An International Monetary Fund (IMF) staff team led by Mr. Geoff Gottlieb
visited Ulaanbaatar from January 24 to February 6, 2018 to conduct
discussions on the third review of the three-year Extended Fund Facility
(EFF) arrangement approved on May 24, 2017, in an amount equivalent to
SDR314.5054 million, or about US$434.3 million [1] (see
Press Release No. 17/193
).
At the conclusion of the visit, Mr. Gottlieb made the following statement:
“The economy is doing better than expected led by commodity exports and a
pick-up in domestic demand. Growth is now projected at 5.0 percent in 2018
and 6.3 percent in 2019. The government’s adjustment program, supported by
a $5.5 billion IMF-supported package, is showing positive results with the
successful roll over of external bonds maturing in 2017 and 2018, a $1.8
billion increase in reserves, and a sharp reduction in government debt.
These developments have resulted in a largely stable exchange rate, a fall
in interest rates, and have greatly improved the government’s debt service
schedule. Nevertheless, the growth outlook is subject to risks including a
fall in external demand for commodities and higher fuel prices. In light of
these risks and still limited buffers, fiscal and monetary policies should
remain prudent.
“Macro-economic performance under the program has been positive, with all
quantitative targets met by large margins. Fiscal results have been much
better than expected, supported by stronger revenues and tight expenditure
control. The overall fiscal deficit in 2017 was 1.9 percent of GDP compared
to the target of 10.6 percent and 17 percent in 2016. The authorities’
program for 2018 envisages continued prudence in the deficit, while
strengthening tax administration through new tax laws and improving
budgetary controls on concessions, public investment projects and the
operations of the Development Bank of Mongolia. The fiscal over-performance
has provided some room for adapting program policies including a rise in
civil service salaries in 2019 after several years of restraint.
“The authorities are moving ahead with the strengthening of the banking
system and it is crucial that the key steps are implemented as planned.
Important legal reforms including the Banking law and Bank of Mongolia law
have been passed, a new deposit insurance law is expected shortly, and
improvements to the regulatory and supervisory framework are under way. The
results of the comprehensive Asset Quality Review have been communicated to
banks individually and they are now in the process of preparing plans to
reinforce, where needed, their capital adequacy. A law on bank
recapitalization that delineates, in line with international best practice,
when public funds can and should be used will be introduced in coming
months. The authorities will also move ahead with putting in place an NPL
resolution framework that will allow for more rapid improvement in banks’
balance sheets.
“The authorities and the team have reached staff-level agreement on the
completion of the third review under the EFF arrangement, which is subject
to the approval of the IMF Executive Board.
“The team thanks the authorities for their cooperation, constructive
dialogue, and hospitality during its stay in Mongolia.”
[1] The dollar amount is calculated based on the SDR-dollar rate of May 24, 2017, equivalent to $425mn at SDR-dollar rate of 1.35274 as of February 27, 2017.