How To Fix Mongolia's SOEs

The government’s renewed vows to reform its sprawling network of state-owned enterprises (SOEs) have been met with a mix of cautious optimism and weary skepticism. While the administration trumpets its commitment to fiscal responsibility and economic modernization, past failures to rein in these often-unwieldy entities cast a long shadow.

With SOEs holding 64.4 trillion MNT ($19 billion) in assets but saddled with a 22.8 trillion MNT ($6.7 billion) debt burden—17.7 trillion MNT ($5.2 billion) concentrated in the top ten companies—the stakes are high.

The precarious finances of these enterprises impact not only the national budget but also the livelihoods of around 58,000 individuals they employ.

The challenges extend beyond mere balance sheets. In a striking illustration of misdirected priorities, loss-making SOEs have diverted funds to projects like upgrading school lavatories, while their core operations bleed cash and fail to deliver essential services.

This raises fundamental questions about their strategic focus and their accountability to the public. Cabinet Chief Secretary Nyam-Osoryn Uchral’s declaration that failing SOEs must be dissolved or consolidated signals a recognition of the problem, but the path from rhetoric to reality remains fraught with political and economic complexities.

The relevant legislative amendments are expected to be debated in the parliament.

Meanwhile, Mongolia’s vibrant private sector, generating an impressive 50 trillion MNT ($14.7 billion) in 2023, presents a stark contrast. This disparity highlights the enormous opportunity cost of SOE underperformance—resources and potential growth squandered through inefficiency and mismanagement.

A revitalized SOE sector, operating with the efficiency and dynamism of its private counterparts, could unlock substantial economic gains and propel Mongolia toward its ambitious $10,000 GDP per capita target.

Yet, meaningful reform faces formidable headwinds. The controversial awarding of bonuses to executives at loss-making SOEs exemplifies a culture of impunity and fuels public cynicism. This blatant disconnect between performance and reward underscores the challenge of instilling genuine accountability. Moreover, the perception of SOEs as breeding grounds for corruption, combined with the vested interests of influential political and business elites, creates significant resistance to change.

Addressing this complex problem requires a multi-pronged strategy. Privatization, albeit politically sensitive, represents a viable option for revamping entities like Ulaanbaatar Railway and MIAT. Injecting private sector capital and expertise, alongside stringent regulatory oversight, could revitalize these critical sectors and introduce much-needed competition.

Concurrent with privatization, bolstering corporate governance within the remaining SOEs is essential. This entails establishing truly independent boards, implementing transparent performance metrics tied to executive compensation, and enforcing strict financial disclosure standards. Independent audits and enhanced public scrutiny can further dismantle the veil of secrecy and foster a culture of accountability.

However, the ultimate success of SOE reform hinges on depoliticizing their management. Breaking the cycle of politically motivated appointments and cultivating a meritocratic system is essential for attracting competent leadership and instilling a performance-driven ethos.

The cost of inaction is steep. Continued SOE inefficiency will exacerbate the strain on the national budget, stifle job creation, and undermine Mongolia's long-term economic trajectory.

Beyond the fiscal implications, the erosion of public trust in the government's ability to manage vital national assets poses a significant threat to political stability and social cohesion. The imperative for decisive action is clear.