Mongolia: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, June 27, 2025
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- Published: June 27, 2025
Mission overview and key assessment
- IMF staff mission led by Mr. Tahsin Saadi Sedik conducted discussions in Ulaanbaatar during June 4–18, 2025.
- During 2023‒24, record-high coal exports and increased government spending led to buoyant economic activity, fiscal surpluses, successful debt rollovers, accumulation of foreign exchange reserves, and savings in the sovereign wealth fund.
- The resource boom is weakening amid rising risks: coal exports declined in recent months mainly due to falling prices, global uncertainty increased, and near-term outlook has become less favorable.
- Fiscal surpluses and debt rollovers helped reduce debt-to-GDP ratio from 64.5 percent in 2022 to 44.5 percent in 2024 (IMF staff definition).
- Rating agencies upgraded Mongolia’s sovereign credit rating to B+/B2; sovereign spread narrowed to historically low levels before volatility spiked amid global trade tensions.
- IMF staff’s SRDSF indicates a moderate risk rating compared to the high-risk rating in the 2023 SRDSF.
- The near-term outlook: commodity boom weakened in early 2025; coal export receipts declined sharply resulting in a sizeable shortfall in budget revenues, a further widening of the current account deficit, reduction in foreign exchange reserves, and increased depreciation.
- Credit growth and inflation remain high despite some recent moderation; inflation stands above the Bank of Mongolia (BOM)’s target band.
Policy priority and recommended policy stance
- Overarching policy priority: increase resilience to downside risks by restoring internal and external balances and preserving buffers via greater fiscal prudence, adherence to fiscal rules, tight monetary and macroprudential policies, and increased exchange rate flexibility.
- If downside risks materialize, significant and timely policy adjustments—particularly fiscal tightening—will be required to safeguard macroeconomic and financial stability.
Fiscal policy: findings and recommendations
- Current context:
- Sharp increase in public spending in 2023-24 (including wages and capital expenditures) produced a highly expansionary fiscal stance.
- Policy rate cuts, despite tightening of reserve requirements, fueled rapid credit growth, inflation pressures, a surge in imports, and a shift in the current account from surplus to deficit in 2024.
- Recommendations:
- Increase fiscal prudence and adhere to fiscal rules to restore balances and preserve buffers.
- Authorities plan to meet the structural fiscal balance target envisaged in the 2025 Budget and the recently approved medium-term fiscal framework through expenditure restraint; government needs to articulate detailed and credible measures.
- Safeguard social spending to protect the most vulnerable.
- Compliance with fiscal rules is critical; large investment projects should be implemented within the fiscal deficit and debt rules as defined in the Fiscal Stability Law.
- Reconsider the current tax package under discussion:
- Package includes positive elements (modernizing tax administration, broadening VAT base, introducing digital service tax, strengthening progressive tax structure).
- But it would result in a substantial and permanent reduction in non-mining tax revenues, increasing overall deficit and reducing fiscal space, hindering compliance with fiscal rules, and increasing budget vulnerability to volatile mining revenues.
- Some elements need further refinement to align with international best practices; Mongolia’s tax administration is not yet prepared for measures such as a progressive VAT.
- Recommend focusing reform efforts on strengthening non-mining revenue mobilization by streamlining tax incentives, collecting tax arrears, and implementing tax and customs administration reforms.
- Further reforms to mitigate fiscal risks:
- Improve targeting of social assistance.
- Prioritize mega projects according to availability of external financing and absorptive capacity.
- Strengthen coordination with subnational entities for general government fiscal discipline.
- Enhance legal frameworks governing SOEs and public-private partnerships.
- Strengthen Ministry of Finance capacity to monitor and mitigate fiscal risks.
- Address the Development Bank of Mongolia’s long-standing balance-sheet and governance issues promptly.
- Expand domestic debt issuance to establish a benchmark yield curve and reduce reliance on external borrowing.
Monetary and exchange rate policies
- Findings:
- Domestic financial conditions should remain tight to contain credit growth and inflation.
- Despite the policy rate hike in early 2025 and some recent moderation, inflation is expected to stay above the BOM’s target band over 2025–26.
- Recommendations:
- A further rate increase may be warranted if the recent decline in inflation reverses, including through exchange rate depreciation.
- Recalibrate reserve requirements—avoid excessive reliance on reserve requirements as they may incentivize banks to seek external funds with more than one year maturity (excluded from requirements), increasing BOM exposure to exchange rate risks through FX swaps with banks.
- Greater exchange rate flexibility to strengthen resilience to external shocks.
- BOM should pursue opportunistic accumulation of reserves when market conditions allow.
- Support a more effective exchange rate price-discovery mechanism by gradually reducing BOM’s role as intermediary and structural provider of FX to the market.
- Support development of domestic FX derivatives markets and phase out BOM’s role as dominant provider of FX hedging instruments to banks.
- Reforms to strengthen BOM’s effectiveness should be accelerated:
- Fully withdraw BOM from the subsidized mortgage program.
- Government should expedite transfer of the BOM's subsidized mortgage program and relieve BOM of its obligation to channel the newly established Savings Fund toward expansion of the mortgage program.
- Finalize and submit to Parliament proposed amendments to the central bank law aimed at strengthening BOM’s mandate, operational autonomy, and governance.
- Ministry of Finance and BOM need a memorandum of understanding outlining a gradual recapitalization strategy for the BOM consistent with fiscal sustainability.
Macroprudential and financial sector policies
- Recent actions and gaps:
- Recent tightening of macroprudential measures, including reduction of Debt-Service-To-Income (DSTI) limits for banks and NBFIs, is welcome.
- Ongoing transition toward a risk-based, forward‑looking supervisory approach is welcome.
- Recommendations:
- Align DSTI limit for NBFIs with that of banks.
- Expand BOM’s macroprudential toolkit to include countercyclical capital buffers, liquidity coverage ratios, and net stable funding ratios.
- Separate macroprudential and monetary policies in formulation and implementation.
- Monitor interconnections between banks and NBFIs.
- Amend BOM and Banking Laws to ensure greater legal protection for supervisors and more effective inter-agency information sharing and coordination.
- Strengthen crisis management arrangements and clarify resources available for resolutions.
- Enhance financial sector’s ability to lend to creditworthy entities to reduce cost of lending, especially to SMEs:
- Amend Credit Information and Insolvency Laws for more effective and timely credit assessment and collateral evaluation, and to streamline foreclosure and insolvency processes.
- Continue efforts to diversify bank ownership structures, which may require increasing ownership limits and allowing investment in multiple banks, alongside effective supervision of complex ownership structures to mitigate connected and related-party lending risks.
Structural policies and climate considerations
- Business climate and governance:
- Substantial state footprint and frequent regulatory changes dampen private sector initiative and discourage FDI.
- Reform priorities: reduce red tape, streamline licensing procedures, improve tax compliance and land use processes, ensure consistent and transparent judicial and regulatory enforcement.
- Strengthen public sector governance: address corruption vulnerabilities in revenue institutions, strengthen transparency and accountability of public procurement and SOEs, implement legislative reforms including the SOE Law and Whistleblower Protection Law.
- Mongolia has made satisfactory progress strengthening its anti‑money laundering and counter-financing of terrorism legal framework, though implementation challenges remain.
- Climate and energy transition:
- Climate adaptation and mitigation require significant investments and policy reforms due to increased frequency and intensity of natural hazards (harsh winters and floods), high carbon intensity, and air pollution.
- Preparations needed for expected decline in China’s coal demand as it advances energy transition and decarbonization.
- Implementation of Mongolia’s climate agenda remains limited: adaptation measures not fully integrated into sectoral policies and budget processes; no dedicated climate change law to mandate cross-sectoral coordination.
- Advancing climate objectives will require significant public and private financial contributions, underscoring importance of creating fiscal space.
Selected economic and financial indicators (highlights from Table 1)
- Real GDP growth (percent change): 5.0 (2022); 7.4 (2023); 4.9 (2024); 5.5 (2025); 5.3 (2026); 5.3 (2027); 5.3 (2028); 5.3 (2029); 5.3 (2030).
- Nominal GDP (in USD million): 17,146 (2022); 20,315 (2023); 23,586 (2024); … (2025 onward shown as projections).
- Contributions to Real GDP (ppts) — Domestic Demand: 11.4 (2022); 5.6 (2023); 21.2 (2024); 6.6 (2025); 4.4 (2026); 7.1 (2027); 7.2 (2028); 6.5 (2029); 6.2 (2030).
- Consumer Prices (Avg; percent change): 15.1 (2022); 10.4 (2023); 8.7 (2024); 6.4 (2025).
- Consumer Prices (EoP; percent change): 13.3 (2022); 8.2 (2023); 6.8 (2024).
- Copper prices (US$ per ton): 8,829 (2022); 8,491 (2023); 9,142 (2024); 8,981 (2025); 8,897 (2026); 8,983 (2027); 9,056 (2028); 9,122 (2029); 9,167 (2030).
- Coal prices (US$ per ton): 123 (2022); 131 (2023); 107 (2024); 68 (2025); 73 (2026); 72 (2027).
- Primary balance (IMF definition): 2.2 (2022); 4.3 (2023); 1.0 (2024); -1.0 (2025); -0.8 (2026); -0.7 (2027).
- Total revenue and grants (percent of GDP): 34.4 (2022); 39.2 (2023); 35.1 (2024); 33.6 (2025); 31.5 (2026); 31.2 (2027); 31.1 (2028).
- Primary expenditure and net lending (percent of GDP): 32.2 (2022); 30.3 (2023); 36.5 (2024); 34.1 (2025); 33.0 (2026); 32.5 (2027); 32.1 (2028); 31.8 (2029); 31.6 (2030).
- Non-mineral primary balance (in percent of GDP): -6.3 (2022); -5.7 (2023); -8.9 (2024); -7.4 (2025); -8.3 (2026); -9.4 (2027); -9.0 (2028); -8.6 (2029); -8.2 (2030).
- General government debt: 64.5 (2022); 45.9 (2023); 44.7 (2024); 46.8 (2025); 49.5 (2026); 51.5 (2027); 53.0 (2028); 53.7 (2029); 54.? (table continues—see full table for complete series).
- Broad money growth (percent change): 15.2 (2022); 13.4 (2023); 12.7 (2024); 11.7 (2025); 11.8 (2026); 14.1 (2027).
- Credit growth (percent change): 22.0 (2022); 25.0 (2023); 19.5 (2024); 15.5 (2025).
- Current account balance (percent of GDP): -13.4 (2022); 0.6 (2023); -10.5 (2024); -14.8 (2025); -13.1 (2026); -13.3 (2027); -13.0 (2028); -12.9 (2029); -12.7 (2030).
- Exports of goods (percent of GDP): 68.5 (2022); 62.5 (2023); 53.6 (2024); 53.5 (2025); 51.4 (2026); 47.9 (2027); 46.1 (2028); 45.? (table continues).
- Imports of goods (percent of GDP): 50.3 (2022); 46.2 (2023); 45.1 (2024); 44.2 (2025); 43.7 (2026); 42.9 (2027); 41.5 (2028).
- Gross official reserves (in USD million): 3,400 (2022); 4,922 (2023); 5,510 (2024); 4,566 (2025); 4,627 (2026); 4,669 (2027); 4,864 (2028); 5,045 (2029); 5,212 (2030).
- Net international reserves (NIR): -788 (2022); 1,152 (2023); 1,768 (2024).
- Exchange rate: Togrog per U.S. dollar (eop): 3,445 (2022); 3,411 (2023); 3,420 (2024).
IMF staff concluding statement of the 2025 Article IV mission to Mongolia, June 27, 2025.
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- 20250627 Mongolia Concluding Statement Mongolian