Statement by IMF Staff Mission to MongoliaPress Release No. 10/29
February 10, 2010
An International Monetary Fund (IMF) mission, led by Steven Barnett, visited Ulaanbaatar during February 3-10, 2010, to hold discussions with the Mongolian authorities of the fourth review of the country’s Stand-By Arrangement (SBA). The SDR 153.3 million (about US$236 million) SBA was approved by IMF Executive Board on April 1, 2009 (see Press Release No. 09/110). At the conclusion of the visit, Mr. Barnett made the following statement:
“The IMF mission today reached a staff-level agreement with the Mongolian authorities on the conclusion of the fourth review under the SBA on the basis of the authorities’ continuing strong policy performance. IMF Executive Board is expected to consider the fourth review in the coming weeks. If the Board approves the completion of the review, the next disbursement under the program would be released to Mongolia in an amount of SDR 15.33 million (about US$24 million).
“Since the SBA was put in place last April, the government and central bank have implemented policies that have helped Mongolia cushion and adjust to the global economic crisis. This year’s severe winter, however, is taking its toll on many families, and our sympathy goes to all those affected. The hard winter will also have an economic impact on the country.
“Nonetheless, we expect overall growth to rebound sharply and inflation to remain broadly under control. GDP growth is expected to rebound to around 7 percent this year, boosted by the development of the Oyu Tolgoi mine. Meanwhile, inflation could pick up to around 8 percent by year-end, driven in part by higher meat prices from the loss of livestock, before stabilizing at some 6 percent in 2011.
“The relatively favorable outlook is due in large part to prudent macro-management and continuing structural reforms. The successful implementation of the government’s reform plans for this year, in particular in the following two areas, will be critical for consolidating and building on the recent gains.
“First, it will be important for the authorities to continue strengthening public finances, including through early passage of the comprehensive social transfer and fiscal stability laws that have been submitted to Parliament. The social transfer reform law will critically help low-income families through a better targeted poverty benefit system. The fiscal stability law will promote prudent fiscal management and help insulate the economy from swings in copper prices.
“Second, but equally important, is strengthening the banking system. As international experience indicates, a healthy banking system helps foster private sector development by ensuring that businesses and households have access to loans at reasonable terms. Key in this regard will be Parliamentary adoption of a comprehensive bank restructuring plan that will help ensure a sound financial footing for all banks. The ongoing efforts by the authorities to strengthen bank supervision, including through the implementation of the recently passed banking law, is also welcome.
“In conclusion, we are encouraged by the authorities’ recent success in managing the economy. Pushing ahead with the structural reform agenda on the one hand, and maintaining sound macro-policies on the other—including a prudent fiscal stance, flexible exchange rate, and monetary policy geared to containing inflation—will help ensure that the economy moves along a path of sustainable growth, falling poverty, and low inflation.”