The 56th Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) took place between May 2 and 5 in Incheon, South Korea. During the meeting, we interviewed Director General of the East Asia Department of the bank Teresa Kho and Country Director for Mongolia Pavit Ramachandran to talk about the implementation of the projects and programs, and what will be done within the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP) recently announced by the bank. They stated their respective positions in the following interview.
Under the theme of Rebounding Asia: Recover, Reconnect, and Reform, this year’s Annual Meeting has been held. This is the first fully in-person annual meeting since 2019. Therefore, this year, the post-covid revival and reform is highlighted. What proposals and initiatives are countries making in this context? How compatible are these with the goals of our country?
Teresa Kho: When we engaged in Mongolia during the country partnership strategy period and the COVID-19 pandemic, we were looking at providing assistance of more than 500 million USD over the last three years for the pandemic. We have two budget supports: loans and policy-based loans. We also provided the health security policy-based loan. Moreover, the bank provided some grants and technical assistance to build the capacity of the government to respond to this health crisis. In the process of helping the government during this period, the government itself came up with the New Revival Policy, which defines what should the government prioritize in order to increase economic growth, provide jobs and sustain recovery. We are aligned with the New Revival Policy. Most of the projects we will be preparing this year are actually focused on this policy. We are preparing to implement a regional road project. The bank is also funding the transmission line to help the renewable energy sector. These are key investments that are fully aligned with the government policy.
Pavit Ramachandran: Countries are now looking to bounce back and start the recovery process after the COVID-19. Economies are opening up. Mongolia is in the same situation. From the ADB standpoint, there’s a big focus on climate change, looking at this ramping up ADB’s efforts and building on last year’s announcement. This year, we’re trying to further leverage our balance sheet to increase climate investments. There was also a big focus on gender financial inclusion, digital technology, harnessing these trends, and workforce trends. These areas are all very pertinent to Mongolia. We had a very robust response to Mongolia starting from February 2020 when the country had just declared a public health emergency. We came in at an early stage in terms of repurposing an existing loan for 1.4 million USD. We were the first development partner to step up in that regard.
We also had funds that we accessed from our asia-pacific disaster response facility. In total, 2.5 million USD was provided again for urgent support in terms of ambulances and PCR testing laboratories. ADB had a package of support that was related on the health side. We provided additional financing of 30 million USD to build capacity in tertiary secondary hospitals. The bank had a short response social protection project which supplemented the government’s child money program and food stamp program. We had direct budget support to the government treasury linking up with their expenditure program. It was really a comprehensive effort and now we are looking at supporting the government’s New Revival Policy and not just through public sector support but also the private sector. It would be an integrated package support.
You mentioned that the bank will support the private sector, which accounts for 80 percent of the country’s GDP. How and with what policy do you think our government should support them?
Pavit Ramachandran: One of the challenges for Mongolia is consistently predictable and reliable policy in terms of macroeconomic policy. Your foreign investment flows are very much tied to these swings and ships. Mongolia is largely dependent on a single commodity and the markets are very restricted as it is a landlocked country. So it’s crucial to have stable macroeconomic policy or financial policy. Mongolian debt servicing costs are manageable because that’s how markets react. Mongolia has also had impacts in terms of inflation. Inflation is still at a very high rate in the country so it’s essential to keep that at a stable low level.
Mongolia still imports a lot of goods from outside so the private sector is sending the right signals. The government is doing some of that. There’s a new investment law which we have been working on with other partners. There’s a public-private partnership law. A regulatory framework is coming together. The country is also increasing private sector investments in many sectors such as agribusiness and health. We have our first private sector health transaction that’s going to get approved soon. We also have quite ambitious plans on renewable energy because there’s a lot of potential in Mongolia. The country needs to harness the private sector.
This year, ADB has announced the IF-CAP to scale-up finance for accelerated action against climate change in Asia and the Pacific. What does the bank plan to do with Mongolia within this program?
Pavit Ramachandran: Mongolia has quite ambitious national commitments. The country is proposing to reduce its greenhouse gas to 22.7 percent by 2030. There are commitments. Now there is a need to target and align the investments to achieve that. More than half of this is from the energy sector. To actually make this transition, the country needs to focus on agriculture and forestry, such as land use. ADB is well positioned to support Mongolia on all sides of this picture. On the agriculture land use side, we have just approved a very transformational program. It’s a large program which would cover over the course of 10 years and the whole country. It is a 448 million USD investment program to support green and inclusive development of Mongolia’s provinces and soums. This is looking at climate smart agribusiness development. We are working with SMEs and herders to ensure regional and pastoral management. It’s about 735 million USD including government financing and co-financing from partners like the Green Climate Fund and the EU.
On the energy side, we’re doing a lot of work because it’s not an easy challenge in Mongolia because of the reliance on heating in winter and the abundance of cold resources. What we’re trying to do is first strengthen the grid, looking at smart grid options to help reduce reliance on imports. We are looking at a battery storage system which will be commissioned this year. It’s the country’s second largest battery storage of 80 megawatts. This will allow more renewables to be taken up in the system. We’re also looking at new renewable investments. There’s a pumped hydro storage project in the program. Later on we are looking at a transmission line and private sector investments in solar and wind. It is about 2,600 gigawatts. So there is a huge resource and a lot of potential. ADB can’t do it alone so we’re working with other development partners.
As you said our country is making some commitments on the matter of climate change. In particular, our president made a pledge to plant a billion trees by 2030. In this regard, Mongolia is implementing the “A Billion Trees” national movement. How feasible is it to plant such a large number of trees by 2030? How is the bank cooperating with the country in this direction?
Pavit Ramachandran: This gives a big boost to the climate initiative. It’s important that the country puts a spotlight on land use forestry on the whole side of the picture. I wouldn’t focus so much on the number personally. You have an initiative now that cuts across government machinery that goes down to the provincial level. The country can push sustainable land management. It’s not just tree planting but it’s about making sure that this is done properly with the right species in the right areas and that local communities are benefiting at the end of it.
Teresa Kho: We have hosted two pre-COP workshops over the last two years. We have been working closely with the President’s Office of Mongolia and green development partners to see how every development partner could assist in the effort of the government to address climate change.
At this year’s meeting, ways to leverage digitalization to enhance climate change response and disaster resilience in emerging economies are also being discussed. What is the importance of policy coordination for accelerating digital capacity to address climate change? How do you think our country is working in this direction?
Teresa Kho: We are preparing a policy-based loan right now. In the past, we had an IT project worth 25 million USD focused on increasing digitizations specifically to achieve some tax efficiency. ADB is trying to advance it through this upcoming loan. It can drive government services to become more efficient. So we’ve started in that space and we look forward to finding opportunities in our current and future projects to increase digitalization.
Pavit Ramachandran: This is a big priority for ADB. For the government, there is an E-Mongolia platform. Services are now being brought online. I think Mongolia is actually in the region already ahead of the curve in terms of adopting digital technology.
On climate change, we talk about renewables. Renewables need to come in to balance the peak usage and avoid outages and blackouts which are a big issue in Mongolia. Particularly in winter, people’s survival depends on that so the country needs to ensure a stable heating supply. The budget support is essential. We also have a climate change policy and the idea is to support and give a push to the government’s plans to implement the initially determined contributions. It’s a cross-sector because climate change cannot be with one agency alone, we have to work across different agencies and put the public and private sector. This is still under preparation but it will most likely be for next year.
The main pillar of our country’s economy is mining, especially coal. However, countries and international organizations started to stop implementing projects involving coal. In such a situation, our country needs to diversify its economy. What’s your position on this? Can Mongolia “survive” such a transition?
Pavit Ramachandran: Mongolia has a coal-dependent economy right now, particularly for the energy sector. Countries are already making commitments to the net zero transition so there will be less and less demand for coal. That’s just the nature of where things are headed. As you said, the multilaterals and bilaterals will not invest in coal projects. Moreover, we are also going to see less investment flowing into the fossil fuel sector so I think attractiveness as an investment destination will also depend on diversification. Mongolia has a lot of potential in agribusiness agriculture but it only processes five percent of the meat that they produce in the country. So there’s a huge potential for value addition. On the issue of tourism, the government is now making a big push. They just need to look at a broader product base, broader marketplace and look at diversification.
Our country is implementing some renewable energy projects but they are not commissioned yet. What do you think are the main reasons for this?
Pavit Ramachandran: Attracting investors is a challenge for the country because of its stable policies as I mentioned. Having some disruptions in the policy environment doesn’t always send the best signal to investors. The government is very conscious about that. They are making sure that the policy environment is much more reliable and they are keen to attract investors in the renewable space. I think the cost of new projects will also go down. I think it’s about just continuing the recent developments and providing the right signals.
ADB helps Mongolia in many fields, namely agriculture, education, energy, finance, health, transport and urban development. In general, how does the country implement approved projects by ADB and how well do they perform? Are there any problems? What’s hard to implement projects and programs in Mongolia?
Teresa Kho: ADB has 33 projects for the country. Twenty of these are on track. We’re working closely with the government to solve issues encountered in implementing these projects. In general, readiness is an issue in the country. Other countries typically start the projects much earlier. In the case of Mongolia, it typically happens after the loans are given. So we lose a bit of time. That’s why projects in Mongolia take longer to implement. I think one of the other considerations we have to bear in mind is that Mongolia has a very short construction season. So we are working closely with the government to figure out how to prepare for that short construction season. So we could accelerate project implementation on the ground.
What do you think is the key to Mongolia’s development?
Pavit Ramachandran: Let me name three points for my side. First I think the biggest resource of Mongolia is its people. It has a young population, and the median age is 28. They are keen to embrace innovation. Harnessing this potential is going to be essential for Mongolia to thrive in the future. The problem is that it’s a small population base and you do have a case of a number of the talent leaving Mongolia. Therefore, ADB is really focused on strengthening the education sector over the years and tertiary vocational education would be a very important area. There is still a skills mismatch between graduates who come out of Mongolian universities and the job environment of Mongolia. Second, there is an issue of macroeconomic stability. That’s a real challenge in the country. The country has the fiscal stability law so the regulations are in place to ensure that there are sufficient fiscal buffers. It’s important to have a stable reserve. The last area is green development. Mongolia has such a lot of potential. I think green development would be so clear.