An International Monetary Fund (IMF) team led by Mr. Geoff Gottlieb visited
Mongolia from June 19 to 28, 2019, to conduct discussions for the 2019
Article IV consultations. At the conclusion of this visit, Mr. Gottlieb
issued the following statement:
“Mongolia’s growth rate recovered sharply since 2016. The
turnaround in real GDP growth was boosted by strong external demand for
Mongolia’s mineral exports, the resumption of the 2nd phase of
the Oyu Tolgoi copper mine and loosening monetary and credit conditions. In
addition, the government’s improving policy mix strengthened domestic
confidence.
“Mongolia is in a considerably stronger position than two years ago. Due to
booming tax revenues and relatively contained expenditures, the fiscal
balance has improved by 18 percentage points and public debt has fallen 13
percentage points to 75 percent of GDP (IMF definition). On external side,
the Bank of Mongolia has used the strong turnaround in exports and FDI to
increase net foreign exchange reserves by $3 billion since end-2016.
However, the benefits have not been shared widely with rising household
debt and still high poverty.
“Growth is likely to moderate due to slowing mineral demand and credit
growth. However, there is both upside potential and downside risks to
baseline projections. Mongolia’s narrow economic base leaves it exposed to
changes in external conditions. In addition, economic prospects depend on
continued budgetary and monetary discipline during the election cycle.
“Mongolia’s buffers are still insufficient to cope with downside risks. Past economic crises in Mongolia were typically due to a
combination of external shocks (e.g. a sharp fall in commodity prices) and
unsuitably loose fiscal and monetary policies. The results were higher
debt, lower reserves, and a more depreciated exchange rate. Notwithstanding
recent progress, Mongolia’s buffers remain insufficient to comfortably
absorb similar pressures.
“For sufficient debt reduction, Mongolia should target a primary balance of
at least 1 percent of GDP in 2019 and 2 percent of GDP thereafter. Tighter
monetary policy and macro-prudential measures can ensure credit growth
supports macro stability. Tighter supervision by the
Financial Regulatory Commission is necessary to rein in excessive non-bank
lending.
“Deep structural reforms will help reduce Mongolia’s susceptibility to
boom-bust cycles. Enhancing the fiscal rules framework is important to
protect fiscal discipline in coming years. Developing the transport
infrastructure will strengthen the export sector. A well- capitalized
banking system will be essential to finance young companies that generate
growth and jobs. Finally, re-orienting public spending towards health and
social protection will reduce poverty and ensure that the dividends of
higher growth are more widely shared.
“Regarding governance, the 2019 OECD-Anti-Corruption
Network Report highlights key priorities for reducing corruption. Enhancing
judiciary capabilities for commercial issues and a modern income and asset
declaration framework are particularly important. On environmental issues,
Mongolia is acutely vulnerable to climate change. A pasture tax and a
modern animal products industry can enhance Mongolia’s resilience and
diversification.
“With respect to the IMF-supported Extended Fund Facility, completion of
the 6th review remains delayed, pending completion of two prior
actions. First, a forensic audit of all capital raised related to the Asset
Quality Review is necessary to ensure that capital is consistent with local
regulations and best practice. And second, the Bank of Mongolia has
committed to take supervisory action to ensure banks raise all capital
requested as part of the AQR.
“The staff team met with the Speaker of Parliament, the Minister of
Finance, the Governor of the Bank of Mongolia, the Minister of Mining,
Minister of Food, Agriculture, and Light Industry, other senior government
officials, private sector representatives, and the financial community. The
team thanks the authorities for their cooperation, constructive dialogue,
and hospitality during its stay in Mongolia.”