TRANSPARENCY SNAPSHOT

Mongolia announced plans to increase transparency in late 2005 by implementing the requirements of the Extractive Industries Transparency Initiative (EITI), but political instability, the growth of artisanal mining, and other factors have left the climate for transparency and responsible revenue management uncertain at best.

The government overhauled its fiscal regimes in 2006 to allow the collection of greater revenues from the extractive sector. However, the spread of artisanal mining and the attendant challenges to oversight and accurate reporting have hindered the successful implementation of policies to translate mining revenue into improved living standards.

Mining accounts for 55% of the nation's industrial output and generates 33% of government revenues. In 2006, mining revenues accounted for roughly 14% of GDP. Mongolia signed a large mining contract in 2007 with Canadian and UK-based companies to develop the Oyu Tolgoi copper and gold fields.

Artisanal mining of gold, while not a traditional activity in Mongolia, has become a significant source of income for thousands of people in recent years. Several efforts to regulate this sector have failed.

Since its transition to democracy and a market-based economy in 1990, Mongolia has experienced a high level of growth, partly due to expansion in the gold and copper industries. The economy continues to expand and real GDP is estimated to have risen by 8% in 2007. But poverty rates remain high. The World Bank estimates that 36% percent of the population lives in extreme poverty on an income of less than $0.40 USD per day.

Revenue Transparency

In December 2005, then Prime Minister Elbegdorj declared Mongolia's intention to implement EITI during an international conference. But efforts to implement and make mining revenues more transparent, were hamstrung by political instability throughout 2006.

In early 2006, the government established what it claimed was a multi-stakeholder implementation committee-the National Council-to guide EITI implementation. However, civil society organizations complained that four members that the government claimed were civil society representatives were in fact drawn from industry associations.

Mongolia made considerable strides in the implementation of EITI during 2007. In Summer 2006 the NGO Coalition for Transparency in the Extractive Industries was established to support the implementation of EITI, and in September 2007 following the International EITI Board's pre-validation exercise, Mongolia achieved "Candidate Country" status. The government released its first EITI report in January 2008.

Expenditure Transparency

According to the Open Budget Index, the government provides scant or no public information about the central government budget. The executive budget proposal-one of the most important budget documents-is not made available to the public while it is under consideration by the legislature. Although mid-year and year-end reports are released, they lack the detail necessary to facilitate comparisons between budget allocations and actual outcomes.²

Freedom of Information and Legal Reform

In a January 2008 report, Freedom House lists Mongolia as a "free" nation, making it the only "free" country in the Caucasus and Central Asia region. The government generally respects freedom of the press, but it has been slow to implement the 1999 law requiring the transition from state to public broadcasting corporations.

The country's current mineral law was adopted in 1997 and amended in 2006 to increase mineral royalties and license fees, and reduces tax incentives and tax exemptions for companies.

In 2006, the parliament also approved a windfall profits tax on copper and gold exports. The proceeds of the tax are deposited into the Mongolia Development Fund. Local citizens petitioned the court arguing that the tax violated the constitution because the government appointed the Mongol Bank to determine the tax rate, however the court disagreed.³

According to the US Geological Survey, the amended mineral law and the windfall profits tax have substantially reduced the foreign investment appeal of mineral exploration and extractives sector in Mongolia.⁴

1. Open Budget Index (www.openbudgetindex.org)
2. USGS, 2006
3. USGS, 2006