{
  "title": "Tighter Fiscal Policy Can Help Mongolia Control Inflation",
  "publication": "IMF News, November 26, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/11/26/cf-tighter-fiscal-policy-can-help-mongolia-control-inflation",
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  "summary": "By working together but independently, the central banks and government can win the fight against inflation and foster economic stability and growth for years to come.",
  "authors": [
    "Angana Banerji",
    "Thomas Helbling November"
  ],
  "publishDate": "2024-11-26",
  "sections": [
    {
      "heading": "Background and context",
      "content": "- Article authors: Angana Banerji and Thomas Helbling.\n- Publication date: November 26, 2024.\n- Discussion at the Bank of Mongolia’s recent international conference marking its centennial highlighted alignment of monetary and fiscal policies to tackle high inflation.\n- Historical milestones cited:\n  - The Bank established a two-tier banking system in 1991.\n  - The fixed exchange rate was scrapped in 1993.\n  - Elements of an inflation targeting framework were introduced in 2013."
    },
    {
      "heading": "Inflation drivers and fiscal vulnerabilities",
      "content": "- Mining exports constitute about 90 percent of exports.\n- Nearly a third of government revenue comes from the mining industry.\n- Government spending often follows the business cycle in an economy deeply tied to global commodity markets, producing procyclical fiscal policies that fuel boom-and-bust cycles and surges in inflation.\n- Reliance on external borrowing reduced the domestic pool of debt securities available for monetary policy operations; planned domestic securities issuances were deferred, causing a sharp decline in available government securities for the Bank’s operations."
    },
    {
      "heading": "Monetary policy constraints and institutional issues",
      "content": "- The Bank of Mongolia’s journey toward full-fledged inflation targeting remains incomplete.\n- Two obstacles identified:\n  - A lack of operational independence for the Bank of Mongolia.\n  - Significant fiscal influence on monetary policy outcomes because of the large share of government in the economy.\n- Institutional specifics limiting autonomy:\n  - Parliament has constitutional authority over monetary, financial, and credit policy.\n  - Lawmakers approve the central bank’s inflation target and other monetary policy guidelines annually.\n  - The Bank is required to provide specific kinds of government-mandated lending to the private sector.\n- Operational workaround and risks:\n  - Unable to use government securities for monetary operations like most other central banks, the Bank has relied on issuing its own bills to absorb excess liquidity.\n  - The high interest costs of issuing its own bills are weakening the Bank’s balance sheet and could hinder monetary policy operations down the road."
    },
    {
      "heading": "Policy recommendations and prescriptions",
      "content": "- Grant the Bank of Mongolia greater independence from the government, including eliminating requirements for the Bank to provide specific kinds of government-mandated lending to the private sector.\n- Align fiscal policy with monetary policy objectives, especially when inflation is high:\n  - When inflation is high, fiscal policy should also be tighter to assist tighter monetary policy.\n  - Synchronization can prevent the central bank from having to raise interest rates to very high levels, reducing disproportionate burdens on borrowers and limiting risks to financial stability.\n- Implement countercyclical fiscal discipline:\n  - Avoid procyclical spending by sticking to fiscal rules.\n  - Maintain spending discipline during commodity booms to prevent overheating, keep inflation in check, and build fiscal buffers for downturns without imperiling debt sustainability.\n- Restart issuance of government domestic securities to:\n  - Help the central bank better manage liquidity.\n  - Develop the domestic debt market.\n  - Improve monetary transmission by establishing benchmark bond yields."
    },
    {
      "heading": "Key findings and implications",
      "content": "- Better monetary-fiscal coordination—working together but independently—can help win the fight against inflation and foster economic stability and growth for years to come.\n- In an economy heavily influenced by commodity market swings, the government shares responsibility for helping the central bank achieve its inflation objectives.\n- A robust domestic securities market supports effective monetary operations and reduces reliance on central-bank-issued bills that strain the Bank’s balance sheet.\n\nAngana Banerji is a deputy division chief and Mongolia mission chief in the IMF’s Asia and Pacific Department. Thomas Helbling is a Deputy Director in the IMF’s Asia Pacific Department and oversees the IMF’s work on Mongolia.\n\n---\n\n\n References\n\n- IMF STAFF VISIT SUMMARY\n- PRESS RELEASE\n- MONGOLIA AND THE IMF\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/11/26/cf-tighter-fiscal-policy-can-help-mongolia-control-inflation"
    }
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    "Authors: Angana Banerji, Thomas Helbling November",
    "Published: November 26, 2024",
    "Article authors: Angana Banerji and Thomas Helbling.",
    "Publication date: November 26, 2024.",
    "Discussion at the Bank of Mongolia’s recent international conference marking its centennial highlighted alignment of monetary and fiscal policies to tackle high inflation.",
    "Historical milestones cited:",
    "Mining exports constitute about 90 percent of exports.",
    "Nearly a third of government revenue comes from the mining industry.",
    "Government spending often follows the business cycle in an economy deeply tied to global commodity markets, producing procyclical fiscal policies that fuel boom-and-bust cycles and surges in inflation.",
    "Reliance on external borrowing reduced the domestic pool of debt securities available for monetary policy operations; planned domestic securities issuances were deferred, causing a sharp decline in available government securities for the Bank’s operations.",
    "The Bank of Mongolia’s journey toward full-fledged inflation targeting remains incomplete.",
    "Two obstacles identified:",
    "Institutional specifics limiting autonomy:",
    "Operational workaround and risks:",
    "Grant the Bank of Mongolia greater independence from the government, including eliminating requirements for the Bank to provide specific kinds of government-mandated lending to the private sector.",
    "Align fiscal policy with monetary policy objectives, especially when inflation is high:",
    "Implement countercyclical fiscal discipline:",
    "Restart issuance of government domestic securities to:",
    "Better monetary-fiscal coordination—working together but independently—can help win the fight against inflation and foster economic stability and growth for years to come.",
    "In an economy heavily influenced by commodity market swings, the government shares responsibility for helping the central bank achieve its inflation objectives.",
    "A robust domestic securities market supports effective monetary operations and reduces reliance on central-bank-issued bills that strain the Bank’s balance sheet.",
    "[IMF STAFF VISIT SUMMARY](https://www.imf.org/en/News/Articles/2024/10/14/mcs-mongolia-concluding-statement-of-the-2024-imf-staff-visit)",
    "[PRESS RELEASE](https://www.imf.org/en/News/Articles/2023/10/04/pr23335-mongolia-imf-executive-board-concludes-2023-article-iv-consultation-with-mongolia)",
    "[MONGOLIA AND THE IMF](https://www.imf.org/en/Countries/MNG)",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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