Main drivers of recent poverty trends in Mongolia (2010-2016) Samuel Freije-Rodriguez (lead economist) Poverty & Equity Global Practice, The World Bank October 2017

Some preliminary policy lessons Outline What Happened How did it happen? Why did it happen? Some preliminary policy lessons

1. What happened.

• According to official estimates, poverty incidence in Mongolia increased by 8 percentage points between 2014 and 2016 (from 21.6 percent to 29.6 percent); • This increase breaks the downward trend in poverty rates that the country experienced since 2010. However, poverty rates in 2016 remain below the level of 2010. Source: World Bank staff using HSES 2010, 2012, 2014 and 2016

• The incidence of poverty is still higher in rural areas than in urban areas (34.9 percent vs 27.1 percent, respectively) … • ..but the difference between urban and rural poverty rates has narrowed (from 15.9 to 7.8 percentage points). Source: World Bank staff using HSES 2010, 2012, 2014 and 2016

• The larger share of urban population makes that most of the poor now live in urban areas (62.1 percent of all the poor), particularly in Ulaanbaatar (37.8 percent), and… Source: World Bank staff using HSES 2010, 2012, 2014 and 2016

…makes that the recent increase of 8 percentage points to be ascribed in large part to urban areas (5 percentage points of the total increase) and less to rural areas (the remaining 3 percentage points). If looking at the whole period (2010-2016), the opposite is true: most of the poverty reduction comes from rural areas. Source: World Bank staff using HSES 2010, 2012, 2014 and 2016

2. How did it happened?

Between 2014 and 2016 there was a fall in average household consumption of 8 percent in real terms; This severe fall contrasts with real increases of household consumption in previous years. Despite the severe decline, average household consumption is still higher in 2016 than in 2010 Source: World Bank staff using tabulated quarterly data from Mongolia Statistical Information System

Still, real household incomes are higher in 2016 than in 2010. The fall in consumption was associated to a large fall in real household incomes of 15 percent for the period 2014-2016; All sources of income contributed to the decline, and pension/transfers did not counter it. Still, real household incomes are higher in 2016 than in 2010. Source: World Bank staff using tabulated quarterly data from Mongolia Statistical Information System

The gains in household incomes for the period 2010-2016 differ by region: In the countryside it was due to agricultural incomes In the rest of the country it was due to wages Other sources of income has not grown for the period under study Source: World Bank staff using tabulated quarterly data from Mongolia Statistical Information System

3. WHY did it happened?

• The deceleration of economic activity in 2015 and 2016, brought about a rapid growth in unemployment rates and - given a loose labor market and stagnant productivity- a decline in real wages and returns to family-owned businesses. • The rapid growth of 2010-2014, due among other things to an expansion of FDI, led to growing salaries, productivity and -given abundant fiscal resources- and expansion of social transfers.

4. SOME preliminary policy lessons

• A stable economic environment is needed so that sound business opportunities flourish and steady sources of employment are created to avoid wide oscillations in standards of living. • A more flexible social assistance mechanism is needed that reacts to changes in economic conditions (e.g., a recession) and provides transfers to population groups based on their means and needs rather than based on population general characteristics..

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