Public-private infrastructure investment and deposit insurance in Mongolia

The 2010 South Korean Knowledge Sharing Program (KSP) with Mongolia was initiated in December 2009 when the Ministry of Finance (MOF) and the National Development and Innovation Committee (NDIC) of the Government of Mongolia submitted a written Demand Survey Form.

Based on the priority listing of the topics submitted by the partner country, the Korea Development Institute (KDI) tried to select and provide consultation in the areas where Korea has the necessary know-how and is ready to share its experience. Under such consideration, the following three topics were reviewed with great interest: Preliminary Feasibility Study (PFS); Public Private Partnership (PPP) and Deposit Insurance (DI).

The mining sector is the main driver for the Mongolian economy. Expansion of mining is expected to bring important benefits such as new investments, jobs, export earnings, and a surge in government revenues. The solid progress of the one of the world’s largest untapped copper deposits, Oyu Tolgoi Project, the economy of Mongolia has entered the recovery phase since the recent global recession. The real GDP growth in 2011 is anticipated to reach 8.2 percent, mainly due to the swift growth in mining of coal, oil and iron ore and in 2013, the GDP per capita is projected to reach 4772.8 MNT, 1.9 times higher than in 2009.

However, development in mining industry also has caused a significant pressure on the supply of infrastructure. Current status of infrastructure is unable to meet increasing demand, and the lack of basic infrastructure has been being clearly a major factor constraining economic growth. Mongolian government has identified that the persistent underinvestment in infrastructure is having a negative impact on economic growth and transaction costs of businesses. However, as other developing countries are facing with the same constraints, the fiscal resources have not been sufficient to provide the requisite investment to supply adequate infrastructure for economic and social developments. Clearly, a new model and a new investment management system to modernize and supply Mongolia’s infrastructure is required.

The Mongolian government identified that properly structured public investment management system, and Public-Private Partnership (PPP) are key instruments to increase the efficiency of fiscal infrastructure expenditure management, and attract necessary private investment for the development of the infrastructure.