Press Release No. 09/316

Press Release: IMF Executive Board Completes Second Review Under Stand-By Arrangement with Mongolia and Approves US$24.2 Million Disbursement

September 21, 2009

The Executive Board of the International Monetary Fund (IMF) today completed the second 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 15.33 million (about US$24.2 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 91.95 million (about US$145.7 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$242.9 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, which supported the stabilization of market conditions and reduction in inflation, is encouraging. Since Mongolia’s economic recovery will likely be slower than previously expected due to a stronger-than-projected external shock, policy targets have been recalibrated to provide greater fiscal support to the economy.

“The government is committed to restoring health to public finances, and the fiscal restraint to date is commendable. The fiscal deficit targets for this year and next have been loosened modestly, which will provide more support to the economy and allow automatic stabilizers to operate. The government’s fiscal adjustment program remains appropriately ambitious, especially given the limited availability of financing, and is backed by structural reforms to strengthen the effectiveness of fiscal policy. Key in this regard are the plans to pass a comprehensive social transfer reform that better targets the poor and to adopt a Fiscal Responsibility Law to strengthen fiscal management and contain procyclicality.

“The authorities’ monetary and exchange rate policy has been instrumental in stabilizing financial markets and lowering inflation. Rebuilding international reserves and allowing the exchange rate to adjust flexibly in line with market conditions are key for bolstering the economy’s resilience to shocks. The central bank therefore should confine the sale of foreign exchange to preventing sharp movements in the exchange rate, while adjusting interest rates in line with market conditions to maintain low and stable inflation.

“Strengthening the banking system remains a top priority, which includes pressing ahead with the planned international external audit of all banks and the prompt resolution of Anod Bank. The steps the central bank has taken to enhance supervision and bolster confidence are welcome, as is its commitment to carefully monitor the banking system and take further actions if needed.

“In the period ahead, the Mongolian economy stands to benefit considerably from its significant mineral deposits. It is important, therefore, to press ahead with agreements in the mining sector and to strengthen institutions needed to effectively manage this mineral wealth,” Mr. Kato stated.