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IMF Executive Board Concludes 2017 Article IV Consultation for Mongolia

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
May 2017
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On May 24, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV Consultation1 with Mongolia.

Mongolia’s longer-term prospects are promising given its large natural resources. In recent years, however, the economy has faced substantial challenges, as external shocks and expansionary fiscal and monetary policies have compounded structural weaknesses. The new government that took office in 2016 has expressed a strong commitment to strengthen macro policies and implement structural reforms in order to stabilize the economy and lay the basis for sustainable, inclusive growth in the future.

Mongolia remains heavily exposed to external shocks, given its export profile, and a key challenge will be to avoid the boom-bust cycles of the past. The discussions thus focused on improving the fiscal framework and strengthening policy discipline, complemented by structural reforms to boost diversification and competitiveness and by efforts to strengthen and better target the social safety net.

Executive Board Assessment2

Executive Directors noted that Mongolia had been hit hard by the fall in commodity prices and a slowdown in key export markets. Efforts to offset the impact of these external shocks through expansionary policies had proved unsustainable, leading to large fiscal deficits, high and rising debt and a fall in international reserves. Directors commended the new government for a strong commitment to restore stability and lay the foundations for sustained, rapid, and inclusive growth through sound macroeconomic policies and structural reforms, as reflected in its Economic Recovery Plan. Coordinated financial assistance from development partners, sizeable fiscal adjustment and continued engagement with private creditors will help restore debt sustainability as envisaged under the program to be supported by the IMF’s Extended Fund Facility Arrangement.

Directors stressed that fiscal consolidation and discipline are central to regaining durable debt sustainability. They supported plans to reduce non-essential expenditures, and increase tax revenues and pension contributions. Directors supported the commitment to implement the rules-based fiscal framework, including an end to quasi-fiscal operations of the Bank of Mongolia and the Development Bank of Mongolia, and the establishment of an independent fiscal council. They welcomed plans to strengthen public financial management and tax administration, and tighten the framework for public-private partnerships. Directors underlined the need to enhance the social safety net, strengthen the pension system, and improve program targeting to protect the most vulnerable sections of society.

Directors underscored that monetary policy should remain appropriately tight to contain inflationary pressures, even as there will be room to lower the policy rate from the current high level if inflation remains low and confidence is restored. The exchange rate should remain flexible and market-determined with intervention limited to addressing disorderly market conditions.

Directors stressed the need to strengthen the banking system through special audits and recapitalization of banks as well as upgrades to the regulatory and supervisory framework. Directors welcomed steps, including the new Bank of Mongolia law, to strengthen the independence and governance of the central bank. The renewed focus on implementing an effective anti-money laundering framework would help attract foreign investment. Directors emphasized the need to promote inclusive growth through a focus on sustainable mining, economic diversification, and further regional integration. In addition, structural reforms should aim to improve the business climate, address supply-side bottlenecks, and deepen access to finance.

Table 1.Mongolia: Selected Economic and Financial Indicators, 2013–22
20132014201520162017

Est.
20182019202020212022
(In percent of GDP, unless otherwise indicated)
Real sector
Nominal GDP (in billions of togrogs)19,17422,22723,13423,88626,04827,68831,39035,02339,30645,181
Real GDP growth (percent change)11.67.92.41.0−0.21.88.15.36.18.5
Mineral real GDP growth18.519.414.10.70.54.513.615.113.718.9
Non-mineral real GDP growth10.05.0−1.01.1−0.50.96.11.72.93.7
GDP deflator (percent change)2.97.41.72.39.34.44.95.95.85.9
Consumer prices11.210.71.10.56.16.16.96.56.56.5
(End-period; percent change)
Gross national saving26.323.421.126.530.330.132.436.438.241.4
Public7.43.70.4−4.6−3.4−1.51.33.75.56.1
Private18.919.720.731.133.831.631.232.732.735.3
Gross capital formation51.734.925.130.634.839.646.146.946.647.6
Public16.415.09.212.87.77.57.68.08.08.0
Private35.319.915.917.827.132.238.538.938.639.6
General government accounts
Total revenue and grants31.227.825.123.724.726.326.827.027.127.2
Total expenditure and net lending 1/40.139.133.640.735.334.832.731.029.128.7
Overall balance (IMF definition) 2/−8.9−11.3−8.5−17.0−10.6−8.5−5.9−4.0−2.0−1.5
Primary balance (IMF definition)−7.5−8.8−5.6−13.1−5.5−3.1−1.00.31.51.6
(In percent of GDP, unless indicated otherwise)
Monetary sector
Credit growth (percent change)57.923.50.58.59.010.310.611.111.915.6
Reserve money growth (percent change)54.02.7−28.224.621.819.316.015.315.116.1
Balance of payments
Current account balance−25.4−11.5−4.0−4.1−4.4−9.5−13.6−10.6−8.4−6.2
Gross official reserves (in millions of US$) 3/2,2421,6481,3241,2971,6922,5153,5834,0324,2574,304
(In months of imports)3.94.02.92.93.44.46.16.56.87.2
Debt indicators 4/
General government debt46.057.159.587.694.9101.3100.097.592.384.7
Domestic13.514.714.619.821.419.415.111.712.911.6
External32.542.344.967.873.481.984.985.779.573.1
General government debt in NPV terms55.069.186.389.686.584.079.674.3
GFN9.813.310.718.122.421.518.513.813.917.5
Memorandum items:
Copper prices (US$ per ton)73316,8635,5104,8685,7225,7335,7215,7085,7045,704
Gold prices (US$ per ounce)14111,2661,1601,2481,2121,2251,2511,2741,2991,325
Sources: Mongolian authorities; and Fund staff projections.

Includes DBM spending.

Excludes privatization receipts; includes DBM commercial spending and from 2017 onwards mortgage interest financed mortgage spending.

Gross official reserves includes drawings from swap line.

General government debt data excludes SOEs debt and central bank’s liabilities from PBOC swap line.

Sources: Mongolian authorities; and Fund staff projections.

Includes DBM spending.

Excludes privatization receipts; includes DBM commercial spending and from 2017 onwards mortgage interest financed mortgage spending.

Gross official reserves includes drawings from swap line.

General government debt data excludes SOEs debt and central bank’s liabilities from PBOC swap line.

1

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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