How Mongolia can improve infrastructure spending

A new World Bank report investigated why Mongolia's citizens have not yet to enjoy the benefits from its prospering mining industry.

Much of the spending has been misdirected to low-priority areas and activities, and has been wasted due to poor project planning and implementation. Correcting these weaknesses is urgently required to ensure that the government's ambitious spending plans—from the rapidly increasing budget and from new international borrowing—results in good quality infrastructure.

Ulaanbaatar accounts for over 40 percent of Mongolia's population and a bulk of its economic activity. 

Considerable economic research tells us that with proper infrastructure and favorable regulations, cities can be engines of economic growth. Yet Ulaanbaatar has been relatively neglected in government infrastructure spending. On average, it received less than 20 percent of the national roads budget over the past five years, and was similarly under-prioritized in expenditures on heating. Over the next four years the government plans to spend twice as much on rural roads as on Ulaanbaatar's roads, even though rural roads will not have anywhere near the traffic volumes needed to generate positive economic returns.

Maintenance has also been grossly neglected with the result that new infrastructure quickly deteriorates and then requires costly reconstruction. The government only spends a fifth of what is needed on routine road maintenance; it is therefore no surprise that 60 percent of the national road network is in poor condition requiring reconstruction. Project planning is poorly enacted, too. Cost estimates are unrealistically low; there is significant political interference in the award of contracts; construction companies cut corners during implementation, compromising on quality; and the whole system does not encourage the growth of the construction sector.

Spending plans need to be tempered with the reality of spending capacity, with a greater focus on Ulaanbaatar and maintenance. Investment in the workforce so it can properly implement projects is needed, with greater focus also on independent project supervision—including from citizens. Inviting foreign workers is also how the country can make up for the shortage of skilled workers.

SOURCE OF THIS ARTICLE : World Bank Blogs