IMF Staff Completes 2019 Article IV Mission to Mongolia

IMF News, June 28, 2019

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IMF Staff Completes 2019 Article IV Mission to Mongolia

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Bibliographic details

• Published: June 28, 2019

Mission overview

• Press Release No. 19/251, June 28, 2019.
• IMF team led by Mr. Geoff Gottlieb visited Mongolia from June 19 to 28, 2019 to conduct discussions for the 2019 Article IV consultations.
• End-of-Mission statements convey preliminary findings of the IMF staff team; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Recent economic developments and outcomes

• Mongolia’s growth rate recovered sharply since 2016, supported by:
  • Strong external demand for Mongolia’s mineral exports.
  • Resumption of the 2nd phase of the Oyu Tolgoi copper mine.
  • Loosening monetary and credit conditions.
  • An improving government policy mix that strengthened domestic confidence.
• Fiscal and external improvements:
  • Fiscal balance improved by 18 percentage points.
  • Public debt has fallen 13 percentage points to 75 percent of GDP (IMF definition).
  • Bank of Mongolia increased net foreign exchange reserves by $3 billion since end-2016.
• Distributional concerns:
  • Rising household debt.
  • Poverty remains high despite years of rapid economic growth.

Risks, outlook, and buffers

• Growth prospects:
  • Growth is likely to moderate due to slowing mineral demand and credit growth.
  • There is both upside potential and downside risks to baseline projections.
  • Mongolia’s narrow economic base leaves it exposed to changes in external conditions.
  • Economic prospects depend on continued budgetary and monetary discipline during the election cycle.
• Buffers and historical vulnerability:
  • Mongolia’s buffers are still insufficient to cope with downside risks.
  • Past crises typically combined external shocks (e.g., a sharp fall in commodity prices) and unsuitably loose fiscal and monetary policies, resulting in higher debt, lower reserves, and a more depreciated exchange rate.

Key numerical policy guidance

• Debt reduction target:
  • Mongolia should target a primary balance of at least 1 percent of GDP in 2019 and 2 percent of GDP thereafter.
• Monetary and financial sector stance:
  • Tighter monetary policy and macro-prudential measures recommended to ensure credit growth supports macro stability.
  • Tighter supervision by the Financial Regulatory Commission necessary to rein in excessive non-bank lending.

Structural reforms and policy priorities

• Fiscal framework and public spending:
  • Enhance the fiscal rules framework to protect fiscal discipline in coming years.
  • Re-orient public spending towards health and social protection to reduce poverty and ensure broader sharing of growth dividends.
• Financial sector:
  • A well-capitalized banking system is essential to finance young companies that generate growth and jobs.
• Infrastructure and diversification:
  • Developing transport infrastructure will strengthen the export sector.
  • Upgrading agriculture policies and developing a modern animal products industry can enhance resilience and diversification.
  • Introduce a pasture tax as part of environmental and resilience measures.
• Governance and judiciary:
  • 2019 OECD-Anti-Corruption Network Report highlights priorities for reducing corruption.
  • Enhance judiciary capabilities for commercial issues.
  • Implement a modern income and asset declaration framework.

IMF-supported program status

• Extended Fund Facility (EFF):
  • Completion of the 6th review remains delayed, pending completion of two prior actions:

1. A forensic audit of all capital raised related to the Asset Quality Review to ensure capital is consistent with local regulations and best practice. 2. The Bank of Mongolia’s commitment to take supervisory action to ensure banks raise all capital requested as part of the AQR.

Meetings and acknowledgments

• Staff team met with:
  • The Speaker of Parliament.
  • The Minister of Finance.
  • The Governor of the Bank of Mongolia.
  • The Minister of Mining.
  • The Minister of Food, Agriculture, and Light Industry.
  • Other senior government officials, private sector representatives, and the financial community.
• The team thanked the authorities for their cooperation, constructive dialogue, and hospitality during its stay in Mongolia.

IMF Communications Department, Press Release No. 19/251, June 28, 2019.

References

• Mongolia and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home