Press Release No. 15/169
April 14, 2015
On April 3, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the 2015 Article IV Consultation1 with Mongolia.
Medium- to long-term prospects are promising given Mongolia’s large natural resources. In the near term, however, the country continues to face balance-of-payments (BOP) pressures on account of low foreign direct investment (FDI) and weak commodity prices, as well as expansionary macro policies. Imports have now started to taper off, and, with the first phase of the Oyu Tolgoi copper and gold mine now in operation, exports have picked up. The trade balance has thus improved, but with FDI and other financial-account flows still depressed, the overall BOP remains weak. In addition, public debt has risen sharply, and the banking sector should be watched closely in the wake of the rapid credit expansion over the past two years. Barring a change in policies and/or major new developments in the real economy, these trends are likely to continue. Risks are to the downside, and relate to possible difficulties in securing agreement on major investment projects, as well as to the possibilities of a further slowdown in China or a surge in global financial market volatility.
Recognizing these challenges, the new government has already taken some policy action. It has implemented a “Comprehensive Macro Adjustment Plan” which targets a substantial reduction in the fiscal deficit, phases out some of the Bank of Mongolia’s unconventional easing programs, and introduces a number of structural measures to boost exports and substitute for imports. However, additional measures—now under discussion—are needed to underpin the fiscal deficit targets, strengthen monetary and banking-sector policies, and ensure the most vulnerable are protected from the impact of the necessary macro adjustment.
Executive Board Assessment2
Executive Directors noted that Mongolia’s economic prospects remain promising over the medium to long term given its natural resource wealth, although the country faces substantial macroeconomic challenges in the near term. Directors welcomed the policy adjustment envisaged by the authorities and called for further adjustment to strengthen the balance of payments and public finances, safeguard financial stability, and strengthen social safety nets.
Directors agreed that an ambitious consolidation approach would be needed to strengthen the fiscal position. They welcomed the steps already taken and the authorities’ readiness to undertake additional fiscal reforms. Directors saw scope for further cuts in public spending, including that of the Development Bank of Mongolia (DBM), complemented with measures to raise revenue, protect the poor, and improve the effectiveness of subsidies and other social programs. They looked forward to the passage of a supplementary budget that includes these measures. Directors also supported the authorities’ intention to phase out unconventional easing programs by the central bank and encouraged them to bring all DBM spending onto the budget.
Directors agreed on the need for some monetary tightening, while ensuring that banks remain adequately liquid, to help control credit growth and strengthen the balance of payments. They also encouraged the central bank to limit deficit financing. These steps should be complemented with continued efforts to enhance governance at the central bank and the DBM. Noting the role of exchange rate flexibility as a shock absorber for the economy, Directors agreed that foreign exchange intervention should be limited to smoothing excessive volatility.
Directors recommended a comprehensive approach to addressing risks in the banking system. They considered it a priority to bolster banks’ provisions and capital buffers, eliminate forbearance, strengthen risk recognition, and enhance supervisory and crisis preparedness frameworks. Directors commended the authorities for the progress in strengthening the regime against money laundering and terrorism financing.
Directors supported ongoing efforts to foster high, inclusive growth, by improving the investment climate, enhancing competitiveness, and promoting economic diversification. More broadly, they emphasized that prudent management of natural resources is critically important for lasting growth and inter-generational equity.
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| Mongolia: Selected Economic and Financial Indicators, 2011–15 (Baseline Scenario) |
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2011 |
2012 |
2013 |
2014 |
2015 |
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Proj. |
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Real sector (percent change) |
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Real GDP growth |
17.3 |
12.3 |
11.6 |
7.8 |
4.4 |
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Mineral |
7.7 |
8.3 |
19.4 |
24.2 |
9.0 |
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Non-mineral |
19.9 |
13.3 |
9.8 |
3.6 |
3.0 |
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Consumer prices (end-period) |
9.4 |
14.2 |
11.2 |
10.7 |
8.0 |
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GDP deflator |
15.1 |
12.8 |
2.6 |
6.0 |
6.6 |
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General government budget (in percent of GDP) |
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Revenue and grants |
33.9 |
29.8 |
31.3 |
28.0 |
25.4 |
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Expenditure and net lending 1/ |
37.9 |
38.9 |
40.2 |
39.0 |
35.2 |
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On-budget balance (incl. grants) |
-4.0 |
-6.2 |
-0.9 |
-4.2 |
-4.0 |
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On-budget structural balance (excluding DBM spending) |
… |
… |
-1.2 |
-4.3 |
-4.2 |
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DBM spending |
… |
2.8 |
8.0 |
6.8 |
5.7 |
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On-budget plus DBM balance |
-4.0 |
-9.1 |
-8.9 |
-11.0 |
-9.8 |
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Money and credit (percent change) |
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Broad money |
37.7 |
18.8 |
24.1 |
12.5 |
13.1 |
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Private credit 2/ |
72.3 |
24.1 |
54.3 |
23.3 |
16.2 |
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Interest rate on 7-day central bank bills, end-period (percent) |
12.3 |
13.3 |
10.5 |
12.0 |
… |
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Balance of payments (in millions of US$) |
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Current account balance (including official transfers) |
-2759 |
-3362 |
-3192 |
-985 |
-1379 |
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(In percent of GDP) |
-26.5 |
-27.4 |
-25.4 |
-8.2 |
-11.1 |
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Trade balance |
-993 |
-1553 |
-1321 |
1002 |
844 |
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Exports |
4817 |
4385 |
4269 |
5775 |
5155 |
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Imports |
-5810 |
-5938 |
-5590 |
-4773 |
-4310 |
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Foreign direct investment |
4620 |
4408 |
2098 |
542 |
1069 |
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Public and publicly guaranteed debt (in percent of GDP) |
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Total public debt 3/ |
32.7 |
51.3 |
67.3 |
76.5 |
81.5 |
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Domestic debt |
9.1 |
12.3 |
21.1 |
21.6 |
25.6 |
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External debt |
23.5 |
39.0 |
46.3 |
54.9 |
56.0 |
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Exchange rate |
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Togrogs per US$ (end-period) |
1396.4 |
1392.1 |
1659.3 |
1888.4 |
… |
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Togrogs per US$ (period average) |
1265.5 |
1357.6 |
1523.9 |
1817.9 |
… |
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Nominal effective exchange rate (end-period; percent change) |
-10.6 |
-2.0 |
-14.7 |
-4.9 |
… |
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Real effective exchange rate (end-period; percent change) |
-5.8 |
9.0 |
-7.5 |
3.4 |
… |
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Nominal GDP (in billions of togrogs) |
13174 |
16688 |
19118 |
21844 |
24315 |
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Sources: Mongolian authorities; and IMF staff estimates. |
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1/ Includes DBM spending. |
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2/ Includes securitized mortgage loans. |
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3/ Debt data reflects general government debt (including quasi-sovereign bonds issued by DBM) only before 2013, and starts to cover SOE debt from 2013 onwards. External debt includes drawing of central bank swap line. |
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| Mongolia: Selected Economic and Financial Indicators, 2011–15 (Baseline Scenario) |
| |
|
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|
|
|
|
|
2011 |
2012 |
2013 |
2014 |
2015 |
|
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|
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Proj. |
| |
|
Real sector (percent change) |
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Real GDP growth |
17.3 |
12.3 |
11.6 |
7.8 |
4.4 |
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Mineral |
7.7 |
8.3 |
19.4 |
24.2 |
9.0 |
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Non-mineral |
19.9 |
13.3 |
9.8 |
3.6 |
3.0 |
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Consumer prices (end-period) |
9.4 |
14.2 |
11.2 |
10.7 |
8.0 |
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GDP deflator |
15.1 |
12.8 |
2.6 |
6.0 |
6.6 |
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General government budget (in percent of GDP) |
|
|
|
|
|
|
Revenue and grants |
33.9 |
29.8 |
31.3 |
28.0 |
25.4 |
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Expenditure and net lending 1/ |
37.9 |
38.9 |
40.2 |
39.0 |
35.2 |
|
On-budget balance (incl. grants) |
-4.0 |
-6.2 |
-0.9 |
-4.2 |
-4.0 |
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On-budget structural balance (excluding DBM spending) |
… |
… |
-1.2 |
-4.3 |
-4.2 |
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DBM spending |
… |
2.8 |
8.0 |
6.8 |
5.7 |
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On-budget plus DBM balance |
-4.0 |
-9.1 |
-8.9 |
-11.0 |
-9.8 |
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Money and credit (percent change) |
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Broad money |
37.7 |
18.8 |
24.1 |
12.5 |
13.1 |
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Private credit 2/ |
72.3 |
24.1 |
54.3 |
23.3 |
16.2 |
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Interest rate on 7-day central bank bills, end-period (percent) |
12.3 |
13.3 |
10.5 |
12.0 |
… |
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Balance of payments (in millions of US$) |
|
|
|
|
|
|
Current account balance (including official transfers) |
-2759 |
-3362 |
-3192 |
-985 |
-1379 |
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(In percent of GDP) |
-26.5 |
-27.4 |
-25.4 |
-8.2 |
-11.1 |
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Trade balance |
-993 |
-1553 |
-1321 |
1002 |
844 |
|
Exports |
4817 |
4385 |
4269 |
5775 |
5155 |
|
Imports |
-5810 |
-5938 |
-5590 |
-4773 |
-4310 |
|
Foreign direct investment |
4620 |
4408 |
2098 |
542 |
1069 |
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Public and publicly guaranteed debt (in percent of GDP) |
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|
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Total public debt 3/ |
32.7 |
51.3 |
67.3 |
76.5 |
81.5 |
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Domestic debt |
9.1 |
12.3 |
21.1 |
21.6 |
25.6 |
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External debt |
23.5 |
39.0 |
46.3 |
54.9 |
56.0 |
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Exchange rate |
|
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|
|
|
Togrogs per US$ (end-period) |
1396.4 |
1392.1 |
1659.3 |
1888.4 |
… |
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Togrogs per US$ (period average) |
1265.5 |
1357.6 |
1523.9 |
1817.9 |
… |
|
Nominal effective exchange rate (end-period; percent change) |
-10.6 |
-2.0 |
-14.7 |
-4.9 |
… |
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Real effective exchange rate (end-period; percent change) |
-5.8 |
9.0 |
-7.5 |
3.4 |
… |
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Nominal GDP (in billions of togrogs) |
13174 |
16688 |
19118 |
21844 |
24315 |
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Sources: Mongolian authorities; and IMF staff estimates. |
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1/ Includes DBM spending. |
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2/ Includes securitized mortgage loans. |
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3/ Debt data reflects general government debt (including quasi-sovereign bonds issued by DBM) only before 2013, and starts to cover SOE debt from 2013 onwards. External debt includes drawing of central bank swap line. |
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.
2 On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. 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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
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