discounted drugs from partnering pharmacies and free medical services at contracted hospitals throughout Mongolia. Moreover, the distribution of micronutrients to children aged 6-23 months, and pregnant and lactating women, resulted in raising micronutrients consumption from 18% in 2010 to 86% in 2012. 44. Under the Third Health Sector Development Project,18 more than 700,000 poor people gained access to better primary health care services. Project outcomes included increased national health insurance coverage from 73% in 2007 to 97.7% in 2013 and an increase in vaccination rates, amongst others. Similarly impressive achievements were visible for the Education for the Poor—Financial Crisis Response Project, which ensured free meals for 148,000 preschool children, and the procurement and delivery of 2.1 million free textbooks to 151,656 pupils and 94,540 teachers’ guides to 47,830 teachers, amongst others. 45. Completed JFPR-grants were generally effective as stand-alone projects, for instance in improving access to early childhood education—especially among rural, nomadic, and migrant children through 135 innovative mobile kindergartens—and thereby likely contributed to an increase in the gross enrollment ratio for pre-primary level. Under the Energy Conservation and Emissions Reduction from Poor Households JFPR-grant,19 4,235 highly insulated ger blankets were provided to households in ger areas. More importantly, the business model demonstrated by the project was replicated by the Millennium Challenge Corporation for distributing more than 60,000 ger blankets to unserved households in the ger areas. Amongst other outputs, the Reducing Persistent Chronic Malnutrition in Children in Mongolia distributed multi-micronutrient powder to 75,900 children under 3-years old (more than double the targeted number). The Education Sector Reform Project20 achieved three out of four outcome targets, including an increase in 6-year-old enrollment rates from 75% in 2007/2008 to 98% in 2014/2015 and the student transition rate from grade 11 to 12 exceeding its target by 39 percentage points.

17

Out of 21 lending operations (loans and grants) completed in 2012–2015, 15 were self-evaluated of which four were validated by IED. Taking into account validation, two projects were rated highly successful, twelve projects were rated successful, and one project was rated partly successful. Self-evaluation ratings were unavailable for six projects. Out of the 22 TAs that closed in 2012–2015, 13 TA completion reports were prepared with three highly successful, eight successful, and two partly successful ratings. A list of closed projects with success ratings is available upon request.

18 ADB. 2016. Completion Report: for Third Health Sector Development Project.in Mongolia. Manila.

19 ADB. 2008. Proposed Grant Assistance to Mongolia for Energy Conservation and Emissions Reduction from Poor

Households. Manila. 20

ADB. 2015. Validation report: Education Sector Reform Project in Mongolia. Manila.

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46. Other projects, which closed but for which completion reports have not (yet) been prepared, have also been effective in delivering intended outputs and outcomes. For example, the Food and Nutrition Social Welfare Program and Project,21 which originally was designed in response to the food and fuel crisis of 2008, sought to maximize learning opportunities from pilot testing and program implementation to (i) develop and embed system capacities and instruments for proper targeting within the government; (ii) measure and analyze impacts of the food crisis; (iii) strengthen external monitoring and evaluation; and (iv) introduce community-based approaches to ensure household food security. It exceeded the targeted development outcome by reaching over 125,000 beneficiaries nationwide with the food stamp program and entering more than 450,000 households into the proxy means test database. The food stamp program, the proxy means test methodology, as well as the national system for targeting and the resulting database were all included in the 2012 Social Welfare Law. 47. Under the Western Regional Road Corridor Development Project (Phase 1) and the Western Regional Road Corridor Investment Program (Tranche 1) the following outputs were effectively completed: (i) 110.8 kilometers road from Temeen Huzuu to Baga Ulaan pass, and (ii) 103.3 kilometers road from Baga Ulaan pass to Mankhan Soum. The project outcomes related to average speeds and travel time savings were definitely achieved, while target border crossing time improvements and border traffic volume growth rates are yet to be determined. 48. Completed project preparatory TAs were assessed effective to highly effective in preparing new loans such as the Skills for Employment Project, the Ulaanbaatar Urban Services and Ger Areas Development Investment Program, the Fifth Health Sector Development Project, combined heat and power plant number 5 (CHP5), and the Credit Guarantee System for Economic Diversification and Employment. 49. Effectiveness of ongoing lending operations. While preliminary indications are generally positive for most projects, others require more attention. For instance, the Higher Education Reform Project experienced delays and minor changes that could affect the likelihood of achieving sector outcomes. The Fifth Health Sector Development Project is also facing some challenges, including (i) slow project approval and ratification processes; (ii) slow hiring of the consulting firm due to limited expressions of interest, and (iii) a lack of procurement capacity of new MOHS staff joining the EA following the mid-2012 elections. 50. An absence of counterpart funding in 2015 aggravated implementation delays due to an important slowdown of civil works and equipment procurement. Nevertheless, some implementation progress is visible in for instance capacity development.22 Similarly, for the first tranche of the Ulaanbaatar Urban Services and Ger Areas Development Investment Program, the lengthy engagement process of the loan consulting services packages and project design adjustment with the city detailed local plans (which were formulated after the project feasibility study) resulted in over 6 months in implementation delays compared to the original schedule. Nevertheless, the outputs and outcome remain on track to be delivered and the project is deemed likely to be effective. 51. A 48.9% cut in government investment (excluding investments by the DBM) relative to overall expenditure growth of only 1.5% suggest that the Social Welfare Support Program

21

ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Asian Development Fund Grants to Mongolia for Food and Nutrition Social Welfare Program and Project. Manila.

22 A new National Transfusiology Center was built and equipment was procured. Improvement of rural blood banks

and storage facilities for medical waste in aimags and in Ulaanbaatar are being planned. New guidelines are being developed for infection prevention and control and hepatitis B and C vaccination for health workers.

22

contributed to the targeted outcome of maintaining social welfare expenditures at MNT285 billion. Policy actions supporting the targeted outputs of improved (i) fiscal policy management and (ii) policies and regulations to support targeting and consolidation of social welfare programs were complied with nine months ahead of schedule. 52. The JFPR-grant Establishment of Climate-Resilient Rural Livelihoods achieved its development outcome and most outputs as of the end of 2015 ahead of closure. It is likely that all targets will be achieved by the end of the project. As a result, a substantial impact on the livelihood of a great majority of herders in the three project soums was observed. 53. It is premature to assess the effectiveness of some ongoing loans, particularly for the

Payment System Modernization project, which has yet to disburse 2½ years after approval, and the Regional Logistics Development Project for which construction commenced in April 2016.23 54. Effectiveness of ongoing TAs. Ongoing TAs were reviewed and are generally likely to be effective in delivering results. For instance, the Energy Efficiency and Urban Environment Improvement Project (PPTA) is timely and effectively being implemented to prepare associated infrastructure (power transmission and distribution, and heat transmission) for CHP5. It successfully mobilized a $10 million grant from the Japan Fund for Joint Crediting Mechanism for (i) energy efficient transformers in the power distribution system in Ulaanbaatar, and (ii) consulting services for project implementation support; measurement, reporting, and verification of carbon dioxide emission reduction; and knowledge dissemination. ADB and the World Bank also supported the government to prepare a renewable energy investment plan under the Scaling Up Renewable Energy for Low Income Countries Program (SREP), which is a funding window of the Climate Investment Funds. The SREP subcommittee endorsed the Mongolia renewable energy investment plan, together with $29.7 million of indicative grant funding for TA in strengthening renewable energy regulation, and an investment in a megawatt scale renewable energy hybrid systems (solar photovoltaics, wind power, small hydropower, and shallow ground heat pumps) in western Mongolia. 55. A policy advisory TA for promoting inclusive growth has been extended and is achieving all of its objectives. The TA developed a list of inclusive growth indicators, which are adopted by the Cabinet, MOF and other key line ministries, resulting in the inclusion of provisions on inclusive growth in the Law on Development Planning in November 2015. A policy advisory TA focused on public debt management, cash management, and establishment of a sovereign wealth fund supported implementation of a new Debt Management Law by (i) helping to draft regulations and guidelines, (ii) providing recommendations for its medium-term debt management strategy, (iii) reviewing a contingent liability management framework, and (iv) providing training. In terms of targeted outcomes, the TA’s effectiveness will depend to a large extent on MOF’s decisions on the adoption of its recommendations for a proper contingent liabilities and debt sustainability analysis framework and on adopting and properly implementing the cash flow forecasting model. The start-up of the third component—developing institutional capacity to establish a Mongolian Sovereign Wealth Fund management institution—was delayed until mid-2015 due to government readiness. 56. Thematic Priorities—Gender. Closed social protection, health, and urban development sector projects are deemed effective in delivering gender equality results. More than 41,300 women have benefitted so far from the targeted food stamp program that was piloted under the

23

Although the Payment System Modernization Project was approved in November 2013, it was ratified in June 2015 and made effective in August 2015.

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Food and Nutrition Social Welfare Project. Nonetheless, some other closed loans and grants in the areas of education, finance, road, environment, and disaster risk management were not gender mainstreamed. A few closed PPTAs were effectively gender mainstreamed, resulting in the preparation of gender-responsive loans such as the Fifth Health Sector Development Project, and the Ulaanbaatar Urban Services and Ger Areas Development Investment Program. Gender impacts were also addressed under the TA on HIV/AIDS prevention in ADB Infrastructure Projects and the Mining Sector. Ongoing health, education, agriculture, and urban development sector projects have been designed to address gender equality and women’s empowerment, although the implementation of Gender Action Plans tends to vary from project to project due to PIU capacity or an early stage of project implementation. There are a few PPTAs and capacity development TAs with gender design features of which effectiveness is too early to be assessed.

57. Thematic Priorities—Private Sector Development. ADB has effectively promoted private sector development in Mongolia throughout the CPS period. The Agriculture and Rural Development Project played a pivotal role in its efforts to support diversification through the private sector by supporting 12 enterprises to raise the quality of premium-value Mongolian agriculture products in selected niche markets. ADB assistance also helped improve access to finance for SMEs, e.g., through the Supporting the Credit Guarantee System for Economic Diversification and Employment Project, the Trade Facilitation Program, and nonsovereign operations. ADB has been instrumental in helping Mongolia develop a PPP program by supporting specific legislation, training, manuals and extensive consultations and dissemination events hold for government ministers, members of parliament, government officials, private sector and financiers. ADB has provided extensive assistance to the energy sector through transaction advisory services to support the ongoing negotiations for CHP5 since 2011. Gradual progress made for this project shows that support for PPPs is generally most effective when approached as a modality to deliver a high value project rather than a goal in itself. Accumulated experiences from this project also point towards the need for realism regarding possible challenges, duration, and costs associated with bringing complicated PPP projects into fruition. 58. Thematic Priorities—Regional cooperation. ADB’s assistance for regional cooperation and integration (RCI) included loans and TAs to aid Mongolia to work more closely with its immediate and regional neighbors, with a focus on tapping Mongolia’s trade potential. Major activities included two international highways, a logistics facility at Mongolia’s principal border town with PRC, improving customs and sanitary and phytosanitary (SPS) services, and building capacity, particularly in areas of trade facilitation. The Regional Road Development Project marked the physical completion and full operation of the CAREC Corridor 4b in 2014, notable as the first paved road connecting Mongolia with PRC, and vital for improving trade with PRC and to access overseas markets. The provision of sealed pavement also significantly improved accessibility of communities along the corridor, reduced travel time, and improved road safety. Similarly, tranche 1 of the Western Regional Road Corridor Investment Program in 2015 greatly contributed to development of the CAREC Corridor 4a which will link isolated western Mongolia to the PRC and Russian Federation. At the end of 2015, ADB financed 252 kilometers of the constructed 431 kilometers of corridor 4b and 214 kilometers of the constructed 429 kilometers of corridor 4a. It is too early to assess the effectiveness of the Regional Logistics Development Project, the Regional Improvement of Border Services Project, and the Regional Upgrade of SPS Measures for Trade Project.24

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The Regional Logistics Development Project at Zamyn-Uud commenced construction in 2016, and upon completion it will alleviate delays and throughput capacity constraints at the country’s most significant border

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59. Thematic Priorities—Knowledge Sharing, Capacity Development, and Governance. Knowledge transfer and retention has varied across targeted organizations depending on the degree of staff rotation following political change. For some knowledge sharing initiatives and capacity development, retention risk was mitigated by targeting organizations less prone to personnel change, such as specific government agencies, civil society, the private sector, or the local government. For instance, the Strengthening Capacity for Environmental-Economic Accounting TA targets the National Statistics Office which historically has a high degree of staff stability. Similarly, MNRM developed a comprehensive economic database to serve as a forecasting tool for MOF and the Bank of Mongolia, and as an open source platform to benefit civil society and the private sector. As local governments are less prone to changes in personnel, some TAs targeted capacity development at this level. For instance, ADB built technical capacity in PPPs and private sector development with Ulaanbaatar city municipal and local aimag governments in Western Mongolia through a learning-by-doing approach. Two capacity development TAs took first steps to strengthen governance, transparency, and efficiency in public financial management. The Mongolia National Audit Office was provided with training on public auditing, focusing on financial auditing. The same TA covered auditing training for projects financed by international financial institutions, and produced an audit manual for such projects. The other TA provided support to the Budget Investment Department and Mongolia Tax Authority of MOF to improve transparency and efficiency in budget planning, execution, monitoring, and taxation by using information and communication technology.

2. CPS Results Framework Achievements 60. Results Framework. The CPS included a country results framework and sector results frameworks for each of its core sectors. The country results framework has 7 indicators to track country-level performance, some of which could not be monitored and most of which have target years that were not aligned with the CPS completion year. It also included 18 indicators to track performance in five core sectors, which seem well aligned with formal government sector objectives at the time. The ICPS results framework removed two country development goals, one of which could not be monitored, and added four new indicators to monitor operations in the ANR and finance sector. Nevertheless, the total number of indicators to track sector performance was reduced to 16 to ensure more focus. Some country development goals in the CPS results framework are unlikely to be met. Nevertheless, the program is likely to be effective in achieving, in full or in part, many outcomes targeted in the CPS results framework. Of the 16 main outcomes targeted in the ICPS, 9 are likely to be achieved in the target year.

3. Lessons Learned 61. The following lessons are deemed relevant for the preparation of the next CPS:

(i) Political support, partnership, and communication. Continuous and

consistent government ownership and political support are key to effective

crossing point. The Regional Upgrade of SPS Measures for Trade Project is designed to improve Mongolia’s SPS services for international trade by improving SPS laboratories and adopting international standards for animal and plant health and food safety, and its implementation is expected to start in the first half of 2016. The Regional Improvement of Border Services project was approved in April 2016, and was designed to develop a basic architecture for the Mongolia’s national single window for trade and improve the infrastructure at the selected key border crossing points.

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processing and implementation. The outposting of international staff to MNRM and the strong role of national staff has helped to build and sustain this engagement. For instance, the trust and partnership built between ADB and the Municipality of Ulaanbaatar has been a positive factor to ensure achievement of development results as it helped to guarantee that financial and human resources were adequately allocated towards project implementation. Active outreach was another important avenue to build and sustain broad-based support. In particular, project communication and external relations can help to alleviate or prevent issues in project processing, ratification, and administration.25 Stakeholder communication plans could be developed for each sector to support such outreach. Finally, given the pivotal role that Parliament and its Standing Committees play in approving loan negotiations and the subsequent ratification, maintaining open communication channels and regular outreach with Members of Parliament has proven to be essential for swift processing.

(ii) Addressing urgent and specific needs. The effectiveness of some lending and nonlending operations was affected by government change and recurring staff changes in some EA/IAs. While such changes can make efficient policy dialogue and project implementation more challenging, an overall focus on projects that address urgent and specific needs has proven to be an effective countermeasure to ensure continued support. On the other hand, pursuing generic approaches such as Managing for Development Results was considered less effective. Along similar lines, support for PPPs in Mongolia has been most effective when approached as a modality to deliver high value projects rather than being a goal in itself. Scrutinizing pipeline project proposals for good opportunities to utilize a PPP modality to maximize value for money rather than developing standalone PPP proposals should become an integral part of programming.

(iii) JFPR grants. Completed JFPR-grants were effective as stand-alone projects and sometimes informed ADB’s overall strategic direction. For instance, a JFPR-grant that improved access to early childhood education—especially among rural, nomadic, and migrant children through innovate mobile kindergartens—paved the way for the return of basic education in the ICPS. Other grants provided targeted protection against the impact of the 2009 crisis. While later JFPR-grants did not always catalyze future lending operations, they generally had a high impact and the delivered outcomes and outputs were deemed highly relevant for the country and appreciated by the government, beneficiaries, and other stakeholders.

(iv) Gender. While important gender equality results were delivered in particularly in

closed social protection, health, and urban development sector projects, some other projects in the areas of finance, road transport, and environment were insufficiently gender mainstreamed. Although there has been increased progress to integrate gender equality issues into project design and ensure its

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Positive examples include the Skills for Employment Project and the Darkhan Wastewater Management Project. Whereas a change of government and subsequent restructuring occurred after fact-finding missions and prior to loan negotiations, processing benefited from the prolonged presence of team leaders in the country through an “open ended mission” and significant consultations with standing committees, advisors of the Prime Minister and President, etcetera that were widely covered by the media. Against all odds, these efforts allowed project approvals in the planned years.

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implementation, it is important to step up efforts to expand gender mainstreaming into all sectors.

4. Effectiveness Rating

62. Rating. Most completed and ongoing projects generally achieved or are likely to substantially achieve targeted outputs and outcomes, although it still premature to assess the effectiveness of some more recent operations. Among CPS results framework indicators, nearly two fifths of sector targets is likely to be achieved by the target year, but expected achievement rates for the ICPS results framework are higher at 56.3%. A combination of high GDP growth, mining-related foreign direct investment and production increases, and significant public spending is likely to have contributed to results framework achievements. Based on these considerations, the CPS and ICPS are rated as highly effective. F. Sustainability 63. The assessment of sustainability considers the likelihood and risks to sustaining outputs and outcomes over the long-term. The review assessed sustainability relative to four sub-criteria: (i) the commitment and capacity of government and other stakeholders to provide sufficient recurrent cost financing of key projects after completion; (ii) cost recovery or income generating capacity of key projects after completion; (iii) operations and maintenance (O&M) practices and capacity for key project facilities in any key sectors; and (iv) government ownership of policy reforms. 64. Sustainability of completed projects. Out of 21 lending operations (loans and grants) completed in 2012–2015, 15 were self-evaluated of which four were validated by IED. Taking into account validation, 5 completed lending projects were rated highly likely sustainable or most likely sustainable, 7 projects were likely sustainable, and 1 was less likely sustainable. The majority of PCRs and PVRs concluded that interventions are likely sustainable based on the government’s commitments, legal and regulatory frameworks put in place, and financial trends. In addition, strong ownership of outputs by beneficiaries and national stakeholders was regarded as a key factor.

1. Recurrent Costs 65. Recurrent cost financing. Ensuring sufficient recurrent cost financing continued to be an important area of post-completion monitoring and dialogue. Government commitment and capacity to provide sufficient recurrent cost financing to key projects after completion is especially important for public good sectors, such as basic education and primary health care. For example, while the annual operations budget for the planned Songinohairkhan hospital in Ulaanbaatar would require about 30% of the initial investment cost, the operations budget of the current hospital is less than 5% of this investment. Similarly, the currently allocated operations budget of the national drug control laboratory—which was also established under Health 4—is much lower than the originally estimated $0.5 million and the new national transfusiology center built under Fifth Health Sector Development Project26 will also require a substantially higher operations budget than the current center. Such examples equally apply to other sectors.

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ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Mongolia for Fifth Health Sector Development Project. Manila.

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66. Recurrent financing for water supply and sanitation steadily increased over the CPS period, which is improving the probability that related projects in secondary towns will be sustained. Involving the private sector in the management and operation of water and sewerage systems, which was pilot tested under two ADB projects, should enhance sustainability as well by improving cost-effectiveness. A positive development is that the government generally starts to finance new policies and activities supported under education projects during implementation. On the other hand, the PCR and PVR for the Education Sector Reform Project both assumed that an upward trend in public expenditures on education was to continue in the medium-term. This is uncertain as the government’s capacity to provide sufficient recurrent cost financing is increasingly affected by a drop in growth, falling tax revenues, strong increases in interest payments on government debt, rising debt levels, and the need for substantial debt refinancing in 2017–2018. This context makes it more difficult for the government to raise sufficient taxes or issue bonds at favorable terms and improbable that all required recurrent costs can be financed, particularly in the short-term. To mitigate the impact of the fiscal adjustment and avoid unnecessarily abrupt cuts in recurrent cost and O&M expenditures, the provision of PBLs in years with substantial debt refinancing requirements is likely to indirectly contribute to sustainability.

2. Cost Recovery 67. Cost recovery. The cost recovery or income generating capacity of projects after completion is particularly important for non-public good sectors. Achieving full cost-recovery in the road sector of Mongolia is unattainable. A combination of a large territory, small population, and low level of traffic volume makes revenue generation through toll fee collection nearly impossible.27 Prospects for cost-recovery are somewhat better in the urban sector. For instance, the Water Regulatory Committee reviewed water and sewerage tariffs of provincial public utility service organizations in 2014–2015, introduced fixed fees to water and sewerage of domestic, institutional, and industrial customers, and increased these tariffs on average by 25%.28 This helped provincial public utility service organizations to generate resources for regular operations and management of assets created with ADB support. 68. While it may be too early to assess the cost-recovery for the ongoing investment program in Ulaanbaatar, tariffs for each revenue-generating subproject have been calculated to ensure the cost-recovery of the services and infrastructure. This affordability analysis confirms that proposed tariffs fall within the willingness-to-pay and affordability limits of target beneficiaries. Loan covenants and road maps are used to monitor the cost recovery of services and an acceptable financial internal rate of return. In the energy sector, reform is being implemented which increases the likelihood of cost-recovery and would benefit the sustainability of energy projects. Specifically, the government amended the renewable energy law in 2015 to introduce a renewable energy surcharge on end-user tariffs and established a renewable energy account, which aims to create greater confidence of private project owners on long-term feed-in-tariff payment.

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Toll revenues amounted to only MNT3.1 billion ($1.6 million) in 2015, of which 31.5% were operational expenditures to maintain the toll stations.

28 Inflation increased by 11.1% from January 2014 to December 2015, indicating a real increase. Nevertheless,

water tariffs remain much lower than the full cost recovery level. Whereas local governments have financed capital expenditures for water supply under the Urban Development Sector Project, no subsidies were provided to compensate participating public urban services organizations for the difference between tariffs and necessary O&M expenditures.

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3. Operations and Maintenance 69. O&M practices. Sufficient allocation of financial resources for routine and periodic road maintenance on the recurrent budget is vital to ensure the sustainability of Mongolia’s transport infrastructure as its severe climate conditions exacerbate road deterioration. Such funding has been historically low and current maintenance levels do not ensure long-term sustainability of the road network.29 Throughout 2012–2015, allocated budget resources remained insufficient to ensure adequate road maintenance. Capital expenditure on road construction and reconstruction increased from about MNT76 billion in 2009 to MNT953 billion in 2013, before falling to MNT325 billion in 2015 due to fiscal pressures. The budget allocation for routine road maintenance was also affected and the central government had to tap into the National Road Fund to limit the decline in 2015 to 20%. 70. In terms of structure, the road maintenance sector in Mongolia is dominated by state-owned enterprises. Limited financial resources combined with low road maintenance turnover does not allow them to earn sufficient revenues and prevents them from investing in procurement and upgrading of necessary equipment. ADB is taking efforts to ensure O&M funding for its projects. All transport sector projects included loan and project agreement covenants to provide sufficient financial resources to operate and maintain project assets after project completion.30 ADB also provided a policy advisory and capacity building TA to improve capacity to plan, manage, and operate the country’s transport infrastructure systems. The Road Sector Capacity Development Project notably established the policy structure for the road maintenance board in 2014, a three year periodic road maintenance program for the 2013 and 2014 budget periods, and a pavement management system for Ulaanbaatar roads.31 The TA was not yet successful in getting the Law of Mongolia on Roads—which is key to the sustainability of its road network—approved by parliament at the time of writing this report, although approval is still possible in 2016.32 Despite such efforts, the sustainability of ADB’s road transport projects remains vulnerable.

4. Other Factors 71. Policy reform ownership. Policy reform ownership varied across government agencies and over time. It usually took time to rebuild ownership and capacity after changes in government and subsequent changes in ministers, directors, and staff. For example, ownership in the Ministry of Health for previously agreed policy reforms varied, but considerably improved from the end of 2014 compared to the earlier period in which emphasis was placed on physical investment in infrastructure and equipment (e.g., diagnostic and treatment centers in aimags). Policy reform ownership can sometimes regress after program completion. For instance, one policy reform area of the Social Sectors Support Program aimed to “better protect the poorest

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Although national roads receive routine maintenance, including winter maintenance, they have suffered from an absence of periodic maintenance.

30 Similarly, covenants to provide adequate budgets for O&M for project supported facilities in the education and

urban sector are normally included in legal agreements. 31

The three year periodic road maintenance program was approved by the Department of Roads, but rejected by the Ministry of Economic Development. As a result, periodic maintenance is still not being carried out and several main roads included in the maintenance programs have deteriorated to the extent that they now need rehabilitation.

32 The law would empower a Road Maintenance Board responsible for planning sector investments and developing

policy. This entity will define medium and long term network development priorities. It would develop annual budgets based upon prioritization determined by economic importance. It would also establish a Road Maintenance Fund which is essential to identify and secure a guaranteed revenue source upon which Mongolia can deliver its road sector plans.

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through (i) better targeting of benefits through the use of a proxy means test; (ii) consolidation of fragmented social welfare programs, including the child money program; and (iii) achievement of fiscal sustainability.” The PCR and PVR for the Social Sectors Support Program concluded that the targeting of social assistance which was the program’s overarching policy reform goal had gathered greater support with proxy means testing gaining wider acceptance among policy makers as a targeting methodology. However, while an attempt was made to make the large untargeted child money program that had been provided since 2012 targeted in 2015, this was reversed in the following election year. 72. Institutional arrangements and other factors. Progress is being made in the urban sector to establish the regulatory and institutional prerequisites for operating ADB-assisted infrastructure and services in a sustainable manner. The cross-sector nature of urban projects implies a comprehensive and integrated provision for technical, institutional, and policy support to multiple institutions and agencies in charge of planning, designing, implementing, and operating ADB financed infrastructure. This includes service providers, urban planning departments and agencies, and regulatory bodies. 73. Capacity building and strengthening of public entities responsible for delivering sustainable and quality water supply and sanitation services was continued during the CPS period under loan and grant projects. Skills and institutional efficiency improvement at working, manager, and decision-maker levels in all related institutions and agencies are on-going through the implementation of TAs, loan implementation consulting services, partnerships, trainings, and workshops. Key outputs provided in the ANR sector included water points, community groups for management of various natural resources (i.e., water resources, forest resources, and pasture), management plans of those natural resources, and institutional arrangements for implementation of those management plans. For example, three closed and ongoing JFPR grants assisted the government to implement community-based natural resources management in selected soums in four aimags, enabling local governments and natural resources user communities to implement relevant laws. With the provision of goods for natural resources management (e.g., water points, forest fire-fighting equipment), institutional and capacity building of the local governments and community user groups is likely to contribute to sustainable management of natural resources in project areas. Under the Education Sector Reform Project, successful cases of institutionalization of new policies and activities included a unit to upgrade the Education Sector Information System within Ministry of Education, Culture and Science and the integration of new teaching practice model in pre-service teacher education curricula.

5. Lessons Learned 74. Lessons and recommendations. Several lessons and recommendations could be derived related to the sustainability of ADB projects an informed the next CPS:

(i) Greater emphasis on O&M and recurrent costs. Government budgets may become more constrained than in previous years, which can impact expenditures on O&M and recurrent costs. ADB may need to encourage the government to increase the likelihood of sustainability by ensuring that more resources are allocated to its ongoing and closed projects. Given the importance of O&M in sustaining the country’s asset base, this important issue may also be raised in the context of CPS consultations with the new government. Project pipelines may need to consider the impact of expected recurrent costs on government budgets, and the risks of insufficient budget allocations for project sustainability. Project

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design should consider the full range of available technologies to minimize O&M costs, which may result in pursuing mid-end solutions with a lower overall cost profile. Rather than financing capital expenditures for new projects for a standard five years, it may also be useful to add another five years of O&M expenditures as an integral part of the project to support its sustainability. Finally, the provision of PBLs in years with substantial debt refinancing requirements may help to mitigate the fiscal adjustment and avoid unnecessarily abrupt cuts in O&M and recurrent cost expenditures.

(ii) Community engagement. Community engagement is a key aspect of managing

natural resources (e.g., water, forests, and pastures). Three grant projects on community-based natural resources management during 2012–2015 showed that community engagement is imperative for sustainability although the process itself requires sufficient time and resources. For effectively engaging communities, it is also important to provide economic opportunities as natural resource exploitation is connected with poverty and low incomes.

6. Sustainability Rating

75. Rating. The sustainability rating assesses the extent to which outputs are likely to be maintained after project/program completion and refers to the likelihood that actual and anticipated results achieved from cumulative interventions provided under the CPS and ICPS will be resilient against risks. Completed operations were generally rated (highly) likely sustainable, although assessments were often conditioned on sufficient future budget allocations and the economic context changed in later ICPS years. Other outputs and outcomes of projects are institutionalized to the extent that no additional budgets are required for project sustainability. It must be noted that some financial intermediary projects, such as the Agriculture and Rural Development Project, and the Supporting the Credit Guarantee System for Economic Diversification and Employment Project, are of a revolving nature well after project closure and hence likely to deliver recurring benefits. 76. However, the government’s capacity to provide sufficient recurrent cost financing is increasingly affected by declining economic growth, falling tax revenues, an overall deterioration in Mongolia’s debt situation since 2012, strong increases in interest payments, and the need for substantial debt refinancing in 2017–2018. This may affect the likelihood that all required recurrent costs will be available for some ADB projects, particularly in the near term. Positive steps were taken to improve cost recovery in particularly the urban and energy sector. Routine and periodic maintenance expenditures have not fully met desirable levels for the road sector, and may face increased pressure as competition for scarce budget resources rises. Policy reform ownership tended to vary across government agencies and over time, with commitment to proxy means testing being an example of the difficulty in sustaining some key policy reforms. At the same time, rapid civil service turnover can negatively affect institutional capacity and knowledge. Despite the specific challenges affecting some projects, sustainability ratings of completed operations were generally rated (highly) likely sustainable. Hence the overall program is rated likely sustainable unless economic circumstances and budgetary pressures further deteriorate.

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G. Development Impacts 77. This section assesses the contribution of ADB’s program to the achievement of the intended impacts of the CPS and ICPS. Performance is assessed against three sub-criteria: (i) progress toward achieving overall development goals, (ii) progress toward achieving sector goals, and (iii) progress towards achieving cross-cutting thematic and safeguard impacts. 78. Impact of completed operations. Out of 21 lending operations (loans and grants) completed in 2012–2015, 15 were self-evaluated of which four were validated by IED. Taking into account validation, the impact of seven loans was rated significant or substantial with the PVR for the Education Sector Reform project noting that it is often premature to attempt to measure impact within one to two years from project completion. The extended annual review report of the Senior Unsecured Loan Khan Bank rated its private sector development impact satisfactory as the loan helped Khan Bank to extend additional loans, expand its corporate lending business, and diversify its business overall.

1. Progress toward Overall Development Goals

79. Results Framework. Performance of the country development goals listed in the CPS and ICPS results framework is mixed (Appendix 3). The ambitiously set target for per capita GDP of $6,000 was missed by more than a third. In contrast, substantial progress was made in lowering the poverty rate to 21.6% in 2014 compared to a target of 18% for 2015. The targeted job creation was off-track to meet the 2015 target, and is likely to have been affected by the economic slowdown. Two health-related MDGs are already met, and the education goal to provide primary education for all children by 2015 was on track (the net enrolment ratio in primary education was 99.1% in 2014 versus 95.2% in 2012). Public investment as a percentage of GDP was retained within the targeted bandwidth. Since a wide range of actors played a role, it is difficult to fully attribute the achievement of targets to ADB.33 80. Inclusive Economic Growth. Whereas the CPS referred to inclusive and sustainable growth as a major objective, the ICPS explicitly focused on all three pillars of inclusive economic growth, allowing ADB to make a positive contribution by supporting economic growth and creating access to opportunities. For instance, ADB contributed through critical road infrastructure, greater access to education, increased access to finance, increased employment in agro-processing, more inclusive urban development in Ulaanbaatar and secondary towns, improved access to electricity and heating services in remote rural areas, and reduced expenditures for fuel consumption by ger householders in Ulaanbaatar through increased energy efficiency. The main gain in poverty reduction in 2012–2014, however, was generated through agricultural growth at a time that the sector was excluded from the CPS. A positive impact in the area of social protection is also likely. 81. As the leading donor of the health and social protection sector, ADB supported sector policy and institutional reforms, providing financial and technical assistance, and capacity building. Further, a PBL contributed to maintaining social welfare expenditures in 2015 in the face of a rapid economic downturn and a drastic fiscal consolidation program. ADB also contributed to making growth more sustainable, inclusive, and resilient to external shocks

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The impacts of ADB support cannot be determined with great precision. Full development results of the country program initiated under the CPS/ICPS will not be realized for another decade or more, when projects initiated in recent years come to full fruition. Moreover, while ADB has made a contribution in many areas, it is not possible to isolate and attribute higher-level results to ADB's assistance in a dynamic economy such as Mongolia. It would also be incorrect to attribute ADB-endorsed policy and institutional reforms to ADB support alone.

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through TAs on forest and peatland management to ensure sustainable management of natural resources. Specific dzud disaster responses were aimed at providing immediate relief, while another TA will strengthen community resilience to dzud and other disasters. While a positive impact of such operations on inclusive economic growth is expected, it will take likely some time until their full benefits materialize.

2. Progress toward Sector Level Impacts 82. Achieving sector goals. Solid progress has been made towards achieving the country-level goals set in ADB’s core sectors of operations as detailed in para. 61. Progress towards the core sectors goals includes the following:

(i) Transport: Accessibility of communities near the Ulaanbaatar to Zamyn-Uud road corridor was significantly improved through the completion of the Regional Road Development Project in 2014. The provision of a sealed pavement reduced travel time by 60% and vehicle operating costs by 45%. Similarly, the completion of the Western Region Road Phase 1 and Tranche 1 projects in 2015 reduced travel times between Yarant and Khovd by 50%, reaching average annual traffic growth of 30%. More importantly, these two international highways are likely to contribute to regional integration and facilitate trade with bordering countries. For instance, as domestic and international transit traffic increased from 123 vehicles per day in 2006 to 720 vehicles per day in mid-August 2014, cross-border trade through Zamyn-Uud increased from $112.8 million in 2005 to $1,402.3 million in 2013, exceeding the target for 2015 by 133%.

(ii) Public Sector Management: ADB supported to improve public financial management by the creation of knowledge, sharing good practices, and building capacity. Particularly, ADB helped the government implement the Budget Transparency Law (Glass Account Law) through assessment of relevant ICT systems to budgeting, its executing, monitoring and taxation. It also assisted in strengthening technical and operational capacity relating to those ICT systems. ADB also contributed to strengthening financial auditing of public entities, including financial auditing for projects of international financial institutions. ADB further supported the proposed CHP5 as (i) a lead lender to the private consortium led by PSOD with other international financial institutions and commercial banks, (ii) a transaction advisor for the government, and (iii) a lender for associated infrastructure through sovereign lending. Support has extended beyond the central government to include UB City Municipal Government, and beyond economic infrastructure to the social sectors. In addition, ADB has been at the forefront of social protection reform in Mongolia. ADB deepened its policy engagement in the area of social protection.

(iii) Energy: ADB supported the development of a new combined heat and power plant in PPP modality (CPH5) to improve energy access and energy security of the capital city. Although the project has not been concluded yet in this review period, ADB supported the government by (i) providing transaction advisory services, (ii) arranging loans to the private consortium for the combined heat and power plant, and (iii) arranging loan and grant financing to the government for improving heat transmission, and power transmission and distribution assets.

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(iv) Education: ADB contributed to improved access to education, especially at the basic and tertiary levels, as evidenced by the improved gross enrollment ratios at these levels. Actions include bringing kindergartens closer to children in rural remote areas, supporting free school meal and textbook programs, and upgrading educational facilities and materials. ADB-supported alternative early childhood education programs reached children of herder families, minority groups, and migrant workers who would otherwise have no access to kindergartens. Textbooks which account for 20-60% of household expenditures on education were provided for free for junior secondary students who came from poor families (40% of the total students). The three public universities located outside Ulaanbaatar benefited from ADB support for upgrading works and improved educational resources. ADB also contributed to greater efficiency in the education sector by supporting the development of the Education Sector Information System, which has significantly enhanced planning and management capacity in the sector. In 2014 when the System became operational, 1-15% of over reporting of student numbers in different types and levels of education was found, leading to better budget planning and management.

(v) Health: Progress has been achieved by improving access to affordable healthcare services, the introduction of up-to-date healthcare laws, and capacity building of the healthcare professionals and managers. With ADB’s support, the government revised the Social Health Insurance Law. In 2015, health insurance coverage reached 96%, the government's premium subsidy became more targeted and covers the poor, and the health insurance benefit package was expanded. A new law on Medical Care and Services, which was developed with ADB technical support, was adopted in May 2016. The law has enabled health sector reform initiatives, such as the autonomous status of public hospitals, hospital financing, governance, private sector engagement, and primary health care gate-keeping. The proportion of government health sector budget allocated to primary health care increased from 20.2% in 2010 to 26.6% in 2015, exceeding the CPS results framework target by 1.6 percentage point.

(vi) Water and Other Municipal Infrastructure: ADB operations have taken a cross

sector integrated approach in this area combining socio-economic facilities investment and community and private sector participation enhancement to upgrade specific economic hub (sub-centers) in ger areas of Ulaanbaatar and secondary towns. This has been accompanied by investments to improve operation and efficiency of water and wastewater services, and urban planning improvement including the establishment of a shared urban database system at the municipality level. This made a real impact on people’s lives. The Urban Development Sector Development Project contributed to an overall improvement in living conditions and the quality of life of over 300,000 residents in ger areas. For instance, connecting 91 water kiosks to the centralized water system enabled access to safe drinking water to 41,611 ger area households and helped to reduce the incidence of hepatitis A in the 4 project provinces by 98.4% between 2005 and 2015.

(vii) Finance: ADB support for enhanced microfinance regulation and capacity

building contributed to the adoption of a risk-based supervision approach to regulate microfinance institutions, although the regulatory body’s human and financial resources are constrained due to recent budget cuts. ADB assistance

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had a positive impact on enhancing financial sector stability and public financial confidence. ADB, through the Supporting the Credit Guarantee System for Economic Diversification and Employment project will also substantially contribute to facilitate access to finance for SMEs, which are critical for employment generation.

ANR: ADB contributed to increased productivity in agriculture sector through financial and technical assistance to primarily manufacturers of agricultural products and secondarily herders and farmers. It also assisted on natural resources management and climate change adaptation in the herding sector. ADB is at present among the key development partners involved in protection and management of forests in Mongolia.

3. Progress toward Thematic Impacts

83. Thematic Priorities—Gender. ADB support for cross-cutting, thematic objectives had positive impacts. ADB projects fostered gender equity and mainstreaming across its operations through education, social protection, health, urban development, and agriculture projects. Improvements in primary health care—including accessibility and quality of maternal and child health care services—resulted in time and financial savings for women in remote and rural areas. Immediate and adequate access to safe drinking water was provided to 41,611 ger households in five project sites, resulting in reduced time poverty for 140,635 people, of whom 51% were women. Further, 8,655 students and pupils (47.6% girls), and 1,680 children (53.3% girls) benefitted from direct connection to water supply and sewerage in 7 local schools, 1 dormitory, and 9 kindergartens, contributing to Mongolia’s achievement of two targets of MDGs on water supply and sanitation. 84. A total of 58 women have been permanently employed at water kiosks, while 1,151 permanent jobs were created in value chains of agricultural enterprises (62% women). Although various projects addressed gender inequality through capacity development and equal access to resources or opportunities, gender impacts tend to be more limited at a nationwide scale. An exception is the beneficial impact that the Education Sector Reform Project had on leveling gender imbalances in basic and secondary education in favor of boys who used to enroll less and remain shorter in school than girls.34 It should be highlighted that whereas Mongolia ranked 90th out of 188 countries on the Human Development Index in 2014, it ranked 63rd on the Gender Inequality Index. 85. Thematic Priorities—Private Sector Development. ADB contributed to improvements in the enabling environment for the private sector through general interventions to support its overarching objective of economic diversification. In addition, ADB focused on supporting companies directly or indirectly through lending, leasing, trade finance, credit guarantees, PPPs, and TA. For example, the Agriculture and Rural Development Project supported the development of premium-value agricultural products for niche markets by 12 enterprises. During implementation, sales of participating companies increased by 25% on average and generated over 1,000 jobs at the processing segment of the agricultural value chain and substantial indirect benefits to the herding sector. Nonsovereign operations in 2013 and 2014 aimed at overcoming a lack of access to finance that micro, small, and medium-sized enterprises

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This resulted in improved gender parity at the secondary level from 1.11 in 2007 to 1.02 in 2014, and completion rates of boys, which increased from 45% in 2007 to 97% in 2013. The project also contributed to the decline of school drop-outs from 4.1% in 2006–2007 to 1.7% (1.0% for girls and 2.3% for boys) in 2013–2014.

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experience in Mongolia through loans to XacBank, the Tenger Financial Group, and Khan Bank. Mongolia’s Doing Business ranking has improved from 86th in 2012 to 56th in 2016. 86. With ADB’s technical assistance, Mongolia also graduated from a ‘nascent PPP country’ to an ‘emerging PPP country’, according to the Economist Intelligence Unit’s Infrascope. Mongolia’s ranking rose from 14th out of 15 countries in 2011 (where 1st is best), to 13th out of 19 countries in 2014.35 However, the private sector continues to face challenges. Poor infrastructure quality hampers private sector development by increasing transport costs and reducing market access. Mongolia’s border trade and food sanitation requirements are overly complex and inconsistent with those of its main trading partners, the PRC and the Russian Federation. To address this constrains, ADB approved to projects in late 2015 and early 2016 to improve border services and sanitary and phytosanitary systems (SPS) to overcome such hurdles to export. 87. Thematic Priorities—Regional Cooperation and Integration. ADB’s RCI assistance to Mongolia achieved many positive impacts. Under the framework of the CAREC program, ADB’s lending for the transport sector improved Mongolia’s physical connectivity with its neighbors, particularly with the PRC. ADB’s trade and transport facilitation support has also improved Mongolia’s access to international markets, including for Mongolia’s export of agricultural and animal-related products. With ADB’s support, Mongolia improved its services for international trade, particularly those related to customs and SPS inspection and clearance, benefitting traders, carriers, and forwarders many of which are SMEs. Organization of key CAREC events in Mongolia, including hosting the Ministerial Conferences and CAREC Investment Forum in 2015, also generated greater public awareness about RCI and interest in Mongolia on part of the international investors.

88. Thematic Priorities—Governance. ADB projects also targeted good governance. The institutional framework and management capacity of Erdenes Mongol LLC, a state-owned enterprise created in 2007 to manage state assets including major mining interests, will be significantly strengthened through a TA loan approved in March 2016. The project will help the company to draw up a full corporate strategy for its operations, with mid-term and long-term targets, support its project development and management in line with international standards, and embed proper systems for investment decision making, sound corporate governance, and prudent risk management. 89. In other sectors, education sector planning and management benefited from the development of the Education Sector Information System, and a TA for updating the Energy Sector Development Plan helped to improve energy-related laws and sector planning, which improved sector performance and governance. The Mongolia National Audit Office was also provided with training on public auditing, focusing on financial auditing and training for projects financed by international financial institutions. Regardless of these successful examples, there is scope for ADB to increase support to good governance in the next CPS. Mongolia’s performance on the Worldwide Governance Indicators in 2012–2014 varied, but the Transparency International Corruption Perception Index ranked Mongolia at 72 of 168 countries in 2015 with a score of 39, compared to a ranking of 94 of 176 countries and a score of 36 in 2012.36

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Economist Intelligence Unit. 2011. Evaluating the Environment for Public–Private Partnership in Asia-Pacific: The 2011 Infrascope. Economist Intelligence Unit Ltd. and ADB. (March) and Economist Intelligence Unit. 2014. Evaluating the Environment for Public–Private Partnership in Asia-Pacific: The 2014 Infrascope. Economist Intelligence Unit Ltd. and ADB. (March).

36 Perceived level of public sector corruption ranges from 0 (highly corrupt) to 100 (very clean).

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2. Lessons Learned 90. Lessons and recommendations. ADB’s experiences in 2012–2016 identified a range of best practices that ultimately ensure that its projects deliver results and contribute to the achievement of Mongolia’s overall development goals. Amongst others, these include (i) a focus on sustainable development, (ii) addressing specific pressing development issues rather than generic approaches, (iii) close consultations on both strategy and projects with the government and other important stakeholders, (iv) fully utilizing the wide array of available financing modalities, (v) complex projects with a high value-added, (vi) building political support and close partnerships, (vii) continuing to deliver highly relevant JFPR-grants, (viii) increased attention to gender issues and mainstreaming which picked up substantially in later CPS years, and (ix) emphasis on project sustainability.

3. Rating 91. Rating. Many other factors besides ADB support influence country-level performance. There was sufficient progress toward the ambitious overall development goals in the CPS and ICPS, especially for poverty alleviation. Through a balanced three pronged approach ADB contributed substantially to inclusive economic growth. Contributions to development impact were also visible at the sector level and for specific cross-cutting themes such as gender, private sector development, regional cooperation and integration, and governance. Accordingly, the development impact of ADB support is assessed to be highly satisfactory. H. ADB Performance

92. This assessment of ADB’s overall performance is based on the following five sub-criteria: (i) responsiveness to the country‘s needs; (ii) role in aid coordination, building government ownership and acting as a catalyst; (iii) extent of project supervision missions; (iv) delegation of activities to the Resident Mission; and (v) adherence to ADB policies and procedures:

(i) Responsiveness. ADB’s assistance program was highly responsive to government requests, priorities, and needs, which was evident at both the strategic and project level. Faced with a CPS and COBP that did not reflect the main priorities of the new government coming into power, ADB showed flexibility in 2012–2013 through ad hoc programming of projects with government support. Following discussions with EARD, a Strategy and Policy Department memo in early 2014 enabled adjustment of the CPS through an ICPS. An important strategic adjustment—aligning the overall strategy with the government priority of economic diversification by adding two sectors, increasing resource availability, and some other refinements—was approved in the same year. As evidenced by PCRs and PVRs, ADB demonstrated flexibility and responsiveness to relevant government strategies, policies, and preferences during project processing and administration as well. ADB was the only development partner that responded to a government request for budget support in 2015 through the Social Welfare Support Program that was essential to sustain critical welfare allowances for the poor and vulnerable.

(ii) Aid coordination, ownership, and catalytic role. Aid coordination was hampered by the government’s deliberate decision to work with a smaller number of development partners from 2012. Nevertheless, projects such as the Social Sectors Support Program, Urban Development Sector Project, and the Fourth

37

Health Sector Development Project (additional financing) benefited from substantial cofinancing from and coordination with JICA, German aid, and the World Health Organization. In a joint effort with the World Bank, $29.7 million of indicative grant funding for TA in strengthening renewable energy regulation, and an investment in a megawatt scale renewable energy hybrid systems in western Mongolia was secured under the SREP. Among the main multilateral institutional partners, the closest coordination occurred with UNDP and the International Monetary Fund, with ADB joining all the IMF missions to Mongolia since 2015. During 2012–2016, two TAs targeted aid coordination and Managing for Development Results. Opportunities to pursue collective policy dialogue and coordinate assistance diverged across sectors, to an extent depending on the interest of government counterparts. For example, ADB had a catalytic role in the energy sector by helping the government to shape its energy sector policy and identify its priority investment plan through updating of the energy sector master plan and the renewable energy investment plan. These exercises were conducted with the participation of the World Bank, the International Finance Corporation, the European Bank for Reconstruction and Development, and bilateral agencies from Germany and Japan.

(iii) Supervisory missions. Supervisory missions were adequate and of satisfactory

quality. PCRs and PVRs confirm that ADB mostly fielded 4-6 missions during implementation and worked closely with EAs. Considerable time was spent to carry out regular review missions, which provided opportunities for EAs to have an assessment of project implementation from ADB’s perspective. They also helped EAs to resolve implementation issues, facilitated discussions among concerned government agencies, and provided technical advice on ADB procedures for disbursement, procurement, resettlement, financial control and reporting. In addition to periodic missions from headquarters, many projects also benefited from continued real-time engagement through MNRM.

(iv) Delegation. As of end-2015 MNRM was responsible for implementing 7 loans

and grants. The delegation of challenging projects to MNRM resulted in successful implementation. This was supported by an overall increase in the number of staff, although the number of international staff (IS) declined from 4 in 2012 to 3 in 2016 (outposted IS remained stable at 2). The number of national staff increased from 8 to 9—with two possible additions in the latter half of 2016—and administrative support staff increased from 6 to 9. This has to be seen in a context of tripled approvals and an active portfolio of loan and grant projects that increased from $241 million at the end of 2011 to $835 million at the end of 2015. Other positive aspects included a more consistent involvement of resident mission staff in processing in ICPS years and the flexible use of development assignments, both a learning experience and a means to fill temporary resource gaps.

(v) Policies and procedures. Adherence to ADB policies, guidelines, and procedures (including environmental and social safeguards) during project implementation by ADB, EAs, and IAs was generally considered satisfactory. There remains some scope to further strengthen the monitoring and evaluation of gender action plans.

38

1. Lessons Learned

93. Factors affecting ADB performance. For ongoing and closed operations, the following key factors affecting ADB performance can be identified:

(i) Project complexity. As the government built necessary capacity and gained access to alternative funding sources to pursue traditional projects themselves, ADB gradually moved up the value chain in response. For instance, the addition of three information technology related projects—including one supporting reforms for social insurance and social welfare—in the current portfolio demonstrates demand for a new and more complicated business line with great potential. A similar movement towards increased project complexity is visible in the urban sector. Because of the integrated and multisector nature of urban projects and the inherent complexity of dealing with ger area modernization and redevelopment, project design tends to be more complex and requires a longer period to implement and multiple contracts to procure. Such complex projects, however, are worthwhile given their high added value in terms of development impact and were a major factor behind the government’s continued interest to borrow from ADB.

(ii) Communication. Maintaining good communication channels—both between

ADB and government counterparts, and between headquarters and the resident mission—has proven to be essential for efficient and effective processing and implementation. A corporate culture of responsiveness to government priorities, honesty, and transparency helped to maintain the trust relationship necessary for such close cooperation and achieving results.

(iii) Delegation to MNRM. Delegation to MNRM, benefiting from client proximity and

a good record in turning around problem projects, has contributed to efficiency and effectiveness. This has allowed national staff to increasingly lead in project administration. Close cooperation and partnership between MNRM and headquarters staff prior to and following delegation, a focus on specialist skills and knowledge, and distinct roles for international staff and national staff, have proven to be prerequisites for effective delegation. TA processing in MNRM helped to sustain an increase in overall TA approvals with the advantage of close dialogue within the country. This suggests there is scope for MNRM to take on more projects, particularly those with persistent challenges. However, this would require additional resources, as MNRM’s staffing has not kept up with the rapid increase in approvals and substantially increased portfolio size. Given significant changes in relative remuneration compared to headquarters during the CPS/ICPS period, it will be important to monitor the number and quality of applicants for possible new IS positions and staff retention in MNRM.

(iv) Grant processing. JFPR grants have substantially benefited Mongolia, created opportunities for policy dialogue, were associated with learning opportunities due to their innovative features and greatly appreciated by the government and other stakeholders. From a programming perspective this influenced the average size and strategic deployment in areas with a potential for high catalytic impact. Reducing some submission requirements, as currently being considered, is likely to increase productivity and processing speed without a negative impact on project quality.

39

I. Borrower and Executing Agency Performance 94. Government Performance. The government‘s performance in the design and delivery of the partnership program is assessed against the following sub-criteria: (i) ownership of MDGs, Paris Declaration, and leadership in aid coordination; (ii) participation in designing the CPS and key projects; (iii) compliance with loan covenants and conditionality of key projects and programs; and (iv) the adequacy and timeliness of the government in providing counterpart funding:

(i) Ownership. Ownership has been the key to success in Mongolia. The government showed commitment and ownership to pursue objectives related to inclusive economic growth, poverty reduction, environmental agendas, and special themes, such as gender. While government ownership for the CPS was low in initial years, this cannot be attributed to government performance. The timing of CPS approval just before a change of government was unfortunate, but the new government and ADB subsequently agreed on the new objectives through the ICPS.

(ii) Leadership in aid coordination. Aid coordination varied across sectors, with an increasing priority in later ICPS years. Some sectors did not benefit from sector plans agreed between the government and development partners or joint review mechanisms for their implementation. However, a more positive picture emerged at specific ministries. For instance, energy sector donor meetings were organized regularly to share the government’s energy sector policies and investment priorities, with relevant development partners sharing their ongoing and planned activities. The Ministry of Construction and Urban Development (MCUD) also established a single steering committee headed by the State Secretary for all its projects to enhance coordination and cooperation between projects financed by various development partners. Aid coordination at the Ulaanbaatar city level was considered relatively good, although capacity could be strengthened.

(iii) Participation in design. The government was engaged in the design of CPS and ICPS and key projects, programs, and TAs,37 and was an active participant in the annual programming exercise, particularly in later years. MOF counterparts were seen as experienced and capable. The urban sector benefited from active participation in design by both MCUD and the Municipality of Ulaanbaatar. However, government participation cannot always be a guarantee for long-term ownership with the CPS approval by the previous government being a prime example. Government restructuring, including wholesale staff replacements in some EAs, can be a challenge for participation in design as counterparts frequently change. As confirmed during consultations with previous government counterparts, it essential that sufficient opportunities are provided to the government to participate in CPS preparations and the design of projects to promote ownership and commitment after approval.

(iv) Loan covenants and conditions. While there may be some room to further improve adherence to loan covenants for ongoing projects—with performance

37

For some sectors, including energy, the government and ADB jointly prepared the sector assessment and designed priority areas for assistance and key projects during CPS/ICPS preparation.

40

varying across sectors—both PVRs and PCRs report a general compliance for completed projects.38

(v) Involvement during implementation. Despite limited human resources, government involvement during implementation—in areas such as loan/grant withdrawal, consultant engagement, bidding and procurement, coordination with stakeholders, disbursements, monitoring of project accounts, and review missions—ranges from adequate to high depending on the agencies involved. Local government involvement in implementation was particularly pronounced in the urban sector and for the Poverty Reduction through Community-based Natural Resources Management project and the Protecting the Health Status of the Poor during the Financial Crisis project.

(vi) Counterpart staff and funding. In terms of government contribution, $93.3

million and $2.0 million was planned to support the lending and nonlending pipelines, respectively.39 PCRs and PVRs of closed projects concluded that the borrower and EAs were committed and provided counterpart staff and funding in a timely manner. However, the adequacy and timeliness in providing counterpart staff and funding varied across sectors and over time. Some planned counterpart financing was cancelled due to severe budget constraints in 2015, a disruption to budget processes at a ministry due to replacements of key staff, and other factors.

1. Lessons Learned

95. Factors affecting borrower and EA performance. Out of 21 lending operations (loans and grants) completed in 2012–2015, 15 were self-evaluated of which four were validated by IED. Taking into account validation, borrower and EA performance was highly satisfactory for 1 project, satisfactory for 10 projects, and less than satisfactory or partly satisfactory for 2 projects. Project officers identified high commitment and ownership of projects under processing or implementation, mutual trust and communication, and the establishment of appropriate policy coordination and communication mechanisms among relevant stakeholders as key success factors. The engagement of full-time, highly qualified, and committed PMU contractual staff supported smooth project implementation without a need for government officials to become directly involved in projects. Factors that could be improved to strengthen performance include:

(i) Changes in government. The government has shown broad commitment and ownership to in projects fostering inclusive economic growth, poverty reduction, environmental agendas, and gender. This facilitated loan processing. However, government change followed by government agency restructuring and

38

Full compliance of loan covenants as reported in PCRs/PVRs was 92% for Customs Modernization, 90% for Third Health Sector Development, 75% for Education Sector Reform Project, 90% for the Social Sector Support Program, 95% for the Education for the Poor – Financial Crisis Response Project, 80% for the Regional Road Development Project, and 82% for the Third Education Development Project. Covenants not (fully) complied with related to, amongst others, an operation and maintenance plan, timely allocation of counterpart funds, piloting of hospital or health boards, public reporting mechanisms of customer satisfaction, delays in passing a budget that included targeting and consolidation of social welfare assistance, proxy means testing for provision of text books, completion of access roads, engagement of a private firm for managing road fee collection, and customs clearance of construction equipment. It must be noted that some of these were eventually completed with delays.

39 Over half of the planned government contribution was concentrated on the Finance (Supporting Credit Guarantee

System for Economic Diversification and Employment Project) and the Water and Other Municipal Infrastructure and Services (Ulaanbaatar Urban Services and Ger Areas Development Investment Program) sectors.

41

replacement of civil servants, affected continuity in the government’s support to ADB operations. Frequent changes within some ministries—from the management level down to specific focal points—impacted the processing of new loans and discussions on sector priorities in some cases. However, there was a mixed picture as other agencies, including MOF, the Ministry of Energy, the National Statistics Office, the central bank, and the Municipality of Ulaanbaatar, were minimally affected.40 Shifts in government’s policy and strategic directions required renewed policy dialogue and programming discussions on occasion. ADB mitigated this risk by targeting government agencies that are less prone to personnel change, including the private sector, local governments, civil society, and service delivery staff or units (e.g., teachers).

(ii) Procurement and recruitment capacity. In several EAs, there remains scope to improve the understanding of ADB guidelines on procurement and consultant recruitment to accelerate related processes, and thereby contract awards and disbursements. At times, high staff turnover made the accumulation of skills and knowledge in these areas more difficult demanding great efforts to rebuild and sustain capacity. While frequent training workshops at MNRM on procurement or disbursement have proven to be effective in rebuilding capacity, there is scope to increase their frequency.

J. Overall Assessment

96. On the basis of the individual evaluation criteria as assessed above, overall, the CPS and ICPS are assessed as highly successful, as summarized in Table 1.

Table 1: Overall Rating of CPS, 2012–2016 and ICPS, 2014–2016

Evaluation Criteria Rating Score Weight Weighted Score

Relevance Highly relevant 3 20% 0.6

Efficiency Efficient 2 20% 0.4

Effectiveness Highly effective 3 20% 0.6

Sustainability Likely sustainable 2 20% 0.4

Development impacts Highly satisfactory 3 20% 0.6

Overall assessment Highly successful 2.6

40

This could be due to the nature of the energy sector which requires staffing experienced engineers to plan, operate, and maintain the energy sector assets. Despite a replacement of nearly all relevant staff, MOF took over the Ministry of Economic Development’s role as ADB’s formal counterpart relatively swiftly, probably due to a combination of capable staff and some remaining institutional memory from before 2012.

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II. KEY LESSONS AND RECOMMENDATIONS 1. Strategic positioning

(i) Sustainable development. ADB’s strategic positioning based on the three pillars of sustainable development—economy, social sector, and environment/ climate change—was highly appreciated by the government. ADB’s client orientation and responsiveness played an important role in the significant increase in ADB’s lending at a time when the government had opted to replace ODA with affordable commercial borrowing. A key feature of ADB’s assistance’s attractiveness is the focus on high priority problems, such as the urgent need to develop basic services in the ger area, where the large influx of rural migrants was rapidly settling. This pragmatic and focused approach was preferred to assistance provided by other agencies on generic themes with no direct impact on leaving standards. ADB’s focused approach is also illustrated by support to the government’s green development agenda. Examples include securing $29.7 million in grant funding for strengthening renewable energy regulation and an investment in megawatt scale renewable energy hybrid systems in western Mongolia; reducing air pollution in the ger districts in Ulaanbaatar by switching fuel to coal gasification; sustainable forest management to improve the livelihood of local communities; and making grasslands in Mongolia more sustainable to improve herder’s livelihoods. This strategic focused positioning on sustainable development is likely to remain highly relevant in the next CPS period.

(ii) CPS timing and process. Political volatility in Mongolia, which affected the CPS,

suggests that the next CPS should be closely aligned with the political cycle and government objectives. Meetings with government officials highlighted the importance of conducting extensive consultations with the government for the preparation of the new CPS to ensure its participatory nature and continued ownership. Consultations should be as broad based as possible, involving relevant stakeholders from Parliament, civil society, academia, the private sector, and other development partners to ensure that priorities are identified and addressed. Media outreach can also play an important role in building broad political support for the overall country strategy, which will facilitate its subsequent implementation.

(iii) Gender mainstreaming. To consistently mainstream gender into infrastructure

sector operations—where at times there has been insufficient understanding, interests, and support from stakeholders—it is advisable to include gender design features, and monitor and follow up with gender-related targets and activities throughout project implementation. Further, gender-inclusive small grants could be sought for augmenting large-scale infrastructure projects.

2. Relevance

(i) Fully utilizing available financing modalities. The Social Welfare Support Program was a signal of changing country circumstances. In light of substantial refinancing needs, more PBLs with focused policy actions may be required to support the country during the next CPS period. Increased utilization of other financing modalities, including greater usage of financial intermediaries,

43

nonsovereign operations, and results-based lending, may be explored as well to adjust to the changing country circumstances.

(ii) Geographical balance. The strategic positioning of the CPS and ICPS did not

explicitly consider the geographical focus of ADB’s operations within the country. Although some national projects, CAREC projects improving the connectivity of certain aimags with neighboring countries, and JFPR-grants still ensured an ADB presence throughout the country, some regions in need received less support. This suggests that regional allocations should be consideration in future discussions with the government for the preparation of the next CPS.

(iii) High value-added projects. At a time when the government opted to rely on

commercial lending, ADB maximized its relevance by focusing on complex projects that required more than merely funding, that were too difficult for the government to design or implement, and were structured to meet basic needs of the population (e.g., health, social protection, sanitary and phytosanitary standards). This successful approach explains why ADB was the only donor lending to the government at the time.

3. Efficiency

(i) Financing modalities. Flexible use of PBLs and utilization of 2-step on lending

through financial institutions throughout 2012–2016 has helped to effectively deliver CPS objectives, rapidly increase disbursements and net resource transfers, and avoid procurement related issues or capacity constraints. The government particularly appreciated the inflow of foreign currency at a time of balance of payments pressures and the revolving nature of 2-step lending to ensure recurring benefits. While recognizing that such financing modalities are more suitable for specific sectors, their continued use should be considered for possible inclusion in the next CPS given their positive track record and quick disbursement of foreign exchange that could help address expected fiscal and balance of payments pressures in 2017–2018.

(ii) Project duration. As the average project completion time beyond the original

estimated completion date was 2.1 years, more attention is needed to ensure realistic project timeframes. Positive steps to build on include the use of larger MFF projects with longer project implementation duration to avoid project extensions (e.g., the Ulaanbaatar Urban Services and Ger Areas Development Investment Program and the Western Regional Roads Corridor Investment Program).

(iii) Targeted capacity building. In a project implementation environment

characterized by frequent changes to some key EA/IA positions, ADB must continue to provide guidance, targeted training, and intensive project supervision. One option to be considered to build and retain implementation capacity for key projects involves more intensive on-the-job training of PIU staff for core project implementation work—e.g., procurement and consultant recruitment, financial and contract management—benefiting from a day-to-day presence of an international consultant. In addition to building core skills, this could facilitate implementation. This approach would be in line with how other development partners, such as JICA and KfW, work in Mongolia. Assuming the availability of

44

sufficient TASF resources, this initiative could be financed through either a standalone or piggybacked TA.

4. Effectiveness

(i) Political support, partnership, and communication. Continuous and consistent government ownership and political support are key to effective processing and implementation. The outposting of international staff to MNRM and the strong role of national staff has helped to build and sustain this engagement. For instance, the trust and partnership built between ADB and the Municipality of Ulaanbaatar has been a positive factor to ensure achievement of development results as it helped to guarantee that financial and human resources were adequately allocated towards project implementation. Active outreach was another important avenue to build and sustain broad-based support. In particular, project communication and external relations can help to alleviate or prevent issues in project processing, ratification, and administration.41

Stakeholder communication plans could be developed for each sector to support such outreach. Finally, given the pivotal role that Parliament and its Standing Committees play in approving loan negotiations and the subsequent ratification, maintaining open communication channels and regular outreach with Members of Parliament has proven to be essential for swift processing.

(ii) Addressing urgent and specific needs. The effectiveness of some lending and nonlending operations was affected by government change and recurring staff changes in some EA/IAs. While such changes can make efficient policy dialogue and project implementation more challenging, an overall focus on projects that address urgent and specific needs has proven to be an effective countermeasure to ensure continued support. On the other hand, pursuing generic approaches such as Managing for Development Results was considered less effective. Along similar lines, support for PPPs in Mongolia has been most effective when approached as a modality to deliver high value projects rather than being a goal in itself. Scrutinizing pipeline project proposals for good opportunities to utilize a PPP modality to maximize value for money rather than developing standalone PPP proposals should become an integral part of programming.

(iii) JFPR grants. Completed JFPR-grants were effective as stand-alone projects and sometimes informed ADB’s overall strategic direction. For instance, a JFPR-grant improved access to early childhood education—especially among rural, nomadic, and migrant children through innovate mobile kindergartens—paving the way for the return of basic education in the ICPS. Other grants provided targeted protection against the impact of the 2009 crisis. While later JFPR-grants did not always catalyze future lending operations, they generally had a high impact and the delivered outcomes and outputs were deemed highly relevant for the country and appreciated by the government, beneficiaries, and other stakeholders.

41

Positive examples include the Skills for Employment Project and the Darkhan Wastewater Management Project. Whereas a change of government and subsequent restructuring occurred after fact-finding missions and prior to loan negotiations, processing benefited from the prolonged presence of team leaders in the country through an “open ended mission” and significant consultations with standing committees, advisors of the Prime Minister and President, etcetera that were widely covered by the media. Against all odds, these efforts allowed project approvals in the planned years.

45

(iv) Gender. While important gender equality results were delivered in particularly in

closed social protection, health, and urban development sector projects, some other projects in the areas of finance, road transport, and environment were insufficiently gender mainstreamed. Although there has been increased progress to integrate gender equality issues into project design and ensure its implementation, it is important to step up efforts to expand gender mainstreaming into all sectors.

5. Sustainability (i) Greater emphasis on O&M and recurrent costs. Government budgets may

become more constrained than in previous years, which can impact expenditures on O&M and recurrent costs. ADB may need to encourage the government to increase the likelihood of sustainability by ensuring that more resources are allocated to its ongoing and completed projects. Given the importance of O&M in sustaining the country’s asset base, this important issue may also be raised in the context of CPS consultations with the new government. Project pipelines may need to consider the impact of expected recurrent expenses on government budgets, and the risks of insufficient budget allocations for project sustainability. Project design should consider the full range of available technologies to minimize O&M costs, which may result in pursuing mid-end solutions with a lower overall cost profile. Rather than financing capital expenditures for new projects for a standard five years, it may also be useful to add another five years of O&M expenditures as an integral part of some projects to support their sustainability. Finally, the provision of PBLs in years with substantial debt refinancing requirements may help to mitigate the fiscal adjustment and avoid unnecessarily abrupt cuts in O&M and recurrent cost expenditures.

(ii) Community engagement. Community engagement is a key aspect of managing natural resources (e.g., water, forests, and pastures). Three grant projects on community-based natural resources management during 2012–2015 showed that community engagement is imperative for sustainability although the process itself requires sufficient time and resources. For effectively engaging communities, it is also important to provide economic opportunities as natural resource exploitation is connected with poverty and low incomes.

6. Development Impacts (i) Best practices. ADB’s experiences in 2012–2016 identified a range of best

practices that ultimately ensure that its projects deliver results and contribute to the achievement of Mongolia’s overall development goals. Amongst others, these include (i) a focus on sustainable development, (ii) addressing specific burning development issues rather than generic approaches, (iii) close consultations on both strategy and projects with the government and other important stakeholders, (iv) fully utilizing the wide array of available financing modalities, (v) complex projects with a high value-added, (vi) building political support and close partnerships, (vii) continuing to deliver highly relevant JFPR-grants, (viii) increased attention to gender issues and mainstreaming which picked up substantially in later CPS years, and (ix) emphasis on project sustainability.

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7. ADB performance

(i) Project complexity. As the government built necessary capacity and gained access to alternative funding sources to pursue traditional projects themselves, ADB gradually moved up the value chain in response. For instance, the addition of three information technology related projects—including one supporting reforms for social insurance and social welfare—in the current portfolio demonstrates demand for a new and more complicated business line with great potential. A similar movement towards increased project complexity is visible in the urban sector. Because of the integrated and multisector nature of urban projects and the inherent complexity of dealing with ger area modernization and redevelopment, project design tends to be more complex and requires a longer period to implement and multiple contracts to procure. Such complex projects, however, are worthwhile given their high added value in terms of development impact and were a major factor behind the government’s continued interest to borrow from ADB.

(ii) Communication. Maintaining good communication channels—both between

ADB and government counterparts, and between headquarters and the resident mission—has proven to be essential for efficient and effective processing and implementation. A corporate culture of responsiveness to government priorities, honesty, and transparency helped to maintain the trust relationship necessary for such close cooperation and achieving results.

(iii) Delegation to MNRM. Delegation to MNRM, benefiting from client proximity and

a good record in turning around problem projects, has contributed to efficiency and effectiveness. This has allowed National staff to increasingly lead in project administration. Close cooperation and partnership between MNRM and headquarters staff prior to and following delegation, a focus on specialist skills and knowledge, and distinct roles for international staff and national staff, have proven to be prerequisites for effective delegation. TA processing in MNRM helped to sustain an increase in overall TA approvals with the advantage of close dialogue within the country. This suggests there is scope for MNRM to take on more projects, particularly those with persistent challenges. However, this would require additional resources, as MNRM’s staffing has not kept up with the rapid increase in approvals and substantially increased portfolio size. Given significant changes in relative remuneration compared to headquarters during the CPS/ICPS period, it will be important to monitor the number and quality of applicants for possible new IS positions and staff retention in MNRM.

(iv) Grant processing. JFPR grants have substantially benefited Mongolia, created opportunities for policy dialogue, were associated with learning opportunities due to their innovative features and greatly appreciated by the government and other stakeholders. From a programming perspective this influenced the average size and strategic deployment in areas with a potential for high catalytic impact. Reducing some submission requirements, as currently being considered, is likely to increase productivity and processing speed without a negative impact on project quality.

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8. Borrower performance

(i) Changes in government. The government has shown broad commitment and ownership to in projects fostering inclusive economic growth, poverty reduction, environmental agendas, and gender. This facilitated loan processing. However, government change followed by government agency restructuring and replacement of civil servants, affected continuity in the government’s support to ADB operations. Frequent changes within some ministries—from the management level down to specific focal points—impacted the processing of new loans and discussions on sector priorities in some cases. However, there was a mixed picture as other agencies, including MOF, the Ministry of Energy, the National Statistics Office, the central bank, and the Municipality of Ulaanbaatar, were minimally affected.42 Shifts in government’s policy and strategic directions required renewed policy dialogue and programming discussions in occasions. ADB mitigated this risk by targeting government agencies that are less prone to personnel change, the private sector, local governments, civil society, and service delivery staff or units (e.g., teachers).

(iii) Procurement and recruitment capacity. In several EAs, there remains scope to improve the understanding of ADB guidelines on procurement and consultant recruitment to accelerate related processes, and thereby contract awards and disbursements. At times, high staff turnover made the accumulation of skills and knowledge in these areas more difficult demanding great efforts to rebuild and sustain capacity. While frequent training workshops at MNRM on procurement or disbursement have proven to be effective in rebuilding capacity, there is scope to increase their frequency.

42

This could be due to the nature of the energy sector which requires staffing experienced engineers to plan, operate, and maintain the energy sector assets. Despite a replacement of nearly all relevant staff, MOF took over the Ministry of Economic Development’s role as ADB’s formal counterpart relatively swiftly, probably due to a combination of capable staff and some remaining institutional memory from before 2012.

Appendix 1 43

Economic, Poverty and Social Indicators Key Economic Indicators

Indicator 2012 2013 2014 2015

Total GDP (billion current $) 12.3 12.6 12.2 11.8 GDP per capita (current $) 4,323.6 4,340.1 4,126.2 3,882.1 GDP per capita, PPP (current international dollars) 10,027.8 11,191.8 12,063.6 … GNI per capita, Atlas method (current $) 3,635 4,306 4,234 … GNI growth (%) 12.8 14.1 6.4 … GDP growth (%) 12.3 11.6 7.9 2.3 Revenue (% of GDP) 29.7 31.2 28.4 25.8 Fiscal balance (% of GDP) -6.2 -0.9 -3.2 -5.0

a

Money supply (M2) growth (%) 18.7 24.2 12.5 -5.5 Inflation (annual average, %) 14.3 9.9 12.8 6.6 Unemployment rate 8.2 7.9 7.9 8.3 Merchandise exports (% of GDP) 35.7 33.9 47.2 39.7 Merchandise imports (% of GDP) 48.4 44.4 39.1 29.2 Merchandise trade balance (% of GDP) -12.7 -10.5 8.1 10.5 Current account balance (% of GDP) -27.4 -25.4 -11.5 -4.7 Remittances (% of GDP) 2.3 1.7 1.6 1.8 Foreign direct investment (% of GDP) 35.9 16.7 2.3 1.9 Merchandise export growth (%) -9.0 -2.6 35.3 -19.2 Merchandise import growth (%) 2.2 -5.9 -14.4 -28.2 Total external debt (% of GDP) 125.3 151.2 171.3 183.7 Total external debt service (% of exports & services) 33.0 46.4 44.6 45.9 Gross international reserves (in months of imports) 6.2 3.5 2.9 3.2 Average exchange rate (MNT/USD) 1,359.2 1,523.9 1,817.9 1,970.3

GDP by sectorb, 2015 GDP

share Employment

share GDP by expenditure

b, 2015 %

Agriculture 13.7 31.4 Total consumption 70.6 Industry 31.4 19.4 Investment 26.2 Mining and quarrying 16.7 3.9 Public … Manufacturing 8.4 6.4 Private … Services 55.0 49.1 Net Exports 2.9 Wholesale and retail trade 11.9 6.7 Exports 44.9 Real estate 6.7 0.1 Imports 42.0 Statistical discrepancy 0.3

Main destinations exports

c, 2015 % Main sources of imports

c, 2015 %

PRC 83.7 PRC 36.6 United Kingdom 7.2 Russian Federation 26.9 Switzerland 2.3 Japan 7.2 Russian Federation 1.6 Republic of Korea 6.8 Republic of Korea 1.4 Germany 3.3

Principal exportsc, 2015 % Principal imports

c, 2015 %

Mineral product 78.8 Mineral product 24.7 Natural or cultured pearls, precious metal, jewelry

9.0 Machinery, equipment electric appliances, recorders, TV sets and spare parts

20.7

Textiles 6.5 Base metals 9.8 Base metals & articles thereof 1.5 Auto, air and water transport vehicles

and spare parts 9.7

Machinery, equipment electric appliances, recorders, TV sets and

1.2 Food products 8.7

44 Appendix 1

spare parts

Selected Economic Indicators (2010–2015) and Projection (2016)

Indicator 2010 2011 2012 2013 2014 2015 2016

GDP growth (%) 6.4 17.3 12.3 11.6 7.9 2.3 0.1 Inflation (average, %) 10.1 9.2 14.3 9.9 12.8 6.6 3.0 Current account balance (% of GDP) -12.3 -26.5 -27.4 -25.4 -11.5 -4.7 -8.0

Key poverty and social indicators

Indicator Latest OECD averaged

Population living on less than $1.25 a day (%) 11.2 2014 … Population below national poverty line (%) 21.6 2014 … Underweight children under 5 years old (%) 1.6 2014 … Net enrollment ratio in primary education (%) Total 99.3 2014 96.6 2012 Female 98.7 2014 96.8 2012 Male 100.0 2014 96.5 2012 Adult literacy (%) 98.5 2014 … Maternal mortality ratio (per 100,000 live births) 30.6 2014 21 2013 Infant mortality rate (below 1 year/per 1,000 live births)

15.3 2014 6.4 2012

Life expectancy at birth (years) 69.5 2014 80.0 2012 CO2 emissions (metric tons of CO2 per capita)

e 7.32 2013 5.08 2012

Population with access to safe water (%) 80.4 2014 99.1 2012 Population with access to sanitation (%) 41.1 2014 97.8 2012 Human Development Index

a 0.698 2013 0.874 2013

(Rank) (103/187) (22.3) … = data not available, ADP = automatic data processing, CO2 = carbon dioxide, GDP = gross domestic product, GNI = gross national income, PPP = purchasing power parity, PRC = People’s Republic of China, USA = United States of America, MNT = togrog. a

Changed methodology in 2015 by inclusion of part of Development Bank of Mongolia’s (DBM) expenditures. It must be noted that the consolidated deficit, including all DBM’s expenditures is significantly higher than the figures shown in this table;

b In nominal terms;

c Refers to merchandise trade only;

d Simple averages of values and ranks for the

OECD countries. e

Estimated by the amount of CO2 emissions from fuel combustion per capita Sources: Asian Development Bank. 2014. Asian Development Outlook 2014 Update. Manila; Bank of Mongolia. 2014. Monthly Statistical Bulletins (2013-2014). Mongolia; Bank of Mongolia. 2014. External Debt Statistics. Mongolia; Bank of Mongolia. 2014. Balance of Payment Statistics (2011-2014). Mongolia; Ministry of Education, Culture and Science. 2015. Education Sector Information System. Mongolia; Ministry of Construction and Urban Development and United Nations Development Programme. 2014. Water Supply and Sanitation in Mongolia – Second Edition. Mongolia; National Statistical Office of Mongolia. 2014. Mongolian Statistical Year Book (2013); National Statistical Office of Mongolia. 2014. Monthly Bulletin of Statistics (2013-2014); UNDP. 2014. Human Development Report (2014); World Bank. 2014. World Development Indicators. USA; Asian Development Bank staff estimates.

Appendix 2 45

Key Portfolio Performance Indicators (2011–2015 vs. ADB-wide)

INDICATORS

2011

2012

2013

2014 2015 2015

ADB-Wide

A. Start–up Compliance for Loans

Average Months: Approval to Signing 3.3 3.3 3.1 3.4 5.9 3.5

Average Months: Signing to Effectiveness 3.1 3.6 3.7 3.6 3.8 3.4

Average Age of Active loans (years) 3.0 2.2 2.3 2.6 2.0 3.5

B. Financial Performance for Loans

1a. CA Ratio43

(%) projects only 7.3 27.7 1.9 3.1 25.9 22.9

1b. CA vs. annual projection, projects only 8.4 58.8 4.7 12.2 129.2 7,450.3

2a. Disbursement Ratio 44

(%) 14.0 11.1 8.2 12.2 28.7 26.4

2b. Disbursement VS annual projection, 14.1 16.6 20.3 38.6 124.5 10,270.2

3. Net Resource Transfer 45

($ million) 3.9 25.8 27.5 104.4 100.0 6,502.5

4. IA Turnover Rate46

(%) 1.5 0.9 0.6 1.1 0.7 1.1

C. Portfolio Performance for Projects (Loans + Grants)

1. Project Ratings (eOps)

(a) On track (% of projects) 88.5 80.0 78.3 71.4 78.9 75.8

(b) Potential Problem Projects (% of projects) 11.5 12.0 8.7 14.3 21.1 17.3

(c) Actual Problem (% of projects) 0.0 8.0 13.0 14.3 0 6.9

… = not available, IA= imprest account, CA = contract award Source: OSFMD Portfolio Management Indicators Report, OSFMD Quarterly Portfolio Updates report, as of 31 December 2015.

43

Contract/Commitment Award Ratio is defined as the ratio of Contract Awarded/Actual Commitment during the year over the value available for contract/commitment awards at the beginning of the year.

44 Disbursement ratio is the ratio of total disbursement in a given year/period over the net loan amount available at

the beginning of the year/period plus the loan amounts of newly approved loans which have become effective during the year/period.

45 Includes all loans and grants financed by ADF, OCR and other special funds. Net transfer of resources defined as

disbursements less repayments of principal and loan charges (front-end fee, comm. charge and interest and other charges).

46 The annualized turnover rate is computed as the ratio of total liquidation over the time-weighted average fund

balance for 12 months.

46 Appendix 2

CPS Results Framework: Targets and Achievement Country Development Goals

1. Increase per capita gross domestic product (GDP) to $6,000 by 2015. 2. Foster employment to generate jobs for 40,000 persons a year by 2015. 3. Reduce poverty incidence to 18% of the population by 2015. 4. Keep public investment at 8%–10% of GDP.

1

5. Private investment to average 16 % of GDP from 2011 to 2015 (a doubling from 2007).

1

6. Meet education and health-related Millennium Development Goals by 2015. 7. Ensure that sector strategies and budgets are well-linked.

1. $3,882 (2015) 2. 8.787 (May 2015) 3. 21.6% (2014) 4. 8.5% (central government 2011–

14) 5. Not publicly available. 6. Two out of four met.

4

7. Not measurable. Sectors Selected for ADB Support

Government Sector Objectives

Sector Outcomes that ADB Contributes to and Indicators

ADB Indicative Resource Allocation in the Next Pipeline

and Thematic Priorities

1. Transport (Core Areas 1 and 3: Infrastructure, and Regional Cooperation and Integration)

Regional trade development Improved competitiveness of Ulaanbaatar

1

Improved access of rural populations to markets and public services Increased capacity of the transport sector institutions and industry

More efficient movement of people and goods in urban and rural areas and across borders Indicator 1: Total freight turnover in ton kilometers target: 10% increase annually (up to 2016) baseline: 12.1 billion km (2010) baseline: 13.5 billion km (2013)

3

current value: 19.1 billion km (2015) Indicator 2: Average speed with delay on CAREC corridor 4b (road and rail) reached CAREC’s average target: 18 kilometers per hour (kph) (2016) baseline: 4 kph (2010) baseline: 8 kph (2013)

3

current value: 10 kph (2015) Indicator 3: Average daily public transport journeys along Ulaanbaatar’s north– south corridor

1

target: increased by 15% baseline: 164,000 (2010)

Planned Country Partnership Strategy (CPS) $301.9 million,

69% of total resource envelope2

(including urban transport), of which: ENV: 66% RCI: 54% GEN+EGM: 87% PSD: 67% GOV: 100% Delivered CPS $186.4 million,

40% of total resource envelope2

(including urban transport), of which: ENV: 33% RCI: 67% GEN+EGM: 33% PSD: 0% GOV: 0%

Appendix 3 47

current value: 164,000 (2015) Indicator 4: Aimag centers linked with Ulaanbaatar with paved roads

1

target: 100% (2016) baseline: 33% (2009) current value: 71.4% (2015) Indicator 5: Average bus speed along the bus rapid transit system corridor in Ulaanbaatar

3

target: 26 km/h (2016) baseline: 20 km/h (2013) current value: 21.5 km/h (2015)

Planned Interim Country Partnership Strategy (ICPS)

3

$255 million, 32% of total CPS

envelope, of which:

ESG: 10% RCI: 100% GEM: 10% PSD: 0%

Delivered ICPS 2014–2015

$186.4 million, 39% of total envelope

3, of which:

ESG: 100% RCI: 67% GEM: 100% PSD: 0%

Delivered 2012–2015 $186.4

million, 25% of total resource envelope

3, of which:

ENV: 33% RCI: 67% GEN+EGM: 33% PSD: 0% GOV: 0%

2. Energy (Strategy 2020 Core Area 1: Infrastructure)

Energy security Improved energy access

1

Energy conservation

1

Energy efficiency and security

3

Renewable energy

3

Improved energy access and efficiency in urban centers and rural remote areas Indicator 1: Electrification rate target: 95% (2016) baseline: 90% (2011) baseline: 90% (2013)

3

current value: 96.7% (2014) Indicator 2: Energy consumption

1

target: 1,313 megawatt electrical (MWe) (2016)

baseline: 762 MWe (2011) current value: 1,123.3 MWe (2014) Indicator 3: Electricity consumption

3

target: 8,987 gigawatt electrical (GWh) (2016)

Planned CPS $62 million, 14%

of total envelope2, of which:

ENV: 100% RCI: 0% GEN+EGM: 0% PSD: 100% GOV: 100% Delivered CPS $0 million, 0%

of total envelope2, of which:

ENV: 0% RCI: 0% GEN+EGM: 0% PSD: 0% GOV: 0%

48 Appendix 2

baseline: 5,984 GWh (2013) current value: 6,691.6 GWh (2014)

Planned ICPS $194 million,

25% of total CPS envelope, of which: ESG: 100% RCI: 10% GEM: 10% PSD: 0% Delivered ICPS 2014–2015 $0

million, 0% of total CPS envelope, of which: ESG: 0% RCI: 0% GEM: 0% PSD: 0%

Delivered 2012–2015 $0

million, 0% of total envelope3, of

which: ENV: 0% RCI: 0% GEN+EGM: 0% PSD: 0% GOV: 0%

3. Education (Core Area 5: Education)

Improved quality, access, efficiency, and effectiveness of the education sector

Improved educational attainment and improved quality, access, efficiency, and relevance in secondary education, higher education, and technical and vocational education and training (TVET)

Indicator 1: Percentage of higher education graduates employed in fields in which they received training after graduation

1

target: 50% (2016) baseline: 40% (2007) current value: … (2014) Indicator 2: Higher education net enrollment among the population in the age group of 18–24 years

1

target: 50% (2015) baseline: 47% (2010)

Planned CPS $25 million, 6%

of total envelope2, of which:

ENV: 0% RCI: 0% GEN+EGM: 100% PSD: 100% GOV: 100% Delivered CPS $25.0 million,

5% of total envelope2, of which:

ENV: 0% RCI: 0% GEN+EGM: 100% PSD: 100% GOV: 100%

Appendix 3 49

current value: 27% (2014) Indicator 3: The number of students enrolled in TVET institutions

1

target: 49,213 (2015) baseline: 46,945 (2009) current value: 42,797 (2014) Indicator 4: Students enrolled in priority subjects (natural sciences, engineering, technology, and agriculture)

1

target: 40% (2016) baseline: 26.8% (2010) current value: 28.8% (2014) Indicator 5: Employment rates of graduates from TVET in priority sectors

3

target: 57% (2016) baseline: 54% (2013) current value: 49% (2014) Indicator 6: Gross enrollment ratios

target: 100% (2016) baseline: preprimary 85.8% (2012) primary 116.7% (2012) secondary 103.5% (2012) current value: preprimary …% (2014) primary 103.9% (2014) secondary 90.8% (2014)

Planned ICPS $78 million, 10%

of total envelope, of which: ESG: 10% RCI: 0% GEM: 30% PSD: 20% Delivered ICPS 2014–2015

$28.0 million, 6% of total envelope, of which: ESG: 11% RCI: 0% GEM: 100% PSD: 89% Delivered 2012–2015 $28.0

million, 4% of total envelope3, of

which: ENV: 11% RCI: 0% GEN+EGM: 100% PSD: 89% GOV: 100%

4. Health (2020 Area: Other Areas of Operation)

Millennium Development Goal achievement with improved allocative efficiency and greater pro-poor focus

Quality and financial accessibility of health services improved

1

More people enjoy improved social insurance, welfare, and health services

3

Indicator 1: Universal coverage of citizens’ health insurance target: 100% (2015) target: 100% (2016)

3

baseline: 80% (2012) baseline: 80% (2010)

3

current value: 97.8% (2013) Indicator 2: Proportion of government health sector budget allocated to primary health care increased

1

target: 25% (2015) baseline: 20.2% (2010)

Planned CPS $15 million, 3%

of total envelope2, of which:

ENV – 100% RCI – 0% GEN+EGM – 100% PSD – 0% GOV – 100%

Delivered CPS $75.0 million,

16% of total envelope2, of

which: ENV: 0% RCI: 0% GEN+EGM: 100% PSD: 0% GOV: 0%

50 Appendix 2

current value: 21.2% (2013) Indicator 3: Illegal or substandard drugs in the market

1

target: 13% (2016) baseline: 26% (2010) current value: 17.8% (2013) Indicator 4: Prevalence of hepatitis B and C among health workers

1

target: 12% (2015) baseline: 15% (2010) current value: No data available

Indicator 5: The social pensions for informal sector workers (herders, self-employed, and nonwage earners)

3

target: 10% increase in coverage (2015) baseline: 100,971 (updated from 60,700, 2012) current value: 147,102 (2013)

The project “Ensuring Integration of People with Disabilities“ ($50 million) is included as stand-by in 2016.

3

The project “Ensuring Inclusiveness and Service Delivery for People with Disabilities” ($25 million) is included as firm in the 2016 COBP.

Delivered 2012–2015 $75.0

million, 10% of total envelope2,

of which: ENV: 0% RCI: 0% GEN+EGM: 100% PSD: 0% GOV: 0%

5. Water Supply and Other Municipal Infrastructure Services (Strategy 2020 Core Area 1: Infrastructure; Core Area 2: Environment [Livable Cities])

Improved financial sustainability of service provision Enhanced investment in operations, including infrastructure maintenance

1

Improved urban environment, particularly improved air quality and reduced soil and water pollution Reduced urban congestion and improved urban efficiency

Greater availability of municipal services and improved living conditions in urban areas More people enjoy improved urban services and better living conditions in urban areas

3

Indicator 1: Urban population with access to potable water supply

1

target: 65% (2016) baseline: 46% (2008) current value: 80.4% (2014) Indicator 2: Urban population with access to adequate sanitation

1

target: 40% (2016) baseline: 27% (2008) current value: 41.1% (2014) Indicator 3: Average water consumption in ger

a

areas target: 10 liters per capita per day (l/c/d)

(2016) baseline: 6.5 l/c/d (2010) current value: 7.7 l/c/d (2014) Indicator 4: Prevalence of intestinal and pulmonary

Planned CPS $36 million, 8%

of total envelope2

ENV: 100%, of which: RCI: 0% GEN+EGM: 100% PSD: 100% GOV: 100% Delivered CPS $72.2 million,

16% of total envelope2, of

which: ENV: 100% RCI: 0% GEN+EGM: 74% PSD: 74% GOV: 74% Planned ICPS $20 million, 3%

of total CPS envelope, of which: ESG: 60% RCI: 0% GEM: 15% PSD: 15%

Appendix 3 51

infections1

target: 15% decline (2016) baseline: 12,000 cases (2010) current value: No data available

Indicator 5: Population using an improved drinking water source in urban area

3

target: 85% (2016) baseline: 78% (2010) current value: 80.4% (2014) Indicator 6: Population using an improved sanitation facility in urban areas increased

3

target: 45% (2016) baseline: 37% (2010) current value: 41.4% (2014)

Delivered ICPS 2014–2015

$18.6 million, 4% of total CPS envelope, of which: ESG: 100% RCI: 0% GEM: 100% PSD: 0% Delivered 2012–2015 $72.2

million, 10% of total envelope2,

of which: ENV: 100% RCI: 0% GEN+EGM: 74% PSD: 74% GOV: 74%

6. Finance (Core Area 4: Finance)

More efficient financial intermediation to support private sector growth, economic diversification, long-term investment, innovation, and access to finance

3

Increased use of more efficient financial intermediation by private sector enterprises and individuals

3

Indicator 1: Bank credit to GDP

3

target: 100% (2016) baseline: 83.9% (2012) current value: 102.8 (2014) Indicator 2: Annual MSE turnover as a share of GDP

3

target: 3.0% (2016) baseline: 1% (2012) current value: 1.6% (2014) Indicator 3: Total bonds outstanding as % of GDP

3

target: 18% (2016) baseline: 7.1% (2012) current value: 20.6% (2014)

Planned ICPS $62 million, 8%

of total envelope, of which: ESG: 20% RCI: 0% GEM: 10% PSD: 100% Delivered ICPS 2014–2015

$100.0 million5, 21% of total

envelope, of which: ESG: 0% RCI: 0% GEM: 40% PSD: 40%

Delivered 2012–2015 $160.0

million5, 22% of total envelope

2,

of which: ENV: 0% RCI: 0% GEN+EGM: 0% PSD: 50% GOV: 50%

7. Agriculture, Natural Resources, and Rural Development (Area: Other Areas of Operation)

Improved environmental services, and quality in ecosystems and agricultural production

3

Increased productivity in agriculture sector in line with the national green development policy

3

Indicator 1: Value added of agro-processing target: 30% increase (2016) baseline: MNT460 billion (2012) current value: MNT521 billion (2013)

Planned ICPS $149 million,

19% of total envelope, of which: ESG: 70% RCI: 10% GEM: 20% PSD: 80% Delivered ICPS 2014–2015

$53.0 million, 11% of total envelope, of which:

52 Appendix 2

ESG: 100% RCI: 0% GEM: 100% PSD: 94%

Delivered 2012–2015 $55.5

million, 7% of total envelope2,

of which: ENV: 100% RCI: 0% GEN+EGM: 96% PSD: 90% GOV: 95%

… = no data, ADB = Asian Development Bank, CAREC = Central Asia Regional Economic Cooperation, CPS = country partnership strategy, EGM = effective gender mainstreaming, ENV = environmental sustainability, ESG = environmental sustained growth, GDP = gross domestic product, GEM = gender equity and mainstreaming, GEN = gender equity, GOV = governance, GWh = gigawatt-hour, km/h = kilometer per hour, lpcd = liters per capita per day, MSE = Mongolian Stock Exchange, PSD = private sector development, RCI = regional cooperation and integration, TVET = technical and vocational education and training. Notes: a. For delivered pipelines, calculations are based on loans and grants only with each tranche of an MFF being counted in the year of Board approval. b. Delivered pipelines are inclusive of 2015 firm loans and grants, including JFPR. c. Regional Upgrade for Sanitary and Phytosanitary Measures for Trade Facilitation ($15.0 mln, 2015) is included in the planned operations but excluded in the approved operations due to a change in project classification to Industry and Trade. However, the project is still essentially the same as planned and supports agriculture by improving export potential in this sector. d. Delivered pipelines in sector Health are inclusive of both Health sector and Health and Social Protection sector projects following Table A6.1. e. Delivered pipelines in sector Water Supply and Other Municipal Infrastructure Services are inclusive of both Water and other urban infrastructure sector and Water and Other Municipal Infrastructure and Services sector projects following Table A6.1. 1

Removed in Interim Country Partnership Strategy: Mongolia, 2014–2016. 2

Based on the Country Operations Business Plan 2012–2014. 3

Interim Country Partnership Strategy: Mongolia, 2014–2016. 4

Limit and prevent the spread of Human Immunodeficiency Virus (HIV)/Acquired Immune Deficiency Syndrome (AIDS) by 2015 and Reduce the under-five mortality rate by 4 times between 1990 and 2015.

5 Includes private sector operations.

a ger refers to traditional Mongolian tented dwellings.

Source: Asian Development Bank.