Press Release No. 14/443

Press Release: IMF Staff Concludes 2014 Article IV Mission to Mongolia

September 26, 2014

An International Monetary Fund (IMF) mission led by Mr. Koshy Mathai visited Mongolia during September 4-17 to hold discussions for the 2014 Article IV consultation. At the conclusion of the visit, Mr. Mathai issued the following statement:

“Mongolia has been one of the world’s fastest growing economies as a result of large investment in the mining sector. Last year, however, there were very sharp declines in foreign direct investment (FDI) and coal exports. The authorities eased macroeconomic policies to buffer the economy and were able to maintain double-digit growth, but with the balance of payments still in deficit, reserves at the Bank of Mongolia declined, the currency depreciated, and inflation rose.

“This year, growth has slowed sharply, the trade balance has improved, and reserves have risen on account of increased foreign borrowing. The People’s Bank of China swap line, recently extended to 2017 and expanded by 50 percent to RMB 15 billion, provides an important, additional cushion. But with FDI continuing to decline, the overall balance of payments remains in substantial deficit.

“The authorities have taken welcome steps to tighten policies: the Bank of Mongolia has raised its policy rate and announced its intention to phase out its easing programs; the Ministry of Finance is controlling its expenditures in the face of revenue shortfalls; and the Development Bank of Mongolia (DBM) is restricting its outlays as well. The fiscal deficit including DBM spending is expected to fall to 7 percent of GDP this year.

“With the balance of payments still facing difficulties and inflation above target, the mission sees the need for further policy adjustment. Authority for all fiscal activity should be unified, and the deficit including DBM spending brought gradually down to 2 percent of GDP. The Fiscal Stability Law’s deficit and debt targets should be maintained, and DBM spending should also be covered. Monetary policy should be tightened, and the exchange rate kept flexible. Finally, measures to improve bank supervision and strengthen the banks are a priority.

“It will be important to implement structural reforms to improve the business climate, make the economy more competitive, and boost FDI, with due regard for labor rights, environmental protection, and the needs of the most vulnerable. Diversification of the economy would help increase its resilience in the face of adverse external shocks. Growth should be made more inclusive—spending from mining-related revenue should be directed to priorities such as health and education that benefit all citizens. Mongolia also needs to cushion any short-run adverse impact of policy adjustment on the poor by strengthening safety nets.

“Subject to management approval, the final staff report on the Article IV consultation will be submitted to the Executive Board in the coming weeks and could be considered by the Board in November.

“The mission met Speaker of the State Great Hural Z. Enkhbold, Prime Minister N. Altankhuyag, Minister of the Cabinet Office Ch. Saikhanbileg, Minister of Finance Ch. Ulaan, Minister of Economic Development N. Batbayar, and Bank of Mongolia Governor N. Zoljargal, along with other senior officials and members of parliament. The mission also met with representatives from the private sector, banks, non-governmental organizations (NGOs), labor unions, and the donor community.

“The mission wishes to thank the authorities for their hospitality and the fruitful discussions.”