IMF Executive Board Concludes 2013 Article IV Consultation with Mongolia

Press Release No. 13/526
December 18, 2013

On November 15, the Executive Board of the International Monetary Fund (IMF) concluded the 2013 Article IV Consultation1 with Mongolia.

Mongolia continues to be one of the fastest growing economies in the world, expanding by 12½ percent in 2012 and by 11½ percent in the first half of 2013. Growth was buoyed by a relatively mild winter that has boosted agriculture and by expansionary fiscal and monetary policies. These have been deployed to compensate for the marked slowdown in coal exports and foreign direct investment (FDI)-financed mining development—key drivers of growth in recent years. The strong growth of the economy over the past two years has helped reduce poverty.

Slowdown of FDI inflows and exports, together with expansionary macroeconomic policies, have put pressure on the balance of payments. As a result, central bank reserves have come down considerably from record levels reached in late-2012, after Mongolia’s successful first sovereign bond issuance. In recent months, to help relieve the balance of payment pressures, the Bank of Mongolia has allowed more exchange rate flexibility. Looking ahead, real GDP growth for Mongolia is currently projected at close to 12 percent in 2013 and by 9½ percent in 2014, helped by the start of production at the Oyu Tolgoi copper and gold mine.

Mongolia’s medium-term prospects remain promising given its large natural resource endowment. However, expansionary macro policies are likely to put pressure on inflation and the balance of payments in the period ahead. Also, Mongolia is facing an uncertain external environment. Advanced economies will eventually exit from the very supportive monetary policies implemented in recent years. China’s economy is expected to rebalance away from a mostly investment-based growth model toward a more consumption-based growth model. Both these factors are bound to have major spillovers globally and especially in the region. Spillover risks will particularly affect the more vulnerable emerging market economies.

Executive Board Assessment2

Executive Directors commended Mongolia’s significant progress in recent years in economic development and reducing poverty. The medium-term outlook remains favorable, underpinned by developments in the mining sector. However, Directors cautioned that continuation of expansionary fiscal and monetary policies could threaten stability. They welcomed recent steps, particularly in the areas of fiscal and exchange rate policies to address rising domestic demand and balance of payments pressures, but called for further decisive recalibration of policies to address vulnerabilities, rebuild buffers against external shocks and ensure sustainable strong growth.

Directors emphasized the need for an ambitious and credible fiscal consolidation plan. They encouraged the authorities to bring fiscal policy in line with the overall goals and targets of the Fiscal Stability Law. Accordingly, they recommended that the operations of the Development Bank of Mongolia (DBM) should be included in the budget, which should aim at meeting the 2 percent of GDP structural deficit ceiling of the law over the next 2-3 years. While recognizing the role of DBM spending in boosting growth and development, Directors stressed the importance of an adequately frontloaded adjustment, including by streamlining subsidies and transfers and reprioritizing and rephasing capital spending. A few Directors stressed the need to preserve development spending while ensuring fiscal sustainability. Directors also encouraged the authorities to complete the set up of a sovereign wealth fund and to enhance public debt management capacity.

Directors emphasized that the ongoing large monetary stimulus provided through the central bank programs needs to be unwound to curb inflationary and balance of payments pressures. They endorsed the authorities’ efforts to strengthen the monetary policy framework and to allow greater exchange rate flexibility to support external stability.

Directors commended the authorities’ efforts to strengthen the financial sector, including strengthened capitalization and liquidity of banks. They advised further steps to reinforce the regulatory and supervisory framework to address banking sector vulnerabilities and contain risks, including those arising from unhedged foreign currency lending. In particular, Directors encouraged strict enforcement of existing prudential regulations, a strengthening of underwriting practices and loan classification, and the phasing-in of a forward-looking provisioning scheme. They also stressed the need to enhance the bank resolution regime, develop a legal framework for prompt corrective actions, and address deficiencies in the Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) regime.

To promote sustained growth outside the mining sector, Directors stressed the importance of continued reforms to strengthen the business climate, building on the authorities’ recent success in passing a new investment law.

Mongolia: Selected Economic and Financial Indicators, 2010–14 (Strong Policy Scenario)
  2010 2011 2012 2013 2014

Real sector (percent change)


Real GDP growth

6.4 17.5 12.3 11.8 9.6


3.6 7.3 8.9 16.1 33.4


7.0 19.7 12.9 11.0 5.0

Consumer prices (period average)

10.2 7.7 15.0 9.7 11.1

Consumer prices (end-period)

14.3 9.4 14.2 11.7 11.0

GDP deflator

20.0 12.1 12.0 7.4 11.0

General government budget (in percent of GDP)


Revenue and grants

37.1 40.3 35.7 34.4 32.9

Expenditure and net lending

36.6 45.1 46.6 47.9 40.3

Current balance

9.8 11.0 3.7 6.7 8.7

Primary balance

1.0 -4.4 -10.0 -11.1 -4.6

Overall balance (including grants)

0.5 -4.8 -10.9 -13.5 -7.4

Non-mineral overall balance

-10.5 -14.0 -16.9 -18.9 -12.6

Structural balance 1/

-6.9 -11.5 -13.7 -7.5

Money and credit (percent change)


Broad money

61.6 37.1 18.8 17.1 28.8

Private credit

21.5 72.3 24.1 40.9 16.1

Interest rate on 7-day central bank bills, end-period (percent)

11.00 12.25 13.25

Balance of payments (in millions of US$)


Current account balance (including official transfers)

-931 -2,759 -3,362 -3,470 -2,319

(In percent of GDP)

-14.9 -31.7 -32.8 -31.6 -20.3

(In percent of GDP, excluding mining related imports)

-5.7 -3.0 -7.2 -14.1 -4.6

Trade balance

-278 -993 -1,553 -1,425 -267


2,899 4,817 4,385 4,193 5,435


-3,177 -5,810 -5,938 -5,618 -5,702

Foreign direct investment

1574 4,620 4,408 2,032 1,199

Gross official international reserves (end-period)

2,490 2,630 4,126 2,214 2,290

(In months of next year's imports of goods and services)

3.9 3.9 6.5 3.4 3.3

Trade prices


Export prices (US$, percent change)

23.8 39.5 -12.0 -14.9 -5.9

Import prices (US$, percent change)

27.9 31.6 1.0 -2.4 -4.4

Terms of trade (percent change)

-3.3 6.0 -12.8 -12.8 -1.6

Public and publicly guaranteed debt (in percent of GDP)


Total public debt 2/

35.9 38.8 63.0 67.3 65.8

Domestic debt

5.1 10.9 14.7 15.5 15.1

External debt

30.8 27.9 48.3 51.8 50.7

(In millions of US$)

2,061 2,219 4,837 4,988 5,636

Exchange rate


Togrogs per US$ (end-period)

1,257 1,396 1,392 ... ...

Togrogs per US$ (period average)

1,348 1,273 1,359 ... ...

Nominal effective exchange rate (end-period; percent change)

3.4 3.1 -5.1 ... ...

Real effective exchange rate (end-period; percent change)

11.2 8.6 2.9 ... ...

Nominal GDP (in billions of togrogs)

8,415 11,088 13,944 16,691 20,352

Sources: Mongolian authorities; and IMF staff estimates. IMF staff projections for 2013 and 2014

1/ As defined in the Fiscal Stability Law, which uses smoothed instead of actual commodity prices to calculate revenue.

2/ The public debt data refer to the nominal value of debt and include tax prepayments by mining companies (under domestic debt) and external borrowing by the central bank. By contrast, the authorities’ estimates of public debt follow the definitions in the Fiscal Stability Law. They are expressed in net present value terms and exclude borrowing by the central bank.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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