## _cr15109 ## Source details **Canonical URL:** [_cr15109](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15109.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15109.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15109.pdf.json) --- ### Real sector developments and outlook - Rapid growth driven by mining: in 2011–12, FDI averaged 40 percent of GDP and annual growth exceeded 15 percent; over the past decade, growth averaged 9 percent. - Oyu Tolgoi (OT) Phase 1 brought more than $6 billion (50 percent of GDP) in investment; OT-2 planned at another $5 billion; Tavan Tolgoi (TT) could yield $4 billion over five years. - Per capita income reached $4,000; mineral wealth estimated at $1 to $3 trillion for a population of 3 million. - Minerals account for 90 percent of exports, 90 percent of which go to China. - REER appreciated nearly 30 percent from mid-2009 to mid-2013 (later reversed); non-commodity exports weak. - Recent shocks and policy response: - FDI fell by half in 2013, and again in 2014. - Coal prices down almost two-thirds from 2012 peak; volumes down 8 percent; copper prices fallen; oil price declines partially offset. - Combined on- and off-budget public capital expenditure averaged nearly 15 percent of GDP during 2012–14; consolidated deficit averaged nearly 10 percent; debt surged to more than 75 percent of GDP (mostly external and nonconcessional). - Policy rate cut by 275 basis points historically; easing programs amounting to 20 percent of GDP introduced (average cost to banks 4 percent while policy rate was 10½ percent). - Credit growth surged to 54 percent y/y by end-2013; GDP growth kept above 11 percent; current account deficit around 25 percent of GDP. - Balance of payments and reserves: - Reserves fell from more than $4 billion (almost 6½ months of imports) in early-2013 to $1¼ billion (two months) after drawing PBOC swap. - Currency weakened almost 15 percent over past year and more than 40 percent since 2013; inflation double digits during most of 2014. - Sovereign rating downgrades and sharply widened spreads. - Medium-term conditional prospects: - With OT-2 in production within 5 years, Mongolia could run large fiscal surpluses and accumulate savings (conditional on OT-2 realization). - Key vulnerabilities: - Narrow export base; heavy China dependence; elevated external financing needs; large and rising public debt; asset-quality weaknesses in banks; exposure to commodity price and FDI shocks. - Recent political context: - New government took office November 2014; general elections scheduled mid-2016. ### Recent developments and baseline projections - Growth: slowed from 11½ percent in 2013 to 7¾ percent in 2014; consumption grew nearly 9 percent. - Outlook on existing policies (baseline): - Growth expected around 4 percent during 2015–17 as OT-1 enters relatively mineral-poor layer; pick up sharply from 2020 when OT-2 enters production. - Inflation peaked over 15 percent in July 2014; remains substantially above 7 percent target. - Trade surplus in 2014; overall BOP substantial deficit due to service outflows related to OT and weak FDI. - End-2014 gross reserves at the BOM: 3¼ months of imports, equivalent to 75 percent of short-term debt, 29 percent of broad money, and 62 percent of IMF’s risk-based metric. - Staff analysis suggests currency overvalued by 10 to 15 percent (see Annex II). - Overall BOP expected to remain in substantial deficit through 2017; rolling over maturing public- and private-sector debts may be difficult (around $2 billion in 2017 alone, excluding PBOC swap). - Current account deficit should average 15 percent of GDP over the medium term under continued easy policies. ### Fiscal outlook, debt, and DSA findings - 2014 on-budget structural deficit: 4¼ percent of GDP (exceeding Fiscal Stability Law (FSL) limit of 2 percent). - DBM off-budget spending pushed consolidated deficit to 11 percent of GDP in 2014. - 2015 supplementary budget: - Brought much DBM spending on-budget; targets combined deficit of 5 percent (staff view: depends on unrealistic assumptions and excludes 2½ percent of GDP in “commercial” DBM spending staff consider fiscal). - Overall deficit expected to approach 10 percent of GDP in 2015 on staff estimates. - Authorities considering additional expenditure cuts on order of 5 percent of GDP to approach staff’s “adjustment scenario.” - Public debt measures: - Authorities’ definition (NPV terms, excluding PBOC swap): 55 percent of GDP at end-2014 (above FSL’s 40 percent). - Staff definition (nominal terms, including PBOC swap): public debt 76½ percent of GDP in 2014; expected to peak at 92½ percent of GDP in 2017 then decline as mining growth picks up. - DSA conclusion: Mongolia assessed at high risk of debt distress. - DSA key debt statistics (selected): - External public and publicly guaranteed (PPG) debt: more than 56 percent of GDP by end-2014. - Public debt: 77 percent of GDP at end-2014. - Total external debt rose to 170 percent of GDP. - Total external debt (public and private) about 140 percent of GDP (vulnerability noted). - DSA stress tests: - One-time 30 percent exchange rate depreciation: PV external PPG debt peak at 89½ percent of GDP in 2017. - PV of public debt peaks at 95¾ percent of GDP in 2017 under baseline; 83½ percent in 2017 under adjustment scenario. - Financing gaps: - Estimated large BOP financing gap: about $2 billion over next three years. - Policy adjustment scenario assumes rollovers of maturing sovereign debt ($500 million), DBM debt ($580 million), MMC bonds ($600 million), and TDB bonds ($414 million). ### Monetary and banking sector developments and risks - BOM policy and liquidity: - BOM hiked policy rate by 250 basis points to 13 percent; reserve money growth close to zero due to decline in NFA; structural liquidity tight. - NDA growth substantial due to net credit to government and unconventional easing programs; further tightening needed given inflation and BOP pressures. - Credit and banking: - Credit growth: peaked 54 percent y/y by end-2013; slowed to 23 percent y/y at end-2014 (including securitized mortgages). - Banking balance sheets doubled in two years due to BOM stimulus programs. - Foreign currency lending substantial (a quarter of banks’ loans). - Reported NPL ratio 3.1 percent; NPLs and loans past-due <90 days rose by 48 percent and 131 percent y/y, respectively, in 2014. - Provisioning: current provisions 70 percent of NPLs appear low given understatement of NPLs. - System-wide Tier 1 ratio reported 12.5 percent but likely overstated. - Stress tests indicate some banks vulnerable; capital buffers should be strengthened. - Credit boom findings: - Credit grew by average 50 percent per year during 2011–13. - Loan-to-deposit ratio rose to 123 percent in 2013. - Credit-to-GDP ratio 57 percent in 2013 and 61 percent in 2014 (including mortgage-backed securities). - Harmful credit booms detected in 2011 and 2013; equilibrium credit in 2013 estimated around 50 to 55 percent of GDP. - Reserve and exchange-rate developments: - Reserves fell to $1¼ billion after PBOC swap; end-2014 reserves at 3¼ months of imports per BOM reporting. - Currency depreciation: togrog per US$ end-period: 2011 1396.4; 2012 1392.1; 2013 1659.3; 2014 1888.4. ### Policy recommendations (staff-recommended macro policy package) - Fiscal and DBM: - Cut consolidated deficit to 4½ percent of GDP in 2015 and to around 2 percent by 2017. - Consolidate all DBM spending into the budget and strengthen DBM governance. - Limit total DBM spending (commercial and non-commercial) to around 2½ percent of GDP in 2015, declining thereafter. - Unity of budget authority in Ministry of Finance; reporting consolidated; governance reforms for DBM. - Substantial cuts possible in capital expenditures; phase out untargeted subsidies in favor of targeted programs; address public wage bill growth; reduce procurement inefficiencies; consider taxing some social benefits; increase customs duties. - Consider budget law amendment to restrain Parliament’s ability to increase aggregate budget envelope. - Monetary: - Tighten stance without delay; restrict deficit monetization. - Slow credit growth further; target credit growth to about 12 percent (y/y) under the adjustment scenario. - Transfer unconventional BOM programs (PSP, mortgages, financial support at banks' request) to the budget transparently with Parliamentary oversight. - Rule out industry-targeted unconventional easing programs; enhance open market operations. - Consider BOM governance reforms (e.g., give Monetary Policy Committee members votes). - Exchange rate: - Keep exchange rate flexible; limit FX intervention to preventing excessive volatility. - Banking sector: - Enhance provisions and capital; independent asset-quality review of major banks recommended. - Eliminate forbearance; strengthen asset-classification and provisioning regulations; apply 1-percent general provision to entire stock of performing loans. - Raise Tier 1 ratio for SIBs to 10.5 percent; impose targeted additional capital requirements on banks with large concentrations. - Strengthen supervisory and crisis-preparedness legal framework; provide emergency liquidity only to solvent viable banks at penalty rates. - Empower Supervisory Committee; strengthen Financial Stability Council and include Deposit Insurance Corporation. - Structural and social policies: - Implement structural measures to boost investment and improve investment climate; move ahead with major mining projects (OT, TT). - Improve targeting of subsidies and social safety nets; short-term: expand income-targeted food stamp program; medium-term: implement proxy means-tested subsidy programs. - Other: - Phase out BOM unconventional programs; transfer outstanding program loans to government balance sheet. - Allow real exchange rate depreciation—assumed about 4 percent per year in 2015–17 under adjustment scenario. ### Adjustment scenario implications (selected quantitative outcomes) - Growth and inflation: - Adjustment scenario: growth slows somewhat in 2015; non-mining growth slows to 1 percent in 2015 then picks up to 6½ percent over medium term. - Inflation: 9½ percent in 2015 under adjustment (baseline 8.0); moderates to 6½ percent over time. - Fiscal and debt: - On-budget plus DBM balance (percent of GDP): 2015 Baseline -9.8; Adjustment -4.6. 2016 Baseline -7.8; Adjustment -2.7. - Total public debt (percent of GDP): 2015 Baseline 81.5; Adjustment 81.3. 2020 Baseline 80.1; Adjustment 67.4. - PV of public debt peak under baseline 95¾ percent of GDP in 2017; under adjustment peak 83½ percent of GDP in 2017 and fall below benchmark in 2024 onward. - External sector and reserves: - Adjustment closes BOP financing gaps; foreign-exchange reserves stabilize at around 1¾ months of imports for several years before rising in 2019–20 (reserves at this level "substantially stronger than in the baseline but still lower than desirable"). - Current account deficit declines by about $800 million in next three years relative to baseline; CAD in percent of GDP may rise temporarily because adjustment lowers GDP in percent terms. - Assumed rollovers and financing in adjustment: - Policy adjustment scenario assumes rollovers of maturing sovereign and DBM and other bonds as noted (see policy package). ### Structural and model-based analysis (MPIH/PIH and DSGE findings) - MPIH/PIH: - PIH requires a surplus for next fifty years when resource revenues strong and deficit only thereafter; MPIH frontloading that accepts 10 percent deficits would require future generations to run substantially tighter policy—an unrealistic intergenerational contract. - FSF findings: - Observed deficits largely from heavy infrastructure spending; if well-chosen as investment, lifetime wealth could be higher and no payback needed. - Even with up to 25 percent return on investment, absorptive constraints would lower effective returns when spending as high as recently observed. - DSGE (DIGNAR) results: - Aggressive public investment path raises growth but substantially increases fiscal risk and external commercial debt; adverse scenarios exacerbate risks. - Rapid investment leads quickly to inefficiencies and pressures on external sector; togrog overvalued and should be allowed to depreciate under aggressive paths. - Conclusion: frontloaded fiscal consolidation needed; enhance absorptive capacity and manage resource wealth to avoid Dutch disease. ### Banking sector priority actions (Annex VII selected) - Improve risk recognition and management: - Restructured loans stricter prudential treatment and regular reporting (ST—within 18 months). - Apply 1-percent general provision to entire stock of performing loans (ST). - Discontinue regulatory forbearance vis-à-vis PSP loans (ST). - Comprehensive asset quality review (ST). - Strengthen resilience: - Increase Tier 1 capital for SIBs to 10.5 percent from current 9 percent (ST). - Targeted Pillar 2-like capital increases for high-risk banks (ST). - Introduce capital countercyclical buffer (MT—within 3 years). - Systemic oversight and early intervention: - Enhance macro-financial stress tests (MT). - Improve BOM’s forward-looking assessment capacity (MT). - Provide clear legal powers for prompt BOM action (ST). - Improve CAMELS methodology and supervisory coordination (ST). - Crisis management: - Financial Stability Council to execute MOUs for crisis preparedness (ST). - Amend Banking Law to prevent court reversals of resolution actions and to refine intervention triggers (MT). - Eliminate ability to use budget financing for bank reorganization and return intervened banks to original shareholders (MT). ### Authorities’ views and actions - Authorities agree economy faced severe BOP shocks and have taken steps to stabilize: part of DBM spending brought on-budget; supplementary budget passed; BOM hiked rates to 13 percent; phasing out PSP and transferring loans to government; proposed DBM governance reforms. - Authorities target fiscal deficit 5 percent of GDP in 2015 (including non-commercial DBM spending) and aim to reduce to 2 percent by 2018. - Authorities view some DBM commercial spending as non-fiscal; prefer narrower debt definition excluding BOM swap. - BOM considers PSP goals achieved; views mortgage program as beneficial and prefers central bank law changes only after economic improvement. - Authorities "fully committed to the flexible exchange rate regime." ### Risks and concluding staff appraisal - Downside risks dominate: - Elevated BOP pressure; delay of OT-2; banking-sector deterioration; further slowdown in China; global volatility affecting external borrowing. - Staff appraisal: - Mongolia has significant resource wealth; OT-2 could boost GDP and fiscal revenues by 2020. - Short-run liquidity pressures and financing challenges exist; loose macro policies contributed to current problems. - Comprehensive policy adjustment (fiscal tightening, monetary normalization, exchange-rate flexibility, banking reforms, better targeted social protection) and additional external financing would make adjustment less disruptive and improve debt trajectories. - Recommendation: - Immediate and comprehensive policy adjustment urgently required to address external and fiscal imbalances and stabilize the economy. *Source: IMF staff report excerpt and informational annex (content unit: _cr15109).* ### 1. Real Sector Developments _____________________________________________________________________ 17 ### 1. Real Sector Developments ### Context - Mongolia experienced very rapid growth driven by large FDI in mining: in 2011–12, FDI averaged 40 percent of GDP and annual growth exceeded 15 percent; over the past decade, growth averaged 9 percent. - Oyu Tolgoi (OT) Phase 1 brought more than $6 billion (50 percent of GDP) in investment during its first phase, with another $5 billion planned for the second phase; ongoing negotiations over Tavan Tolgoi (TT) could potentially yield $4 billion in investment over the next five years. - Per capita income has reached $4,000. Mineral wealth is estimated at $1 to $3 trillion for a population of just 3 million. - Minerals account for 90 percent of all exports, and 90 percent of these are bound for China, leaving the economy highly vulnerable to shocks and prone to boom-bust cycles. - The real effective exchange rate (REER) appreciated by nearly 30 percent from mid-2009 to mid-2013 (later reversed), and non-commodity exports have performed weakly. ### Recent shocks and policy response - FDI related to OT slowed as Phase 1 completed and OT-2 became subject to a dispute between Rio Tinto and the government; a moratorium on new mining exploration licenses introduced in 2010 (since reversed) also hurt investment. - FDI fell by half in 2013, and again in 2014. - Coal prices are down almost two-thirds from their 2012 peak and volumes are down 8 percent; copper prices have also fallen sharply; declines partially offset by falling oil prices. - Authorities pursued expansionary fiscal and monetary policies: during 2012–14, combined on- and off-budget public capital expenditure averaged nearly 15 percent of GDP; the consolidated deficit averaged nearly 10 percent; debt surged to more than 75 percent of GDP, most of it external and nonconcessional. - Monetary policy was loosened: policy rate cut by 275 basis points; easing programs amounting to 20 percent of GDP were introduced (at an average cost to banks of 4 percent while the policy rate was 10½ percent). - Credit growth surged to 54 percent y/y by end-2013, keeping GDP growth above 11 percent and the current account deficit at around 25 percent of GDP, contributing to banking asset-quality deterioration. ### Balance of payments and reserves - Reserves fell from more than $4 billion (almost 6½ months of imports) in early-2013 to $1¼ billion (two months) after drawing from a swap line provided by the People’s Bank of China (PBOC). - The currency weakened against the U.S. dollar by almost 15 percent over the past year—and by more than 40 percent since 2013—contributing to inflation in double digits during most of 2014. - Mongolia suffered sovereign rating downgrades and sharply widened spreads. ### Medium-term prospects conditional on reforms - With OT-2 coming into production within 5 years, Mongolia should be in a position to start running large fiscal surpluses and accumulating savings for future generations (conditional on OT-2 realization). ### Key vulnerabilities - Narrow export base, heavy China dependence, elevated external financing needs, large and rising public debt, asset-quality weaknesses in banks, and exposure to commodity price and FDI shocks. ### Annex references (topics noted) - Annex I: Economic Impact of Mongolia’s Natural Resource Endowments. - Annex II: External Sector and Exchange Rate Assessment. - Annex III: Development Bank of Mongolia. ### Recent political context - New government took office in November 2014 with a grand coalition; steps taken to strengthen fiscal, monetary, and other policies; general elections scheduled for mid-2016. --- ### Recent Developments and Outlook - Growth slowed from 11½ percent in 2013 to 7¾ percent last year. - Consumption grew nearly 9 percent, reflecting continued loose policies. - Growth expected to slow further to around 4 percent during 2015-17 as OT-1 enters a relatively mineral-poor layer, then pick up sharply, particularly from 2020 when OT-2 enters production. - Inflation peaked at over 15 percent in July 2014 and remains substantially above the 7 percent target. - Exports increased largely due to OT-1 production beginning mid-2013; equipment imports decreased sharply reflecting lower FDI; other imports remained robust driven by consumption and building materials. - A trade surplus was registered in 2014, but the overall balance of payments stayed in substantial deficit due to service outflows related to OT and weak FDI. - At end-2014, gross reserves at the BOM amounted to 3¼ months of imports, equivalent to 75 percent of short-term debt, 29 percent of broad money, and 62 percent of the IMF’s risk-based metric. - On existing policies (baseline scenario in Tables 1–4): - Exports likely to weaken for a few years as OT faces unfavorable geological conditions; imports expected to rise when OT-2 construction starts. - Rolling over maturing public- and private-sector debts may be difficult (around $2 billion in 2017 alone, excluding the PBOC swap line which also matures that year). - With continued easy macroeconomic policies, the current account deficit should average 15 percent of GDP over the medium term. - Staff analysis suggests the currency is overvalued by 10 to 15 percent (see Annex II). - Overall BOP expected to remain in substantial deficit through 2017, implying continued pressure on reserves and the exchange rate. ### Fiscal and debt outlook - On-budget structural deficit was 4¼ percent of GDP in 2014, exceeding the Fiscal Stability Law (FSL) limit of 2 percent. - DBM spending outside the budget pushed the consolidated deficit to 11 percent of GDP. - 2015 supplementary budget brought much of DBM spending on-budget and targets a combined deficit of 5 percent; this depends on several unrealistic assumptions and excludes 2½ percent of GDP in “commercial” DBM spending that staff consider fiscal. - Overall deficit expected to approach 10 percent of GDP in 2015, only slightly down from 2014. - Authorities are considering additional expenditure cuts on the order of 5 percent of GDP, which could move accounts toward staff’s “adjustment scenario.” - Public debt: - Authorities’ definition (NPV terms, excluding PBOC swap drawings): 55 percent of GDP at end-2014, above FSL’s 40 percent limit. - Staff definition (nominal terms, including PBOC swap): public debt reached 76½ percent of GDP in 2014 and is expected to peak at 92½ percent of GDP in 2017 before declining as mining growth picks up. - Accompanying DSA: key debt indicators exceed relevant thresholds for a few years; Mongolia assessed at high risk of debt distress. ### Monetary and banking developments - BOM hiked the policy rate by 250 basis points to 13 percent; this is within the range suggested by a Taylor-rule analysis and substantially positive in real terms. - Reserve money growth close to zero due to decline in NFA; structural liquidity is tight. - Credit growth slowed to 23 percent y/y at end-2014 (including securitized mortgages). - NDA growth on BOM balance sheet substantial due to increasing net credit to government and unconventional easing programs; further tightening needed given inflation and BOP pressures. - Banking sector: - Banks’ balance sheets doubled in two years due to BOM stimulus programs. - Foreign currency lending was substantial (a quarter of banks’ loans). - Reported NPL ratio 3.1 percent, but NPLs and loans past-due by less than 90 days rose by 48 percent and 131 percent y/y, respectively, in 2014. - Asset-quality problems likely understated due to inadequate classification of restructurings. - Stress tests indicate some banks vulnerable; capital buffers should be strengthened. ### Risks - Downside risks dominate: elevated BOP pressure; delay of OT-2 could slow growth and worsen external and fiscal indicators; banking-sector deterioration; a further slowdown in China reducing export demand; surges in global volatility affecting external borrowing. --- ### Authorities’ Views - Authorities agreed the economy faced severe BOP shocks and argued the policy response stabilized the situation; some interlocutors viewed the countercyclical response as avoiding a BOP crisis, credit crunch, and contraction. - Authorities had a more benign outlook than staff, expecting their policy responses combined with additional borrowing from international markets and donors to turn the situation around. - Authorities noted that about 50 percent of DBM spending (including projects with government guarantees) was included in the budget and argued that DBM commercial spending should not be included. --- ### Policy Discussions - Comprehensive policy adjustment urgently required to address external and fiscal imbalances and stabilize the economy. - Key elements: fiscal and monetary tightening, exchange-rate flexibility, strengthened policies on investment, social protection, and banking. Summary of Key Policy Recommendations - Budget / DBM: - Cut consolidated deficit to 4½ percent of GDP in 2015 and to around 2 percent by 2017. - Consolidate all DBM spending into budget and strengthen DBM governance. - Monetary: - Slow credit growth. - Transfer unconventional easing programs to budget. - Limit deficit monetization. - Strengthen BOM governance. - Exchange Rate: - Keep exchange rate flexible. - Limit intervention to combating excessive volatility. - Investment: - Implement structural measures to boost investment. - Improve investment climate. - Move ahead with major mining projects. - Social Protection: - Ensure protection of the most vulnerable in society, including through enhanced income-targeting of subsidies. - Banking: - Enhance provisions and capital. - Strengthen supervisory framework. - Phase out forbearance. *IMF Staff Report: Chapter 1 — Real Sector Developments* ### 20. The authorities have taken policy steps in the right direction, but further measures are ### _cr15109 - 20. The authorities have taken policy steps in the right direction, but further measures are needed ### Fiscal policy and budget measures - 2015 Supplementary Budget: - Revised down the revenue target and cut expenditure; passed in January. - Non-commercial spending of DBM was brought on budget. - Consolidated deficit targeted at 5 percent of GDP. - This target "will be difficult to reach as revenues are still over-estimated." - Amendments to Fiscal Stability Law (FSL) and new Debt Management Law (DML) (February 2015): - Non-commercial DBM spending is brought onto the budget and included in the calculation of the structural fiscal deficit. - Structural fiscal deficit limits temporarily raised: 5 percent of GDP in 2015, 4 percent of GDP in 2016, and 3 percent of GDP in 2017; kept at 2 percent of GDP for 2018 and beyond. - Definition of debt narrowed from public to general government debt (SOE debt and government guarantees that are fully secured by government securities are excluded). - Debt limits temporarily raised: 58.3 percent in 2015, 55 percent in 2016 and 50 percent in 2017; remain at 40 percent for 2018 and beyond. - CMAP (Comprehensive Macro Adjustment Plan), approved February 18, 2015: - Retains the target fiscal path in the supplementary budget. - Envisages phasing out the BOM’s Price Stabilization Program (PSP) and transferring remaining PSP loans to the government. - Does not comprehensively transfer all BOM easing programs (mortgages and financial support at commercial banks' request) to the budget. - Structural aims: strengthen social welfare, enhance investment climate, facilitate FDI inflows, promote exports, encourage import substitution. ### Staff-recommended macro policy package - Fiscal policy recommendations: - A new 2015 budget amendment to bring the consolidated deficit (including all DBM spending) down to around 4½ percent of GDP in 2015. - Deficit to continue falling to around 2 percent in 2017; possible movement toward fiscal surpluses a few years after that. - Staff do not support loosening the long-term deficit target in the FSL nor support the redefinition of debt in the DML. - Within the budget envelope, total DBM spending (commercial and non-commercial) limited to around 2½ percent of GDP in 2015 and declining thereafter. - Authority over the budget and the DBM (including “commercial” spending) to be unified in the Ministry of Finance; reporting consolidated; governance reforms for DBM recommended. - Capital expenditures viewed as very high in international comparison; substantial cuts appear possible. - Scope to cut current expenditure and raise revenue: phase out large, untargeted subsidies in favor of targeted programs (like food stamps); address growth in public wage bill; reduce procurement inefficiencies; make some social benefits taxable; increase customs duties. - Consider a budget law amendment to restrain Parliament’s ability to increase the aggregate budget envelope. - Monetary policy recommendations: - Tighten stance without delay, including by restricting deficit monetization. - Further slow credit growth after the harmful credit boom in recent years. - Transfer BOM’s unconventional programs (PSP, mortgages, financial support at banks' request) to the budget in a transparent manner with Parliamentary oversight. - Rule out unconventional easing programs targeting particular industries or providing financial support at banks' request; enhance open market operations to ensure sufficient liquidity. - Consider BOM governance reforms, such as giving Monetary Policy Committee members a vote on BOM decisions. - Exchange rate policy: - BOM to limit FX intervention to preventing excessive market volatility; allow more flexible exchange rate movements. - Strategy: contain sharp depreciation via adequate macro policies and limit intervention to addressing excessive volatility. - Scenario assumptions: - The scenario assumes that banking, structural, and social protection reforms are also undertaken. ### Expected macroeconomic impacts and financing needs - Under the adjustment scenario: - Growth would slow somewhat in 2015 given policy tightening. - Inflation would rise by a moderate amount for several years due to exchange-rate pass-through. - Fiscal adjustment would put public debt on a more sustainable path. - Imports would moderate. - Strengthened policies would support market confidence and facilitate rollovers of several large bonds maturing in 2015 and 2017 (a total exceeding $2 billion). - Foreign-exchange reserves would stabilize at around 1¾ months of imports for several years (before rising in 2019–20). - Reserves at this level are "substantially stronger than in the baseline but still lower than desirable," indicating need for additional financing to support the adjustment effort. - Current account note: - The current account deficit narrows in dollar terms relative to the baseline; but since the adjustment lowers GDP, the CAD in percent of GDP rises. - The CAD still worsens for a few years within the adjustment scenario on account of OT’s geological conditions and the start of OT-2 construction. ### Structural reforms and social policy priorities - Investment and growth: - Structural measures needed to boost investment and growth; enhanced effort needed to protect the poor. - CMAP includes objectives to reach agreement on OT and TT, appointment of a minister in charge of “mega projects,” and measures to increase investment, boost exports, and support import substitution. - Tax law amendments proposed to improve clarity and avoid conflicts in the judicial system with foreign investors. - Social protection: - Mongolia’s subsidies and transfers amount to some 8 percent of GDP; many are targeted by category rather than income. - Recommendation to target subsidies better to protect the poorest and most vulnerable. - Short-term: expand income-targeted food stamp program. - Medium-term: implement proxy means-tested subsidy programs currently under design expeditiously. - World Bank has done significant work; technical capacity exists to improve targeting. - Authorities’ views on targeting: - Income targeting of subsidies is controversial politically; Parliament rejected many measures in the first supplementary budget for 2015. - Authorities agree on need to protect the poorest despite cultural preferences for universal support to children and the elderly. ### Financial sector: risks and recommended reforms - Banking-system vulnerabilities: - BOM increased risk weights for unhedged FX loans in August 2014 and restored the 1-percent general provision for performing loans (only for new loans). - Loan classification relies heavily on days overdue rather than qualitative assessments; prudential treatment of restructured loans is weak. - Banking-system balance-sheet deterioration already observed; system vulnerable to further deterioration and hidden losses. - Provisioning and capital: - Current provisions (70 percent of NPLs) appear low given likely understatement of NPLs and inadequate treatment of restructured loans. - Current capital levels (e.g., system-wide Tier 1 ratio of 12.5 percent) are likely overstated. - Immediate measures needed to increase provisions and capital, particularly for the most vulnerable banks. - Independent asset quality review of major banks recommended. - Risk recognition and forbearance: - Eliminate forbearance and strengthen risk recognition. - Enhance asset-classification and provisioning regulations with stricter treatment and regular reporting of restructured loans. - Embed more qualitative and forward-looking assessments, including hedging capacity against FX risk. - Apply the 1-percent general provision to the entire stock of performing loans. - Discontinue forbearance vis-à-vis loans made under the PSP. - Raise capital requirements for systemically important banks: Tier 1 ratio should be increased to 10.5 percent. - Impose targeted additional capital requirements on banks with large concentrations (loan, deposit, and foreign exchange). - Move quickly to resolve non-viable banks if needed. - Supervisory and crisis-preparedness framework: - Legislative changes needed to secure BOM flexible powers for early intervention. - Turn CAMELS supervisory assessments into robust, forward-looking tools. - Empower the Supervisory Committee as the key decision maker. - Strengthen Financial Stability Council cooperation and expand it to include the Deposit Insurance Corporation. - Legal framework should prevent reversal of resolution actions, provide early and flexible intervention triggers, and safeguard against misuse of public funding. - Emergency liquidity assistance should be provided only to solvent and viable banks and priced at penalty rates. - AML/CFT: - Since 2011 FATF designation, Mongolia has strengthened its AML/CFT framework with IMF TA support and is no longer subject to FATF’s on-going global AML/CFT compliance process. - Authorities’ views: - Authorities welcomed staff suggestions; agreed recent tightening and prudential regulation tightening would help contain banking risks. - BOM agreed to devote further policy attention to monitoring and pre-emptive response; welcomed Fund TA recommendations for the Medium Term Supervisory Strategy. ### Other issues - Article VIII: - Two previously identified multiple currency practices relate to BOM’s calculation and use of reference exchange rates. No action is planned. ### Staff appraisal and authorities’ views on macro outlook - Staff appraisal: - Mongolia has significant resource wealth that could bring prosperity if managed prudently. - OT-2 exports could begin as early as 2020, boosting GDP and fiscal revenues. - Long-term solvency projected given strong projected mining revenues, but short-run liquidity pressures and financing challenges exist before mining inflows ramp up. - Loose macro policies contributed to current problems: off-budget spending, dramatic monetary easing, inflationary pressures, BOP strain, asset-quality problems in banking system, and weakened confidence. - Policy adjustment needed to tighten macro policies, improve fiscal position, and contain current account deficits; additional external financing would make adjustment less disruptive. - Need to strengthen banking system and improve subsidy targeting to protect the vulnerable. - Authorities’ actions and views: - Part of DBM’s spending has been brought on budget; consolidated fiscal deficit expected to decline in the year. - Government resolution to cut spending administratively envisaged; a second supplementary budget later in the year is planned. - BOM has hiked the policy rate twice, slowed PSP and mortgage lending, and proposed transferring existing stock of program loans to the government’s balance sheet. - Authorities are redoubling efforts to reach agreements on large projects and have introduced structural measures to boost exports and reduce imports. - Steps taken to strengthen banks and improve bank supervision and crisis preparedness. - Authorities see benefits of additional fiscal adjustment and intend to cut budget and DBM spending by around 5 percent of GDP and seek additional financing to bridge short-term BOP difficulties. - Authorities broadly share staff views on monetary policy phasing out unconventional programs; BOM envisaged transferring outstanding program loans to the government by end-June. - BOM considers PSP had achieved goals; sees mortgage program as beneficial and part of long-term saving policy; prefers central bank law changes only after economic improvement. - Authorities are "fully committed to the flexible exchange rate regime." *Source: IMF staff report excerpt (content unit: _cr15109 - 20).* ### 41. More, however, is needed: ### 41. More, however, is needed: ### Fiscal and macro framework - The fiscal path needs to be secured with Parliamentary approval for measures to control spending, both on-budget and off, as part of a coherent, medium-term macro framework. ### Central bank actions and monetary policy - The BOM should cease unconventional easing programs targeting particular industries or providing financial support at the request of commercial banks for their corporate clients, and should instead return to traditional central-banking functions; these programs should, if desired, by conducted by the government, competing with other spending priorities for funds within the budget. - The monetary stance should be tightened further, to control credit growth and support the BOP. - Foreign-exchange intervention should be limited to dealing with episodes of excessive volatility, and the exchange rate should be allowed to move flexibly. ### Banking sector and governance - Banks’ provisions and capital buffers should be bolstered, informed by an independent asset-quality review, and supervisory and crisis-preparedness frameworks enhanced. - DBM and BOM governance should be strengthened. ### Investment and social policy - The investment climate should be enhanced, and progress made on mega-mining projects, so as to boost FDI. - Especially important, social safety nets should be strengthened and better targeted. ### Outlook - With a comprehensive adjustment strategy in place, Mongolia will be well placed to realize its economic potential. Today’s challenges are serious but surmountable, and the country’s medium-term prospects remain strong. With prudent management, Mongolia should be able to raise adequate external financing in support of its adjustment policies and build reserve buffers, while safeguarding external and public debt sustainability. *Source: _cr15109 - 41. More, however, is needed:* ### 43. It is recommended that the next Article IV consultation take place on the standard 12-month ### _cr15109 - 43. It is recommended that the next Article IV consultation take place on the standard 12-month ### Recommendation - It is recommended that the next Article IV consultation take place on the standard 12-month cycle. ### Real sector: recent developments and projections (selected figures from baseline) - Real GDP growth (percent change): 2011 17.3; 2012 12.3; 2013 11.6; 2014 7.8; 2015 4.4; 2016 4.2; 2017 3.8; 2018 6.2; 2019 6.4; 2020 9.2. - Mineral real GDP growth (percent change): 2011 7.7; 2012 8.3; 2013 19.4; 2014 24.2; 2015 9.0; 2016 -0.5; 2017 -4.0; 2018 6.0; 2019 7.0; 2020 20.0. - Non-mineral real GDP growth (percent change): 2011 19.9; 2012 13.3; 2013 9.8; 2014 3.6; 2015 3.0; 2016 5.8; 2017 6.2; 2018 6.2; 2019 6.2; 2020 6.3. - Consumer prices (end-period; percent change, baseline): 2011 9.4; 2012 14.2; 2013 11.2; 2014 10.7; 2015 8.0; 2016 7.4; 2017 7.1; 2018 6.8; 2019 6.6; 2020 6.5. - Figure captions and notes: growth has dipped to single digits; inflation held at double digits until recently; market sentiment deteriorated with sovereign spreads rising and mining company stock prices slumping. ### Fiscal and monetary developments (selected figures) - General government: Total revenue and grants (percent of GDP, baseline): 2011 33.9; 2012 29.8; 2013 31.3; 2014 28.0; 2015 25.4; 2016 25.1; 2017 24.9; 2018 25.4; 2019 25.4; 2020 25.8. - Total expenditure and net lending (percent of GDP, baseline): 2011 37.9; 2012 38.9; 2013 40.2; 2014 39.0; 2015 35.2; 2016 32.9; 2017 31.6; 2018 30.6; 2019 29.7; 2020 30.0. - On-budget plus DBM balance (percent of GDP, baseline): 2011 -4.0; 2012 -9.1; 2013 -8.9; 2014 -11.0; 2015 -9.8; 2016 -7.8; 2017 -6.7; 2018 -5.3; 2019 -4.2; 2020 -4.2. - Total public debt (percent of GDP, baseline): 2011 32.7; 2012 51.3; 2013 67.3; 2014 76.5; 2015 81.5; 2016 87.6; 2017 92.6; 2018 89.1; 2019 84.9; 2020 80.1. - Domestic public debt (percent of GDP, baseline): 2011 9.1; 2012 12.3; 2013 21.1; 2014 21.6; 2015 25.6; 2016 25.2; 2017 32.3; 2018 30.8; 2019 28.8; 2020 26.1. - External public debt (percent of GDP, baseline): 2011 23.5; 2012 39.0; 2013 46.3; 2014 54.9; 2015 56.0; 2016 62.4; 2017 60.2; 2018 58.4; 2019 56.2; 2020 54.0. - Monetary aggregates (selected): Credit growth (percent change, baseline): 2011 72.3; 2012 24.1; 2013 54.3; 2014 23.3; 2015 16.2; 2016 15.5; 2017 16.0; 2018 16.3; 2019 16.9; 2020 17.1. - Reserve money growth (percent change, baseline): 2011 75.3; 2012 30.5; 2013 0.5; 2014 4.0; 2015 2.7; 2016 -0.9; 2017 8.3; 2018 8.1; 2019 10.2; 2020 10.4. ### External sector: recent developments and projections (selected figures) - Current account balance (including official grants, million US$, baseline): 2011 -2,759; 2012 -3,362; 2013 -3,192; 2014 -985; 2015 -1,379; 2016 -2,268; 2017 -2,447; 2018 -2,539; 2019 -2,164; 2020 -1,036. - Current account balance (percent of GDP, baseline): 2011 -26.5; 2012 -27.4; 2013 -25.4; 2014 -8.2; 2015 -11.1; 2016 -17.3; 2017 -17.6; 2018 -16.9; 2019 -13.2; 2020 -5.7. - Trade and exports (million US$, baseline): Exports 2011 4,817; 2012 4,385; 2013 4,269; 2014 5,775; 2015 5,155; 2016 4,916; 2017 4,491; 2018 4,795; 2019 5,569; 2020 6,751. - Mineral export (million US$, baseline): 2011 4,302; 2012 4,032; 2013 4,050; 2014 5,196; 2015 4,615; 2016 4,385; 2017 3,984; 2018 4,313; 2019 5,087; 2020 6,258. - Overall balance (million US$, baseline): 2011 364; 2012 1,497; 2013 -1,885; 2014 -594; 2015 -1,403; 2016 -260; 2017 -1,851; 2018 221; 2019 437; 2020 1,063. - Exchange rate and reserves: figures and charts indicate sharp drop of foreign exchange reserves, depreciation of the togrog, and strong REER appreciation in recent months with EBA-lite analysis suggesting the currency remains overvalued. ### Inclusive growth and social indicators (selected) - Figure notes: poverty remains widespread but has continued to decline; unemployment has declined on average 2007–14; inequality has been on the rise; inflation volatility is high, hurting the poor. - Human Development Index (HDI) and Doing Business: Mongolia scores relatively well in HDI and has a reasonably attractive business environment (Doing Business ranking among listed countries shown in chart). ### Baseline versus policy adjustment scenarios (selected comparisons) - Real GDP growth (percent change, baseline vs adjustment, selected years): - 2015: Baseline 4.4; Adjustment 2.9. - 2016: Baseline 4.2; Adjustment 4.2. - 2017: Baseline 3.8; Adjustment 3.9. - 2018: Baseline 6.2; Adjustment 6.5. - Consumer prices (end-period, percent): - 2015: Baseline 8.0; Adjustment 9.6. - 2016: Baseline 7.4; Adjustment 8.6. - Fiscal balances (On-budget plus DBM, percent of GDP): - 2015: Baseline -9.8; Adjustment -4.6. - 2016: Baseline -7.8; Adjustment -2.7. - Total public debt (percent of GDP, comparison snapshots): - 2015: Baseline 81.5; Adjustment 81.3. - 2020: Baseline 80.1; Adjustment 67.4. - Notes on policy adjustment assumptions (from Table 9): the policy adjustment scenario assumes bond rollover of maturing sovereign debt ($500 million), DBM debt ($580 million) and MMC bonds ($600 million), as well as TDB bonds ($414 million); the baseline scenario assumes no rollover of maturing bonds. ### Key charts and narrative signals (figure captions) - Real sector: growth decline driven by weak investment; consumption and investment contributions illustrated. - Fiscal/monetary: consolidated deficit large; record-high debt levels; reserve money growth slowed due to FX reserve loss; policy rate aligned with Taylor-rule range; nonperforming loans risen significantly. - External: current account improved on trade balance but FDI has dropped sharply and there have been large financial outflows; REER appreciated and currency may be overvalued per EBA-lite. - Scenarios: charts compare baseline and adjustment paths for Real GDP Growth, CPI Inflation, Fiscal Balance (On-budget plus DBM), Current Account Balance, Credit Growth, and Public Debt. *International Monetary Fund — Mongolia country chapter (tables and figures extracted).* ### Annex I. Economic Impact of Mongolia’s Natural Resource Endowments ### Annex I. Economic Impact of Mongolia’s Natural Resource Endowments ### Resource endowment and sector structure - Mongolia estimated to have "$1 to $3 trillion" worth of copper, gold, coal, oil, and other resources. - Population: "3 million". - Mining sector now accounts for "around 20 percent of GDP" and "close to 90 percent of exports". - Joint ventures between Mongolian companies (public and private) and multinationals account for a significant proportion of mining production. - Currently almost all production is for export; transport links—especially with China—are being substantially improved. ### Major projects - A. The Oyu Tolgoi (OT) copper and gold mine - Ownership: Government of Mongolia ("34 percent stake") and Turquoise Hill Resources (THR). Rio Tinto has a "50 percent stake in THR" and is project manager. - OT-1: first-phase open-pit mine began construction in 2010 with investment exceeding "$6 billion"; production commenced in 2013. - OT-2: underground second phase; associated FDI inflows estimated at "over $5 billion"; output will markedly increase once production comes on stream toward the end of this decade. - Delays: commencement of OT-2 delayed by negotiations over cost overruns in OT-1, outstanding tax issues, specification of activities, government permits, and social/environment issues. Both sides stated intention for the project to commence in 2015. - B. Tavan Tolgoi (TT) coal mine - Coal reserves estimated at "well over 6 billion tons". - Major existing producers: South Gobi Resources (THR has a "47.9 per cent interest") and Energy Resources (subsidiary of Mongolian Mining Corporation (MMC)). - Tender won by consortium including MMC, Shenhua Energy, and Sumitomo Corporation; negotiations on production modalities reported at an advanced stage. - Total investment in TT expected to be "$4 billion". - Business model: export of coal to China and third countries, with value added increased through domestic processing including washing and power generation. - Related investments include a new railway and a new power station that will supply power to OT and to China. ### Macroeconomic implications of mining development - Growth and development - Mongolian extraction costs among the lowest in the world; sector should be relatively unscathed from current price falls and may benefit as marginal producers exit. - Improved transport links and a new railway will reduce unit costs and improve export potential. - Agreement on duty-free access to Chinese ports will benefit exports to third countries. - Intention for more value-added processing to take place in Mongolia, creating potential for local employment growth and supporting GDP outlook. - Supporting the external position - OT-1 brought "$6 billion" of investment into a "$10 billion" economy over a few years; OT-1 led to a "30 percent y/y increase in mining exports". - OT-2 would bring in another "$5 billion" in FDI over the next few years; it would start production within a few years and, "even on conservative projections, mineral exports would increase by another 25 percent". - From 2017 to 2020, rapid growth would bring the public debt ratio down sharply, from "92½ percent of GDP" to "80 percent". - Current account deficit projected to narrow to "just 6 percent of GDP in 2020". - Even without OT-2, macroeconomic imbalances would still be reduced substantially; debt would begin to decline from 2018 albeit more slowly. - Sovereign liquidity and solvency - Despite acute liquidity problems and sovereign stress at present, Mongolia is described as solvent given strong projected mining revenues over the long term. - Assuming large projects commence in 2015, GDP growth and external accounts would allow debt to start to decline sharply after 2017. *Source: Annex I. Economic Impact of Mongolia’s Natural Resource Endowments — IMF staff analysis.* ### 4. An appeal to the MPIH framework does not change the conclusion that Mongolia’s ### 4. An appeal to the MPIH framework does not change the conclusion that Mongolia’s fiscal stance is currently too loose ### MPIH / PIH assessment and intergenerational implications - The PIH requires a surplus for the next fifty years or so (when resource revenues are strong) and a deficit only thereafter. - It is possible to construct an MPIH path that features the 10 percent deficits that are currently observed; however, to allow such frontloaded consumption: - the next generation would need to run substantially tighter fiscal policy to compensate—an unrealistic intergenerational social contract. - Figure A1 presents alternative paths for the overall fiscal balance over time, showing that MPIH frontloading implies large future surpluses and wealth redistribution across generations. ### FSF framework (Fiscal Sustainable Fund) findings - Observed deficits stem largely from heavy infrastructure spending, rather than from handouts/consumption. - If spending is devoted to investment, then under FSF paths no future payback period is needed and lifetime wealth is higher. - Even if the return on investment for properly selected and managed infrastructure projects could reach 25 percent in Mongolia, constraints on absorptive capacity and capacity to borrow would substantially lower this return when spending is as high as observed in the past few years. - An FSF path with more moderate frontloading delivers: - similar consumption (primary, current expenditure) but - higher wealth for every generation (relative to aggressive frontloading under MPIH/PIH). ### Fiscal rules and limits - Permanent FSL (fiscal structural limits) should not be adjusted to accommodate temporary large deficits. - Certain parameter constellations may support heavy upfront investment, but the fiscal balance would soon be expected to turn to substantial surplus, permitting buildup of a large sovereign wealth fund. - The FSL sets a single deficit limit for every year and should not be loosened for all years just to permit a short-lived increase in deficits. - There is little justification for raising the gross debt limit of 40 percent of GDP. - As wealth is accumulated, some gross debt may be needed for fiscal maneuverability, but this would presumably be a small amount. ### Key statistics and table summary (Table A1 highlights) - Table A1 reports implied balances under PIH for total resources at current prices of: - $ 3 trillion, $1.5 trillion, and $1.0 trillion. - Other numeric benchmarks and thresholds referenced in the analysis include: - current observed deficits of 10 percent (context: frontloaded consumption paths), - hypothetical infrastructure return up to 25 percent, - gross debt limit of 40 percent of GDP. *Source: IMF staff calculations (Table A1).* ### DSGE model–based analysis: A Sustainable Public Investment Path for Mongolia - Methodology: - Uses a DSGE model tailored to resource-rich small open economies (DIGNAR toolkit), capturing investment-growth nexus, investment efficiencies, and absorptive capacity constraints. - Model features: two types of households (including poor households with no access to financial markets), traded and non-traded sectors, a natural-resource sector, public capital subject to inefficiencies and absorptive constraints, government access to concessional, domestic, and external commercial debt, and a resource fund. - Fiscal adjustments via tax rates and government non-capital expenditures may be triggered to maintain debt sustainability. - Calibration and scenarios: - Model calibrated to Mongolia’s historical data and literature parameters. - Two public investment paths: - Fiscal consolidation path: government restrains public investment to manage debt. - Aggressive investment path: maintains currently observed investment levels to develop infrastructure and boost growth. - Each path is analyzed under: - Baseline scenario: Copper mining production increases from 0.2 million tons in 2013 to around 1 million tons by 2020 (second phase of OT); political constraints prevent raising consumption or labor taxes, so government relies on external commercial borrowing. - Adverse scenario: Resource revenues hit by a negative shock (e.g., further delay in OT-2, or a drop in copper prices similar to 2009). - Model findings: - The aggressive investment path substantially increases fiscal risk: - Faster growth relative to fiscal consolidation, but public debt—especially external commercial debt—rises substantially. - The adverse scenario exacerbates these risks. - Rapid investment quickly leads to investment inefficiencies (poor planning, higher-than-expected costs, bad governance, supply bottlenecks, lack of complementary infrastructure), underscoring the need for fiscal restraint. - Aggressive investment would put pressure on the external sector: - The togrog is currently overvalued and should be allowed to depreciate. - Aggressive investment would lead to overheating, increase the relative price of nontradables, widen the current account deficit, and impede the required real depreciation. - Conclusion from the model: - Frontloaded fiscal consolidation is needed. - Benefits of a comprehensive approach: enhancing absorptive capacity, managing natural resource wealth to avoid Dutch disease, and sustaining long-term diversification of growth. - Ambitious scaling up of public investment can generate higher non-mineral growth but poses substantial challenges to debt sustainability and macroeconomic stability. *Source: “From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia,” IMF staff (DSGE model results summarized).* ### Mongolia—risks of rapid credit growth (credit boom analysis) - Credit growth and banking indicators: - Credit grew by an average of 50 percent per year during 2011–13. - In 2013, growth was driven mostly by construction and real-estate loans following central bank easing programs. - Banking sector loan-to-deposit ratio rose to 123 percent in 2013. - Credit-to-GDP ratio was 57 percent in 2013 and rose to 61 percent in 2014 (including mortgage-backed securities). - Methodology to detect “bad credit booms”: - Three-step approach: assess medium-term credit trend via filtering techniques; compute credit gap (actual credit minus trend); evaluate whether credit gap exceeds thresholds indicating a “bad” credit boom. - Reference thresholds and methods: - Direct approach: 20 percent annual increase in the credit-to-GDP ratio as threshold (Dell’Ariccia and others, 2012). - HP filter, rolling HP, backward-looking rolling cubic trend, structural panel and other methods used; thresholds cited include absolute credit gap 2 percent of GDP, 4 percent of GDP, and relative 5 percent thresholds in various studies. - Empirical findings: - Mongolia experienced harmful credit booms in 2011 and 2013. - In 2013, credit exceeded its threshold in all methodologies, with equilibrium credit in 2013 estimated at around 50 to 55 percent of GDP. - The 2011 credit boom was about 3 to 5 percent of GDP higher than appropriate levels. - In 2014, credit remained above threshold level. - Cross-country comparison: - The Mongolian credit gap in 2013 was bigger than those of other countries in the region, remaining relevant compared with historical levels of peer income countries except Indonesia and Lao PDR. - Risks and evidence: - Excessive credit can propagate excessive demand, generate overheating, and trigger asset price bubbles, reducing competitiveness and widening external imbalances. - Rapid credit growth raises banking and broader financial-sector vulnerabilities via deterioration in asset quality. - Mongolia’s credit quality started to deteriorate since mid-2013 and liquidity tightened as reflected in a decreasing liquid asset ratio. - Historical outcomes of banking crises (Table A3 summary statistics, 1970–2011): - All: Output Loss 23.2 (percent GDP); Increase in Public Debt 12.1 (percent GDP); Fiscal Cost 6.8 (percent GDP); Peak NPLs 25.0 (percent of total loans). - Advance: Output Loss 32.4; Increase in Public Debt 23.6; Fiscal Cost 4.2; Peak NPLs 5.0. - Emerging: Output Loss 33.6; Increase in Public Debt 9.1; Fiscal Cost 8.3; Peak NPLs 29.5. - Developing: Output Loss 0.7; Increase in Public Debt 10.9; Fiscal Cost 10.0; Peak NPLs 35.0. *Source: IMF staff estimates and Hilbers, Otker-Robe, Pazarbabosioglu, and Johnsen (2005).* ### 20. The policy implications are clear: credit should be managed properly to sustain the ### 20. The policy implications are clear: credit should be managed properly to sustain the economy without risking a crisis. ### Credit boom policy implications and recommendations - Credit should be managed properly to sustain the economy without risking a crisis. - Major policy recommendations to deal with credit booms include fiscal, monetary, and macroprudential tools. - Policy coordination across different authorities and across borders may need to be strengthened. - Reference: Dell’Ariccia and others (2012) summarize the major policy recommendations to deal with credit booms. ### Mongolia: NPL and Liquid Asset to Total Asset ratio (chart summary) - Chart title: Mongolia: NPL and Liquid Asset to Total Asset Ratio (In percent) - Y-axis label note: NPL Ratio; Liquid Asset to Total Asset (RHS) - Numeric labels appearing on chart axis or grid: 10, 15, 20, 25, 30, 35 - Numeric labels appearing on chart series scale: 1.5, 1.7, 1.9, 2.1, 2.3, 2.5, 2.7, 2.9, 3.1, 3.3 - Sources: Mongolian Authority ### Annex VII. Policy Agenda for Strengthening the Banking Sector — Priority actions (timing indicated) Improve the accuracy of risk recognition and management - Restructured loans should be subject to a stricter prudential treatment and reported on a regular basis to the BOM (ST—within 18 months). - The 1-percent general provision coefficient should apply to the entire stock of performing loans (ST). - Discontinue the current explicit regulatory forbearance vis-à-vis the loans provided under the PSP (ST). - Implement a more structured and forward-looking assessment of the borrower’s condition, including its hedging capacity against foreign exchange risks (ST). - Perform a comprehensive asset quality review to assess comprehensively the real condition of the loan portfolio of banks (ST). Strengthen the resilience of banks - Increase the Tier 1 capital for SIBs to 10.5 percent from the current 9 percent (ST). - Require targeted capital increases (Pillar 2 - like) in the banks that have high-risk profiles due to borrower, depositor, and foreign currency concentrations (ST). - Increase the intensity of supervisory oversight of the vulnerable banks (ST). - Introduce a capital countercyclical buffer considering the specific circumstances of external shocks and economic cycles in Mongolia (MT—within 3 years). Improve the systemic oversight framework - Enhance the quality and frequency of macro-financial and supervisory stress tests (MT). - Enhance the BoM’s capacity to link forward-looking analyses to the assessment of banks’ capital adequacy and set bank-specific capital requirements (MT). Enhance the early intervention framework - Provide clear legal powers to the BOM to take prompt action to correct problematic situations, even in the absence of violations to regulations (ST). - Improve the CAMELS methodology to make it more robust and forward looking and reorient it as a supervisory tool for early identification and prompt corrective action (ST). - Define list of specific minor and major actions, relating them to the redesigned CAMELS factors (ST). - Enhance the Supervisory Department’s internal coordination and effectiveness, empowering the Supervisory Committee as the key decision maker (ST). Improve crisis contingency and management - The Financial Stability Council should execute a Memorandum of Understanding for crisis preparedness and management, and prepare a work program that includes contingency planning (ST). - Amend the Banking Law to explicitly forbid any court reversals of actions initiated as part of Provisional Administration and Receivership (MT). - Amend the Banking Law triggers for Provisional Administration and Receivership to provide more flexibility and timeliness in intervention (MT). - The ability to use budget financing for bank reorganization and the ability to return the intervened bank to original shareholders should be eliminated from the Banking Law (MT). ### Fund relations (selected factual details and numeric data) - Membership Status: Joined: February 14, 1991; Article VIII - General Resources Account: Quota 51.10 SDR Million Percent Quota 100.00 - Fund Holdings of Currency 52.88 103.49 - Reserve Position in Fund 0.14 0.27 - SDR Department: Net cumulative allocation 48.76 100.00; Holdings 42.93 88.05 - Outstanding Purchases and Loans: Stand-by Arrangements 1.92 3.75 (SDR Million Percent Quota) - Latest Financial Arrangements (approval, expiration, amount approved, amount drawn): - Stand-by: 04/01/2009 to 10/01/2010 — 153.30 (SDR Million) approved; 122.64 drawn - ECF: 09/28/2001 to 07/31/2005 — 28.49 approved; 12.21 drawn - ECF: 07/30/1997 to 07/29/2000 — 33.39 approved; 17.44 drawn - Projected Obligations to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Forthcoming Principal 2015: 1.92 - Charges/interest: 0.02 (2015), 0.00 (2016), 0.00 (2017), 0.00 (2018), 0.00 (2019) - Total: 1.93 (2015), 0.00 (2016), 0.00 (2017), 0.00 (2018), 0.00 (2019) ### Safeguards, exchange arrangement, and consultations - Safeguards assessment: update finalized in June 2009; recommendations included strengthening oversight mechanism, remove external audit qualifications caused by lack of access to central bank’s vaults, improve timeliness of audit completion and publication of financial statements. Auditors were granted access to vaults since end-2009. - Exchange Arrangement: On March 24, 2009, the BOM instituted a foreign exchange auction. De facto and de jure exchange rate arrangements are currently both classified as floating, though the de facto arrangement could potentially be reclassified to “crawl-like,” pending further observation (through end-May 2015). - Mongolia accepted obligations of Article VIII, Sections 2, 3, and 4 on February 1, 1996. - Multiple currency practices (MCPs): multi-price auction system MCP discussed; Executive Board approvals and extensions noted up to March 15, 2012; MCP remains unapproved. Official reference rate for government transactions creates market segmentation; Order #699 of the BOM issued on December 3, 2010 described. - Article IV Consultation: The 2013 Article IV consultation (IMF Country Report No. 14/64) was concluded by the Executive Board on November 15, 2013. Mongolia is on a 12–month cycle. ### ROSC, FSAP, and technical assistance - ROSC assessments undertaken: Data Dissemination (May 2001), Fiscal Transparency Module (November 2001), Fiscal update (May 2005), Data Dissemination (April 2008), Monetary and Fiscal Policy Transparency (September 2008), Banking Supervision (September 2008). - Recent Financial Arrangements: An 18-month Stand-by Arrangement equivalent to SDR 153.3 million (300 percent of quota) approved on April 1, 2009; final review completed September 8, 2010. - FSAP Participation: FSAP missions in May 2007, September 2007, November 2010; latest report published in May 2011 (IMF Country Report No. 11/107). - Technical Assistance in 2014-2015 (missions listed with departments and dates): - Medium Term Budget Framework (FAD), March 2014 and January 2015 - Banking supervision (MCM), January - February 2015 - External sector statistics (STA), May, June and October 2014 and February 2015 - Strengthening LTO (FAD), May, June, August and September 2014 and January 2015 - Treasury operations (FAD), March and October 2014 - Cash management (FAD), April 2014 - AML/CTF (LEG), October 2014 - SDDS assessment (STA), October 2014 - Price statistics (STA), October 2014 ### Resident representation - Resident representative position discontinued in September 2011; office remained open and managed remotely. As of April 2014, Mr. Neil Saker will take up his assignment as resident representative based in Ulaanbaatar. ### World Bank–IMF collaboration (selected points) - Close working relationship led by Ms. Chorching Goh (Lead Economist, GMFDR) and Mr. Koshy Mathai (Mission Chief). - Cooperation pertains to IMF surveillance, Development Policy Credits (DPC) and Country Partnership Strategy (CPS), banking system issues, structural reforms, and policy outreach. - Shared macroeconomic and structural reform priorities: - Promoting long-term growth and managing mineral wealth. - Macro-economic stability and strict adherence to the Fiscal Stability Law (effective 2013). - Monetary policy: phase out large monetary stimulus (price stabilization program, mortgage program, liquidity injection); strengthen monetary policy framework; maintain flexible exchange rate regime. - Protecting the poor: implement the 2012 Social Welfare Law to replace costly universal cash transfers with means-tested benefits. - Strengthening the banking system: improve bank regulation and supervision, risk disclosure and management, and strengthen the Mongolian Deposit Insurance Corporation. - Planned cooperation activities include ongoing analytical and advisory services, TA and operational engagement; selected expected delivery dates include June 2016 and April 2015 for specific products and ongoing missions (Article IV-Board Meetings: November 2013, April 2015; missions: April, June, September, and December 2014; February 2015). *Source: STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (Prepared by Asia and Pacific Department); March 19, 2015.* ### 2012. The CPS is prioritizing (i) transport, energy, and water supply infrastructure; (ii) access to ### _cr15109 - 2012. The CPS is prioritizing (i) transport, energy, and water supply infrastructure; (ii) access to ### CPS strategic priorities and 2014 Interim CPS adjustments - CPS priority areas: (i) transport, energy, and water supply infrastructure; (ii) access to education and health; and (iii) regional economic cooperation to support sustainable and inclusive growth of economy. - August 2014 Interim CPS 2014–2016 strategic adjustments (reflecting changed government priorities and AsDB focus on employment creation and economic diversification): - (i) inclusion of two additional sectors: agriculture, natural resources and rural development; and finance. - (ii) scaling up OCR resource allocations from $50m annually to $200m. ### 2015 financing offer and technical support - For 2015, AsDB offered loans of US$200 million (OCR) and US$72 million (ADF). - Additional support: technical assistance worth US$11 million and JFPR grant worth US$10. ### AsDB sectoral operations and planned interventions - Transport - Transport is the largest sector of AsDB operations in Mongolia. - Under CAREC (AsDB acts as Secretariat), AsDB is financing construction of the country’s two main international road corridors connecting Mongolia to the People’s Republic of China and the Russian Federation. - Travel times from Ulaanbaatar (UB) to the PRC border have recently come down from 20 hours to 7 hours. - AsDB supports harmonization of cross-border transport procedures under CAREC and development of logistics infrastructure and systems in Zamyn-Uud (border with the People’s Republic of China). - Planned support for a public transport system for UB based on bus rapid transit. - Urban Development - Improve living conditions and access to basic services (water, sanitation, heating) for poor people in urban areas including UB, provincial capitals, and smaller towns in the Gobi area. - Extend basic urban infrastructure and construct socio-economic facilities in peri-urban areas of UB to upgrade existing sub-centers for improved economic, housing, and employment opportunities, and reduced environmental pollution. - Recently approved Ger Area Development Programme: $320 million total, with $160m financing from AsDB, Euro 50m from the European Investment Bank, remainder financed by the Government. - Energy - Address insufficient and unreliable power and heating that are bottlenecks to growth. - Improve energy efficiency and capacity in UB by upgrading electrical transmission and distribution networks, increasing efficiency of existing energy sources. - Preparing to finance the country’s first major $1.3 billion public–private partnership to construct a new energy efficient combined heating and power plant in UB with proper emission reduction equipment. - Pilot application of renewable energy sources, including solar thermal heating in remote districts. - Education - Support government reforms and development across all subsectors (pre-primary, primary, secondary, tertiary, technical and vocational education and training). - Support reform of higher education, substantial financial support to modernize vocational training, and promote PPPs in pre-primary and primary education. - Health and Social Protection - Major investments to improve primary health services; support policy reforms and investments in hospital sector, drug and blood safety, and hospital hygiene. - Assisted government in introducing proxy means testing to target the poor, reform of several universal benefits, introduction of the food stamp program as the first poverty-targeted benefit, and passage of the amended Social Welfare Law in January 2012 legalizing the reforms. - Continued support to improve efficiency and transparency of social welfare and insurance service delivery. - Planned support to improve access to education, employment and health care for disabled persons. - Agriculture, Natural Resources and Rural Development - Support diversification through development of value chains for high-quality, locally made agricultural products and establishment of genuine Mongolian brands. - Support development of agro-processing companies and establishment of brands. - Support upgrading sanitary and phytosanitary measures to international standards. - Address sustainable growth challenges: grasslands desertification, water scarcity, climate change-related disasters. - Support sustainable management of natural resources (water, land, forests, and peatlands); water security and information management; protected area management; climate change adaptation; institutional strengthening; rural renewable energy and livelihood improvement. - Aim to strengthen natural disaster risk management. - Working with private sector banks, AsDB has made over $80m available for development of micro, small and medium enterprises, especially in agribusiness. - Finance - Almost 90% of registered businesses in Mongolia are SMEs; most have limited access to finance. - Expected outcome: increased use of more efficient financial intermediation by private sector enterprises and individuals to support diversification and employment creation, particularly in agriculture. - AsDB will help safeguard financial sector stability, improve access to finance for SMEs through support of financial infrastructure, and support long-term financing for infrastructure and green development. ### Key assessments and findings on macro-statistics (As of March 3, 2015) - General: Data provision to the Fund is broadly adequate for surveillance, but shortcomings exist in estimation of GDP and treatment of missing observations in price indices. Priority improvements: national accounts, price statistics, and migration of government finance statistics to a new methodology. - National Accounts - NSO compiles and publishes annual and quarterly GDP by production and expenditure approaches; estimates broadly in line with the 1993 SNA. - Annual GDP data available for 1990–2013. Constant price estimates use base year 2005. - Remaining weaknesses: estimation of capital formation, imputed rent estimates, estimation of GDP in constant prices, and coverage of the informal sector and small-scale activity (especially in services). - NSO finalizing supply-use table (SUT) for 2010 at current prices based on 2008 SNA; plans to implement SUT as integral part of annual compilation in current and constant prices. - SUT viewed as an important tool for improving national accounts estimates in Mongolia. - Price Statistics - CPI rebased in January 2008 with expenditure-derived weights from the 2005 Household Income and Expenditure Survey. - NSO publishes national CPI for Ulaanbaatar and 21 aimags since January 2008, and a housing price index since October 2008. - Improvements needed: expand sample to include more varieties and financial services and appropriate treatment of missing observations. - PPI published; major shortcoming is lack of imputation for missing prices—both temporarily and permanently missing. - Government Finance Statistics - Current compilation follows GFSM 1986 guidelines; authorities intend to adopt a migration path to GFSM 2001. - STA assists in compiling and disseminating monthly and annual (cash-based) general government series in GFSM 2001-based Statement of Sources and Uses of cash. - A 2015 GFS TA mission will seek to compile a complete annual (and quarterly) balance sheet and integrated presentation of stock and flows for consolidated general government using accrual (IPSAS-based) accounts maintained by the Ministry of Finance. - Mission will encourage reporting of public sector debt statistics (PSDS), which are not reported systematically to the World Bank for dissemination on the PSDS Website. - Monetary and Financial Statistics - BOM’s monetary and financial statistics conform to MFSM concepts and definitions; authorities implemented recommendations of latest MFS missions. - Improvements: proper classification of repurchase agreements, accrued interest, and financial derivatives. - Coverage expanded beginning February 2010 to include data of Savings and Credit Cooperatives (SCCs) that collect deposits; since May 2010 data for some other financial corporations (OFIs) disseminated in BOM’s Monthly Statistical Bulletin. - September 2009 mission recommended reconciling BOM and Ministry of Finance data on government financing and finalized standardized report forms for BOM and other depository corporations for publication in International Financial Statistics beginning November 2009. - July/August 2011 mission recommended using data of nonbank financial institutions (NBFIs), insurance companies, and securities companies reported to the Financial Regulatory Commission (FRC) in monetary statistics compilation; recommendation not implemented due to insufficient coordination among agencies. - Financial sector surveillance: Mongolia does not report Financial Soundness Indicators (FSIs) to the Fund for dissemination on the Fund website. - External Sector Statistics - BOM follows BPM5 framework and expects to begin compiling and reporting ESS using BPM6 during the first half of 2015. - Coverage of balance of payments broadened by extending ITRS to nonbank financial institutions and increasing number of direct reporting private enterprises. - Since May 2014, BOM produced 2012-annual international investment position data for submission to STA. - Priorities: (1) submit quarterly external debt statistics to the World Bank’s QEDS database in collaboration with the Ministry of Finance; (2) release first quarter data for 2014 using BPM6 framework; (3) assess State Registry Office’s enterprise database to ensure inclusion of enterprises with direct investment in BOM’s ESS surveys. ### Data standards, quality, and indicators - Mongolia participates in the General Data Dissemination System (GDDS). - A data ROSC mission visited Mongolia in September 2007 to update the May 2000 assessment; report published April 2008. - Selected observations from "Mongolia—Table 2. Common Indicators Required for Surveillance (As of February 25, 2014)" (dates and frequencies preserved as in source): - Exchange rates: 02/25/15 (Date of Latest Observation), 02/25/15 (Date Received), Frequency: D, Frequency of Reporting: D, Frequency of Publication: D. - International reserve assets and reserve liabilities of the Monetary Authorities1: 02/25/15 (Date of Latest Observation), 02/25/15 (Date Received), Frequency: D, Frequency of Reporting: D, Frequency of Publication: M. - Reserve/base money: 01/31/15 (Date of Latest Observation), 02/23/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M; Data Quality—Methodological soundness: O, LO, LO, LO; Data Quality—Accuracy and Reliability: O, O, O, O, LNO. - Broad money: 01/31/15 (Date of Latest Observation), 02/23/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M. - Central bank balance sheet: 01/31/15 (Date of Latest Observation), 02/23/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M. - Consolidated balance sheet of the banking system: 01/31/15 (Date of Latest Observation), 02/23/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M. - Interest rates2: 12/31/14 (Date of Latest Observation), 01/16/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M. - Consumer price index: 01/31/15 (Date of Latest Observation), 02/18/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M; Data Quality—Methodological soundness: O, LO, O, O; Data Quality—Accuracy and Reliability: LO, LO, LO, O, O. - Revenue, expenditure, balance and composition of financing3 — general government4: 12/31/14 (Date of Latest Observation), 01/16/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M; Data Quality—Methodological soundness: LO, LNO, LO, O; Data Quality—Accuracy and Reliability: LO, O, LO, LO, LNO. - Stocks of central government and central government-guaranteed debt5: 12/31/14 (Date of Latest Observation), 02/08/15 (Date Received), Frequency: A, Frequency of Reporting: A, Frequency of Publication: A. - External current account balance: 12/31/14 (Date of Latest Observation), 02/03/15 (Date Received), Frequency: M, Frequency of Reporting: M, Frequency of Publication: M; Data Quality—Methodological soundness: O, O, O, LO; Data Quality—Accuracy and Reliability: LO, O, LO, LO, LO. - GDP/GNI: 2014Q4 (Date of Latest Observation), 02/2015 (Date Received), Frequency: Q, Frequency of Reporting: Q, Frequency of Publication: Q; Data Quality—Methodological soundness: O, LNO, O, LO; Data Quality—Accuracy and Reliability: O, LO, LO, LO, LNO. - Gross external debt: 2014Q3 (Date of Latest Observation), 01/16/15 (Date Received), Frequency: Q, Frequency of Reporting: Q, Frequency of Publication: Q. - Footnotes (preserved as in source): explanations of items 1–8 as provided in the original table. ### Millennium Development Goals snapshot (selected figures preserved) - Employment to population ratio, 15+, total (%): 1995: 56; 2000: 57; 2010: 57 60 (note: source formatting shows "5760" for 2010/2012/13 sequence). - Employment to population ratio, ages 15−24, total (%): 1995: 38; 2000: 38; 2010: 30 33. - Primary completion rate, total (% of relevant age group): 1995: 75; 2000: 87; 2010: 114 130. - Adjusted net enrollment rate, primary (% of primary school age children): 1995: 81; 2000: 93; 2010: 99 98. - Immunization, measles (% of children ages 12−23 months): 1995: 85; 2000: 92; 2010: 97 97. - Mortality rate, infant (per 1,000 live births): 1995: 63; 2000: 49; 2010: 29 26. - Mortality rate, under-5 (per 1,000 live births): 1995: 85; 2000: 65; 2010: 36 32. - Prevalence of HIV, total (% of population ages 15−49): 1995: 0.1; 2000: 0.1; 2010: 0.1 0.1. - CO2 emissions (kg per PPP $ of GDP): 1995: 1.3; 2000: 1.0; 2010: 0.7. - Improved water source (% of population with access): 1995: 63; 2000: 68; 2010: 82 85. - Net ODA received per capita (current US$): 1995: 91; 2000: 91; 2010: 112 160. - GNI per capita, Atlas method (current US$): 1995: 460; 2000: 470; 2010: 1900 3770. - Gross capital formation (% of GDP): 1995: 26.8; 2000: 29.0; 2010: 40.8 61.4. - Population, total (millions): 1995: 2.29; 2000: 2.39; 2010: 2.71 2.84. - Source for table: World Bank, World Development Indicators database. *Source: IMF staff report content in _cr15109 (2015) as provided in the supplied content.* ### 3.43 during 2011-13. The relevant indicative thresholds for this category are: 40 percent for the NPV of debt-to-GDP rat ### _cr15109 - 3.43 during 2011-13. The relevant indicative thresholds for this category are: 40 percent for the NPV of debt-to-GDP rat ### A. Background - DSA framework and coverage: - This DSA is based on end-2014 debt data. - The fiscal year for Mongolia is January–December. - The DSA uses the LIC-DSA framework and a broad coverage of public debt, including: - general government debt, - Euro bonds issued by the Development Bank of Mongolia (DBM), - drawing of the PBOC swap line by the Bank of Mongolia (BOM), - borrowing by, and government guarantees for, SOEs. - Risk conclusion: - The DSA concludes that Mongolia faces a high risk of debt distress under the baseline scenario. - Key debt levels and indicators (end-2014 and related): - External public and publicly guaranteed (PPG) debt: more than 56 percent of GDP by end-2014. - Public debt: 77 percent of GDP at end-2014; will stay above the benchmark for almost the entire projection period (2015-2035). - Total external debt: rose to 170 percent of GDP. - On authorities’ definition (NPV terms, excluding PBOC swap drawings): public debt amounted to 55 percent of GDP at end-2014, in excess of the FSL’s 40 percent limit. - On staff’s estimate including BOM swap line and DBM activities: public debt amounted to 54.7 percent of GDP at end-2014. - Contributors to deterioration since 2013 DSA: - Substantial increase in domestic public debt and external PPG debt. - 2014 on-budget deficit: 4¼ percent of GDP compared to the FSL limit of 2 percent. - Off-budget DBM spending: 6¾ percent of GDP; consolidated fiscal deficit at 11 percent of GDP. - Exchange rate depreciation increased external debt relative to GDP. - Expansion of public debt coverage to include SOE borrowing and guarantees raised reported debt ratio by 8¾ percent of GDP in 2013. - Institutional changes: - Recent amendments to the Fiscal Stability Law (FSL) and a new Debt Management Law (DML) narrowed debt definition to exclude SOE borrowing and secured government guarantees; legal framework lays out path to bring deficit and government debt back to original limits. - Staff does not support narrowing public debt coverage or temporary increase of debt ceiling. - Composition of Public Debt (percent of GDP): - 2013 versus 2014: - Government External Debt: 32 / 31 - Government Domestic Debt: 12 / 14 - Government Guarantees (incl. DBM Debt): 6 / 12 - Non-Guaranteed SOE Debt: 9 / 7 - BOM Foreign Liability: 9 / 13 - Total Public Debt (% of GDP): 67 / 77 - Long-term outlook and near-term risk: - Resource wealth estimated at $1 trillion to $3 trillion. - Projected solvency given strong projected mining revenues in long term, but serious near-term liquidity pressures. - Estimated large BOP financing gap: about $2 billion over the next three years. - Assumption: 62 percent of the financing gap will be filled by government borrowing or debt with government guarantees. - Policy actions to date: - Part of DBM spending brought on budget; consolidated fiscal deficit expected to decline. - Authorities target deficit reduction to 5 percent of GDP this year and 2 percent by 2018 (excluding “commercial” DBM spending) — staff views this as unlikely on current policies. - BOM hiked policy rate twice, slowed PSP and mortgage lending, proposed transferring PSP loan stock to government balance sheet. - Credit growth remains above desirable levels. ### B. Debt Sustainability under Baseline Scenario - General trajectory: - Debt is not on an ever-increasing path under the baseline; both external and public debt scaled by GDP would fall after an initial period, but remain sensitive to external shocks. - Disputes surrounding OT-2 assumed addressed by end-2015 under baseline; further delays would dampen growth and raise fiscal risk, but debt would still trend down slowly. - External DSA key results: - Present value (PV) of external PPG debt: reached 57 percent of GDP by end-2014 (threshold: 40 percent). - PV of external PPG debt peak: 64½ percent of GDP in 2016; gradually moderate to below threshold in 2025 onwards. - PV of external PPG debt relative to exports: peak at 170½ percent in 2017; stay above the 150 percent threshold in about half of the projection period. - PV of external PPG debt relative to revenue: peak at 259¼ percent in 2017; decline to 113 percent in 2035; slight breach only in 2016–17. - Debt service indicators (debt service-to-exports and debt service-to-revenue): briefly breach thresholds several times (each time for just one year), including in 2017 and 2022 when Chinggis bonds mature. - Stress-test outcomes: - One-time 30 percent exchange rate depreciation: - PV of external PPG debt peak at 89½ percent of GDP in 2017; stay above threshold for almost entire projection period. - PV external debt-to-revenue peak at 359 percent; stay above threshold for seven years. - Debt service-to-revenue peak at 70percent in 2017; stay above its threshold until 2027. - One-standard deviation shock to non-debt creating BOP flows: - PV debt-to-exports peak at 235¼ percent in 2017; stay above threshold through whole projection period. - Debt service-to-exports would breach its threshold in 14 out of the 21-year projection period. - Historical scenario assessment: - Historical scenario (where key variables follow historical paths) is not deemed plausible because past FDI inflows peaked at more than $4 billion per year in 2011-12 but dropped to $542 million in 2014; even with OT-2 soon, FDI likely to peak at only $2½ billion. - Public DSA key results: - PV of public debt-to-GDP ratio: peaks at 95¾ percent of GDP in 2017; falls to 53 percent by end-2035. - This PV public debt ratio has been far above the benchmark (56 percent) and is expected to decline below the benchmark only in 2032 onward. - PV of public debt-to-revenue ratio: peaks at just below 400 percent in 2017; falls to just above 200 percent in 2035. - Debt service-to-revenue ratio: spikes several times; peaks at 71 percent in 2017 and hovers around 40 percent in most of the projection period. - Public debt could rise further if banks need recapitalization requiring fiscal resources. - Scenario sensitivity: - Alternative scenarios and bound tests show debt indicators sensitive to assumptions. - Scenario with primary balance fixed at 2014 level shows steadily rising debt ratios, indicating urgent need for fiscal consolidation. - OT-2 uncertainty: - If OT-2 delayed by three years: - PV of external PPG debt would peak at 70¾ percent of GDP in 2017 and decline to 27 percent of GDP at end of projection period. - PV of public debt would reach 103 percent of GDP and decline to 53 percent by 2035. - PV of external PPG debt would stay above its threshold for 10 years; most severe shock could cause ratio to peak at 98¼ percent of GDP in 2017. ### C. Debt Sustainability under Policy Adjustment Scenario - Policy package summary: - Fiscal: - All DBM spending brought on-budget. - Fiscal deficit reduced to 2 percent of GDP in 2017 onward. - Monetary: - BOM should cease unconventional easing programs targeting particular industries or involving direct lending to the private sector. - Return to traditional central-banking functions; if direct programs are desired they should be conducted by the government. - Monetary stance tightened to control credit growth; credit growth slows to about 12 percent (y/y). - Exchange rate policy: - FX intervention limited to episodes of excessive volatility; exchange rate allowed to move flexibly. - Growth and inflation: - Non-mining growth slows to 1 percent in 2015 then gradually picks up to 6½ percent over the medium term. - Real exchange rate assumed to depreciate by 4 percent per year in 2015-17 barring BOM intervention. - Inflation: 9½ percent in 2015, moderating to 6½ percent over time. - Balance of payments: - Current account deficit declines by about $800 million in the next three years compared to baseline. - No financing gap in the balance of payments; FX reserves stand at 1¾ months of imports by end-2017. - Improvements in debt dynamics: - PV of external PPG debt: peak at 63¾ percent of GDP in 2017; decline below threshold in 2023 (compared to 2025 in baseline). - Under adjustment scenario, PV debt-to-exports and debt-to-revenue do not breach relevant thresholds. - Debt service ratios still breach thresholds several times but by smaller margins than under baseline. - PV of public debt: peak at 83½ percent of GDP in 2017 (compared to 95¾ percent in baseline); falls to below benchmark in 2024 onward. ### D. Authorities’ Views - Authorities’ positions and concerns: - Doubt that the BOM swap line should be included in public debt; note that as a swap there is a counterpart asset in togrog. - Note that public debt as defined in the FSL does not include the central bank’s debt, and that public debt is calculated in NPV terms. - Their NPV calculation of public debt differs from staff’s estimate. - Budget includes only non-commercial activity of DBM, while staff include all DBM lending; staff’s estimates of fiscal deficit and debt are larger as a result. ### E. Conclusion - Overall assessment: - This DSA concludes that Mongolia suffers from high risk of debt distress. - External PPG debt has almost doubled from around 30 percent of GDP to just below 60 percent in the past four years. - Public debt stood at below 80 percent of GDP by end-2014 and could further increase given lax fiscal policy and loosening of borrowing limits offered by the DML. - Although debt indicators would decline steadily under the baseline, they would remain elevated for prolonged periods and are sensitive to shocks. - Policy implication: - More tightening of macro policies is needed to avoid building up excessive debt, manage balance-of-payments pressure, and reduce vulnerability to shocks. *Source: IMF staff DSA based on the Mongolia DSA (end-2014 data), March 19, 2015.* ### 18. The debt dynamics exhibit a high vulnerability to shocks and bound tests. External PPG ### _cr15109 - 18. The debt dynamics exhibit a high vulnerability to shocks and bound tests. External PPG ### Key findings on debt dynamics and vulnerability - The debt dynamics exhibit a high vulnerability to shocks and bound tests. - External PPG debt ratios would rise dramatically in the case of a sharp exchange rate depreciation or negative shocks to BOP inflows. - Public debt would be on an ever-increasing trajectory should the primary deficit remain at the level prevailing in 2014. - Total external debt, both public and private, has reached about 140 percent of GDP, and this has made the macro-financial stability highly susceptible to exchange rate movements and flucutation of BOP flows. ### Scenarios and stress triggers - Sharp exchange rate depreciation: would cause external PPG debt ratios to rise dramatically. - Negative shocks to BOP inflows: would cause external PPG debt ratios to rise dramatically. - Persistence of the 2014 primary deficit level: would put public debt on an ever-increasing trajectory. ### Key statistics - Primary deficit level reference year: 2014 - Total external debt (public and private): about 140 percent of GDP *Source: _cr15109 - 18. The debt dynamics exhibit a high vulnerability to shocks and bound tests. External PPG* ### 19. These risks call for immediate policy actions. Although some fiscal adjustment measures ### _cr15109 - 19. These risks call for immediate policy actions. Although some fiscal adjustment measures ### Immediate policy assessment and recommendation - These risks call for immediate policy actions. - Although some fiscal adjustment measures have been announced, they are not sufficient to safeguard macro-financial stability and to ensure debt sustainability in case of adverse shocks. - Staff suggests more pronounced policy tightening instead. - Under a policy adjustment scenario: - External debt indicators either do not breach their thresholds, or breach them with a smaller margin. - Public debt as a share of GDP would fall below the benchmark more quickly than under the baseline. ### Macroeconomic assumptions — Baseline scenario (authorities’ current policies) - General approach: - Assumes authorities’ current policies, including those proposed under the CMAP framework (but not the latest fiscal cuts that are under consideration). - Real sector: - It is assumed that OT-2 will start construction from late 2015 and begin operation in 2020. - Fiscal: - Authorities target the fiscal deficit at 5 percent of GDP for 2015, and aim to bring the deficit down to 2 percent of GDP by 2018. - Staff projection (reflecting unrealistic assumptions and need to reflect all DBM spending on budget): fiscal deficit to remain close to 10 percent of GDP in 2015, and gradually decline to 4 percent of GDP from 2019 onward. - Monetary: - BOM has raised the policy rate twice in recent months and scaled down some monetary easing programs; other unconventional programs have continued and expanded. - Staff project credit growth at about 16 percent over the medium term. - Balance of payments: - Current account deficit projected to average 13½ percent of GDP over the medium term, before OT-2 starts exports in 2020. - FDI would average about 2½ billion per year on account of OT-2 related investment. - In 2017, maturing debt of more than $1½ billion would exert heavy pressure on the BOP. - A large financing gap is expected to emerge; it is assumed about two-thirds of this gap will be filled by public borrowing. - Exchange rate: - Staff project a constant real exchange rate, along with declining reserves. ### Macroeconomic assumptions — Adjustment scenario (staff’s recommended tighter policies) - Adjustment scenario assumptions: - (i) Fiscal deficit, with all DBM spending brought on budget, is brought down to 2 percent of GDP from 2017 onward. - (ii) Unconventional easing programs at the BOM are transferred to the budget or discontinued altogether, and credit growth drops to 12 percent. - (iii) Exchange rate is allowed to move flexibly. - (iv) Market rollovers are easier. - With these assumptions, BOP financing gaps are closed. ### Debt dynamics, stress tests, and indicators (selected findings and projections) - Public and publically guaranteed external debt and public sector debt indicators are presented under baseline, historical, most extreme shock, and an adjustment ("Fix Primary Balance") scenario (figures referenced). - Selected numeric projections and historical data (as presented in tables and text; all numbers preserved exactly): - External debt (nominal) series excerpt: 99.3; 148.4; 187.8; 185.5; 187.8; 181.7; 173.3; 164.3; 153.8; 97.8; 58.5. - Of which: public and publicly guaranteed (PPG): 39.0; 46.3; 54.9; 56.0; 62.4; 60.2; 58.4; 56.2; 54.0; 37.9; 28.9. - Change in external debt: 38.6; 49.1; 39.4; -2.3; 2.3; -6.1; -8.4; -9.0; -10.5; -10.4; -2.5. - Identified net debt-creating flows: -17.7; 6.9; 10.8; -5.5; -7.8; -2.8; -10.5; -12.3; -20.1; -12.0; -1.6. - Non-interest current account deficit series excerpt: 25.7; 22.4; 2.7; 13.0; 11.6; 4.8; 10.5; 10.2; 9.6; 6.3; -0.3; 0.5; 4.2; 2.3. - Net FDI (negative = inflow) series excerpt: -35.9; -16.7; -4.5; -19.1; 14.2; -8.6; -17.8; -13.7; -17.1; -15.4; -12.1; -8.7; -4.2; -6.8. - Endogenous debt dynamics contribution series excerpt: -7.5; 1.2; 12.6; -1.7; -0.6; 0.7; -3.0; -3.2; -7.6; -3.9; -1.5. - PV of external debt series excerpt: 188.4; 186.7; 190.0; 184.9; 175.9; 166.5; 155.6; 98.0; 57.4. - PV of PPG external debt series excerpt: 55.6; 57.1; 64.6; 63.4; 61.0; 58.3; 55.8; 38.1; 27.8. - Debt service-to-exports ratio (in percent) series excerpt: 8.5; 16.3; 19.2; 26.1; 28.9; 54.1; 33.8; 31.6; 25.5; 34.6; 25.2. - PPG debt service-to-revenue ratio (in percent) series excerpt: 3.2; 7.5; 8.8; 12.5; 14.1; 49.1; 17.8; 18.1; 14.7; 25.8; 13.3. - Total gross financing need (Millions of U.S. dollars) series excerpt: -433.3; 2107.9; 1617.8; 1850.0; 1398.0; 2998.9; 1376.9; 1163.5; 316.7; 1638.6; 5469.7. - Key macroeconomic assumptions (selected): - Real GDP growth (series excerpt): 12.3; 11.6; 7.8; 10.8; 7.4; 4.4; 4.2; 3.8; 6.2; 6.4; 9.2; 5.7; 6.9; 5.8; 6.5. - GDP deflator in US dollar terms (change in percent) (series excerpt): 5.1; -8.6; -11.4; 3.9; 16.4; -0.5; 0.9; 2.1; 2.2; 2.1; 1.0; 1.3; 1.5; 1.8; 1.5. - Effective interest rate (percent) (series excerpt): 3.4; 3.2; 3.6; 2.1; 1.4; 3.5; 3.9; 4.2; 4.4; 4.4; 4.1; 4.1; 3.0; 3.1; 3.0. - Grant element of new public sector borrowing (in percent) series excerpt: -8.6; -13.8; -14.7; -2.4; -3.2; -4.0; -7.8; -6.7; -9.0; -7.5. - Government revenues (excluding grants, in percent of GDP) series excerpt: 29.7; 31.3; 28.0; 25.2; 24.9; 24.8; 25.3; 25.4; 25.7; 25.3; 24.6; 24.7. - Aid flows (Millions of US dollars) series excerpt: 44.0; 22.2; 34.6; 64.8; 46.6; 35.1; 36.1; 37.2; 38.3; 45.5; 68.3. - Grant-equivalent financing (in percent of GDP) series excerpt: -0.1; -1.1; -1.5; 0.0; -0.1; -0.1; -0.2; -0.3; -0.2. - Public sector debt (Table 2 excerpts): - Public sector debt (percent of GDP) series excerpt: 51.3; 67.3; 76.5; 81.5; 87.6; 92.6; 89.1; 84.9; 80.1; 67.0; 54.1. - Of which: foreign-currency denominated: 43.7; 50.1; 56.4; 56.0; 62.4; 60.2; 58.4; 56.2; 54.0; 37.9; 28.9. - Change in public sector debt: 18.7; 16.0; 9.2; 5.0; 6.1; 5.0; -3.5; -4.2; -4.9; -1.5; -0.8. - Primary deficit series excerpt: 8.2; 6.2; 7.9; 3.9; 3.8; 5.4; 2.8; 1.4; 0.2; -1.1; -0.6. - Revenues and grants (percent of GDP) series excerpt: 29.8; 31.3; 28.0; 25.4; 25.1; 24.9; 25.4; 25.4; 25.8; 25.4; 24.6. - PV of public sector debt (percent) series excerpt: 77.2; 82.7; 89.8; 95.8; 91.7; 87.1; 81.9; 67.1; 53.0. - Gross financing need series excerpt (percent of GDP): 10.3; 12.2; 16.0; 14.4; 12.0; 19.1; 11.4; 10.4; 9.4; 12.6; 9.9. ### Sensitivity and stress-test results (selected table highlights) - Table 3: Sensitivity Analysis for Key Indicators of Public Debt, 2015-2035 (selected outcomes) - PV of Debt-to-GDP Ratio (baseline and variants for selected years): Baseline 2015-2035 excerpt: 83; 90; 96; 92; 87; 82; 67; 53. - PV of Debt-to-Revenue Ratio 2/ (baseline excerpt): 325; 358; 385; 362; 343; 318; 265; 216. - Debt Service-to-Revenue Ratio 2/ (baseline excerpt): 353; 771; 444; 453; 950; 39 (table presents many scenarios; refer to listed numeric series). - Table 4: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-2035 (selected outcomes) - PV of debt-to-exports ratio (baseline excerpt): 57; 65; 63; 61; 58; 56; 38; 28. - PV of debt-to-revenue ratio (baseline excerpt): 123; 152; 170; 167; 151; 134; 135; 176. - PV of debt-to-GDP ratio (baseline excerpt): 227; 259; 256; 241; 230; 217; 150; 113. - Bound tests and shocks considered include: historical averages, less favorable financing terms, real GDP growth shocks, export value growth shocks, US dollar deflator shocks, net non-debt creating flow shocks, one-time 30 percent nominal depreciation in 2016. - Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) series: -14; -14; -14; -14; -14; -14; -14; -14. ### Key policy implications distilled from the staff analysis - Announced fiscal adjustments are inadequate to secure macro-financial stability and debt sustainability if adverse shocks occur. - Stronger fiscal consolidation (bringing deficit to 2 percent of GDP from 2017 onward with all DBM spending on budget) combined with monetary normalization (discontinuing or transferring unconventional BOM programs and lowering credit growth to 12 percent) and a flexible exchange rate would close BOP financing gaps and materially improve debt indicators. - Maintaining concessional financing and managing rollover risks are critical given maturing external obligations (notably maturing debt of more than $1½ billion in 2017). *Statement by the Staff Representative on Mongolia, April 3, 2015 — additional information summarized in the staff report.* ### 1. The most recent economic data have been broadly as envisaged. Inflation has ### _cr15109 - 1. The most recent economic data have been broadly as envisaged. Inflation has ### Recent economic developments - Inflation continued to moderate, dropping to 9¼ percent in February. - The economy registered a trade surplus in the first two months of the year, with exports up 27 percent over 2014, and imports down 25 percent, but the overall balance of payments remains in deficit. - Fiscal revenue has stayed weak, with collections in the first two months of the year accounting for 11 percent of the annual budget. - Exports have picked up with the first phase of the Oyu Tolgoi copper and gold mine now in operation; imports have started to taper off. - Risks to the outlook are to the downside, including possible difficulties securing major investment projects, a further slowdown in China, or a surge in global financial market volatility. ### Authorities’ policy intentions and fiscal measures - In a letter of March 26, 2015, authorities outlined commitments including a medium-term fiscal consolidation path and detailed recent policy efforts. - Fiscal targets: - The authorities are targeting a fiscal deficit of 5 percent of GDP in 2015, including the “non-commercial” spending of the Development Bank of Mongolia (DBM), and intend to reduce this gradually to 2 percent of GDP by 2018. - Civil-service wage policy: - Payment of civil-service wage increases—about ½ percent of GDP, and restricted to lower-income workers—linked to budget revenue performance and scheduled for the end of the year; authorities are also considering freezing DBM spending. - Price Stabilization Program (PSP) and DBM: - Remaining loans under the PSP will be transferred to the government balance sheet by end-June. - Working groups established to analyze future options for PSP and mortgage lending. - Comprehensive measures envisaged to strengthen DBM governance, including an independent assessment of DBM’s “commercial projects,” and bringing the DBM under supervision of the Bank of Mongolia (BOM). - Social protection: - Authorities consider measures to protect the most vulnerable a high priority and are considering options to strengthen the effectiveness of existing social programs with high impact on the poor (such as child allowances and food stamps). - Exchange-rate policy: - Authorities are committed to exchange-rate flexibility. ### Monetary, exchange rate, and macro-financial policy - Monetary policy stance: - The BOM has tightened policy: policy interest rate increased twice, 1.5 percentage points in July 2014 and 1.0 percentage point to 13 percent in January 2015. - Real interest rates are strongly positive; money and credit growth have slowed significantly. - Unconventional programs and PSP: - BOM considers unconventional measures, including the PSP, instrumental to achieving a soft landing and is phasing them out as planned. - Remaining PSP loans shall be transferred to the Government by the end of the 1st half of 2015; the process has commenced. - Government and BOM jointly examining the Sustainable Mortgage Financing Program. - Exchange rate regime: - BOM remains committed to a flexible exchange rate; intervention intended only to smooth excessive volatility. - Banking sector measures (BOM intentions over 2015–17): - Increase loan loss provisions. - Tighten requirements for recognition of nonperforming loans. - Increase minimum paid-in capital of banks. - Raise Tier-1 capital adequacy ratio (CAR) to 10½ percent for systemically important banks. - Incorporate PSP loans into banks’ CAR calculations. - Increase sectoral risk weights and impose additional capital requirements on banks with higher risk profiles. - Enhance supervisory and crisis preparedness frameworks. ### Balance of payments and external financing - Near-term BOP pressures persist due to low FDI and weak commodity prices alongside expansionary macro policies. - Baseline forecast indicates overall BOP could face a $1.4 billion financing deterioration in 2015. - Authorities are exploring external financing options, including extension of the BOM–PBOC swap facility; PBOC has reaffirmed commitment to continue the facility and willing to extend the swap line. - Authorities are engaging with international partners and may adjust import-intensive spending or fiscal policy if required. ### Structural reforms and investment climate - Authorities submitted draft amendments to simplify tax laws, reduce inconsistencies and ambiguities, and support non-mining business activity. - Proposed VAT amendments aim to reduce the informal sector, support small businesses, and simplify administrative procedures. - Measures being taken to improve DBM legal environment, governance, and to integrate non-commercial lending into the budget following an independent portfolio assessment. - Draft Law on Future Heritage Fund expected to be reviewed and passed during the 2015 Spring Session to ring-fence a portion of mining revenues and support counter-cyclical policies. ### Executive Board assessment and recommendations - Directors noted promising medium- to long-term prospects given natural resource wealth but substantial near-term macroeconomic challenges. - Directors welcomed authorities’ adjustment plans and urged further measures to: - Strengthen balance of payments and public finances. - Safeguard financial stability. - Strengthen social safety nets and protect the poor. - Fiscal recommendations: - Ambitious consolidation needed; scope for further cuts in public spending, including DBM, and measures to raise revenue and improve effectiveness of subsidies and social programs. - Passage of a supplementary budget including these measures was encouraged. - Monetary and financial sector recommendations: - Some monetary tightening recommended while ensuring adequate bank liquidity. - Central bank should limit deficit financing and enhance governance. - Banking sector: bolster provisions and capital buffers, eliminate forbearance, strengthen risk recognition, and enhance supervision and crisis preparedness. - Directors supported phasing out unconventional central bank easing and bringing DBM spending onto the budget. - Directors emphasized prudent management of natural resources for lasting growth and inter-generational equity. ### Key statistics (selected indicators as reported) - Inflation (end-period / consumer prices): 2011 9.4, 2012 14.2, 2013 11.2, 2014 10.7, 2015 Proj. 8.0 - Real GDP growth (percent change): 2011 17.3, 2012 12.3, 2013 11.6, 2014 7.8, 2015 Proj. 4.4 - Mineral growth: 2011 7.7, 2012 8.3, 2013 19.4, 2014 24.2, 2015 Proj. 9.0 - Non-mineral growth: 2011 19.9, 2012 13.3, 2013 9.8, 2014 3.6, 2015 Proj. 3.0 - General government revenue and grants (in percent of GDP): 2011 33.9, 2012 29.8, 2013 31.3, 2014 28.0, 2015 Proj. 25.4 - Expenditure and net lending (in percent of GDP): 2011 37.9, 2012 38.9, 2013 40.2, 2014 39.0, 2015 Proj. 35.2 - On-budget balance (incl. grants, percent of GDP): 2011 -4.0, 2012 -6.2, 2013 -0.9, 2014 -4.2, 2015 Proj. -4.0 - DBM spending (percent of GDP): 2012 2.8, 2013 8.0, 2014 6.8, 2015 Proj. 5.7 - On-budget plus DBM balance (percent of GDP): 2011 -4.0, 2012 -9.1, 2013 -8.9, 2014 -11.0, 2015 Proj. -9.8 - Broad money (percent change): 2011 37.7, 2012 18.8, 2013 24.1, 2014 12.5, 2015 Proj. 13.1 - Private credit (percent change) 1/: 2011 72.3, 2012 24.1, 2013 54.3, 2014 23.3, 2015 Proj. 16.2 - Current account balance (millions of US$): 2011 -2759, 2012 -3362, 2013 -3192, 2014 -985, 2015 Proj. -1379 - Current account (percent of GDP): 2011 -26.5, 2012 -27.4, 2013 -25.4, 2014 -8.2, 2015 Proj. -11.1 - Trade balance (millions of US$): 2011 -993, 2012 -1553, 2013 -1321, 2014 1002, 2015 Proj. 2844 - Exports (millions of US$): 2011 481, 2012 743, 2013 854, 2014 2695, 2015 Proj. 7715? (Note: exports row shows "48174385426957755155" in source table formatting.) - Imports (millions of US$): 2011 -5810, 2012 -5938, 2013 -5590, 2014 -4773, 2015 Proj. -4310 - Foreign direct investment (millions of US$): 2011 4620, 2012 4408, 2013 2098, 2014 542, 2015 Proj. 1069 - Total public debt (percent of GDP) 3/: 2011 32.7, 2012 51.3, 2013 67.3, 2014 76.5, 2015 Proj. 81.5 - Domestic debt (percent of GDP): 2011 9.1, 2012 12.3, 2013 21.1, 2014 26.1, 2015 Proj. 25.6 - External debt (percent of GDP): 2011 23.5, 2012 39.0, 2013 46.3, 2014 54.9, 2015 Proj. 56.0 - Togrogs per US$ (end-period): 2011 1396.4, 2012 1392.1, 2013 1659.3, 2014 1888.4 - Nominal GDP (in billions of togrogs): 2011 1317, 2012 4166, 2013 8819, 2014 11821, 2015 Proj. 84424315 (Note: nominal GDP row shows "1317416688191182184424315" in source table formatting.) 1/ Includes securitized mortgage loans. 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. Sources: Mongolian authorities; and IMF staff estimates. *Sources: Mongolian authorities; and IMF staff estimates.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15109.pdf_