Press Release No. 03/157

Press Release: IMF Completes First and Second Reviews of Mongolia's PRGF Program and Approves US$11 Million Disbursement

September 12, 2003

The Executive Board of the International Monetary Fund (IMF) today completed the first and second reviews of Mongolia's arrangement under the Poverty Reduction and Growth Facility (PRGF)•(see Press Release No. 01/42). The Board also determined that Mongolia's Economic Growth Support and Poverty Reduction Strategy (EGSPRS) provides a sound basis for Fund concessional financial assistance. This enables the immediate release of a further SDR 8.14 million (about US$11 million) from the arrangement, which would bring total disbursements under the IMF-supported program to SDR 12.21 million (about US$17 million).

The Board also approved the extension of Mongolia's program period by about ten months to July 31, 2005 to allow the rephasing of the subsequent disbursements.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion on Mongolia, Anne Krueger, First Deputy Managing Director and Acting Chair, made the following statement:

"Mongolia has performed commendably in its on-going transition to a market-based economy, achieving positive performance under the PRGF-supported program, and engaging in a constructive policy dialogue with the Fund, notwithstanding some difficult issues that led to a delay in the first and second PRGF reviews. Prudent macroeconomic policies have contributed to a pickup in growth, containment of inflation, and a reduction in external vulnerability. While large quasi-fiscal activities, which emerged in late-2002, appeared to threaten fiscal sustainability, the authorities have taken strong measures to improve the fiscal position, limit a recurrence of such activities, and enhance fiscal transparency.

"Consistent with the recently-approved PRSP, which provides a basis for multilateral concessional assistance, the program aims to promote fiscal sustainability by restraining public expenditures, supported by reforms to streamline the civil service, while enhancing the quality and efficiency of pro-poor spending. The authorities have also exerted restraint in wage and pension increases so far in 2003.

"The program envisages a continued effort to improve economic governance. The authorities achieved considerable progress in implementing a Treasury Single Account to strengthen expenditure controls and reduce budgetary arrears, and intend to incorporate all new investment projects into the budget. Along with legal and institutional reforms to improve fiscal transparency, the authorities are also taking important steps to strengthen the safeguards framework for the Bank of Mongolia (BOM), including through the upcoming establishment of an independent oversight board. Privatization is continuing.

"The authorities are committed under the program to pursue a prudent monetary policy, coupled with a flexible exchange rate policy. The BOM has in recent months increased the placement of BOM bills to contain excess bank liquidity, but may need to step up these efforts in the period ahead to keep money and credit growth within a prudent range. The program also envisages a cautious approach in the management of external debt, including through the maintenance of orderly relations with all creditors and avoidance of new borrowing on nonconcessional terms or the guaranteeing of private borrowing," Ms. Krueger said.