IMF Executive Board Concludes 2023 Article IV Consultation with Mongolia
IMF News, October 4, 2023
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- Published: October 4, 2023
Economic performance and outlook
- Growth rebounded to 5.0 percent in 2022; strong mining sector activity and fiscal expansion are expected to help sustain robust growth in 2023.
- Nominal GDP (in USD million): 13,313 (2020); 15,286 (2021); 17,146 (2022); 18,782 (2023); 19,552 (2024); 19,648 (2025); 20,074 (2026); 21,122 (2027).
- Real GDP growth (percent change): -4.6 (2020); 1.6 (2021); 5.0 (2022); 5.5 (2023); 4.5 (2024); 3.5 (2025); (2026 and 2027 values not listed in source table).
Inflation and external position
- Headline inflation peaked in mid-2022 and gradually declined to 10.6 percent in June 2023.
- Core inflation also started to moderate.
- Consumer Prices (Avg; percent change): 3.7 (2020); 7.4 (2021); 15.2 (2022); 12.3 (2023); 12.0 (2024); 10.5 (2025); (2026 and 2027 values not listed in table).
- Consumer Prices (EoP; percent change): 2.6 (2020); 13.9 (2021); 13.2 (2022); 11.7 (2023); 12.8 (2024); 11.2 (2025); 9.8 (2026); 8.0 (2027).
- External position stabilized by late 2022 but remained weaker than implied by medium-term fundamentals and desirable policies.
- Gross official reserves (in USD million): 4,534 (2020); 4,366 (2021); 3,400 (2022); 3,005 (2023); 3,412 (2024); 3,692 (2025); 4,419 (2026); 5,112 (2027).
- Net International Reserves (NIR) (net of bank's FX deposits held at the BOM): 3,651 (2020); 3,612 (2021); 1,949 (2022); 1,695.6 (2023).
- Current account balance (percent of GDP): -5.1 (2020); -13.8 (2021); -13.4 (2022); -10.9 (2023); -12.6 (2024); -10.3 (2025); -9.1 (2026).
Fiscal developments and risks
- A supplementary budget for 2023, passed in June 2023, introduced large and permanent increases in wages, benefits, and pensions.
- The procyclical fiscal expansion is expected to boost growth initially but, with unchanged fiscal policies, inflation is expected to rise and remain above the Bank of Mongolia (BOM) target range over the medium term and external pressures could re‑emerge.
- Without consolidation measures, the overall fiscal balance is expected to deteriorate from a surplus in 2022 to a large deficit by 2024, placing public debt on an upward trend.
- General government debt (percent of GDP): 83.4 (2020); 67.7 (2021); 64.5 (2022); 59.1 (2023); 61.5 (2024); 63.3 (2025); 65.8 (2026).
- Domestic: 5.6 (2020); 4.4 (2021); 6.3 (2022); 6.0 (2023); 9.3 (2024); 12.6 (2025); 15.7 (2026).
- External: 77.8 (2020); 64.6 (2021); 60.1 (2022); 55.5 (2023); 54.0 (2024); 53.1 (2025); 51.8 (2026).
- Total revenue and grants (percent of GDP): 27.9 (2020); 32.8 (2021); 34.4 (2022); 34.7 (2023); 34.2 (2024); 34.3 (2025).
- Primary expenditure and net lending (percent of GDP): 34.6 (2020); 34.0 (2021); 32.3 (2022); 33.6 (2023); 34.9 (2024); 34.5 (2025); 34.1 (2026); 33.7 (2027).
- Overall balance (IMF definition) (percent of GDP): -9.2 (2020); -3.0 (2021); 0.7 (2022); -2.8 (2023); -2.5 (2024).
Executive Board assessment and key risks
- Executive Directors endorsed staff’s appraisal: Mongolia's economy has stabilized from a difficult position in 2022; China's reopening, government efforts to facilitate exports and rollover external debt, greater ER flexibility, and tighter domestic financial conditions contributed to stabilization.
- The full operationalization of OT’s underground copper mine in 2023Q1 was noted as a major economic milestone.
- Risks are tilted to the downside: high external debt, limited external buffers, dependence on imports and commodity exports, commodity price volatility, tighter global financial conditions, slower growth in China, and potential domestic policy slippages (including ahead of the June 2024 Parliamentary elections).
- Should coal export targets fall short, the economic implications could be significant.
Policy recommendations
- Fiscal consolidation and adherence to fiscal rules: an adjustment of 4 percent of GDP in 2023‒24 underpinned by fiscal reforms could help achieve an orderly resolution of macroeconomic and external pressures and improve debt dynamics; such adjustments would be in line with the stated intentions to adhere to the FSL.
- Fiscal reform priorities:
- Prioritize capital expenditures to projects with high returns and strong performance.
- Contain the wage bill by reversing pay supplements, holding real wages constant for a few years and gradually rationalizing civil servants.
- Reduce tax arrears and tax expenditures.
- Target social assistance and allow greater PIT progressivity.
- Undertake pension reforms.
- Monetary and external policy:
- BOM should continue to allow exchange rate flexibility and opportunistically accumulate GIR.
- Closely monitor external liability management plans of domestic entities and their ability to raise external financing and maintain credit lines.
- Government should repay DBM's external liabilities through new external borrowing and ensure enforcement of Mongolia's currency settlement law and SOE repatriation requirements.
- Financial sector and macroprudential policy:
- Tighten domestic financial conditions to contain inflation.
- Effectively enforce and harmonize macroprudential policies across banks and NBFIs to contain salary-based consumer lending.
- Permanently cease quasi-fiscal operations and transfer outstanding balances to the government without involving state-owned intermediaries.
- Increase offsite supervision, more frequent onsite supervision of D-SIBs, avoid regulatory forbearance, and align supervisory actions with BOM communications.
- Delay the end-2023 deadline for shareholder diversification to give banks more time to attract fit and proper investors; consider raising shareholder limits and aligning withholding and capital gains taxes with international norms.
- Align the AML/CFT framework with FATF requirements and enhance implementation for high-risk sectors and activities.
- Structural and governance reforms:
- Urgently enact and effectively implement the strengthened Investment Law to cut red tape.
- Accelerate the Minerals Law overhaul and modernize the insolvency framework.
- Enforce SOE governance reforms, resolve DBM's governance challenges, strengthen the judiciary, and approve the draft Whistleblower Law without further delay.
Selected economic and financial indicators (highlights)
- Real GDP growth (percent change): -4.6 (2020); 1.6 (2021); 5.0 (2022); 5.5 (2023); 4.5 (2024); 3.5 (2025).
- Exports of goods (percent of GDP): 52.5 (2020); 53.2 (2021); 57.5 (2022); 63.0 (2023); 59.3 (2024); 60.6 (2025); 61.0 (2026); 60.9 (2027).
- Imports of goods (percent of GDP): 39.3 (2020); 44.3 (2021); 50.3 (2022); 51.0 (2023); 49.7 (2024); 48.5 (2025); 47.5 (2026); 46.6 (2027).
- Copper prices (US$ per ton): 6,175 (2020); 9,317 (2021); 8,829 (2022); 8,404 (2023); 8,191 (2024); 8,225 (2025); 8,250 (2026); 8,271 (2027).
- Coal prices (US$ per ton) 1/: 74 (2020); 150 (2021); 123 (2022); 125 (2023); 110 (2024); 100 (2025).
- Gross national saving (percent of GDP): 17.3 (2020); 22.9 (2021); 26.5 (2022); 27.4 (2023); 23.1 (2024); 20.4 (2025); 18.9 (2026).
Press Release No. 23/335, October 4, 2023 — IMF Communications Department