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SUMMARY OF TWO POLICY NOTES
“The Impact of the Financial Crisis on Poverty and Income Distribution in Mongolia”
And
“The Impacts of Economic Crisis in Mongolia: Findings from Focus Group Discussions”
(The full papers will be available online at http://www.worldbank.org.mn)
The global financial crisis of 2008-09 slowed down economic growth and severely affected
Mongolian households. GDP contracted by 1.6% in 2009 after growth of 8.9% in 2008. The
crisis led to a temporary halt in progress in reducing poverty. The poor were the most strongly
affected by this negative shock but benefited the least from the early recovery in 2010-11. While
poverty appears to have started to decline again post-crisis, the analysis suggests that it has been
accompanied by rising inequality.
Significant impacts of the crisis in Mongolia occurred through its effects on a fall in global
demand for commodities, the export sector, and remittances. When combined with the dzud
(severe winter storm) of early 2010, which occurred just as the economy was beginning to
recover and killed over 1 million heads of livestock, the economic slowdown had impacts on
poverty as well as the distribution of income and consumption among the poor and non-poor.
A series of two complementary papers, produced by the World Bank, aims to assess these
impacts at the household level quantitatively and qualitatively. The papers make use of different
data sources and methodological approaches to gain broad insights into: (i) how the impacts at
the macro level translated into impacts at the household level and across the welfare distribution,
(ii) both social and economic impacts as reported by the household themselves, and (iii)
households’ coping mechanisms. The quantitative paper, titled “The Impact of the Financial
Crisis on Poverty and Income Distribution in Mongolia,” examines the poverty and distributional
impacts of the crisis, relying on predictions from a simulation model based on pre-crisis data.
The approach adopted here combines the behavioral estimations from pre-crisis household data
with aggregate macroeconomic projections to generate estimates for individuals and households
all along the distribution. It simulates outcomes with and without the crisis, taking into account
different channels of impact on household income. The qualitative paper, titled “The Impacts of
Economic Crisis in Mongolia: Findings from Focus Group Discussions” relies on four
consecutive rounds of data collection from May 2009 to January 2011. The research was
conducted in urban and rural areas of Mongolia and involved interviews and focus group
discussions with about 500 people, belonging to groups identified as particularly exposed to the
impacts of the crisis
These quantitative and qualitative exercises both find that the poor were the most vulnerable in
the crisis but were often the last to recover during economic rebound. Simulations indicate a
slight increase in poverty in 2009, followed by a fall in poverty to below-crisis levels in
subsequent years as output and employment start to grow. But because of the asymmetric nature
of the crisis’ impacts, there are important differences in the characteristics of those that fell into
poverty in 2009 and those that exited poverty in 2010-11. Those who became poor between 2008
and 2009 were more likely to live in urban areas and work in industry and service sectors than
those who rose out of poverty between 2009 and 2011. The urban and rural poor were the most
affected by the shock, and were also the ones who benefited least from the recovery. Although
overall poverty rate is projected to drop to below the 2008 level by 2011, due to the asymmetries
in who lost and gained during the crisis, inequality is expected to increase throughout the 200811 period. With the dzud in 2010, rural households bore nearly all of the adverse impacts of the
weather shock, which implies that poverty reduction in rural areas may in fact be slower than
what has been projected by the model for the recovery period of 2010-11.
Qualitative research shows that households across Mongolia were under significant economic
stress, with the poor most strongly affected by the global economic downturn. Labor market
shocks—rising unemployment, reduced salaries and diminished profits of small businesses—and
price shocks—falling prices for cashmere and livestock products and rising prices for imported
food and consumer goods—were reported as the key transmission channels. While all income
groups suffered, recent migrants to Ulaanbaatar, informal gold miners and herders with less than
100 animals were most severely affected. These groups of people suffer from chronic poverty
and are vulnerable to any shocks. Even herders with up to 500 animals, for whom livestock
breeding was the only source of income, became vulnerable due to the compounded effects of a
collapse in cashmere prices and the 2010 dzud.
The economic hardship also had social impacts, including reported increase in alcohol abuse and
crime. To cope with the crisis, households responded by cutting consumption, diversifying
sources of income, borrowing from formal and informal sources and, in rural areas, by forced
sale of livestock to finance basic consumption. Growing economic hardship led many women to
take on income generation activities in addition to non-paid domestic labor. Focus group
discussions reveal increased discrimination in the labor market, and women reported facing
additional requirements in hiring decisions based on appearance.
The economic recovery in 2010-2011, accompanied by increased job availability in formal and
informal sectors, higher prices for livestock products, and increased social transfers led to
improvements in the livelihoods of Mongolians. However, these improvements were rather
uneven. The wealthier households reported buying durable goods, real estate and making
productive investments in their businesses or livestock breeding. The poorest population could
purchase slightly more food and clothing but could not afford durable goods or recover the
productive assets they were previously forced to sell to finance consumption.
While the economic rebound in Mongolia can be expected to be accompanied by renewed
poverty reduction, asset depletion among the poor and the new poor—due to the double hit of the
global financial crisis and the local dzud—raises concerns of rising income inequality over time.
It would be important for policy makers to monitor these developments as they may have serious
implications for development and poverty reduction policies in Mongolia.