Mongolia 2020 Poverty Report: A Decade of Progress and Stagnation in Poverty Reduction

A joint report by the National Statistics Office of Mongolia and the World Bank based on the 2020 Household Socio-Economic Survey (HSES) presents an analysis of poverty and inequality in Mongolia from 2010 to 2020, a period of economic volatility. The report also takes an in-depth look at the impact of COVID-19 on households in the first year of the pandemic.

Mongolia made notable strides in reducing poverty from 2010 to 2014, but the pace of poverty reduction slowed significantly after the 2016 economic recession. Thanks to robust and inclusive growth, poverty declined by 17 percentage points from 38.8 to 21.6 percent between 2010 and 2014. However, due to the economic crisis in 2016 and the onset of the COVID-19 pandemic in 2020, consumption growth declined in the latter half of the decade and became more unequal, favoring wealthier households. As a result, the decline in poverty from 2016 to 2020 was relatively small, from 29.6 to 27.8 percent.

Despite declining consumption growth, household income grew significantly between 2016 and 2020. Driven primarily by increasing wages, social assistance, and livestock income, real per capita household incomes increased by on average 23 percent between 2016 and 2020, with larger relative increases for poorer households. Analysis shows that if consumption had grown at the same rate as income, poverty would have declined by an additional 9 percentage points from 2016 to 2020.

Several reasons may explain the apparent divergence between income and consumption and the consequent slowdown of poverty reduction in Mongolia. First, economic volatility and uncertainty together with restrictions on face-to-face services may have led to an increase in precautionary savings among households, particularly during the COVID-19 pandemic.Second, measurement errors in the HSES may have led to an underestimation of household consumption. Use of alternate statistical methods to estimate consumption in 2020 may have also contributed to divergent trends in income and consumption, particularly across the welfare distribution. Third, despite significant increases, social transfers have had only modest success in reducing poverty due to targeting inefficiencies. In 2020, about 20 percent of households in the bottom 40 did not receive Child Money Program benefits, while nearly half of households in the top 60 did.

While Mongolian livelihoods were not severely affected in the first year of the pandemic, evidence points to stronger impacts in 2021. The 2020 HSES suggests that impacts to employment and household income were not significant for much of 2020. However, deteriorating trends in employment, labor income, and food insecurity in the fourth quarter of 2020, as the country experienced a more severe health crisis accompanied by stringent lockdowns, point to more severe impacts in 2021. Future research of the pandemic's impacts in 2021 and beyond will thus be important to assess how the poor and vulnerable were affected at the peak of the pandemic and whether they were able to recover from the economic crisis including recent increases in food and energy prices.