Mongolia: Financing

On 11 January 2019, the National Sustainable Finance Roadmap of Mongolia was developed through a partnership between the UN Environment Inquiry, the International Finance Corporation (IFC) and the Mongolian Sustainable Finance Association (MSFA). The document has the following contents:
Banks dominate the Mongolian financial sector, holding 88% of financial assets. They have been advancing the sustainability agenda domestically since 2013. While the momentum from commercial banks has been highly encouraging, there is a growing realization that the entire financial system will need to be harnessed to help the country pivot onto a new sustainable growth trajectory. This includes the capital markets, the non-bank sector, insurance and institutional investors.
Mongolia’s economy is closely aligned with the commodity cycle, which can lead to volatile growth patterns. These ‘boom and bust’ cycles highlight the benefits that a more diversified economy could bring.
Nearly 70% of the Mongolian workforce is employed by small and medium-sized enterprises (SMEs) and many face challenges in accessing finance.
The World Bank has estimated the associated costs at just under 10% of Mongolian GDP. Recent air pollution levels have been recorded at 80 times the recommended World Health Organization limit and 10% of all deaths in Ulaanbaatar are related to complications from air pollution.
Barriers to scaling sustainable finance can be grouped into both generic and sustainability-related barriers. Generic barriers include high interest rates and a lack of medium- to long-term funding, challenges in access to finance and scarce alternatives to bank lending. Sustainability-related barriers include an underdeveloped sustainable finance toolkit for policymakers, limited capacity, and a lack of policy alignment.
Measures identified can be broadly grouped into three categories: (i) embedding environmental and social risk management measures; (ii) scaling green finance flows; and (iii) developing the enabling environment. Key stakeholders and partners have been identified to drive the process forward, and actions have been mapped out in terms of priorities and sequencing.
The total investment needed to finance the Mongolian National Green Development Policy is estimated at US$6.96 billion. The NDC targets are based on the NGDP objectives. Estimations of adaptation measures as part of the NDC show that Mongolia will need around US$2.7 billion. The implementation of the mitigation measures is estimated at another US$3.5 billion until 2030. The total annual financing needed to achieve Mongolia’s green development and climate targets could therefore be estimated at US$413 million, breaking down the total financing needs of around US$6 billion over 15 years. The majority is medium and long-term investment, with 80% expected to be financed from international and private sources. This estimate does not include investments into social sectors beyond climate change.
Using a macroeconomic approach, a range of 4% to 5% of the country’s GDP could be estimated as directional estimates of green investment needs based on China’s experience. By applying this approach, the annual green investment requirement of Mongolia could be calculated at US$440-550 million (US$1.03 billion represents approximately 10% of Mongolia’s GDP).
The Development Bank of Mongolia (DBM) is a government-owned, policy-oriented development finance institution in Mongolia. In February 2017, amendments to the Law on Development Bank were approved to strengthen the independence, governance, decision-making structure and supervision of the Bank. The DBM provides financing to major policy-oriented projects including priority sectors within the government economic development policy, such as infrastructure, roads and transportation, engineering infrastructure, energy, manufacturing, processing, mining, and housing industries. Furthermore, the Government of Mongolia has also approved the legal framework for establishing a Green Development Fund under the Development Bank of Mongolia. The fund has not started disbursements yet.

Reconciling mining and biodiversity conservation and related financing needs through landscape-scale impact mitigation in Mongolia. Andrew Deutz, Director of International Government Relations, The Nature Conservancy, Republic of Korea

Policy environment for green development involving tax exemptions on income from more efficient, environmentally friendly equipment, support sustainable use of natural resources and reduce environmental pollution and waste. The law on income tax (article 18, 18.1.8, article 19, 19.11) provides a list of 41 instruments which are approved by the government meeting in June 2012. A decision by Parliament in June, 2013 ensured that afforestation, forest industry and wooden goods from import shall be exempt from custom tax and VAT until December, 2017. Agricultural regulations were developed to provide tax incentives on the use of registered efficient and environmentally sound equipment and technologies.

tax exemption, Annual Prize for the Environment, natural resources payment

The 2012 Law on Environmental Impact Assessment included the requirements for offset methods (companies should submit an environmental management plan with a budget for its implementation for a given project, and must submit 50% of the budgeted cost to MEGD beforehand); The Nature Conservancy with MEGD developed the handbook of offset methodology. Methods for conducting technical and biological restoration in areas degraded by mining activities were adopted in 2009 and methods for calculating the cost of conducting restoration in areas degraded by mining activities and assessing environment damage costs and calculating offsets were adopted in 2010. Professional training for governmental and non-governmental workers has also been conducted

The renewed action plan for national REDD+ development integrating with Green development in 2011. The assessment of the financial value of mongolia’s forest sector and its key financial constraints was made in 2013.

Readiness for Climate Finance: An assessment and route map

Japan's National Institute of Technology and Evaluation (NITE) and Mongolia's Academy of Sciences (MAS)

agriculture; public health; mining industry; environmental education and public awareness

The enabling environment for sustainable enterprises and a framework for SME growth and development (2011)

In 2000, 40.5% of the total budget of 2.3 billion MNT, approved for the environment sector, was spent on nature protection and restoration activities.

Fiscal Stability Fund

Financing in NBSAP1996

Tuul River Watershed Services, Mongolia; The Economic Value of the Upper Tuul Ecosystem, December 2009