On March 28, 2018, the Executive Board of the International Monetary Fund (IMF) completed the third review of Mongolia’s performance under the program supported by a three-year extended arrangement under the Extended Fund Facility (EFF). Completion of the review enables Mongolia to draw the equivalent of SDR 20.9598 million (about US$ 30.55 million), bringing total disbursements under the arrangement to SDR 104.8278 million (about US$ 152.79 million).
Mongolia’s performance under the program thus far has been strong. The economy is recovering better than expected, with real GDP growth of 5.1 percent in 2017 and a significant improvement in the fiscal balance of 15 percentage points of GDP. The combination of strong policy implementation and a supportive external environment has helped the authorities over-perform on all end-December 2017 quantitative targets. However, the performance on structural reforms has been mixed with some delays on structural benchmarks under the program and reversals of three fiscal measures considered during previous reviews.
Mongolia’s three-year extended arrangement was approved on May 24, 2017, in an amount equivalent to SDR 314.5054 million, or about US$434.3 million1 at the time of approval of the arrangement (see Press Release No. 17/193). The government’s Economic Recovery Program, supported by the IMF, aims to stabilize the economy, reduce the fiscal deficit and debt, rebuild foreign exchange reserves, introduce measures to mitigate the boom-bust cycle and promote sustainable and inclusive growth.
Following the Executive Board’s discussion of the review, Mr. Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director, said:
“Mongolia’s performance under the Fund-supported program has been favorable. The economy is recovering better than anticipated due to good program implementation, buoyant external demand, and a return of confidence. The fiscal deficit fell sharply due to a substantial pick up in revenues and strict expenditure control, yielding a notable improvement in the public debt outlook. External financing costs continue to fall, with external bonds maturing in 2018 rolled over at lower interest rates, and foreign exchange reserves have recovered further.
“All end-December 2017 quantitative targets under the program have been met. Fiscal and banking sector reforms are proceeding, albeit with some deviations and delays. Fiscal results have been significantly better than expected, with a major reduction in the deficit, supported by expenditure restraint and a strong recovery in mining-related revenues. Official reserves have more than doubled over 2017, reflecting a jump in coal exports, capital inflows, and disbursements under the external financing package from donors and the IMF.
“The authorities are moving ahead with ambitious structural reforms designed to sustain growth over the medium term, promote competitiveness and diversification, and mitigate the boom-bust cycle. In the financial sector, the rehabilitation and strengthening of the banking system is underway, building on the recently completed comprehensive Asset Quality Review and several new laws passed by Parliament. Sustaining the reform momentum in this area will be critical. On the fiscal side, the authorities remain committed to the strengthened path of adjustment, with continuing restraint on spending paired with efforts to sustain the recent strong revenue performance. To this end, building on technical assistance from the IMF, they are particularly focused on improving the quality of tax administration.
“With debt still high and the economy exposed to global commodity developments, it is critical that the authorities maintain their strong commitment to the program. Firm program implementation is needed to sustain the virtuous cycle of recovering growth, improving confidence, rising reserves, falling debt, and strong support from the donor community.”
The dollar amount is calculated based on the SDR-dollar rate of May 24, 2017, equivalent to $425mn at SDR-dollar rate of 1.35274 as of February 27, 2017.