pensions do not have an automatic adjustment but have been adjusted regularly. As of 2015, their value was 126,500 MNT per month. Contributory pensions can be received at age 60 for men and 55 for women, but some workers can retire as early as 10 years earlier. Individual replacement rates are about 60 percent for a worker who has completed 30 years of contributory service. A lower “partial” minimum benefit is provided as a guaranteed annuity for workers with 10 years of contributory service. Total coverage of the labor force under mandatory and voluntary schemes was 81 percent in 2016.

Among the several monetary transfers, the Child Money Program is one of the largest in terms of budget allocation. The CMP, launched in January 2005, has evolved in its scope and focus, but by mid-2016 gives an allowance of 20,000 Mongolian tughriks (MNT) (around US$10 in June 2016) per month to all children aged 0 to 17 years old. By the end of 2015, almost 1.03 million, or nearly 100 percent of children aged 0 to 17 years old, received this benefit (NSO, 2015).

In addition, there are several social assistance programs targeted to specific population groups. These programs include yearly cash allowances for mothers who give birth to 4 or more children (100,000 MNT if more than 4 and 200,000 if more than 6 children), and monthly cash allowances for pregnant and breastfeeding women, after the 5<sup>th</sup> month of pregnancy and for 12 months. There are also allowances for people in programs for rehabilitation, elderly and children care, disabilities, as well as allowances for medicines and some for single parents.<sup>6</sup> Some monetary transfers do not involve direct cash disbursements to beneficiaries but, instead, lower prices of basic goods and services thus increasing the purchasing power of households. Regulated low prices of staples (e.g., bread, rice, public transport) or energy inputs (e.g., gasoline, electricity and heating) are common examples in the world. In the case of Mongolia, tariffs for electricity and central heating are regulated below cost recovery production costs, and interest rates on certain mortgages are regulated below market interest rates.

The cost of these “indirect” transfers is not always explicit in the fiscal budget because it can be borne by para-fiscal entities (e.g., central banks) or even the private sector, (which may be only partly compensated for the difference between market and regulated prices). In the case of Mongolia, the indirect subsidies on mortgage interests is borne by the Central Bank of Mongolia,<sup>7</sup> while the electricity and heating subsidies are borne by the central government which, at least partially, compensates public and private companies engaged in production and distribution of electricity and central heating. There are no explicit figures on the size of the indirect subsidy in terms of reduced interest rates, but a rough estimate would suggest it represents about 1.5 percent of GDP.<sup>8</sup> Data from official sources indicate that subsidies to private and public companies have

> particularly if expenditures in pension benefit enjoy a substantial subsidy from the government. This analysis adopts a monetary transfer interpretation for all pensions in Mongolia.

> 6 For more details on the Child Money Program see (International Labour Office, 2016), on pensions section 3.3 of (World Bank, 2018) and on welfare programs see (Onishi and Chuluun 2015) and (Carraro, Byambaa, & Marzi, 2015).

> 7 The program was transferred to the government in April 2016 but continued to be financed by the central bank outside the budget. In late 2016, the government decided to transfer the program back to the central bank due to tight budget conditions. In 2017 the program returned to the government under new funding conditions for the program. 8 According to (World Bank, 2016): “Outstanding subsidized mortgage loans reached MNT 3.1 trillion (13 percent of <u>GDP)”. Assuming an indirect subsidy of 11.7 percentage points (i.e., the difference between 19.7 percent, the average</u>

MONGOLIA Distributional impact of taxes and transfers / May 2018 4