The World Bank has pointed to special spending needs in health and education – key sectors that play an essential role in the country’s long-term fight against poverty.

In a report on Mongolia’s revenue and public expenditure, the Washington-based bank also highlights poor returns on very high levels of capital expenditure.

“With high public debt, low tax rates and high exemptions, the Mongolian economy remains extremely vulnerable to external factors, including shifts in global demand, commodity prices, and exchange rate and interest rate shocks,” said Andrei Mikhnev, World Bank country manager for Mongolia.

“There is a clear need to strengthen fiscal buffers through increased savings during years of prosperity.”

The report, Public Expenditure Review: Growing without Undue Borrowing, calls on the country to strengthen its fiscal foundations.

It says that at an average of about 11% of GDP in 2010–2016, Mongolian capital expenditure has been among the highest in the world.

However, returns on this spending have been low due to poor selection of projects, long delays in implementation, high cost overruns, and low maintenance budgets.

“The report lays out key actions the country can take to enhance the efficiency of public investment,” said Jean-Pascal Nganou, the World Bank’s senior country economist and a lead author of the report.

“Development and implementation of a national road map to improve the efficiency of these investments is the top priority.”

Mongolian revenues have been volatile and the World Bank economists recommend reducing the government’s dependence on the mineral sector by reforming the tax system.

Low tax rates should be raised, exemptions need to be revised, and the tax base needs to be broadened, they say.

The government wage bill is also high and growing fast, which economists believe is closely linked to increased staff turnover owing to the frequent reorganisation of ministries.

While education spending is average compared to similar countries, the use of resources has been poorly planned and basic classroom learning materials have taken second place to expensive equipment.

Spending on health is much lower than it was in 2003, and the report says critical reforms are needed to address the growing burden of non-communicable diseases.