Press Release: IMF Executive Board Approves US$229.2 Million Stand-By Arrangement for Mongolia

IMF News, April 1, 2009

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Executive Board approved an 18-month Stand-By Arrangement for Mongolia in an amount equivalent to SDR 153.3 million (about US$229.2 million).
Upon approval, an amount equivalent to SDR 51.1 million (about US$76.4 million) becomes immediately available.
Remaining amount to be phased in, subject to quarterly reviews.
Total IMF resources made available under the arrangement equals 300 percent of the country’s quota.

Restore macroeconomic stability through fiscal, monetary and financial sector policies.
Protect the poor from the burden of the needed adjustment.
Outline a solid macroeconomic framework to provide the basis for the authorities to approach the broader international community for financial support.

Mongolia severely affected by the global financial crisis through a sharp reduction in prices of main mineral exports, notably copper.
Program aims to:
- Smooth Mongolia’s adjustment to the large terms-of-trade shock.
- Put the fiscal finances on a sustainable footing.
- Allow for a more flexible exchange rate.
- Address weaknesses in the banking system.
- Mitigate the impact of adjustment on the most vulnerable.
Fiscal policy centerpiece: significant adjustment in the fiscal stance to strengthen Mongolia’s finances and restore fiscal sustainability; seek a legislated framework for fiscal responsibility to limit procyclicality.
Monetary stance: safeguard international reserves, prevent an overshooting of the nominal exchange rate, and put inflation on a steady downward path; central bank has raised interest rates and contained liquidity.
Financial sector actions: taken one bank into conservatorship, clarified the blanket deposit guarantee scheme, and required other banks to raise their level of capital over time.
Social protection: aim to improve system of social transfers through better targeting to ensure the very poorest households are more fully protected while conserving fiscal resources.

Mongolia hit hard by global economic and financial crisis via a sudden drop in prices of main export commodities, most notably copper.
Mineral revenues:
- Accounted for more than one-third of budget revenues at the peak of the commodity boom in 2007.
- Expected to account for only 12½ percent of total revenues in 2009.
Growth and external position:
- Economic growth set to fall to around 3 percent in 2009 from 9 percent in 2008.
- Current account deficit expected to remain substantial, at around 6½ percent of GDP in 2009.
Financial conditions:
- Retranchement of credit; broad money has fallen by 14 percent since mid-2008.
- Banking system came under stress.

Fiscal policy:
- Seek to constrain the general government deficit to 6 percent of GDP in 2009.
- Fiscal adjustment centered primarily around expenditure restraint.
- Biggest savings from postponement of domestically financed capital expenditure plans.
- Additional savings from a wage and hiring freeze, cuts in some untargeted social allowances, and reductions in other purchases and goods and services.
- Stronger institutional framework to ensure a greater proportion of windfall copper revenues is saved to prevent future boom-bust cycles.
Monetary and foreign exchange policy:
- Strengthen international reserve position and calibrate monetary policy to prevent undue overshooting of the exchange rate and keep inflation on a downward path.
- New system of foreign currency auction introduced to provide a nondiscriminatory and transparent mechanism to sell foreign exchange allowing for market determination of the exchange rate.
Financial sector:
- Measures to strengthen the banking system by improving the framework for deposit guarantees and enhancing bank supervision.
Social protection:
- Improve the social safety net to protect the poorest (noting one-third of the population living below the poverty line).
- In collaboration with the Asian Development Bank and the World Bank, design a comprehensive overhaul of the existing untargeted system of social transfer programs to better target the very poor and increase support to poor households.

Arrangement amount: SDR 153.3 million (about US$229.2 million).
Immediate disbursement: SDR 51.1 million (about US$76.4 million).
IMF resources under arrangement: 300 percent of the country’s quota.
Mineral revenues projected share of total revenues in 2009: 12½ percent.
Growth: around 3 percent in 2009 (from 9 percent in 2008).
Current account deficit: around 6½ percent of GDP in 2009.
Broad money change: fallen by 14 percent since mid-2008.
General government deficit target for 2009: 6 percent of GDP.
Mongolia joined the Fund on February 14, 1991; quota of SDR 51.1 million (about US$76.4 million).

Press Release No. 09/110 — April 1, 2009