Press Release No. 09/233

Press Release: IMF Executive Board Completes First Review Under Stand-By Arrangement with Mongolia and Approves US$39.4 Million Disbursement

June 24, 2009

The Executive Board of the International Monetary Fund (IMF) completed on June 23, 2009 the first review of Mongolia's economic performance under a program supported by an 18-month Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of an amount equivalent to SDR 25.55 million (about US$39.4 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 76.65 million (about US$118.2 million).

The SBA was approved on April 1, 2009 (see Press Release No. 09/110) for an amount equivalent to SDR 153.3 million (about US$236.4 million) or 300 percent of Mongolia's quota.

Following the Executive Board's discussion on Mongolia, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

“The Mongolian authorities’ strong policy implementation, supported by an exceptional access Stand By Arrangement with the Fund, is effectively stabilizing the economy in the face of the global crisis. The authorities are to be commended for their success in implementing the program to date. At the same time, there are still important challenges ahead, and efforts should focus on continued implementation of the reforms outlined in the ambitious economic program.

“The introduction of foreign exchange auctions, the continued commitment to a flexible exchange rate, and the skilled calibration of monetary policy have been instrumental in stabilizing market conditions. As inflation has come down and international reserve buffers have been built, the authorities’ recent monetary easing is appropriate. Moreover, private sector credit conditions remain tight, and there is probably space for a further gradual and cautious easing of monetary conditions in the coming months, including by providing liquidity to the financial system.

“The authorities’ success in containing the fiscal deficit is commendable, demonstrating the government’s commitment to rein in spending. Continued spending restraint will be needed to ensure that this year’s deficit target of 6 percent of GDP is achieved. In addition, to achieve the government’s fiscal goals for the year it will be important that lending to gold mining operations be repaid during the course of the year. The government should also proceed expeditiously on a comprehensive reform of the social transfer system to safeguard the poor through better targeting while lessening the fiscal burden of such programs.

“Strengthening the banking system remains a key priority. This includes pressing ahead with the reforms underway to strengthen supervision and the institutional framework that are critical for securing the health of the banking system over time.

“The authorities should be prudent in undertaking any new nonconcessional external borrowing, and carefully consider the costs, risks, and broader debt sustainability implications of such loans. This is especially true given that the prospects for donor support are good and should provide sufficient fiscal financing during the course of this year. To avoid contingent fiscal liabilities, the government should continue to refrain from guaranteeing external loans,” Mr. Kato stated.