This statement contains information that has become available since the staff report was finalized. It does not alter the thrust of the staff appraisal.
1. On June 15, the Bank of Mongolia Monetary Policy Committee (MPC) decided to leave the policy rate unchanged at 10 percent, noting higher oil prices and risks to the balance of payments. In addition, in response to a sharp rise in household debt, the MPC introduced a new macro-prudential requirement for consumer loans which puts a ceiling on the debt service-to-income ratio for new loans at 70 percent. This was the first meeting of the MPC since the amended Central Bank Law took effect on April 1 of this year. Under this revised law, 4 of the 7 members of the MPC are appointed by Parliament rather than by the Governor and MPC decisions are made by majority vote rather than by the Governor alone.
2. The primary balance through May of this year reached 3.4 percent of GDP in cash terms, up from 2.1 percent of GDP in the first quarter. The main driver was a 26 percent increase in revenue. While total primary spending as a percent of the annual budgeted amount was in line with historical trends, social spending (education, health, social protection, and insurance) in the first quarter of 2018 was below the level established as an Indicative Target under the program (actual spending of MNT 1200 billion, vs. the target floor of MNT1387 billion). The authorities acknowledged the backlog in social spending in the early part of the year and reaffirmed their commitment to allocating the full budget envelope by year-end.
3. On Friday, June 22, Parliament passed the Recapitalization Law, completing the final prior action for this review. This law outlines when and how public-sector funds can be used to support systemic banks in the event of a capital shortfall.