IMPLEMENTATION COMPLETION AND RESULTS REPORT · The MSTA project was designed to assist the...

Document of

The World Bank FOR OFFICIAL USE ONLY

Report No: ICR00004382

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA47770, TF99122)

ON A

LOAN

IN THE AMOUNT OF US$12 MILLION

TO

MONGOLIA

FOR THE

MONGOLIA MULTI-SECTORAL TECHNICAL ASSISTANCE PROJECT ( P119825 )

March 28, 2018

Macroeconomics, Trade and Investment Global Practice

East Asia and the Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 28, 2018)

Currency Unit = Mongolian Tughrik (MNT)

MNT 1.00 = US$0.000505

US$1.00 = MNT 1,977.8

FISCAL YEAR

July 1–June 30

ABBREVIATIONS AND ACRONYMS

BOM Bank of Mongolia

BPIS Budget Preparation and Information System

CPS Country Partnership Strategy

CRW Crisis Response Window

DICOM Deposit Insurance Corporation of Mongolia

DPC Development Policy Credit

DPL Development Policy Lending

FM Financial Management

FINA Financial Information and National Accounting System

FSL Fiscal Stability Law

GDP Gross Domestic Product

GFMIS Government Fiscal Management Information System

GOSWS General Office for Social Welfare Service

GPA Government Procurement Agency

IARIM Internal Auditor Registration Program

IBL Integrated Budget Law

ICR Implementation Completion and Results Report

IFRS International Financial Reporting Standards

IPPF Indigenous Peoples Planning Framework

ISDB Intersectoral Database System

ISN Interim Strategy Note

ISR Implementation Status and Results Report

IT Information Technology

LDF Local Development Fund

M&E Monitoring and Evaluation

MOF Ministry of Finance

MoPDSP Ministry of Population Development and Social Protection

MoSWL Ministry of Social Welfare and Labor

MOU Memorandum of Understanding

MSTA Multi-Sectoral Technical Assistance

MTFF Medium-Term Fiscal Framework

MTR Midterm Review

NDIC National Development and Innovation Committee

PCR Project Completion Report

PDO Project Development Objective

PFM Public Financial Management

PLR Performance and Learning Review

PMU Project Management Unit

PMT Proxy Means Test

ROSC Report on the Observance of Standards and Codes

SFFS Strengthening Fiscal and Financial Stability

SME Small and Medium Enterprise

TA Technical Assistance

UN United Nations

WAIS Welfare Administration and Information System

Regional Vice President: Victoria Kwakwa

Country Director: Bert Hofman

Senior Global Practice Director: Carlos Felipe Jaramillo

Practice Manager: Deepak K. Mishra

Task Team Leader(s): Taehyun Lee

ICR Main Contributor: Luan Zhao

TABLE OF CONTENTS

DATA SHEET ....................................................................... ERROR! BOOKMARK NOT DEFINED.

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 6

A. CONTEXT AT APPRAISAL .........................................................................................................6

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION .............................................................. 11

II. OUTCOME .................................................................................................................... 16

A. RELEVANCE OF PDOs ............................................................................................................ 16

B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 17

C. EFFICIENCY ........................................................................................................................... 24

D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 25

E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 25

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 26

A. KEY FACTORS DURING PREPARATION ................................................................................... 26

B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 27

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 28

A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 28

B. ENVIRONMENTAL SAFEGUARD, SOCIAL SAFEGUARD, AND FIDUCIARY COMPLIANCE .............. 30

C. BANK PERFORMANCE ........................................................................................................... 31

D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 32

V. LESSONS LEARNED AND RECOMMENDATIONS .............................................................. 33

ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 36

ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 57

ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 60

ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 61

ANNEX 5. BORROWER, CO-FINANCIER, AND OTHER PARTNER/STAKEHOLDER COMMENTS .. 64

ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 67

ANNEX 7. A COMPARASION OF INDICATORS IN THE ORIGINAL AND REVISED RESULT FRAMEWPORK .................................................................................................................... 68

The World Bank Mongolia Multi-Sectoral Technical Assistance Project ( P119825 )

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DATA SHEET

BASIC INFORMATION

Product Information

Project ID Project Name

P119825 Mongolia Multi-Sectoral Technical Assistance Project

Country Financing Instrument

Mongolia Technical Assistance Loan

Original EA Category Revised EA Category

Not Required (C) Not Required (C)

Organizations

Borrower Implementing Agency

Ministry of Finance Ministry of Finance, Bank of Mongolia, Financial

Regulatory Commission, Ministry of Finance

Project Development Objective (PDO) Original PDO

To support the Recipient’s efforts to enhance its capacity for policy making, regulation, and implementation in the fiscal, social,and financial sectors.


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FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)

World Bank Financing IDA-47770

12,000,000 11,729,586 11,716,885

TF-99122

500,000 253,839 253,839

Total 12,500,000 11,983,425 11,970,724

Non-World Bank Financing

Borrower 0 0 0

Total 0 0 0

Total Project Cost 12,500,000 11,983,425 11,970,723

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing

28-Jun-2010 17-Mar-2011 15-Jan-2013 31-Dec-2014 30-Jun-2017

RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions

04-Oct-2013 5.46 Change in Results Framework Change in Components and Cost Reallocation between Disbursement Categories Change in Procurement

10-Dec-2014 8.84 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Reallocation between Disbursement Categories Change in Procurement Change in Implementation Schedule

16-Mar-2016 10.98 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Implementation Schedule Other Change(s)


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KEY RATINGS

Outcome Bank Performance M&E Quality

Moderately Satisfactory Moderately Satisfactory Modest

RATINGS OF PROJECT PERFORMANCE IN ISRs

No. Date ISR Archived DO Rating IP Rating Actual

Disbursements (US$M)

01 28-Jun-2011 Satisfactory Satisfactory 1.00

02 05-Apr-2012 Satisfactory Satisfactory 1.99

03 26-Apr-2013 Moderately Satisfactory Moderately Satisfactory 4.47

04 26-Nov-2013 Moderately Satisfactory Moderately Satisfactory 5.75

05 24-Jun-2014 Moderately Satisfactory Moderately Satisfactory 7.72

06 22-Dec-2014 Moderately Satisfactory Moderately Satisfactory 9.00






SECTORS AND THEMES

Sectors

Major Sector/Sector (%)

Public Administration 30

Central Government (Central Agencies) 30

Financial Sector 40

Banking Institutions 40


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Social Protection 30

Public Administration - Social Protection 30

Themes

Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Economic Policy 5

Fiscal Policy 5

Fiscal sustainability 5

Private Sector Development 100

Jobs 100

Finance 10

Financial Stability 10

Financial Sector oversight and policy/banking regulation & restructuring

5

Financial Sector Integrity 5

Public Sector Management 55

Public Finance Management 15

Public Expenditure Management 10

Debt Management 5

Public Administration 40

Transparency, Accountability and Good Governance

10

State-owned Enterprise Reform and Privatization

30

Social Development and Protection 30

Social Protection 30

Social Safety Nets 30

ADM STAFF

Role At Approval At ICR

Regional Vice President: James W. Adams Victoria Kwakwa


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Country Director: Klaus Rohland Bert Hofman

Senior Global Practice Director: Vikram Nehru Carlos Felipe Jaramillo

Practice Manager: Vikram Nehru Deepak K. Mishra

Task Team Leader(s): Rogier J. E. van den Brink Taehyun Lee

ICR Contributing Author: Luan Zhao


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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Context

1. At appraisal, Mongolia was hit hard by the global financial crisis. Real gross domestic product (GDP) contracted by 1.6 percent in 2009, following a growth of 8.9 percent in 2008. Relying heavily on copper revenues in the budget, the slump in copper prices at the end of 2008 severely undermined fiscal revenues, causing the overall government balance to shift from a 2.8 percent of GDP surplus in 2007 to a 5.4 percent deficit in 2009. The adverse impact of the crisis was particularly visible for the household sector, resulting in the decline of both real wages and employment, particularly among rural livelihoods. The downturn also exposed weaknesses in an overheated banking sector, eventually leading to two systemically important banks placed into receivership, and a loss of confidence, as demonstrated by declining local currency deposits in 2008 and 2009.

2. Strong policy action successfully stabilized the economy in 2010, but considerable risks remained. A strong policy package was supported by Mongolia’s development partners to manage the downturn of the economy and set the stage for recovery. These policies included a set of fiscal, monetary, exchange rate, and financial sector measures supported by the International Monetary Fund and the World Bank and social welfare reforms supported by Japan, Asian Development Bank, and the World Bank, along with improvements in the mining sector policy supported by the World Bank. Rising commodity prices and an improvement in the external environment also helped stabilize the economy. However, risks associated with the financing of the budget deficit and the weak balance sheets of the banking sector remained. In particular, the risks of a mineral-dependent economy have been underscored by deficiencies in Mongolia’s management of the boom cycle, which made it more difficult to adjust to the impact of the global downturn.

3. The World Bank adjusted its Country Assistance Strategy and supported a strong policy package targeting key policy reforms areas. The World Bank deferred the approval of a nearly completed new Country Partnership Strategy (CPS) in early 2009 and instead adopted an Interim Strategy Note (ISN), which was approved in March 2009, to provide a bridging framework for an 18-month period until economic conditions stabilized. As part of this support, the World Bank exceptionally reallocated two-thirds of the IDA envelope for two single-tranche Development Policy Credit (DPC) operations (US$40 million and US$30 million for 2009 and 2010, respectively) to help fill the fiscal financing gaps and support key policy reforms. Both the DPCs supported policy actions in four critical areas: improving fiscal sustainability in a mineral-based economy, protecting the poor and vulnerable, restoring confidence in the financial sector, and encouraging transparent and prudent mining investments.

4. This Multi-Sectoral Technical Assistance (MSTA) Project of US$12 million supported and was processed together with DPC 2 of US$30 million in 2010, following the US$40 million DPC 1 disbursed in 2009, as a key pillar of the World Bank’s assistance strategy. International, as well as Mongolian, experience suggested that the success and sustainability of reforms would be enhanced if they were accompanied by technical assistance (TA) and targeted capacity building. This MSTA Project was aligned with the companion DPC 2 operation and was designed to cover three out of these four key reform areas.


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The fourth, covering the mining sector, was the focus of an already existing mining TA project and was not expected to need additional resources in the next few years. The operation was co-financed by IDA’s Crisis Response Window (CRW) and followed its guidelines.1

Theory of Change (Results Chain)

5. The MSTA project was designed to assist the Government to improve fiscal policy and sustainability, protect the poor and vulnerable, and restore confidence in the financial sector. To help achieve these long-term outcomes, the TA provided by this project aimed to enhance the capacity of the Government for policy making, regulation, and implementation in these three critical areas.

6. In the fiscal sector, the project aimed to strengthen the fiscal management framework toward a sustainable and prudent path. The MSTA project focused on building capacity on two high-priority reform areas to strengthen the fiscal management framework: (a) preparing and executing a budget that is fiscally sustainable and better linked to the national, local, and sectoral priorities and (b) improving public financial management (PFM) so that the budget can be executed in a more efficient and transparent manner. As Figure 1 shows, to achieve these outcomes, the MSTA project aimed to finance activities to improve (a) strategic planning and policy of the Ministry of Finance (MOF) and National Development and Innovation Committee (NDIC); (b) budget preparation and implementation; and (c) public investment planning and sectoral coordination.

7. In the social sector, the project aimed to enhance capacity to improve the targeting of social assistance. The project sought to assist the Government to design and pilot the implementation of a social benefit program for the provision of cash transfers to the poor households, using the Proxy Means Test

(PMT) targeting system for determining the eligibility of beneficiaries. To achieve this goal, a national poor households database on the basis of the PMT survey would be prepared. The database would be operationalized through a PMT targeting system, based on which monitoring and evaluation (M&E) of the targeting of various social programs would become feasible.

8. In the financial sector, the project aimed to introduce assistance to maintain the financial sector stability. The primary objective was to assist the authorities to complete the resolution of the two failed banks, and the other main objective was to enhance the risk-based prudential regulations framework. To achieve these goals, the MSTA project aimed to support activities to (a) enhance the capacity building to facilitate bank restructuring; (b) improve the risk-based regulatory framework under the amended Central Bank Law and the new Banking Law; and (c) strengthen the human capital and capacity of the regulators. These activities, through supporting the resolving of the failure of systemic banks and addressing the weaknesses of the financial system such as limited capacity for financial oversight and enforcement, poor financial accounting and reporting, inadequate risk management, and weak internal control, would help maintain financial stability and restore the confidence among savers and investors in the financial sector.

1 The CRW’s objective is to mitigate the impact of the global economic crisis and protect core spending on health, education, social safety nets, infrastructure, and agriculture.


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Figure 1. Theory of Change: Mongolia MSTA Project (At Appraisal)

Key Activities Key Outputs PDO/Outcomes Long-term Outcomes

(a) Strengthening the institutional capacity and organizational arrangements of MOF and NDIC for strategic planning and policy analysis (b) Aligning the budgeting process to national, sectoral and local priorities, through the adoption of greater decentralization policies, and enhancing transparency and predictability in the apportionment, transfer and management of revenues and expenditures (c) Improving public investment planning and inter-sectoral coordination

Component A1: Improving fiscal policy and budget preparation (a) Preparing and executing budget that is fiscal sustainable and better linked to the national, local and sectoral priorities (b) Using economic appraisal criteria to screen and prioritize new public investment projects

To enhance the capacity of the Government for policy making, regulation, and implementation

Objective A: Improving fiscal policy and sustainability

Component B: Supporting government efforts to better protect the poor (a) Adoption of the Proxy Means formula and methodology as the official poverty targeting mechanism (b) A functional database which identifies poor households (c) A large proportion of poverty-targeted benefits go to poor households (d) Progress reports on monitoring and evaluation of the targeting of social programs (e) A majority of targeted staff trained

…in the social sector Improving targeting of social assistance as indicated by: (a) Preparing a poor households database, on the basis of the Proxy Means Test survey

Objective B: Protecting the poor and vulnerable

Component C: Enhancing capacity for maintaining financial sector stability (a) The two failed banks are recapitalized and restructured (b) Enhancing the risk-based prudential regulations framework

(c) A majority of BOM supervisors trained

…in the financial sector Maintaining financial sector stability as indicated by: (a) Completing the restructuring of those failed banks (b) Preparing, adopting, and implementing new improved prudential regulations

Objective C: Restoring confidence in the financial sector

Component A2: Improving public financial management (a) Improving financial accounting and auditing standards (so that the budget can be executed in a more efficient and transparent manner)

(a) Supporting the piloting and roll-out of the Proxy Means Test targeting system (b) Designing and piloting the implementation of a social benefit program for the provision of cash transfers to the poor households, using the PMT targeting system for determining the eligibility of beneficiaries (c) Monitoring and evaluating the performance of social programs

(a) Supporting capacity building to facilitate bank restructuring (b) Improving the regulatory framework under the amended Central Bank Law and the new Banking Law, including transitioning from a blanket deposit guarantee to a limited deposit insurance regime (c) Strengthening human capital and capacity of the regulators

(a) Improving legal framework for accounting and auditing (b) Strengthening MOF’s and the Financial Regulatory Committee’s institutional capacity to ensure compliance with international standards (c) Strengthening MOF’s internal auditing capacity (d) Conducting relevant accounting and auditing professional education and training

…in the fiscal sector Enhancing fiscal sustainability and budget transparency as indicated by: (a) Preparing and execute national budgets within METF and consistent with Fiscal Stability Law; (b) Establishing a national committee for accounting and auditing standards vested with the responsibility of ensuring that Mongolia’s accounting and auditing standards are compliant with international standards


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Project Development Objectives (PDOs)

9. The project development objectives (PDOs), as described in the Financing Agreement, were ‘to support the Recipient’s efforts to enhance its capacity for policy making, regulation, and implementation in the fiscal, social, and financial sectors’.

Key Expected Outcomes and Outcome Indicators

10. The key outcome indicators, as stated in the Project Appraisal Document (PAD), were

(a) The Recipient will prepare and execute national budgets that adhere to the aggregate limits set in the Medium-Term Fiscal Framework (MTFF) and are consistent with the fiscal rules specified in the Fiscal Stability Law;

(b) The Recipient shall have established a national committee for accounting and auditing standards vested with the responsibility of ensuring that Mongolia’s accounting and auditing standards are substantially compliant with International Financial Reporting Standards and International Standards of Auditing;

(c) Ministry of Social Welfare and Labor (MoSWL) has prepared a poor households database, on the basis of the Proxy Means Test survey; and

(d) Bank of Mongolia (BOM) has (i) successfully caused the completion of the restructuring of those systemic banks which have failed to meet the adjusted risk-based capital adequacy ratio as of July 31, 2010; and (ii) prepared, adopted, and implemented new improved prudential regulations.

Components

11. The project was originally designed around three main components, with a fourth component for project management and evaluation.

12. Component A: Enhancing capacity for fiscal management (original cost: US$2.8 million; final cost US$4.0 million). The objective of this component was to strengthen fiscal policy, budget preparation, and execution by supporting the effective implementation of the Fiscal Stability Law (FSL) and the Integrated Budget Law (IBL). This component had two subcomponents

• The first subcomponent aimed to enhance capacity for fiscal management in implementing a budget sustainable and better linked to the national, local, and sectoral priorities. Major activities include

(a) Strengthening the institutional capacity and organizational arrangements of the MOF and NDIC for strategic planning and policy analysis, to ensure the recipient’s fiscal sustainability and compliance with the FSL;

(b) Aligning the budgeting process to national, sectoral, and local priorities, through the adoption of greater decentralization policies, and enhancing transparency and


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predictability in the apportionment, transfer, and management of revenues and expenditures; and

(c) Improving public investment planning and inter-sectoral coordination.

• The second subcomponent focused on improving PFM to increase the transparency of budget execution. Specific activities include:

(a) Revising and strengthening the existing legal framework for accounting and auditing;

(b) Strengthening the MOF’s and Financial Regulatory Committee’s institutional capacity to ensure compliance with the International Financial Reporting Standards (IFRS) and International Standards of Auditing;

(c) Strengthening the MOF’s internal controls by improving its internal auditing capacity; and

(d) Improving accounting and auditing professional education and training.

13. Component B: Supporting government efforts to better protect the poor (original cost: US$3.5 million; final cost US$3.1 million). The objective of this component was to improve the capacity of the MoSWL with the aim of assisting government efforts of improving the efficacy of social expenditure in reaching the poor and making the system sustainable from a fiscal standpoint. TA was provided to design and pilot the implementation of a social benefit program for the provision of cash transfers to the poor households using the PMT targeting system for determining the eligibility of beneficiaries. Specific activities include:

(a) Preparing a poor households database on the basis of the PMT survey;

(b) Supporting the piloting and rollout of the PMT targeting system for determining the eligibility of beneficiaries of the social benefit program;

(c) Providing training for the implementation of the social welfare reform system; and

(d) Enhancing M&E of the cash transfer program performance.

14. Component C: Enhancing capacity for maintaining financial sector stability (original cost: US$5.1 million; final cost: US$3.3 million). The objective of this component was to ensure the its continued stability by facilitating restructuring and intensifying supervision of the banking system to retain confidence in the financial sector. Specific activities include:

(a) Finalizing the liquidation of assets of the failed banks and adopting and implementing a bank restructuring strategy;

(b) Strengthening legal and regulatory framework of the banking sector under the amended Central Bank Law and the new Banking Law;


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(c) Transitioning from a blanket deposit guarantee to a limited deposit insurance regime; and

(d) Building human capital and capacity of the regulators.

15. Component D: Project management (original cost: US$0.6 million; final cost: US$0.8 million). Specific activities under this component include:

(a) Supporting the management and M&E of the implementation of activities carried out under the project and

(b) Carrying out project studies, including, among others, performance reviews and impact evaluations.

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION Revised PDOs and Outcome Targets

16. No modifications are being made to the original PDO. The objectives of assisting the Government to enhance fiscal sustainability and budget transparency, improving targeting of social assistance, and maintaining financial sector stability remained unchanged. This is despite three out of four PDO indicators being revised to better measure the project’s achievement. However, these changes did not narrow the key associated outcome targets.

Revised PDO Indicators

17. Following the Midterm Review (MTR) of the project in January 2013, the Results Framework was revised in April 2013 to adjust the scope and improve the realism of the PDO and intermediate results indicators, as follows:

• For the fiscal component, to ensure that outcomes are attributable to the actions of the project implementing agencies, those indicators that are subject to actions by other entities were removed, such as strengthening capital budgeting.2 A new intermediate results indicator was added to cover priority activities in promoting fiscal decentralization—‘Fiscal transfer formula for local government financing improved to increase predictability of resources and to reduce horizontal inequities between local governments and facilities’. The PDO indicator on improving the legal framework on accounting and auditing standards was slightly revised.3

2 This was because the appraisal of large investment projects was rested with the Ministry of Economic Development after the government organizational restructuring, which was not the implementing agency of this project. 3 Specifically, the PDO indicator ‘By the Closing Date, the Recipient shall have established a national committee for accounting and auditing standards vested with the responsibility of ensuring that Mongolia’s accounting and auditing standards are substantially compliant with international financial reporting standards’ was revised to ‘The Government shall have submitted to the Parliament for passing the draft laws on accounting and auditing that would create the legal environment for ensuring that Mongolia's accounting and auditing standards are substantially compliant with international financial reporting standards and international standards of auditing’.


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• On the social side, the implementation of a PMT-based poverty-targeted benefit program has been halted, following the national elections held in mid-2012, which resulted in a change in the Government. As a result of this policy change, some of the intermediate results indicators were no longer achievable and have somewhat lost relevance. While the overall objective of the component remained unchanged to build government capacity to better protect the poor, the scope of activities was widened from designing, piloting, and supporting the implementation of a (new) poverty cash transfer to supporting redesigning, expanding, and scaling up services for households and individuals in need of assistance, using the PMT targeting system for determining the eligibility for such programs and services. Under the new circumstances, creating the necessary information technology (IT) infrastructure to operationalize the PMT database became a policy priority, and a new intermediate results indicator was added accordingly—‘MoPDSP and General Office for Social Welfare Service (GOSWS) have created an adequate IT infrastructure for designated users on the basis of the PMT database for poor households and citizens or targeting purposes for social programs, assistance, services and benefits’.

• To reflect changing priorities and country circumstances, the financial sector outcome indicators that were specific to the 2009 global financial crisis were modified. The intermediate results indicator ‘Successfully caused the completion of the restructuring of those systemic banks which have failed to meet the adjusted risk-based capital ratio as of July 31, 2010’ was revised to ‘State Bank successfully restructured (privatized, merged with another bank’, and the intermediate results indicator of ‘Prepared, adopted and implemented new improved prudential regulations’ was revised to ‘Bespoke macro-prudential policy framework developed’. A new intermediate results indicator was added on the implementation of the IFRS-based accounting principles for banks—‘Accounting standards introduced’. This followed a restructuring in February 2012 in which the PDO indicator on deposit insurance was added—‘Deposit insurance law is enacted and new deposit insurance fund is fully operational’.

• Two intermediate results indicators were added on two new components to support the Government Procurement Agency (GPA) and pensions reform—‘Transparency on procurement process managed by the GPA will be enhanced according to the revised Public Procurement Law’ and ‘A strategy paper, policy options and main concept driving the pension reform agenda have been submitted to the Government, and an implementation plan has been developed’.

18. The Results Framework was revised in December 2014, focusing on the fiscal management component. The PDO indicator of ‘The Executive budget strengthened through alignment with the Fiscal Stability Law, better revenue projections and strengthened capital budgeting’ was revised to ‘Credibility of the executive budget strengthened through realistic revenue projection and expenditure planning’. This change in the PDO indicator was revised to capture fully the expenditure aspect in measuring the prudence of the budget, despite part of the capital budgeting is beyond the control of the project. The following intermediate results indicator was added in the restructuring in December 2014—‘Strengthened legal framework for prudent natural resource revenue management’. This captured new activities under this component to support the establishment of a sovereign wealth fund.


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19. The PDO indicators and some targets were revised through a restructuring approved in April 2016. The PDO indicator of ‘By the Closing date, the Recipient shall have the credibility of the executive budget strengthened through realistic revenue projection and expenditure planning’ was changed to ‘By the Closing Date, the Recipient shall have reduced its structural deficit according to the deficit ceilings set forth in the Fiscal Stability Law’. This change in the PDO indicator of reducing the budget deficit was made to make it more specific and measurable. The intermediate results indicator ‘State Bank successfully restructured (privatized, merged with another bank)’ was revised to ‘State Bank is restructured and its privatization announced’. This change was made because restructuring of the State Bank would not necessarily involve a merger with another bank. For two intermediate indicators, only the end target value was revised without changes to the indicators themselves4.

20. While the Result Framework was revised to better measure the project’s achievements, these changes did not narrow the scope of the associated PDO outcomes. A comparison of indicators in the original and revised Results Framework could be found in annex 7.

Revised Components

21. Following the MTR of the project in January 2013, two new project components were created on government procurement reform and pensions reform. Component E was to support the GPA through strengthening the regulatory framework of the GPA, training of its staff, and greater use of e-procurement and disclosure of procurement information to the public. Component F was to support pensions reform through developing policy options and implementation guidelines, as well as defining the strategy, transition mechanisms, and the legal changes necessary to establish a multi-pillar pension system that provides adequate retirement benefits to the Mongolian elderly.

Other Changes

22. Linked to the change in the scope of activities, funding was reallocated during the restructuring to accommodate new priorities of the Government and was redistributed from lower-performing to higher-performing components. Specifically, funds were reallocated from the financial sector and social protection components to new priorities for the MOF (tax policy reform, designing the institutional framework for a sovereign wealth fund, fiscal risk management, IT support, and so on), and two new components on government procurement reform and pensions reform.

23. The original project closing date was extended two times for 30 months cumulatively: one from December 31, 2014 to June 30, 2016, and the other from July 1, 2016 to June 30, 2017. The project activities were delayed between the mid-2012 and the mid-2013 amid political elections for the

4 For the intermediate results indicator ‘Strengthened fiscal planning and management capacity through improving budget planning mechanism’, the end target value was revised to ‘The BPIS becomes functional and is used for budget planning at central and local government level’ from ‘The BPIS becomes functional and is used for budget planning at central government level’. This change in the target would include the local government as the users of the BPIS system. For the intermediate results indicator ‘Fiscal transfer formula for local government financing improved to increase predictability of resources and to reduce horizontal equities between local governments and facilities’, the end target value was revised to ‘Government regulations are adopted and implemented to improve the financing mechanisms to local governments’ from ‘Government resolutions on LDF formula, education and health financing formulas implemented’. This revision was to reflect the various forms of government regulations beyond government resolutions and also to give more flexibility considering the varying progress in improving the financing mechanisms of different spending objectives.


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Parliament and the President. Project implementation slowed in 2015 again due to abrupt changes in the Cabinet in late 2014 and in mid-2015. These political events slowed decision-making processes in most of the project activities with key government staff being replaced, and delayed the passing of key legislations. In April 2016, considering the risk of possible implementation delays after the parliament election in June 2016, the closing date was extended again for another year from July 1, 2016 to June 30, 2017.

Rationale for Changes and Their Implication on the Original Theory of Change

24. The PDO indicators and components were revised mainly due to changing TA needs and the evolving policy priorities during the postcrisis period. As elaborated above, because the project was designed during the global financial crisis, activities were designed to help the government overcome it and continue its reform agenda. In the postcrisis environment, however, some of those activities that were specific to the crisis were no longer relevant. Meanwhile, the authorities were facing new challenges. The project was restructured in a way to address these new demands.

25. Despite the changes in the components and PDO indicators formulation, the overall theory of change did not change fundamentally. The project remained focused on building the Government's capacity to continue the reform agenda in the fiscal, social, and financial sectors. Despite the adjustments in specific PDO indicators, outputs, and activities (see Figure 2), the project activities were still closely aligned with the original PDOs. Overall, the Results Chain did not change fundamentally.


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Figure 2. Theory of Change: Mongolia MSTA Project (Actual Implementation)

Key Activities Key Outputs PDO/Outcomes Long-term Outcomes

Note: The texts in red refer to those components and the PDO and intermediate results indicators that were either rephrased or revised during the implementation.

(a) Introduction of the BPIS as the new web-based budget planning information system (b) Improvement of the fiscal transfer formula in the central government’s budget transfer to local governments (c) Establishment of legal framework for prudent natural resource management, by introducing new Future Heritage Fund (d) Reviewing government functions and improving templates and manuals for program budgeting (e) Strengthening legal framework of taxation

Component A1: Improving fiscal policy and budget preparation (a) Preparing and executing budget that is fiscal sustainable and better linked to the national, local and sectoral priorities

…in the fiscal sector Enhancing fiscal sustainability and budget transparency as indicated by:

(a) Reducing its structural deficit according to the deficit ceilings set forth in the Fiscal Stability Law (b) Passing the draft laws that would create the legal environment for ensuring that Mongolia's accounting and auditing are compliant with international standards

Objective A: Improving fiscal policy and sustainability

Component B: Supporting government efforts to better protect the poor (a) Using the PMT database and the poor targeting system to support redesigning, expanding and scaling up services for households and individuals in need of assistance

…in the social sector Improving targeting of social assistance as indicated by: (a) MoPDSP has prepared a poor households database, on the basis of the Proxy Means Test survey

Objective B: Protecting the poor and vulnerable

Component C: Enhancing capacity for maintaining financial sector stability (a) Implementing a bank restructuring program (b) The risk-based prudential regulation framework enhanced (c) The limited deposit insurance scheme established

…in the financial sector Maintaining financial sector stability as indicated by: (a) New deposit insurance agency is fully operational

Objective C: Restoring confidence in the financial sector

Component A2: Improving public financial management (a) Improving financial accounting and auditing standards (so that the budget can be executed in a more efficient and transparent manner)

(a) Preparing a poor households database, on the basis of the Proxy Means Test survey (d) Creating necessary IT infrastructure to get fully use of the database and targeting system (c) Utilizing the PMT database to improve targeting of the social welfare programs (b) Providing training for the implementation of the new social welfare system

(a) Introducing Macro-prudential policy framework (b) Implementing the IFRS–based accounting principles for banks (c) Restructuring the State Bank and its privatization plan announced (d) Supporting the government to operationalize the newly established deposit insurance agency (e) A majority of supervisors trained

(a) Improving legal framework for accounting and auditing (b) Support provided for capacity-building activities to properly enforce IFRS (c) Improving the templates used for financial reporting in accordance with the IFRS and create a consolidated database system for electronic filing of financial statements by firms (d) Strengthening MOF’s internal auditing capacity

Component E: Strengthening capacity and improving transparency of the Government Procurement Agency (a) Enhancing transparency on procurement process managed by the GPA

(a) Developing relevant guidelines, manuals, and training materials (b) Supporting the development of e-procurement initiative

Component F: Initiating and supporting pension reform agenda (a) The State Pension Reform Policy for 2015–2030 approved

(a) Developing pension reform policy options

To enhance the capacity of the Government for policy making, regulation, and implementation


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II. OUTCOME

A. RELEVANCE OF PDOs

Assessment of Relevance of PDOs and Rating Rating: High

26. This operation was approved with the previous ISN for 2009–2010 and remained highly relevant in the current CPS for FY2013–2017 as its objectives and outcomes are closely aligned and contributed to the CPS outcomes in enhancing budget transparency and financial intermediations and better targeting the social welfare system. Specifically

• The objective of enhancing the capacity for the fiscal management framework of the MSTA project would support Outcome 1.1—‘Enhancing fiscal sustainability’ of the ISN and Outcome 1.2—‘Supporting a more robust, equitable, and transparent management of public revenues and expenditures’ under Pillar 1 (Enhance Mongolia’s capacity to manage the mining economy sustainably and transparently) of the CPS. Implementing the FSL to enhance fiscal sustainability was the expected milestone for both the ISN Outcome 1 and the CPS Outcome 1.2, which is closely aligned to the reforms promoted under the project.

• The objective of introducing assistance for maintaining the stability of the financial sector of the MSTA project would support Outcome 1.2—‘Restoring confidence in banking sector’ of the ISN and Outcome 2.1—‘Enhancing the investment climate and financial intermediation’ under Pillar 2 (Build a sustained and diversified basis for economic growth and employment in urban and rural areas) of the CPS.

• The objective of assisting the Government to design a better targeting social welfare system is fully aligned with Outcome 2—‘Protecting poor and vulnerable groups’ of the ISN and Outcome 3.1—‘Working with the Government on the design, adaptation, and implementation of a comprehensive social welfare information system and (PMT) database for targeting the poor’ under Pillar 3 (Address vulnerabilities through improved access to services and better service delivery, safety net provision, and improved disaster risk management). Specifically, the project supported the medium-term country goals of ‘Consolidated existing social transfers and reintroducing targeting’ and the expected milestones of ‘Improving targeting of social assistance’ and ‘Enhancing quality and efficiency of social service delivery for rural citizens’ of the ISN. The project outcome of supporting pension reform agenda is closely aligned with one of the milestones of Outcome 3.1—‘Developing options for pension reform that balance fiscal and social concerns’ of the CPS.

27. A Performance and Learning Review (PLR) of the CPS, concluded in December 2016,5 noted that, since the formulation of the CPS, considerable progress had been achieved on these outcomes through the support provided by the MSTA project. Specifically, the PLR suggested the MSTA project supported Outcomes 1.1, 1,2, and 3.1 (as mentioned above) of the CPS for FY2013–2017. It further noted ‘MSTA

5 https://hubs.worldbank.org/docs/ImageBank/Pages/DocProfile.aspx?nodeid=27085546.


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project activities complimented by World Bank analytical work provided concrete recommendations for improving the poverty impacts of social welfare. All children are eligible to receive the child money benefit with their household living standards having been assessed and registered into the Integrated Households Database based on PMT’.

B. ACHIEVEMENT OF PDOs (EFFICACY)

28. The PDO can be unpacked into three sectoral elements for the analysis of the outcome achievement: (a) enhancing capacity for policy making, regulation, and implementation in the fiscal sector; (b) enhancing capacity for policy making, regulation, and implementation in the social sector; and (c) enhancing capacity for policy making, regulation, and implementation in the financial sector. While the PDO can also be unpacked into the three elements by ‘policy making, regulation, and implementation’, untangling the PDO and assessing the achievements separately by function is difficult. This is because policy making, regulation, and implementation are reinforcing each other, and the associated outcomes and indicators were about the sectors and not by function. The project went through three rounds of restructurings during which some PDO indicators were revised to better measure the project’s achievement. However, it does not warrant a split evaluation because the PDO remained the same and the associated outcomes were not reduced in scope.

Assessment of Achievement of Each Objective/Outcome Objective A - Enhancing capacity for policy making, regulation, and implementation in the fiscal sector Rating: Substantial

29. The sub-objective of enhancing capacity for policy making, regulation, and implementation in the fiscal sector was substantially achieved. The MSTA project supported the MOF in strengthening its fiscal management framework in a substantial manner, which served as an important tool to support the maintenance of the fiscal reform momentum in Mongolia post the global financial crisis. With the assistance under this project, the following were achieved:

• The fiscal transfer mechanism for local governments was improved, which enhanced the efficiency of budget spending. Specifically, with the support under the project, the Methodology for Transferring Revenue from the General Local Development Fund to the Local Development Fund (LDF) was approved by the Government Resolution No. 30 in 2012. The formula for LDF allocation was changed to reduce inequality of the fund per person allocated from the General Local Development Fund. In addition, the financing methodology for primary health care services provided by soums and villages was approved by their joint order #498/345 in December 2015, which is now in use for the budget planning process. A variable cost standard normative on preschool and secondary education was approved by the Government Resolution #242 in 2016, with the average variable cost normative per student at various levels of education included. With the adoption of these measures, the predictability of resources increased and the horizontal inequities between local governments and facilities reduced.

• The legal framework for prudent natural resource revenue management was strengthened. The new law on Mongolia’s natural resource fund (Future Heritage Fund Law)


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was adopted in December 2015. Designed to save a portion of mineral revenues in foreign assets for the benefit of future generations, the fund has the potential to help address fiscal challenges while improving the governance of mineral revenues. With support from the consultants hired under the project, the MOF initiated work to set up a road map comprising preparatory work necessary to set up a well-functioning long-term savings fund, which is expected to begin accumulation of mineral revenues in 3–4 years.

• The fiscal planning and management capacity was strengthened through improving the budget planning mechanism and the corresponding IT system, though the planned outcome was only partly accomplished. Specifically, the web-based Budget Preparation and Information System (BPIS) has been introduced under the project to prepare budget proposals and allocate expenditures. The system has become functional for the local budget planning process cycle for the 2016 and 2017 budgets. In addition, the local system has been interfaced with the fiscal system (currently used offline system) and Government Fiscal Management Information System (GFMIS) (Treasury system for execution) completely. However, the BPIS only became operational for budget planning at the local level, but not yet at the central level. On the one hand, the implementation of the BPIS has been a much longer and more difficult process than envisioned in this and other World Bank projects in Mongolia. On the other hand, the BPIS appears to finally be getting off the ground in Mongolia and has now been generally piloted successfully at the subnational level. The Government also determined to achieve implementation at both the central and local government levels. Adopting the BPIS nationwide has been a key component under the follow-up Strengthening Fiscal and Financial Stability (SFFS) Project, which is expected to be fully achieved by 2022.

• The project also helped accelerate and strengthen reforms in a number of other areas that would support the effective implementation of the FSL and the IBL. Though not tracked by the Results Framework, substantial achievements have been accomplished in the areas of (a) reviewing of Government functions conducted to increase efficiency of budget spending, (b) improvement of templates and manuals for program budgeting, and harmonization of charts of accounts between budget planning and execution systems, (c) strengthening of the legal framework of taxation and the capacity of the MOF in mining taxation and international taxation matters, (d) development of cash forecasting regulation and cash surplus management regulation, and (e) strengthening of the MOF’s IT systems.

30. The effects to ensure stability and countercyclical fiscal policy in line with the sub-objective of the MSTA project once went off track. However, strong corrective actions have been taken since late 2016. In 2016, the structural budget deficit in Mongolia stood at 15.3 percent of GDP, which was within the revised deficit ceiling of the FSL.6 However, budget deficit increased sharply in 2016 due to a revenue decline amid a commodity price drop and an unexpected increase in expenditures because of the June General Election in 2016. In 2017, the budget deficit was significantly reduced to 6.3 percent of GDP, successfully achieving the annual structural budget deficit target of 10.4 percent of GDP according to the

6 By the amendment to the special fiscal requirement made to the FSL on September 9, 2016 (Clause 19.6 of the FSL), the deficit of structural balance of consolidated budget in Mongolia was specified not to exceed 18.5 percent of GDP in 2016, 9.9 percent of GDP in 2017, 7.5 percent of GDP in 2018, and 5.5 percent of GDP in 2020.


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revised FSL.7 This was partly related to the economic recovery, but also related to strong corrective actions taken by the new Government after the election. In this regard, the first PDO indicator of ‘By the Closing Date, the Recipient shall have reduced its structural deficit according to the deficit ceilings set forth in the Fiscal Stability Law’ was achieved in the calendar year 20178. The institutional progress made under this MSTA project remained highly relevant under the current reform programs that seeks to put Mongolia back and more firmly on track for responsible and countercyclical fiscal policy.

31. The second area of support to strengthen PFM to enhance budget transparency is fully achieved. Under the support of the project, the amended Law on Accounting and Auditing that would create the legal environment for ensuring that Mongolia’s accounting and auditing standards compliant with IFRS and International Standards of Auditing has been approved by the Parliament in June 2015 and became effective in 2016 (PDO Indicator #2, fully achieved). However, the ultimate success of the newly passed laws would depend on the proper implementation of the laws. In this regard, the following were achieved:

• Substantial progress has been made in strengthening the capacity of implementing the IFRS for non-state entities. With the assistance under this project, the templates used for financial reporting in accordance with IFRS were improved, as evidenced by IFRS-complied accounting guidelines for entities along with the revised chart of accounts obtained approval by the MOF on December 23, 2014 (order #249). In addition, the e-balance system for allowing electronic filing and submission of financial statements by firms was upgraded and implemented in Q1 2013. Data conversion for 2002–2012 was done in December 2014. The upgraded e-balance system is now fully operational, consisting of a financial statement database of over 100,000 entities that registered in the state registration. All entities above a certain size operating in Mongolia are now submitting their financial statements through the online e-balance system of the MOF. This compares to three years ago, when entities struggled to submit their financial statements in the old version of the e-balance that had capacity and performance issues causing delays and system freeze/downtime.

• The capacity for setting and enforcing IFRS was enhanced. Efforts to build the capacity of financial statement preparers, Accounting and Auditing Standards Committee members, and other regulators were undertaken under the project through the provision of the IFRS and the IFRS for Small and Medium Enterprises (SMEs) training. Approximately 2,750 accounting professionals (or more than 15 percent of nationwide accounting professionals) have been trained through more than 100 training events organized in 2012–2016. Preparation of guidance notes and regulations and the improved e-balance system have also contributed to enhance capacity.

7 By the amendment to the FSL on April 14, 2017, the deficit of structural balance of consolidated budget shall not exceed 10.4 percent of GDP in 2017, 9.5 percent of GDP in 2018, 6.9 percent of GDP in 2019, 5.1 percent of GDP in 2020, 3.6 percent of GDP in 2021, 2.8 percent of GDP in 2022, 2.0 percent of GDP or no deficit from 2023. 8 The reference date for the target for this indicator is June 30, 2017. However, the structural deficit ceiling set forth in the FSL is on an annual basis and therefore it was not possible to calculate mid-year when the project closed in June 2017. Hence, the reference date of December 30, 2017 is adopted for the assessment of the achievement. For the calendar year 2017, this PDO indicator was achieved.


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• The MOF’s internal audit capacity has been strengthened. With the TA provided by this project, the internal audit charter was approved by the Government decree #483 in 2015. Approximately 46 public sector entities have been created to assume the internal audit function in the Government. A risk-based internal audit manual for the public sector has been published. Practice guides including one for conducting internal audit for the treasury have been developed and adopted.

• The MSTA project also supported improving the capacity of the GPA that would contribute to enhance budget transparency. Transparency on the procurement process managed by the GPA according to the revised Public Procurement Law was enhanced. Introduced by this MSTA project, relevant guidance, manual, and training materials on Government procurement have been prepared. In addition, the project also supported the Government to develop the e-procurement initiative. As reported by the GPA as of December 31, 2014, all information regarding the bidding procedure is uploaded to the website. As a proof, the summary report (brochure) of the GPA as of 2014 suggested that in 2013, only 22 percent of the bidding procedure was organized online. Starting from 2014, however, information on all the bidders that participated in tenders organized by the GPA have been disclosed on the Government website (http://www.pcsp.gov.mn/en), and all tender procedures have been conducted online. In addition, results of all announced bid and contract awardees managed by the GPA are 100 percent disclosed to the public. The transparency of the GPA has improved through the e-procurement initiative, as evidenced by an increased number of public inquiries.

32. Considering this MSTA project has been the primary support among donors in PFM, the project impact can be identified and measured by external benchmarks. The latest IFRS implementation assessment survey report of 2017 suggested the percentage of entities that had fully adopted the IFRS was 56.5 percent, which has increased significantly from 49 percent in 2011. This survey also suggested 93 percent of the respondents indicated using the e-balance system has significantly reduced their workload. Meanwhile, the World Bank 2015 Public Financial Management Performance Report 9 confirmed that significant progress has been made in establishing internal audit capacity within the Government. The report highlighted the progress of Mongolia in the scope and quality of the internal audit function, ‘As of end 2013, around 80 percent of line ministries and government agencies have full-time internal auditors. Audits are at least 50 percent systemic in nature.’10

Objective B - Enhancing capacity for policy making, regulation, and implementation in the social sector Rating: Substantial

33. The second sub-objective to enhance capacity for policy making, regulation, and implementation in the social sector was substantially achieved, through the support provided to create the PMT households database and utilize the data to improve the targeting of social assistance. With the assistance of this project, a newly improved PMT methodology was adopted as the official poverty

9 The report can be found in the World Bank website: http://documents.worldbank.org/curated/en/303421468000598092/Mongolia-Public-financial-management-performance-report. 10 To assess the current implementation status of the IFRS, launching another Report on the Observance of Standards and Codes (ROSC) study in Mongolia could be considered.

http://www.pcsp.gov.mn/enhttp://documents.worldbank.org/curated/en/303421468000598092/Mongolia-Public-financial-management-performance-reporthttp://documents.worldbank.org/curated/en/303421468000598092/Mongolia-Public-financial-management-performance-report


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targeting mechanism and was approved by the joint resolution #123/165 in November 2013 by the MoPDSP and Director of National Statistical Office. Based on this methodology, a nationwide survey-based poor households database was prepared by the MoPDSP in 2013 (PDO Indicator #3, fully achieved), and the database became available in April 2014. The database contained rich and comprehensive data for 712,440 households and 2,880,742 individuals, which covered 89.2 percent of the total households in Mongolia. The scores of 662,514 households were calculated and ranked.

34. The following supporting IT infrastructure and capacity building of the social welfare staff were introduced under the project to operationalize the PMT database:

• The information collected from the PMT database became accessible to the authorities by the online Intersectoral Database System (ISDB) developed under the project. The regulation for ISDB-authorized users/usage and maintenance of integrated household information database was approved by the Government Decree #404 dated December 30, 2014. By using the ISDB to identify the targeted poor, 146,769 poor people of 25,932 households to date are receiving food stamps monthly and 617,382 children are receiving child money monthly.

• The project supported the development of the web-based software—Welfare Administration and Information System (WAIS), which enabled better administration and targeting of social welfare benefits. This is a major IT development that enables countrywide aggregated data, reports, and analysis of social welfare benefits and reduces staff workload, decreases paper work, and facilitates data and information sharing online among respective organizations. The system was officially rolled out from 2016.

• The MSTA project also supported capacity building by offering trainings to social welfare staffs to use the WAIS software. Out of a total number of 1,538 staffs nationwide, 1,311 social welfare staffs were trained through 161 local trainings, overseas study tours, and workshops and 885 staffs received certificates on passing the final training test on how to use the WAIS software.

35. The Food Stamp Program that adopted the PMT methodology developed under this project targeted the poor very well. According to a social welfare beneficiary analysis conducted by the World Bank in 2015,11 many of the social welfare programs were not targeted at the poor. Approximately 13 percent of the welfare benefit went to the highest quintile households, and 17 percent went to the second highest quintile. However, the Food Stamp Program12 that adopted the PMT methodology developed under this project targeted the poor much better than dozens of other social welfare programs. The review of social welfare benefits suggests that all 15,118 household beneficiaries of the Food Stamp Program were among the poorest 2.7 percent (according to the PMT scores).

36. In addition to the Food Stamp Program, the PMT database has been utilized to improve the targeting of other social welfare programs. The PMT database was initially used for only one welfare

11 For more details, please see the report by Junko Onishi and Tungalag Chuluun. 2015. Review of Program Design and Beneficiary Profiles of Social Welfare Programs in Mongolia. World Bank. 12 This PMT-based targeted social program provides food vouchers to poor households.


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program—the Food Stamp Program. In December 2014, the PMT database was endorsed by the Government to be used across Government programs in various sectors. Since then, the database was used for the targeting of the Child Money Program starting from 2016 and was later used for targeted medical health insurance, free textbooks for children from poor households, and free legal advocacy services for the poor. The ISDB is currently functioning with eight approved authorized users. The use of the database was currently planned for the budget projection for the MOF; mortgage loan for the State Housing Corporation; state rental apartment program for Ulaanbaatar City Administration Office; advocating of educational services to targeted poor for the Ministry of Education and Ministry of Culture, Science, and Sports; and so on.

37. However, the goal of enhancing the M&E of services and social programs using the PMT targeting system was partially achieved under this project and would be further supported by the World Bank. The MSTA project originally aimed to enhance the M&E of the delivery of services and social programs and assess the impact of the reformed welfare system on the recipient’s poverty rates and human development outcomes. A team of national consultants has developed an improved M&E framework for the social welfare programs, benefits, and services. Relevant consultation and training sessions have also been conducted, with a focus on the difference between the conventional administrative M&E processes and results-based M&E and its importance. However, the M&E of various social welfare programs was not actually implemented under this project. This activity would be supported under the follow-up SFFS Project.

38. As part of the efforts to assist the Government to better protect the poor, the project also supported policy making of pension reform. With the assistance of this project, pension reform policy options were developed that aimed to establish a multi-pillar pension system that would provide adequate retirement benefits to the Mongolian elderly. These policy options were considered when the Government was developing its State Pension Reform Policy for 2015–2030, which was officially approved by the Parliament decree #53 dated June 11, 2015. Supporting the implementation of the measures set forth in the State Policy on Pension Reforms (2015–2030) was planned to be a key subcomponent of the follow-up SFFS Project.

Objective C - Enhancing capacity for policy making, regulation, and implementation in the financial sector Rating: Modest

39. The third sub-objective of enhancing capacity for policy making, regulation, and implementation in the financial sector is partially achieved, because the support in two priority reform areas of facilitating bank restructuring and improving prudential regulation framework was only partly completed. The privatization plan of State Bank13 was announced, but only partially restructured. Under the assistance of the expert hired under the MSTA project, a Progress Report on State Bank Privatization was submitted by the MOF to the Parliament Economic Standing Committee in November 2016, followed by a Memorandum of Understanding (MOU) signed by the BOM, MOF, and State Bank in May 2017 on

13 The State Bank services commercial banking activities while taking specific functional duties as a Government agent bank providing majority of the state budget settlement activities both in central and rural provinces of the country. By the joint decision of the BOM and MOF, the State Bank merged with the Savings Bank in August 2013 due to its liquidity difficulties. To ensure the stability of the State Bank, the Government of Mongolia increased the equity of the bank by MNT 80 billion at the start of 2014.


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detailed actions with a goal to complete the privatization by January 2019. The coordinating processes of the above three legal bodies reflected in the MOU are in progress. Politically, however, the momentum for reform has waned with the recovery of the State Bank’s financial performance. Privatization is not expected in the foreseeable future. Nevertheless, internal restructuring is going on as part of the restructuring strategy. Deloitte conducted independent audits to evaluate the State Bank’s financial statements. Financial standards and corporate governance of the State Bank have improved throughout the reform progress.

40. Enhancing the risk-based prudential regulation framework to help the goal of maintaining financial stability is also partially achieved. A medium-term banking supervision strategy incorporating a detailed plan for the transition to Basel II and III standards was developed and is being implemented at the BOM. To adopt forward-looking and risk-based supervision, a macro-stress testing framework was developed and is being used in risk assessment. However, some of the documents developed under the project, including the draft regulation on enforcement and prompt corrective measure for banks, regulation on risk-based supervision and its manual, and the IT inspection manual, were neither applied nor approved. Hence, adopting and applying formal macro-prudential supervision policy and upgrading prudential supervision standards were considered partially achieved. Again, improving the capacity of the BOM to enhance financial stability would be the key subcomponent of the follow-up SFFS Project.

41. With the assistance under this project, the IFRS for banks has been introduced, and the banks were requested to comply with the new accounting standards starting January 2016. The consultants hired under this project helped prepare the new accounting batch material that includes guidance for accounting, chart of accounts, financial statements, and disclosure model, which was approved on February 6, 2015, by the joint decree A35/20 by the Governor of the BOM and Minister of Finance and applied to the commercial banks from January 1, 2016. For successful implementation of approved accounting standards, a new online reporting system, Financial Information and National Accounting System (FINA), which enables supervisors to promptly extract reports and information from the database and make consolidated financial statements of banking sector and individual banks, was installed, and the commercial banks have started submitting their financial reports through the system from July 1, 2016.

42. The objective of transitioning from a blanket deposit guarantee to a limited deposit insurance regime, which would help vastly containing moral hazard problem thus contributing to maintaining financial stability, is almost achieved. The Deposit Insurance Corporation of Mongolia (DICOM) was established in 2013 and has received MNT 250 billion of capital injection. The DICOM has been supported to improve its capacity and function as one of the key pillars of the financial safety net. The new agency is already equipped with a functioning information system and internal procedures on risk payout compensation in line with international standards. In this regard, the new deposit insurance agency is almost fully operational (PDO Indicator #4, almost achieved). However, there are further tasks to achieve the goal that the new Deposit Insurance Corporation becomes a full-fledged pillar of the financial sector safety net, with proper institutional structure and financial capacity, deposit payout capacities, and clear mandates and responsibilities.14 Continued support by the SFFS Project and the World Bank’s Financial

14 The World Bank conducted an assessment on the DICOM’s structure and operation in March 2017, based on the International Association of Deposit Insurers Core Principles for Effective Deposit Insurance Systems. The assessment suggests the current size of the DICOM’s capital is only sufficient to cover the deposits of the small banks, which could make it difficult for the Government to preserve financial stability. International practices, however, suggest that a deposit insurance fund should have resources sufficient to reimburse insured deposits of three to four small- to medium-size banks, in a banking


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Sector Development Support Program would remain an important vehicle in further strengthening the DICOM’s capacity.

Justification of Overall Efficacy Rating Rating: Substantial

43. The overall efficacy is rated Substantial. The combination of substantial capacity built on the supporting reforms in the areas of fiscal management and PFM leads to substantial achievement of the first sub-objective in enhancing the capacity of policy making, regulation, and implementation in the fiscal sector. In the social sector, the sub-objective is also substantially achieved, as indicated by the support provided to create the PMT households database and utilize the data to improve the targeting of social assistance. However, the third sub-objective of enhancing capacity for policy making, regulation, and implementation in the financial sector is considered partially achieved, because the support in two priority reform areas of facilitating bank restructuring and improving prudential regulation was only partly completed. Given that two of three PDO sub-objectives are rated Substantial, the project’s overall efficacy is rated Substantial.

C. EFFICIENCY

Assessment of Efficiency and Rating Rating: Modest

44. The characteristics of this project do not lend themselves to the standard calculation of economic rate of return. As the main objective of this project is to strengthen the capacity for policy formulation and implementation in the MOF, MoSWL, and the Central Bank, the benefits from the project cannot easily be measured in monetary terms. However, investment in human resources associated with this project is expected to generate tangible economic benefits. In addition, there are fiscal impacts through the Government’s increased ability in fiscal management and PFM to generate fiscal savings.

45. The achievements have been significant to build capacity supporting the reform programs and indicate a high value for money for this project. The amount of funds used, US$12 million, is an extremely small investment in light of the large number (162) of regulations adopted in the fiscal, social, and financial sectors supported under this project.15 Implementation efficiency is high in the procurement of local consultancy services. Local consultancy services were purchased at a low unit cost (US$1,000–3,500 per month), compared with international rates (US$800–1,000 per day). Overall, the training activities were cost-effective. A total of 669 training events have been conducted with 40,246 participants, under a total budget of US$3.8 million. This is despite overseas training being far more expensive than domestic training. As a proof, overseas training accounted for about 55 percent of total training spending, but

system with the size of Mongolia. In addition, to meet the DICOM law’s requirement to establish risk-based premiums and to enhance its ability as the key player of an efficient bank resolution process, the DICOM needs to have timely access not only to the bank’s deposit records, but also to the information monitored and collected by the BOM. It requires an efficient cooperation between the two institutions, supported by the legal framework and interagency agreements. The DICOM, as part of the financial safety net, should be part of the crisis management framework as a member of the Financial Stability Council to effectively prepare for possible bank failures and deposit insurance payouts. 15 With the assistance introduced under this project, 37 laws, 4 parliament resolutions, 36 government decrees, 48 ministry orders, 2 state secretary level orders, and 35 other regulations have been endorsed.


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corresponded to less than 10 percent of the total people trained. The results on the introduction of the IT systems under this project are mixed. Among the 11 major IT systems developed under this project, 7 are being used effectively.

46. What lowers the rating to Modest is the two extensions of the project closing date totaling 30 months related to delays in implementing the underlying subprojects. As explained earlier, the political election events slowed decision-making processes in most of the project activities with key government staff being replaced and delayed the passing of key legislations. However, there are also some internal factors that contributed to the delays. Some of the international consultancy had to be advertised several times due to the lack of qualified applicants, which caused delays in the implementation of the consultancy work plans. In addition, the testing and piloting of a new IT system (for example, BPIS) took longer than originally planned, which delayed the follow-up activities such as the training of end users.

47. A detailed assessment of the project’s efficiency, including the analysis of the efficiency of different types of interventions, can be found in annex 4.

D. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Moderately Satisfactory

48. The overall project rating is Moderately Satisfactory. The PDO remained highly relevant to Mongolia’s development priorities and the CPS throughout the duration of the project. Overall, the PDO and the adjusted Result Framework were substantially achieved by the closing date. The project’s efficacy rating is Substantial, while the efficiency rating is Modest. According to the ICR guidance, the overall project rating at Moderately Satisfactory should be justified.

E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Institutional Strengthening

49. Targeted institutional capacity building and training were provided as part of this TA project, which aimed to improve the sustainability of the project by further deepening the institutional commitment and implementation capacity to the reform agenda. Institutional capacity of the implementing agencies in policy making and implementation has been strengthened. In particular, the capacity of the newly established institutions supported under this project, including the internal audit unit in the MOF, DICOM, and GPA, has been strengthened to enable them to design sound policies.

Poverty Reduction and Shared Prosperity

50. The impact of this MSTA project is substantial with regard to promoting poverty reduction. The creation of the means-based database for targeting the poor has been a significant move toward building a more effective and efficient social protection system. Moreover, the establishment of an intersectoral ISDB based on the PMT survey has opened up opportunities for better poverty targeting of welfare programs. This led to improved effectiveness of social services delivery, expenditure efficiency, and risks control, thus ultimately benefiting the people of Mongolia, in particular the poor and vulnerable. The project also supported the adoption of the State Policy on Pension Reform, 2015–2030, the policy framework of which aimed to improve the sustainability and fairness of the pension system, which


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brought indirect social impacts. In addition, the fiscal policy component has had an indirect and positive social impact by improving fiscal sustainability and the efficiency of the public investment program. Stabilizing the financial sector also had a positive social impact by improving the access and efficient allocation of financial resources to clients and minimizing the fiscal costs of future bank bailouts, if any.

Gender

51. No specific gender issues were discussed in the project document nor were they considered during implementation. Nonetheless, enhancing the efficiency of public sector administration particularly in the areas of health and education may help promote gender equality. Better targeting and serving the poor supported under this project may also help alleviate the gender gaps.

Other Unintended Outcomes and Impacts

52. With successful implementation, the project built confidence in World Bank support and paved the way for the follow-up World Bank engagement, including the SFFS Project, which continues the support to the key objectives of the MSTA project, and a three-year programmatic Development Policy Lending (DPL) operation (Economic Management Support Operation).

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION

53. The rationale behind the World Bank’s involvement derives from the specific role the World Bank has played in assisting the Government in responding to the crisis. Donor budget financing can play a crucial role in facilitating the process of fiscal adjustment, helping protect key expenditures such as social protection and investment programs and limiting recourse to alternative, potentially destabilizing, financing options. Meanwhile, international as well as Mongolian experience strongly suggests that the success and sustainability of these reforms would enhance if they were accompanied by TA and targeted capacity building. This MSTA Project provided such important support for the Government’s policy agenda and is, therefore, a key pillar of the World Bank’s assistance strategy. The three policy areas covered by this MSTA Project were identified from, and supported by, previous analytical work, lending operations, and TA work.

54. Political commitment to reform was high. The project has secured broad consensus and support from key stakeholders, including the highest level of government officials. The design of this operation has benefited from systematic dialogue with key government officials and representatives of political parties. These consultations ranged from successful study tours to Chile and Washington, D.C. by members of the Parliament to targeted conferences and workshops. The Government has taken strong policy actions over 2009, which have required bipartisan support and which demonstrate the currently strong political ownership of the reforms needed to address the impact of the crisis, to promote the recovery, and to put in place an improved policy framework for the medium term. Endorsement from the MOF, MoSWL, and Central Bank of Mongolia was also a strong indication of pursuing reforms.


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55. While government capacity was sufficient to take strong policy actions, the design of some components is overly ambitious. For example, the project originally aimed to strengthen the institutional capacity and organization arrangements of the MOF and the NDIC for investment planning. This is proven difficult in part due to continuing coordination problems between the MOF and NDIC, and given the fact that the NDIC was not part of the responsible implementation bodies under the project. The objective of completing the resolution of the two failed banks in a short period is also overly ambitious. In addition, the goal to transform the new DICOM into a full-fledged pillar of the financial sector safety net, with proper institutional structure and financial capacity, deposit payout capacities, and clear mandates and responsibilities, is also overly ambitious.

56. The project was rated an overall risk of Moderate, and some risks were correctly identified with mitigation measures in place. The identification of risks to the project and its rating were Moderate at appraisal. Risks related to the political commitments to reform, coordination of stakeholders, lack of capacity of implementing agencies, and failure to approve the reformed laws were identified during appraisal, many of which have materialized. The mitigation measures, including prior actions of the DPCs, the World Bank’s analytical work and ongoing TA, and intensive policy dialogue by all donors, are in general effective in mitigating these risks.

57. However, several risks were not identified during appraisal. The risk of volatile political and institutional environment that strongly affected the project implementation was not explicitly identified. The difficulty in implementing a new poverty benefits program was not identified as a risk at preparation, while this became a major obstacle during implementation. Another risk not iden

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