Forex Cft 6260

Slideshare verwendet Cookies, um Funktionalität und Leistung zu verbessern und Ihnen relevante Werbung zu bieten. Wenn Sie fortfahren, die Website zu durchsuchen, stimmen Sie der Verwendung von Cookies auf dieser Website zu. Siehe unsere Benutzervereinbarung und Datenschutzbestimmungen. Slideshare verwendet Cookies, um Funktionalität und Leistung zu verbessern und Ihnen relevante Werbung zu bieten. Wenn Sie fortfahren, die Website zu durchsuchen, stimmen Sie der Verwendung von Cookies auf dieser Website zu. Siehe unsere Datenschutzrichtlinie und Benutzervereinbarung für Details. Entdecken Sie alle Ihre Lieblingsthemen in der SlideShare App Holen Sie sich die SlideShare App, um für Später zu speichern sogar offline Weiter zur mobilen Website Upload Login Signup Doppeltippen Sie zum Verkleinern Verständnis der regulatorischen Entwicklung von Mobile Commerce und die Chancen in Mobile Geldübertragung Share this SlideShare LinkedIn Corporation Kopie 2016Investoren Wüsten Rohstoffwährungen vorherige Gewinne in Rohstoffen war Ergebnis der spekulativen Positionierung NZD Märkte niedriger gegenüber den meisten Majors, stärkt gegen AUD Der goldene Lauf für die Rohstoffwährungen hat zu Ende in den Handel über die letzte Woche zu beenden. Pricing für die harte Rohstoff-sensitiven CAD und AUD hat gesehen, dass die Paare verlieren fast 4,5 und 5,5 Prozent gegenüber dem USD seit ihrem jeweiligen Hochs der vergangenen Woche. Dies geschieht unter einer Umkehrung der großen Gewinne, die vor kurzem für viele Waren gesehen wurden. Dies schließt Öl ein, das seinen WTI Preisaufstieg von nahe bei 80 seit seinem Februar Tiefs zu seinen Höhen gesehen hatte. Während der Pessimismus über die globalen Wachstumsaussichten im Februar auf dem Höhepunkt der monumentalen Proportionen zu Stande kam, schlägt der jüngste Abbruch der Preise für viele Rohstoffe, wie viele vermutet haben, nahe, dass ein Großteil der Gewinne auf der Grundlage spekulativer Neupositionierungen stattgefunden hat Ein grundlegendes Gleichgewicht in der Angebots-Nachfrage-Gleichung der vielen Rohstoffe, die gesammelt haben. Bewegungen wie die, die in Stahl, Öl und Eisenerz gesehen wurden, schauten gestern Abend, um weitere erhöhte Volatilität in den Rohstoffwährungen diese Woche zu holen. Major Ankündigungen letzte Woche: EU Manufacturing PMI, 51,7 vs 51,5 exp. (Apr.) Kanada RBC Manufacturing PMI, 52,2 gegenüber 51,5 vor (Apr.) US ISM Manufacturing PMI, 50,8 gegenüber 51,4 exp. (Apr.) Australische Bargeldrate, 1,75, -25 bps. Australische Baugenehmigungen, 3,7 m / m vs. -3,0 exp. (Mrz.) UK Manufacturing PMI, 49,2 gegenüber 51,2 exp. (Apr.) NZ GDT Dairy Index, -1.4. NZ Q1 Beschäftigungsveränderung, 1,2 q / q. Vs. 0,7 exp. NZ Q1 Arbeitslosenquote, 5,7 vs 5,5 exp. US ISM Nicht-Herstellungs-PMI, 55,7 vs. 54/7 exp. (Apr.) Australische Q1 Einzelhandelsumsätze, 0.5 q / q gegen 0.7 exp. UK Dienstleistungen PMI, 52,3 vs 53,5 exp. (Apr.) US Nonfarm Gehaltsliste, 160k gegen 202k exp. (Apr.) Kanadische Beschäftigungsveränderung, -2,1k vs. 1k exp. (Apr.) Der Neuseeland-Dollar setzte fort, unterer im Handel diese Woche zu marschieren. Der Umzug setzt sich auf das Thema der letzten Woche, die die Rohstoffwährungen leiden schwer auf dem Rücken einer Abwärts-Verschiebung der wichtigsten Rohstoffe Preisgestaltung sahen. Der RBA-Schnittschnitt stellte den Anfangsdruck bereit, während ein weiterer starker Rückgang des Preises von Öl, Eisenerz und Stahl über Nacht festgestellt wurde. Unterstützung wird bei .6660 gesehen. Der erste Widerstand wird jetzt in den .6800 / 10 und dann .6850 / 60 jenseits festgestellt. Es fehlt uns an einer starken Auffassung, obgleich die Dynamik für den Augenblick gegenwärtig noch einen weiteren Rückgang begünstigt. Um unsere kostenlose tägliche Currency Rate Sheet und News E-Mail zu abonnieren, geben Sie hier Ihre E-Mail-Adresse ein. Der goldene Lauf für die Rohstoffwährungen ist in der letzten Woche in den Handel gegangen. Pricing für die harte Rohstoff-sensitiven CAD und AUD hat gesehen, dass die Paare verlieren fast 4,5 und 5,5 Prozent gegenüber dem USD seit ihrem jeweiligen Hochs der vergangenen Woche. Dies geschieht unter einer Umkehrung der großen Gewinne, die vor kurzem für viele Waren gesehen wurden. Dies schließt Öl ein, das seinen WTI Preisaufstieg von nahe bei 80 seit seinem Februar Tiefs zu seinen Höhen gesehen hatte. Während der Pessimismus über die globalen Wachstumsaussichten im Februar auf dem Höhepunkt der monumentalen Proportionen zu Stande kam, schlägt der jüngste Abbruch der Preise für viele Rohstoffe, wie viele vermutet haben, nahe, dass ein Großteil der Gewinne auf der Grundlage spekulativer Neupositionierungen stattgefunden hat Ein grundlegendes Gleichgewicht in der Angebots-Nachfrage-Gleichung der vielen Rohstoffe, die gesammelt haben. Bewegungen wie die, die in Stahl, Öl und Eisenerz gesehen wurden, schauten gestern Abend, um weitere erhöhte Volatilität in den Rohstoffwährungen diese Woche zu holen. Die AUD setzte fort, gegen den USD seit unserem Report am Freitag zu fallen. Der Zug stellt eine Fortsetzung des Themas dar, das am Dienstag letzte Woche nach den RBA-Senkungsraten erstmals in einem Jahr begann. Die Umstellung auf 1,75 stellt neue historische Tiefststände dar und kommt, wie die RBA die unterdrückten Arbeitskosten und den niedrigen globalen Kostendruck, der auf einen schwächeren Ausblick für die Inflation hinweist, vermerkte. Sorge über Inflation war wieder im Rampenlicht während Freitags RBA Aussage über Geldpolitik, wie es seine Prognose bis zum Ende von 2016 von seinem 2-3 Ziel auf eine Strecke 1-2 niederstuft. Der Druck auf das Lohnwachstum, verbunden mit einem gestiegenen Einzelhandelswettbewerb und einer Lockerung der Wohnkosten, wurde als die wichtigsten Gründe für die Herabstufung gesehen. Der Druck auf wichtige Rohstoffe ist gekommen, da der Preis für Öl, Gold und Eisenerz scharf im Handel über Nacht fiel. Andere Ereignisse von weniger Interesse letzte Woche enthalten eine upside Überraschung in den neuesten Handelsdaten und großen Sprung in HIA New Homes Umsatzzahlen. Die jüngsten Einzelhandelszahlen zeigten weiter anhaltende Bedingungen im Einzelhandel, während die besser als erwarteten Baugenehmigungen Daten am Dienstag wurde bald überschattet von der späteren RBA Cash Rate Reduktion. Erwarten Sie eine ruhigere Woche in Australien diese Woche mit nur Westpac Consumer Sentiment und Home Kredite Daten morgen jede Note. Die NZD hat seit unserem Bericht am Freitag in ruhigen Handel, der die USD-Verschiebung mäßig höher nach der Veröffentlichung der wichtigsten Non-Farm Payrolls Bericht am Freitag gesehen hat, gemildert. Trotz eines Fehlers in der Schlagzeile monatlichen (April) US Arbeitsplätze Zahl der Markt hat den USD gekauft seit Freitag auf der Rückseite des Gewinns im durchschnittlichen Ergebnis und sinkende Maß für die Unterbeschäftigung. Der Kursrückgang im NZD erfolgt aufgrund einer Korrektur der Rohstoffwährungen nach dem letzten starken Verlauf vergangener Wochen. Die NZDs hohe Korrelation mit der AUD hat gesehen, dass es weiterhin in den letzten Tagen im Einklang mit dem schwächeren AUD zu erleichtern. Der Rückgang der AUD kommt nach dem RBA Schnitt erstmals in einem Jahr der vergangenen Woche und revidiert seine Aussichten für die Inflation um einen vollen Prozentwert für Dezember 2016 am Freitag in seiner neuesten Aussage zur Geldpolitik. Lokale NZ-Daten lieferten wenig Impulse während der Woche, nachdem die letzte Milchauktion nur mäßig rutschte. Die Q1-Beschäftigungszahlen lieferten eine Mischung aus besser als erwartetem Arbeitsplatzwachstum, das durch eine steigende Arbeitslosenquote ausgeglichen wurde, da mehr Arbeitsuchende den Arbeitsmarkt betraten. Zu den wichtigsten Veranstaltungen für die Woche gehören der RBNZ Financial Stability Report morgen (siehe Maßnahmen zur Wohnungspolitik und Diskussion über die Geldpolitik) und Einzelhandelsumsätze am Freitag. Der USD hat sich in der Fortsetzung der kräftigen Erholung, die in der vergangenen Woche beobachtet wurde, fortgesetzt, nachdem es an Tiefstände gehandelt hatte, die seit Anfang 2015 nicht gesehen wurden. Die Schwäche der Risikostimmung und der starke Abwärtsdruck auf die Rohstoffwährungen halfen, den USD zu unterstützen. Dies kam unter gemischten US-Daten während einer Woche, die mit der Freisetzung der Nonfarm Gehaltslisten Beschäftigung Zahlen am Freitag gipfelte. Trotz der Enttäuschung auf die Schlagzeile im April (160.000 vs 202k exp.) War es die Senkung der Unterbeschäftigungsquote (die Arbeitslosenquote war unverändert bei 5,0) in Verbindung mit einem Anstieg der Arbeitszeit und einem durchschnittlichen Einkommen von 2,5 Jahren / Y, die die Aufmerksamkeit der Märkte. Diese Faktoren deuten auf eine anhaltende Absorption von Arbeitslosigkeit hin, obwohl die Preisfeststellung über die Wahrscheinlichkeit einer Fed-Rate-Bewegung bei der kommenden Juni-Sitzung seit den Daten unter 10 gesunken ist. Andere Daten, die früher in der Woche veröffentlicht wurden, schlossen ISM Herstellungs - und Bauausgabenzahlen ein, die unterworfen wurden, obgleich die Dienstleistungen PMI und ISM Non-Manufacturing Zahlen oben Erwartungen druckten. Daten von Interesse in dieser Woche umfasst unter anderem Einzelhandel und Michigan Consumer Sentiment Zahlen am Freitag. Der Handel im Euro ist seit unserem Bericht am Freitag relativ zurückhaltend. Eine leichte Entspannung gegenüber dem USD, die festgestellt wurde, kommt unter einem Anstieg der Nachfrage für den USD nach den US Nonfarm Lohnlisten Zahlen am Freitag. Purchasing Manager Index (PMI) Daten dominierten den europäischen Veranstaltungskalender letzte Woche. Zu den Releases zählten eine leichte Aufwärtsüberraschung in der Euro-Zone, ein kleiner Fehlbetrag im deutschen Composite und weitere leichte Defizite in der deutschen und der Eurozone. Die Woche endete mit einem Aufzug in spanischer Industrieproduktion im Jahr bis März. Die bisherigen Veröffentlichungen dieser Woche beinhalten stärker als erwartete deutsche Werksordnungsdaten. Andere Zinsen konzentrieren sich auf die griechischen Sparmaßnahmen, die die Verabschiedung eines Pakets von 5,4 Mrd. EUR zur Reform der Renten und der Einkommensteuer beinhalten. Der Umzug erhöht die Wahrscheinlichkeit, dass weitere Rettungspakete freigesetzt werden und öffnet die Tür für potenzielle Schuldenerlass später in diesem Monat. Der Fokus für den EUR wird heute auf deutsche Handels - und Industrieproduktionsdaten übertragen, andere EU-Mitgliedsstaaten melden auch ihre Produktionszahlen, aber erwarten, dass die Daten bestenfalls ein passendes Interesse bieten. Der Trend eines schwächeren GBP gegenüber dem USD, der in der zweiten Hälfte der vergangenen Woche gesehen wurde, hat sich in dieser Woche weiter behauptet. Der Umzug kam, nachdem der Markt die positiven Überraschungen in den US-Beschäftigungsdaten am Freitag verriegelte, die einen Rückgang der Unterbeschäftigungsquote und einen Anstieg des jährlichen Durchschnittseinkommens beinhalteten. Die daraus resultierende Nachfrage nach dem USD hat eine Schwäche in der GBP, die nach einem Floß von schlechten britischen Daten kam letzte Woche, die in allen drei PMI Releases unterzogen hat zementiert. Halifax Hauspreisdaten freigegeben über Nacht, die von einer breiteren Marge als die erwarteten, wie der jährliche Preis des Wachstums entspannte sich zu 9.2 im Jahr bis April entspannt. Fokus für diese Woche wird weitgehend am Donnerstag, wie die BoE kündigt es letzte geldpolitische Entscheidung, Minuten und Inflation Bericht. Herstellung und industrielle Fertigung Zahlen am Mittwoch. Ein weiterer Schwerpunkt wird weiterhin auf der Debatte um die Mitgliedschaft Großbritanniens in der EU bleiben und kommt als PM Cameron warnte vor kurzem über die Risiken einer Brexit auf den Frieden der EU. Der Rückzug im JPY, der letzte Woche gesehen wurde, beschleunigte im Handel über Nacht. Ferienhandel sicherte eine ruhige Woche letzte Woche, obgleich war nicht genug, zum zu verhindern, daß der JPY 18 Monate Höhen gegen den USD erreichte. Datenpunkte in den letzten Tagen wurden verständlicherweise spärlich, obwohl eine marginale upside Überraschung in der letzten Fertigung PMI Zahlen der vergangenen Woche enthalten. Zahlen veröffentlichten gestern sah durchschnittliche Bargeldeinnahmen um mehr als das Doppelte der erwarteten steigen, obwohl Fokus für den Tag konzentriert sich auf die Freigabe der geldpolitischen Sitzung Minuten von der März BOJ Sitzung. Diese zeigten ein Brett, das scharf auf dem Weg für künftige Zinseinstellungen nach den früheren Bewegungswochen vor dem niedrigeren Zinsniveau in negatives Gebiet zum ersten Mal in der Geschichte geteilt wurde. Mit nur geringen Daten in dieser Woche geplant für US-Daten zu helfen, stellen Sie den Ton des Handels in dieser Woche. Japanische laufende Kontonummern werden für Freigabe am Donnerstag geplant, während der tertiäre Industrie-Aktivitätsindex am Freitag kennzeichnet. Der CAD hat seinen Kurs gegen den USD im Handel in dieser Woche fortgesetzt. Der Umzug kommt nach einem Rückgang von über 3,5 im Preis des Öls während des Overnight-Handels inmitten einer Zunahme der Short-Futures-Positionen berichtet für die Woche bis zum 3. Mai und als Ängste über die Auswirkungen (auf Versorgung) der Alberta-Waldbrände reduziert. Große Rückgänge wurden auch in anderen Rohstoffen über Nacht einschließlich der Preisbildung in Eisenerz, Gold und Stahl Futures gesehen. Interessante Daten der vergangenen Woche waren Handelszahlen, die sich bis zum Schlimmsten im März weiter entwickelten, ein Rückgang der Baugenehmigungen und der Beschäftigungszahlen, die den Konsens leicht verpassten. Positive Überraschungen kamen aus den Herstellungs-PMI-Daten und dem Ivey PMI. Gehäuse startet Daten über Nacht erwartete Erwartungen durch steigende 191.5k im April veröffentlicht. Erwarten Sie eine ruhige Woche auf der Datenfront in Kanada für den Rest der Woche mit dem Neuen Gehäusepreisindex, der für Freigabe am Donnerstag geplant wird. Die Rohstoffpreisbewegungen und die abnehmende Attraktivität der Rohstoffwährungen sehen den Handel in den kommenden Tagen vor. US DOLLAR. 1 NZD. 1.3908 AUD. 1.3356 EUR. 0,9399 GBP. 0,7889 YEN. 115,23 HKD. 7.7585 SGD. 1.4249 CAD. 1.3135 USD. 0.7351 AUD. 0,9786 EUR. 0,6937 GBP. 0,5789 JPY. 84,7 HKD. 5.6827 SGD. 1.0457 CAD. 0,9658 USD. 0.7353 AUD. 0,9779 EUR. 0.6951 GBP. 0,5802 JPY. 84,657 HKD. 5.7057 SGD. 1.0477 CAD. 0,9649 USD. 0.7352 AUD. 0,9768 EUR. 0.6934 GBP. 0,5785 JPY. 84,76 HKD. 5.6721 SGD. 1.0433 CAD. 0,9634 USD. 0.7397 AUD. 0,9840 EUR. 0.6974 GBP. 0,5825 JPY. 85.0475 HKD. 5.7046 SGD. 1.0486 CAD. 0,9693 datetime. Wie um 19:55 Uhr (NZT), Dienstag, den 13. Dezember 2016 USD. 0.7071 AUD. 0,9446 EUR. 0.6636 GBP. 0,5569 JPY. 81,18 HKD. 5.4778 SGD. 1,0049 CAD. 0,9288 datetime. Wie um 8:00 Uhr (NZT), Dienstag, 13 Dezember 2016 USD. 0.7073 AUD. 0,9435 EUR. 0.6635 GBP. 0,5578 JPY. 81,2536 HKD. 5.4849 SGD. 1.0048 CAD. 0,9275 datetime. Wie um 14:00 Uhr (NZT), 13 Dezember 2016 USD. 0.7092 AUD. 0,9446 EUR. 0.6636 GBP. 0,5584 JPY. 81,24 HKD. 5.4842 SGD. 1.0055 CAD. 0,9283 datetime. Wie am 07:39 Uhr (NZT), Dienstag, 13. Dezember 2016 USD. 0.7028 AUD. 0,9353 EUR. 0.6578 GBP. 0,5538 JPY. 80,6108 HKD. 5.4556 SGD. 0,9999 CAD. 0.9250 BIG SAVINGS AUF GROSSER WÄHRUNG TRANSFERS Registrieren Sie sich hier, um sie zu erhalten Währungsrechnungen auf dieser Seite werden nur zu Informationszwecken zur Verfügung gestellt und möglicherweise nicht von einer Institution angeboten. Wir senden diese Daten aus öffentlich zugänglichen Quellen, wie oben dargestellt. Die Preise ändern sich oft, und verschiedene Institutionen sind in verschiedenen Währungen wettbewerbsfähig. Kontaktieren Sie Institutionen direkt für tatsächliche Anführungszeichen. Die Vergleiche auf diesem Tool werden von interest. co. nz gesteuert. Beliebte WährungenIMF. pdf - IWF Länderbericht Nr. 15/109 MONGOLIA April 2015. Dies ist das Ende der Vorschau. Melden Sie sich für den Rest des Dokuments. Unformatierte Text-Vorschau: IWF-Länderbericht Nr. 15/109 MONGOLIA April 2015 2015 ARTIKEL IV KONSULTATIONSPERSONAL BERICHT PRESSEINFORMATION UND ERKLÄRUNG DES EXEKUTIVEN DIREKTORS FÜR MONGOLEI Gemäß Artikel IV des IWF-Übereinkommens führt der IWF in der Regel bilaterale Gespräche mit den Mitgliedern jedes Jahr. Im Rahmen der Konsultation mit der Mongolei im Jahr 2015 wurden folgende Dokumente freigegeben und in das Paket aufgenommen: Der von einem Mitarbeiterteam des IWF für die Beratungen der Geschäftsleitung vorbereitete Personalbericht nach den Gesprächen, Endete am 18. Februar 2015 mit den Beamten der Mongolei über die wirtschaftliche Entwicklung und Politik. Auf der Grundlage der zum Zeitpunkt dieser Gespräche verfügbaren Informationen wurde der Personalbericht am 19. März 2015 fertig gestellt. Ein vom IWF vorbereiteter Informationeller Anhang. Eine von IWF und Weltbank erstellte Schuld-Nachhaltigkeits-Analyse. Statement vom 3. April 2015, Aktualisierung der Informationen über die jüngsten Entwicklungen. Eine Pressemitteilung, in der die Auffassungen des Exekutivausschusses, wie sie am 3. April 2015 zum Ausdruck gebracht wurden, zusammengefasst wurden, in denen der Bericht über die Personalabteilung, der die Konsultation nach Artikel IV mit der Mongolei geschlossen hat, berücksichtigt wurde. Eine Erklärung des Exekutivdirektors der Mongolei. Die Politik der Veröffentlichung von Personalreports und anderen Dokumenten ermöglicht die Streichung marktrelevanter Informationen. Kopien dieses Berichts sind der Öffentlichkeit von International Monetary Fund Publishing Services Postfach 92780 Washington, DC 20090 Telefon: (202) 623-7430 Fax: (202) 623-7201 E-mail: publicationsimf. org Web: imf. org Preis: 18.00 je gedrucktes Exemplar Internationaler Währungsfonds Washington, DC 2015 Internationaler Währungsfonds MONGOLIEN 19. März 2015 PERSONALBERICHT FÜR DEN 2015 ARTIKEL IV KONSULTATION SCHLÜSSELBEREICHE Kontext. Mittel - bis langfristige Perspektiven sind angesichts der großen natürlichen Ressourcen der Mongolen vielversprechend. Nichtsdestotrotz steht das Land angesichts der niedrigen Auslandsinvestitionen und der schwachen Rohstoffpreise sowie einer allzu losen Makropolitik vor ernsthaften Zahlungsbilanzen (BOP). Aktueller Ausblick. Importe haben begonnen, sich zu verjüngen, und, mit der ersten Phase der Oyu Tolgoi Kupfer - und Goldmine jetzt im Betrieb, haben Exporte aufgehoben. Die Handelsbilanz hat sich dadurch zwar verbessert, aber mit ausländischen Direktinvestitionen und anderen finanziellen Belastungen noch deprimiert, bleibt die Gesamt-BOP in einem erheblichen Defizit. Darüber hinaus ist die Staatsverschuldung stark gestiegen, und die Schwachstellen in der Bank wachsen. In Abweichung von einer Änderung der Politik und / oder bedeutender neuer Entwicklungen in der Realwirtschaft dürften sich diese Trends fortsetzen. Richtlinien. In Anerkennung dieser Herausforderungen hat die neue Regierung bereits einige Maßnahmen ergriffen, aber weitere politische Anpassungen sind erforderlich, um die Wirtschaft zu stabilisieren, und strukturelle Maßnahmen sind erforderlich, um Investitionen zu fördern und nachhaltiges Wachstum zu gewährleisten. Insbesondere ist eine glaubwürdige Haushaltskonsolidierung erforderlich, die sowohl den traditionellen Haushalt als auch die Entwicklungsbank der Mongolei (DBM) abdeckt, um die geplanten Defizite zu reduzieren, die Staatsverschuldung unter Kontrolle zu bringen und den BOP-Druck zu mindern. Alle gegenwärtig von der DBM durchgeführten steuerlichen oder quasi - Die Bank of Mongolia (BOM) oder andere Agenturen sollten auf Kostenbasis von der Regierung durchgeführt werden. Eine gewisse monetäre Verschärfung wäre wünschenswert, um das Kreditwachstum weiter zu beschleunigen und das BOP zu stärken und gleichzeitig sicherzustellen, dass die Banken angemessen flüssig bleiben , Wie ein Stoßdämpfer für die Wirtschaft Banken Bestimmungen und Kapitalpuffer sollten gestärkt werden, und Aufsichts-und Krisenvorsorge Rahmenbedingungen gestärkt Governance-Reformen auf der DBM und Stückliste würde dazu beitragen, diese Institutionen zu stärken, sollten Schritte, um voranzugehen mit großen Bergbau-Projekte, die Verbesserung der Das Investitionsklima, den Ausbau der ausländischen Direktinvestitionen und die Unterstützung des Wachstums und die sozialen Netze sollten gestärkt und besser auf die Armen ausgerichtet werden. MONGOLIA Genehmigt von Markus Rodlauer und Masato Miyazaki Im September 417, 2014, Dezember 1118, 2014 und Februar 918, 2015 fanden Diskussionen in Ulaanbaatar statt. Das Team umfasste K. Mathai (Leiter), F. Mochtar, N. Saker (eingehend ), Und J. Yu (alle APD), Y. Kinoshita (gebietsfremder Vertreter, OAP), B. Shang (FAD), O. Croitoru Nedelescu (MCM), P. Gupta (RES) und K. Svirydzenka (SPR). Herr Rodlauer (APD) nahm an einigen Sitzungen teil, ebenso die Herren Togmid und Yoon (OED). Das Team wurde von Mmes unterstützt. Ardak, Khulan und Selenge im örtlichen IWF-Büro. Mmes Choi, Meng und Tolentino (alle APD) bei der Vorbereitung dieses Berichts unterstützt. INHALT KONTEXT 4 JEWEILIGE ENTWICKLUNGEN UND AUSBLICK 6 POLITISCHE DISKUSSIONEN 9 A. Makroökonomische Grundsätze 9 B. Strukturreformen und Sozialpolitik 12 C. Finanzsektor 13 D. Sonstige Themen 14 PERSONALBEZUG 14 FAKTEN 1. Realwirtschaftliche Entwicklungen 17 2. Fiskal - und Währungssektor Entwicklungen 18 3. Entwicklungen im externen Sektor 19 4. Inklusive Wachstumsindikatoren 20 5. Schlüsselindikatoren in den Grundlagen - und Politikanpassungsszenarien 30 TABELLEN 1. Ausgewählte wirtschaftliche und finanzielle Indikatoren, 201120 (Baseline) 21 2. Zusammenfassung Operationen des Generalgouvernements, 201116 ( Baseline) 22 3. Monetäre Aggregate, 201117 (Baseline) 23 4. Zahlungsbilanz, 201120 (Baseline) 24 5. Ausgewählte wirtschaftliche und finanzielle Indikatoren, 201120 (Anpassungsszenario) 25 6. Zusammenfassung Operationen des Generalsekretärs, 201116 (Anpassung Szenario) 26 7. Monetäre Aggregate, 201117 (Anpassungsszenario) 27 8. Zahlungsbilanz, 201120 (Anpassungsszenario) 28 9. Grundlagen - und Politikanpassungsszenarien, 201320 29 2 INTERNATIONALER MONETÄREFONDS MONGOLIA ANHÄNGE I. Wirtschaftliche Auswirkungen der Mongolien-natürlichen Ressourcen Stiftungen 31 II. Bewertung des externen Sektors und der Wechselkurse 33 III. Entwicklungsbank der Mongolei 34 IV. Risikobewertungsmatrix 35 V. Umsetzung früherer IWF-Empfehlungen 36 VI. Zusammenfassungen analytischer Arbeiten 37 VII. Politische Agenda für die Stärkung des Bankensektors 48 INTERNATIONALER MONETÄRISCHER FONDS 3 MONGOLIEN-KONTEXT 1. Die Mongolei zählt zu den weltweit am schnellsten wachsenden Volkswirtschaften infolge der großen FDI im Bergbausektor. Im Jahr 201112 lag das BIP bei durchschnittlich 40 Prozent des BIP und einem jährlichen Wachstum von über 15 Prozent. In den letzten zehn Jahren betrug das Wachstum 9 Prozent. Ein Projekt der Oyu Tolgoi (OT) Kupfer und Goldmine brachte in der ersten Entwicklungsphase mehr als 6 Milliarden (50 Prozent des BIP) in die Investitionen, weitere 5 Milliarden für die zweite Phase und die laufenden Verhandlungen über den Tavan Tolgoi (TT ) Könnte in den kommenden fünf Jahren möglicherweise 4 Mrd. EUR investieren (siehe Anhang I). Pro-Kopf-Einkommen hat 4.000 erreicht, und mit mineralischen Reichtum auf 1 bis 3 Billionen für eine Bevölkerung von nur 3 Millionen geschätzt, sieht die Zukunft hell. Innerhalb von 5 Jahren, in denen OT-2 in Produktion kommt, sollte die Mongolei in der Lage sein, große fiskalische Überschüsse zu starten und kumulierte Einsparungen für künftige Generationen zu sichern. 2. Mongolias enge wirtschaftliche Basis hat jedoch das Land verlassen sehr anfällig für Schocks. Auf Minerale entfallen 90 Prozent aller Exporte, davon 90 Prozent auf China. Aufgrund dieser mangelnden Diversifizierung ist die Wirtschaft anfällig für wiederholte Boom-Bust-Zyklen, wobei die Zahlungsbilanz in den letzten fünf Jahren zweimal stark unter Druck geraten ist und die öffentlichen Finanzen trotz eines fiskalischen Rahmens, der die Prozyklizität verringern soll, anfällig bleiben. Inzwischen gab es Symptome der holländischen Krankheiten, die der REER von Mitte 2009 bis Mitte 2013 um fast 30 Prozent geschätzt hatte (obwohl dies jetzt rückgängig gemacht wurde), und die Nicht-Warenexporte haben anämisch durchgeführt. 3. In den vergangenen zwei Jahren hat sich die Wirtschaft mit starken Rückgängen bei den ausländischen Direktinvestitionen und den Kohleexporten konfrontiert. FDI im Zusammenhang mit OT verlangsamt, wie die erste Phase abgeschlossen war und die zweite Phase wurde in einem Streit zwischen den beiden wichtigsten Partnern, Rio Tinto und der Regierung gefangen. Der Streit um das landesweit führende Projekt wirkte auch auf das allgemeine Investitionsklima, das bereits im Jahr 2010 mit einem Moratorium für die Erschließung neuer Minenexplorationslizenzen im Jahr 2010 begonnen hatte. Im Jahr 2013 fielen die ausländischen Direktinvestitionen um die Hälfte 2014. Compounding diese Situation waren Chinas Abschwächung und Schwäche in der Kohle-Sektorpreise sind fast zwei Drittel von ihrem Höhepunkt 2012 und Volumen um 8 Prozent und in jüngster Zeit auch die Kupferpreise stark gesunken. (Diese Rückgänge wurden nur teilweise durch den Rückgang der Ölpreise kompensiert). 4. Als Reaktion auf diese Erschütterungen griffen die Behörden auf expansive Politiken zurück, um die Wirtschaft zu behindern, bis FDI und Exporte sich erholen konnten. Die fiskalische Expansion hatte bereits im Jahr 2012 begonnen, wenn die Regierung umgesetzt universellen Transfers an die Bevölkerung und die neue Entwicklungsbank der Mongolei begann die Infrastrukturentwicklung zu fördern. Als FDI-Zuflüsse stürzten und Kohlepreise im Jahr 2013 fielen, behielten die Behörden expansive Fiskalpolitik in der Bemühung, Wachstum zu stützen sowie Infrastrukturausgaben aufzuladen, um das countrys Potenzial zu verwirklichen. Während des Zeitraums 2012-14 betrug das konsolidierte Defizit im Durchschnitt knapp 15 Prozent des BIP, wobei das konsolidierte Defizit nahezu 10 Prozent betrug, und die Schulden stiegen auf über 75 Prozent des BIP, die meisten davon ausserhalb und 4 INTERNATIONAL MONETARY FONDS MONGOLIA nicht konzessionär .1 Die Geldpolitik wurde deutlich gesenkt: Der Leitzinssatz wurde um 275 Basispunkte gesenkt, und es wurden Erleichterungsprogramme in Höhe von 20 Prozent des BIP eingeführt (zu durchschnittlichen Kosten für Banken von 4 Prozent bei einem Leitzins von 10 Prozent). Das Kreditwachstum stieg bis Ende 2013 auf 54 Prozent y / y, wobei das BIP-Wachstum über 11 Prozent und das Leistungsbilanzdefizit bei rund 25 Prozent des BIP gehalten wurde und das Saatgut für die Verschlechterung der Vermögensqualitäten im Bankensektor ausgesät wurde. 5. Der Behördenansatz erwies sich bald als nicht nachhaltig. Bei fallendem ADI wurde ein wachsender Anteil des Leistungsbilanzdefizits durch einen Rückgang der Reserven finanziert. Von mehr als 4 Milliarden (fast 6 Monate der Einfuhren) in den frühen 2013, Reserven sind jetzt auf eine Milliarde (zwei Monate), auch nach erheblichen Ziehen aus einer Swap-Linie von der Peoples Bank of China (PBOC) zur Verfügung gestellt. Die Währung hat sich gegenüber dem US-Dollar um fast 15 Prozent gegenüber dem vergangenen Jahr geschrumpft und um mehr als 40 Prozent seit 2013. Infolgedessen war die Inflation während des Jahres 2014 weitgehend zweistellig. Der Kreditboom hat das Finanzsystem belastet NPLs erheblich ansteigen und der Liquiditätsdruck entsteht. Diese Entwicklungen wurden durch globale Märkte festgestelltMongolei hat souveräne Rating Herabstufungen erlitten, und seine Spreads haben sich stark erweitert. Obwohl sich das Wachstum nun verlangsamt hat und sich das Leistungsbilanzdefizit verringert hat, bleibt die Gesamtbilanz unter Druck. 6. Eine dauerhafte Lösung für die wirtschaftlichen Herausforderungen Mongolias erfordert eine erhebliche Anpassung der Makropolitik. Die Wirtschaft ist noch relativ klein, und eine oder zwei Entwicklungen, wie neue FDI - oder Portfolio-Zuflüsse, die durch Vereinbarungen über OT-2 oder TT ausgelöst wurden, Angebote von erheblichen neuen Finanzierungen durch die Geber und / oder ein starker Anstieg der Rohstoffpreise könnten die Aussichten wesentlich verändern , Zumindest vorübergehend. Aber solche Entwicklungen können nicht gezählt werden, und die Wirtschaft wäre jedenfalls anfällig für zukünftige Schocks. Stattdessen sollte das Kernstück jeder Strategie, die Finanzierungslücken zu schließen, Makropolitik sein, die das Leistungsbilanzdefizit nachhaltig finanzierbar hält und die Finanzposition stärkt. Solche Politiken versprechen noch Wohlstand, wenn auch vielleicht etwas langsamer und mit verringerten Risiken einer Krise auf dem Weg. 7. Die politischen Bedingungen sind jetzt förderlicher für die entscheidende ökonomische Politik, aber sie sind noch weit von einfach. Nach einer langen Zeit der Ungewissheit trat im November 2014 eine neue Regierung in Kraft, die der Wirtschaftskrise stand und von einer großen Koalition der großen politischen Parteien unterstützt wurde. Die Behörden haben bereits wichtige Schritte zur Stärkung der fiskalischen, monetären und anderen Politiken unternommen, weitere Anpassungen sind jedoch erforderlich. Das neue SMS-basierte Referendum eröffnete die öffentliche Unterstützung für die Verhandlungen über große Investitionsvorhaben, darunter OT und TT, aber der notwendige politische Konsens sowohl für diese Abkommen als auch für weitere makropolitische Reformen wird angesichts der allgemeinen Wahlen weiterhin anspruchsvoll bleiben Für Mitte-2016 geplant. 8. Vor diesem Hintergrund konzentrierten sich die Artikel-IV-Gespräche auf Maßnahmen, die für eine Stabilisierung der Wirtschaft und ein nachhaltiges Wachstum mittel - und langfristig notwendig sind. Politische Diskussionen zentriert 1 Das im Jahr 2013 in Kraft getretene Finanzstabilitätsgesetz forderte, dass das strukturelle Haushaltsdefizit unterhalb von 2 Prozent des BIP liegen sollte, doch die Regierung schuf die Entwicklungsbank der Mongolei (DBM) Ministerium für wirtschaftliche Entwicklung, und kanalisiert eine zusätzliche 8 Prozent des BIP in Investitionsausgaben durch sie. INTERNATIONAL MONETARY FUND 5 MONGOLIA über ein Anpassungsszenario mit einem Paket von Maßnahmen des Wirtschafts - und Finanzsektors zur Beseitigung von Finanzierungslücken und zur Stabilisierung der Wirtschaft und des Bankensektors. Sie deckten auch den mittelfristigen fiskalpolitischen Rahmen, die Politik zur Förderung von ausländischen Direktinvestitionen und die Unterstützung des Wachstums sowie die Bemühungen ab, sicherzustellen, dass die am stärksten gefährdeten Bevölkerungsgruppen geschützt werden. RECENT ENTWICKLUNGEN UND AUSBLICK 9. Eine starke Investitionsverlangsamung hat das Wirtschaftswachstum gedämpft. Die rückläufigen ausländischen Direktinvestitionen, die anhaltende Unsicherheit über OT-2, die Probleme im Kohlesektor und die kontraktiven Auswirkungen der Abschreibungen (siehe unten) haben das Wachstum belastet, das sich von 11 Prozent im Jahr 2013 auf 7 Prozent im vergangenen Jahr verlangsamte. Während die Investitionen gesunken sind, blieb der Konsum robust und wuchs mit knapp 9 Prozent. Es wird erwartet, dass sich das Wachstum von 2015-17 auf rund 4 Prozent verlängern wird, da OT-1 in eine relativ mineralarme Erdschicht gelangt und dann vor allem ab 2020, wenn OT-2 in die Produktion gelangt, stark anzieht. Die Inflation stieg im Zuge der Währungsabwertung und der politischen Konjunktur im Jahr 2014 deutlich an und erreichte im Juli bei über 15 Pro - zent, während sie sich seither entspannt hat und deutlich über dem Ziel von 7 Prozent liegt. 10. Während sich das Leistungsbilanzdefizit verringert hat, bleibt das BOP insgesamt schwach. Die Exporte sind im Wesentlichen auf OT-1 zurückzuführen, die Mitte 2013 mit der Produktion begannen. Gleichzeitig sind die Ausrüstungsimporte stark zurückgegangen und verfolgen den anhaltenden Rückgang der ausländischen Direktinvestitionen. Andere Importe waren jedoch trotz der Währungsabwertung robust, während sie die Konsumstärke widerspiegelten, und die Baumaterialien sind deutlich gestiegen, was die politischen Impulse für den Bausektor widerspiegelt. Obwohl ein Handelsbilanzüberschuss im Jahr 2014 registriert wurde, blieb das gesamte BOP aufgrund von Dienstleistungsabschlüssen im Zusammenhang mit OT und schwachen FDI in erheblichem Defizit. Ende 2014 beliefen sich die Brutto-Reserven auf der Stückliste auf 3 Monate der Einfuhren, das entspricht 75 Prozent der kurzfristigen Verbindlichkeiten, 29 Prozent des breiten Geldes und 62 Prozent der IWF-risikobehafteten Metrik. 11. Bei den bestehenden Politiken wird erwartet, dass die externen Finanzen der Mongolien unter Druck bleiben (siehe Basisszenario in den Tabellen 14). Die Exporte dürften für einige Jahre schwächer werden, da das OT-Projekt mit ungünstigen geologischen Verhältnissen konfrontiert ist und die Importe voraussichtlich zu Beginn des OT-2-Baus steigen werden. Es könnte auch Schwierigkeiten geben, die Reife der Schulden im öffentlichen und privaten Sektor zu beenden (allein die PBOC-Swap-Linie, die auch in diesem Jahr reif ist, allein im Jahr 2017). Angesichts der anhaltend einfachen makroökonomischen Politik sollte das Leistungsbilanzdefizit mittelfristig durchschnittlich 15 Prozent des BIP ausmachen, und die Analyse der Mitarbeiter zeigt, dass die Währung um 10 bis 15 Prozent überbewertet ist (siehe Anhang II). Das Gesamt-BOP dürfte bis 2017 ein erhebliches Defizit aufweisen, was einen anhaltenden Druck auf die Reserven und den Wechselkurs bedeutet. 12. Die Haushaltsdefizite bleiben groß. Da die Einnahmen unter das Ziel fallen, lag das Budgetbudgetdefizit im Jahr 2014 bei 4 Prozent des BIP und damit über der im Fiskalstabilitätsgesetz (FSL) festgelegten Grenze von 2 Prozent. Darüber hinaus unternahm das DBM erhebliche Ausgaben für Fiskalaktivitäten wie öffentliche Infrastrukturprojekte außerhalb des Haushaltsplans und drückte das konsolidierte Defizit auf 11 Prozent des BIP (siehe Anhang III). Im Jahr 2015 hat ein zusätzlicher Haushalt einen Großteil der Ausgaben des DBM für Haushaltsmittel und 6 INTERNATIONAL MONETARY FONDS MONGOLIA mit einem kombinierten Defizit von 5 Prozent erreicht. Dies hängt jedoch von mehreren unrealistischen Annahmen ab und schließt auch 2% des BIP in so genannte kommerzielle DBM-Ausgaben aus, die auch als fiskalisch betrachtet werden sollten2. Insgesamt dürfte das Gesamtdefizit nur 10% des BIP erreichen Die Behörden rechnen mit zusätzlichen Ausgabenkürzungen in der Größenordnung von 5 Prozent des BIP, und wenn dies der Fall ist, würden diese die Haushaltskonten auf das Personalanpassungsszenario (siehe unten) verschieben. 13. Die Staatsverschuldung ist stark gestiegen und ist nun extrem hoch. Auf die Behörden definitioni. e. In NPV-Konditionen und unter Ausschluss der PBOC-Swap-Zeichnungen, belief sich Ende 2014 auf 55 Prozent des BIP und überschritt die Obergrenze der FSLs um 40 Prozent. Nachfolgende FSL-Änderungen legten einen Weg zur Rückkehr zu den 40-Prozent-Schuldgrenze bis 2018 (und auf die 2-Prozent-Defizitgrenze als gut), während die jüngsten Debt Management Law von internationalen Best Practice von Neudefinition Schulden verschoben Staatsschuld und bestimmte auszuschieden Staatliche Garantien. Bei der Definition der Personalbestimmungen zu nominalen Bedingungen und unter Einbeziehung der PBOC-Verschuldung erreichten sie im vergangenen Jahr 76 Prozent des BIP (für den gesamten öffentlichen Sektor einschließlich staatlicher Unternehmen) und werden bei einem anhaltenden Defizit im Jahr 2017 voraussichtlich 92 Prozent des BIP erreichen So schnell wie das Bergbauwachstum steigt.3 Wie in der begleitenden DSA gezeigt, übersteigen die Schlüsselschuld-Indikatoren für einige Jahre die relevanten Schwellenwerte, und die Mongolei wird somit mit einem hohen Risiko von Schuldenkummer beurteilt. At the same time, debt is not on an ever-increasing path, and it is relatively small compared to the countrys resource wealth, if the latter can be realized.4 14. Monetary conditions have tightened but are still too loose. Over the past year, the BOM has hiked the policy rate by 250 basis points, to 13 percent, which is within the range suggested by a Taylorrule analysis and substantially positive in real terms.5 Reserve money growth has been close to zero, reflecting the decline in NFA. Structural liquidity in the banking systemexcess reserves on MNT deposits plus amounts mopped up on a short-term basisis tight. Credit growth, including securitized mortgages, has slowed substantially (though it was still high at 23 percent y/y at end-2014). And the exchange rate has continued to weaken, which is likely to be contractionary in an economy so dependent on imported inputs, and where the export sector is largely dollarized. Still, growth of NDA on the BOMs balance sheet has been substantial, on account of increasing net credit to government as well as unconventional easing programs, and with inflation and the BOP both remaining under pressure, further tightening is needed. 2 Project and borrower selection criteria are difficult for staff to evaluate, and given the DBMs track record, a cautious approach is desirable. Moreover, standard statistical principles do not allow for a portion of an agencys spending to be carved out and treated differently. 3 Even without OT-2and thus with lower growthdebt would be on a declining path from 2018, as shown in an alternate scenario in the accompanying DSA. 4 Mineral wealthmost of which, of course, has not been converted to financial wealthhas been estimated at up to 3 trillion, which would be nearly 150 times Mongolias total external debt and more than 300 times its gross public debt. 5 Because of the weakness of monetary transmission through the interest-rate channel, care should be taken in interpreting a Taylor rule for Mongolia. INTERNATIONAL MONETARY FUND 7 MONGOLIA 15. As the economy has cooled, banking-system vulnerabilities have become apparent. Banks balance sheets have doubled in just two years, driven by the BOMs large stimulus programs,6 while foreign currency lending was substantial (a quarter of the banks loans). On the back of weak underwriting standards, credit risks increased significantly. In 2014 nonperforming loans (NPLs) as well as loans past-due by less than 90 days were up by 48 percent and 131 percent y/y, respectively. Although the reported NPL ratio remains low at 3.1 percent, asset quality problems seem to be understated especially given the inadequate classification of loan restructurings at some banks. The real estate market is cooling, further increasing credit risk, and, as noted above, liquidity is becoming tight. Stress tests suggest that some banks are vulnerable to economic shocks and that capital buffers should be strengthened in recognition of the balance-sheet deterioration that has already occurred as well as possible future deterioration given the risky environment. 16. Risks are to the downside. Elevated BOP pressure constitutes a major threat to economic stability. Prolonged delay of OT-2 could further undermine business confidence, slow growth, and worsen both external and fiscal indicators. Banking-sector conditions could worsen. Externally, a further slowdown in China could reduce Mongolias export demand, and surges in global volatility could also affect Mongolias ability to borrow externally (see Annex IV). Authorities Views 17. The authorities agreed that the economy had gone through a difficult period because of severe BOP shocks and argued that the policy response had stabilized the situation. Some interlocutors argued that Mongolia had faced massive external shocks that could have led to a BOP crisis, a credit crunch, and economic contraction. These dire outcomes, however, were avoided on account of the countercyclical policy response, which helped the economy to achieve a soft landing. 18. As for the outlook, the authorities had a more benign view than staff. While the baseline scenario was developed jointly by the IMF team and the technical staff of the MOF and BOM, the authorities expected that their policy responses (see below) would be sufficient to turn the situation around, combined with other options for managing BOP pressure, including additional borrowing from the international market as well as donors. Finally, they noted that about 50 percent of DBM spending, which includes the projects with government guarantees, was included in the budget and opined that DBM commercial spending should not be included. 6 The loans under the BOM easing programs were exempted from capital charges (zero-risk weighted) and from limits on large exposures and industry concentrations. 8 INTERNATIONAL MONETARY FUND MONGOLIA POLICY DISCUSSIONS A. Macroeconomic Policies 19. Comprehensive policy adjustment is urgently required to address external and fiscal imbalances and stabilize the economy. Public debt is too high and inflation above target, but the most pressing concern is the severe BOP pressure that the country continues to face. Fiscal and monetary tightening, along with exchange-rate flexibility, is needed. Much the same advice was offered during the 2013 Article IV consultation, with limited takeup (see Annex V). Policies on investment, social protection, and banking also need to be strengthened. Summary of Key Policy Recommendations Budget / DBM Cut consolidated deficit to 4 percent of GDP in 2015 and to around 2 percent by 2017. Consolidate all DBM spending into budget and strengthen DBM governance. Monetary Slow credit growth. Transfer unconventional easing programs to budget. Limit deficit monetization. Strengthen BOM governance. Keep XR flexible. Limit intervention to combating excessive volatility. Implement structural measures to boost investment. Improve investment climate. Move ahead with major mining projects. Ensure protection of most vulnerable in society, including through enhanced incometargeting of subsidies. Enhance provisions and capital. Strengthen supervisory framework. Phase out forbearance. Exchange Rate Investment Social Protection Banking 20. The authorities have taken policy steps in the right direction, but further measures are needed: 2015 Supplementary Budget. Facing likely revenue shortfalls, the authorities revised down the revenue target and correspondingly cut expenditure in a 2015 supplementary budget, passed in January. Non-commercial spending of DBM was brought on budget, and the consolidated deficit targeted at 5 percent of GDP. This target, however, will be difficult to reach as revenues are still over-estimated. Amendments to Fiscal Stability Law. Recognizing that public debt had exceeded the ceiling enshrined in the Fiscal Stability Law (FSL), the authorities in February 2015 amended the FSL and enacted a new Debt Management Law (DML) that narrowed the coverage of debt as previously defined in the FSL. The new legal framework also raised the debt ceiling and set a path to bring debt (albeit more narrowly defined) and the fiscal deficit down to the previous limits by 2018 (which will be hard to achieve on current policies).7 7 To be precise, the FSL amendments and new DML implement the following: (1) non-commercial DBM spending is brought onto the budget and thus included in the calculation of the structural fiscal deficit (2) structural fiscal deficit limits are temporarily raised (5 percent of GDP in 2015, 4 percent of GDP in 2016, and 3 percent of GDP in 2017) but kept at 2 percent of GDP for 2018 and beyond (3) the definition of debt is narrowed from public to general government debt (with the new definition, SOE debt and government guarantees that are fully secured by government securities are excluded) and (4) debt limits are temporarily raised (58.3 percent in 2015, 55 percent in 2016 and 50 percent in 2017) but remain at 40 percent for 2018 and beyond. INTERNATIONAL MONETARY FUND 9 MONGOLIA CMAP. Parliament on February 18, 2015 approved a Comprehensive Macro Adjustment Plan (CMAP), which comprises macro-financial adjustment and structural policies. CMAP retains the target fiscal path in the supplementary budget. It envisages phasing out the BOMs Price Stabilization Program (PSP) and transferring remaining PSP loans to the government. The CMAP does not, however, comprehensively transfer all of the BOMs easing programsincluding funding for new mortgages and financial support at the request of commercial banks for their corporate clientsto the budget. On the structural front, CMAP calls for steps to strengthen social welfare, enhance the investment climate, facilitate FDI inflows, promote exports, and encourage import substitution. 21. Staff recommended a stronger package of macro policy measures, as follows:8 Fiscal policy: A new budget amendment for 2015 would be needed to bring the consolidated deficit (including all DBM spending) down to around 4 percent of GDP this year. The deficit would continue to fall until reaching around 2 percent in 2017, and it would be possible to move toward fiscal surpluses a few years after that. (Staff analysis does not find grounds for loosening the long-term deficit target specified in the FSL (see Annex VI), nor do staff support the redefinition of debt in the DML.) Within the overall budget envelope, total spending by the DBM (commercial and non-commercial) would be limited to around 2 percent of GDP in 2015 and would decline thereafter. Furthermore, authority over the budget and the DBMincluding its commercial spendingwould be unified in the Ministry of Finance, and reporting would be consolidated. Reforms to strengthen governance of the DBM could also be enacted. Capital expenditures are very high in international comparison, and while part of this is explained by existing infrastructure deficiencies and the countrys low population density, substantial cuts nonetheless appear to be possible moreover, given the openness of the economy, the associated fiscal multipliers are likely to be small. At the same time, there is scope to cut current expenditure and raise revenue: large, untargeted subsidies should be phased out in favor of programs (like food stamps) that more directly reach the poor. Moreover, recent growth in the public wage bill could be addressed and procurement inefficiencies reduced. Some social benefits could be made taxable and customs duties increased. Going forward, a new budget law amendment could be considered to restrain Parliaments ability to increase the aggregate budget envelope. Monetary policy. The stance should be tightened without delay, including by restricting deficit monetization, and credit growth should be further slowed, following the harmful credit boom in recent years (see Annex VI). The BOMs unconventional programs (PSP, 8 The scenario also assumes that banking, structural, and social protection reforms are also undertakensee below. 10 INTERNATIONAL MONETARY FUND MONGOLIA mortgages, and financial support at the request of commercial banks for their corporate clients) should be transferred to the budget, wherein a transparent manner and with Parliamentary oversightthey can compete with other spending priorities for limited resources. The nature of BOM operations should changeunconventional easing programs targeting particular industries or providing financial support at the request of commercial banks for their corporate clients should be ruled out, while open market operations may need to be enhanced to ensure sufficient liquidity in the banking system. Further BOM governance reforms should also be considered, such as giving Monetary Policy Committee members a vote on BOM decisions. Exchange rate flexibility. The BOM would limit its involvement in FX markets to preventing excessive market volatility, and as a result, the exchange rate would move more flexibly. The strategy is to contain further sharp depreciation through adequate macro policies, and to limit intervention to addressing excessive volatility. 22. These policy efforts would help stabilize the economy, but reserve buffers would remain thin, suggesting the need for additional financing. As shown in Tables 5-9 and Figure 5, growth in this adjustment scenario would slow somewhat in 2015 given the policy tightening, and inflation would rise by a moderate amount for several years, given exchange-rate pass-through. The fiscal adjustment would also put public debt on a more sustainable path. Imports would moderate, and strengthened policies would support market confidence and facilitate rollovers of several large bonds maturing in 2015 and 2017 (a total exceeding 2 billion).9 As a result, foreign-exchange reserves would stabilize at around 1 months of imports for several years (before rising in 2019 20). This is substantially stronger than in the baseline but still lower than desirable, suggesting the need for additional financing in support of the adjustment effort. 23. Looking ahead, prudent macroeconomic management must be maintained to ensure that resource wealth can be harnessed effectively. Many resource-rich countries have failed to realize the promise of prosperity. Avoiding procyclical fiscal policy, saving resource revenues and investing them wisely, ensuring cautious monetary policy, and maintaining a competitive exchange rate to avoid the effects of Dutch Disease, are all essential components.10 Mongolia has a relatively large resource endowment compared to some other resource-rich economies, and managing that wealth wisely is of critical importance. Authorities Views 24. The authorities saw the benefits of additional fiscal adjustment. They agreed that the fiscal path in the supplementary budget and CMAP faced risks and that further measures were thus needed. They expressed their intention to cut budget spending further via a government resolution, supported by another supplementary budget later in the year, and to reduce DBM spending as well, with total cuts amounting to around 5 percent of GDP. They also saw an important role for additional financing to bridge short-term BOP difficulties. 9 The current account deficit narrows in dollar terms relative to the baseline scenario but since the adjustment lowers GDP, the CAD in percent of GDP rises. Also, the CAD still worsens for a few years within the adjustment scenario, on account of OTs geological conditions and the start of OT-2 construction. 10 For further background, see IMF Departmental Paper No. 13/2 (August 28, 2013), Boom, Bust, or Prosperity Managing Sub-Saharan Africas Natural Resources Wealth. INTERNATIONAL MONETARY FUND 11 MONGOLIA 25. The authorities broadly shared staffs views on monetary policy going forward. The BOM noted that they had intentionally been phasing out their unconventional programs, and the government also expressed its agreement with this objective. The BOM envisaged transferring the outstanding program loans to the government by end-June. They noted that the Price Stabilization Program had basically achieved its goals, as supply-driven inflation had continuously been low and stable over the past 26 months, and the economy had achieved a soft landing. They continued to see the mortgage program as highly beneficial, noting that it aimed to make households expenditures more efficient and to boost middle-class savings. They believed that this program should be continued as part of the governments long-term saving policy, in conjunction with ongoing structural reforms of the pension fund. Finally, they suggested that it would be more appropriate to consider changes to the central bank law only after economic conditions had improved. On exchange rate policy, they noted that they are fully committed to the flexible exchange rate regime. B. Structural Reforms and Social Policies 26. Structural measures are needed to boost investment and growth, and an enhanced effort is needed to protect the poor. To return the economy to a sustainable, rapid growth path, a focused effort is needed to improve the investment climate, which was harmed by previous policy changes, boost FDI, and move ahead with large mining projects. Many of these are included in the authorities CMAP. Given resource constraints, subsidy programs should be targeted better to protect the poorest and most vulnerable in society. 27. The authorities are redoubling efforts to boost investment. The CMAP, now approved by Parliament, includes reaching agreement on OT and TT as key goals, and a former prime minister has been appointed minister in charge of mega projects, charged with moving those negotiations forward. The government has also proposed a host of measuresunder the CMAP and through other initiativesto increase investment, boost exports, and support appropriate import substitution. Finally, the tax law is being amended to improve clarity and avoid conflicts in the judicial system with foreign investors. 28. Special efforts must be made to ensure that the most vulnerable in society are adequately protected. Compared to other similarly placed countries, Mongolia has a large budget for subsidies and transfers, amounting to some 8 percent of GDP. Most of these are targeted to different categories of the populationmothers, children, the elderly, the disabled, et al. without regard to income. Economic adjustment policies, while necessary for medium-term growth and stability, will create short-term dislocations, and it is vital that policies be designed to protect the poor. In the short-term, the income-targeted food stamp program could be expanded, and looking forward, the proxy means-tested subsidy programs currently under design should be implemented expeditiously. The World Bank has done significant work in this area (see Informational Annex), and there exists sufficient technical capacity to improve targeting. 12 INTERNATIONAL MONETARY FUND MONGOLIA Authorities Views 29. The authorities noted that, as a policy matter, income targeting of subsidies is controversial in Mongolia. They had proposed this in the first supplementary budget for 2015, but Parliament rejected many of the relevant measures. Cultural values prioritize children and the elderly, regardless of income level. That said, they firmly agreed on the need to protect the poorest, which may require difficult choices given hard budget constraints. C. Financial Sector 30. A comprehensive approach to addressing problems in the banking system is needed to contain systemic risks. The BOM has taken some good steps, but more needs to be done (and the IMF stands ready to support the authorities with further TA, as needed). Risk weights for unhedged FX loans were increased in August 2014, and the 1-percent general provision for performing loans was restored, though only for new loans. Nevertheless, loan classification is heavily reliant on days overdue rather than on more qualitative assessments of borrowers creditworthiness and future cash flows, while the prudential treatment of restructured loans is weak. The banking system has already seen balance-sheet deterioration, and it remains vulnerable to a further deterioration of economic conditions and the crystallization of hidden losses. 31. As a priority, provisioning and capital buffers need to be reinforced (see Annex VII for a detailed list of banking-sector recommendations). The level of provisions (70 percent of NPLs) appears to be low given the likely understatement of NPLs, the inadequate treatment of loan restructuring, the uncertain value of recoveries (certain Civil Code provisions make foreclosures difficult, and there is significant uncertainty regarding the valuation of collateral, and the cooling of the real estate market. Thus, current capital levels (e. g. a system-wide Tier 1 ratio of 12.5 percent) are likely overstated. The BOM should take immediate measures to increase provisions and capital across the banking system, and particularly for the most vulnerable banks. This could usefully be informed by an independent asset quality review of the major banks. 32. The BOM should eliminate forbearance and strengthen risk recognition. Assetclassification and provisioning regulations should be enhanced by introducing a stricter treatment and regular reporting of restructured loans. The rules should also be changed to embed more qualitative and forward-looking assessments of the borrowers condition, including hedging capacity against foreign-exchange risk. The 1-percent general provision should apply to the entire stock of performing loans, and the BOM should discontinue forbearance vis--vis loans made under the Price Stabilization Program (PSP). Capital requirements for systemically important banks should be raisedthe Tier 1 ratio should be increased to 10.5 percentand targeted additional capital requirements should be imposed on banks that have large concentrations (loan, deposit, and foreign exchange). The BOM should move quickly to resolve non-viable banks, if needed. INTERNATIONAL MONETARY FUND 13 MONGOLIA 33. The supervisory and the crisis preparedness frameworks need to be strengthened. Legislative changes are needed to secure for the BOM flexible powers for early intervention. Current supervisory assessments (CAMELS) should be turned into robust and forward-looking tools for early identification of risks and prompt corrective action. Finally, the Supervisory Committee should be empowered as the key decision maker. Cooperation on financial stability and crisis preparedness matters should be strengthened via the Financial Stability Council, which should be expanded to include the Deposit Insurance Corporation. The legal framework should prevent the reversal of resolution actions and provide early and flexible intervention triggers as well as better safeguards against misuse of public funding. Emergency liquidity assistance should be provided only to solvent and viable banks, and should be priced at penalty rates. 34. AML/CFT. In 2011, the Financial Action Task Force (FATF) designated Mongolia as a jurisdiction not making sufficient progress in implementing the agreed action plan to enhance its Anti-Money-Laundering / Countering the Financing of Terrorism (AML/CFT) framework. Since then, with the support of ongoing IMF TA, Mongolia has strengthened its framework considerably, and it is no longer subject to the FATFs on-going global AML/CFT compliance process. Authorities Views 35. The authorities welcomed staffs suggestions on strengthening the banking system. They considered that the recent tightening of policies, including in the area of prudential regulations, would help contain the risks in the banking system. Looking ahead, the BOM agreed that further policy attention should be devoted to monitoring and pre-emptively responding to potential risks in the banking sector, and welcomed the recommendations of the recent Fund TA mission, which could be integrated into the Medium Term Supervisory Strategy. D. Other Issues 36. Article VIII. There are two previously identified multiple currency practices, relating to the BOMs calculation and use of reference exchange rates. No action is planned. STAFF APPRAISAL 37. Mongolia has a bright future, but the next few years will be challenging. If managed prudently, the countrys massive resource wealth could spell prosperity for all Mongolians, nearly one-third of whom still live below the poverty line. These are not just fond hopes for a distant future it could be as early as 2020 that OT-2s exports begin, boosting GDP dramatically and generating fiscal revenues to transform the economy, improve living standards, and build up an endowment for future generations. In light of its resource wealth, and assuming this can continue gradually to be realized, Mongolia is projected to be solvent given the strong projected revenues from mining over the long term. The country does, however, face serious liquidity pressures and 14 INTERNATIONAL MONETARY FUND MONGOLIA risks in the short run, before mining inflows ramp up. Until then, financing outsized prospective fiscal and BOP deficits will be difficult. 38. Loose macro policies have helped create the difficulties the economy faces today. Mongolias present problems were driven in large part by major external shocks, to FDI and to coal exports. But policy errors also contributed. Policies were loosened first to share the benefits of prospective mineral wealth broadly, and then to buffer the economy from shocks. This succeeded for a whilein maintaining high growth, but at the cost of exacerbating economic and financial vulnerabilities. Fiscal discipline was undermined by large off-budget spending, and monetary policy was eased dramatically. This stimulus fueled inflation, compounded BOP pressure, laid the seeds for asset-quality problems in the banking system, and generally undermined confidence at home and abroad. 39. Policy adjustment is needed to provide a sustainable solution to Mongolias economic challenges. Macro policies need to be tightened to keep current account deficits at more manageable levels and to improve the fiscal position. If additional external financing can be marshaled in support of such policies, the adjustment will be less disruptive. At the same time, measures are needed to strengthen the banking system, and it is vital that steps be taken to improve the targeting of subsidies and thus ensure protection of the most vulnerable in society. 40. The authorities have already taken a number of steps to strengthen the economy. Part of DBMs spending has been brought on budget, and the consolidated fiscal deficit is expected to decline this year. A government resolution to cut spending administratively is envisaged, to be backed up by a second supplementary budget later in the year. The BOM has hiked the policy rate twice, slowed the pace of PSP and mortgage lending, and proposed transferring the existing stock of program loans to the governments balance sheet. The authorities have redoubled efforts to reach agreement with investors on large projects and introduced other structural measures to boost exports and reduce imports. Steps have been taken to strengthen the banks and to improve bank supervision and crisis preparedness. 41. More, however, is needed: The fiscal path needs to be secured with Parliamentary approval for measures to control spending, both on-budget and off, as part of a coherent, medium-term macro framework. The BOM should cease unconventional easing programs targeting particular industries or providing financial support at the request of commercial banks for their corporate clients, and should instead return to traditional central-banking functions these programs should, if desired, by conducted by the government, competing with other spending priorities for funds within the budget. The monetary stance should be tightened further, to control credit growth and support the BOP. INTERNATIONAL MONETARY FUND 15 MONGOLIA Foreign-exchange intervention should be limited to dealing with episodes of excessive volatility, and the exchange rate should be allowed to move flexibly. Banks provisions and capital buffers should be bolstered, informed by an independent asset-quality review, and supervisory and crisis-preparedness frameworks enhanced. DBM and BOM governance should be strengthened. The investment climate should be enhanced, and progress made on mega-mining projects, so as to boost FDI. Especially important, social safety nets should be strengthened and better targeted. 42. With a comprehensive adjustment strategy in place, Mongolia will be well placed to realize its economic potential. Todays challenges are serious but surmountable, and the countrys medium-term prospects remain strong. With prudent management, Mongolia should be able to raise adequate external financing in support of its adjustment policies and build reserve buffers, while safeguarding external and public debt sustainability. 43. cycle. 16 It is recommended that the next Article IV consultation take place on the standard 12-month INTERNATIONAL MONETARY FUND MONGOLIA Figure 1. Real Sector Developments Dragged by weak investment, growth has dipped to single Current-account narrowing has, until very recently, been digits. more than offset by financial account deterioration Real GDP Growth Current and Capital Accounts (In million US) (Contribution and year-on-year percentage change, 2012Q1-2014Q4) 40 Consumption 35 Investment Net Exports 2500 GDP Current Account Balance 2000 30 25 Capital and Financial Account Balance 1500 20 15 Overall Balance 1000 10 500 5 0 0 -5 -10 -500 -15 -1000 -20 -25 Source: Mongolian authorities. Source: Mongolian authorities. leading to a sharp drop of foreign exchange reserves and which in turn has kept inflation at double digits until depreciation recently. BOM FX Intervention and Exchange Rate Consumer Price Inflation (In percent, Jan. 2012-Jan. 2015) 1,300 Non-food items (contribution to headline CPI) Food items (contribution to headline CPI) Headline CPI (y/y) Non-food CPI (y/y) Food CPI (y/y) 1,400 Sources: Mongolian authorities and IMF staff estimates. Market sentiment has deteriorated, with sovereign spreads and the stock prices of three mining companies listed rising abroad have slumped. JP Morgan EMBI Global Sovereign Spreads Stock Prices for Mining Companies 160 700 140 600 120 500 100 400 80 300 60 200 40 Jan-15 Oct-14 Jul-14 Apr-14 Jan-14 0 Oct-13 Jan-15 Oct-14 Jul-14 Apr-14 Jan-14 Oct-13 Jul-13 Apr-13 Jan-13 Jul-12 Oct-12 Apr-12 Jan-12 Source: Bloomberg LP. 20 Jul-13 Emerging mkts. (EMEs) Apr-13 Vietnam Jan-13 Sri Lanka Oct-12 Mongolia 0 Mong. Mining Corp. (MMC, in HK) South Gobi (in HK) Turquoise Hill (TRQ, in Toronto) MSE top 20 index Rio Tinto (London) Jul-12 100 (Index, January 1, 2012100, Jan. 1, 2012- Mar 13, 2015) Apr-12 (in basis points, January 1, 2012-March 13, 2015) Jan-12 800 Jan-15 Nov-14 Sep-14 Jan-12 Jan-15 Sep-14 Nov-14 Jul-14 May-14 Jan-14 Mar-14 Nov-13 Jul-13 Sep-13 Mar-13 May-13 Jan-13 Sep-12 Nov-12 Jul-12 May-12 Jan-12 Mar-12 Source: Mongolian authorities. Jul-14 0 May-14 5 2,300 0 Mar-14 2,200 Jan-14 10 MNT/US - exchange rate (RHS, inverted scale) Nov-13 2,100 Jul-13 15 Total Intervention Sales (in USm) Sep-13 20 2,000 May-13 1,900 2000 1000 25 Mar-13 1,800 Jan-13 3000 30 Nov-12 1,700 35 Jul-12 1,600 4000 May-12 1,500 Mar-12 5000 Sep-12 (Janaury 2, 2012-February 26, 2015) 6000 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1 2012Q4 2012Q3 2012Q2 2012Q1 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1 2012Q4 2012Q3 2012Q1 2012Q2 -1500 -30 Sources: Bloomberg LP. and IMF staff estimates. INTERNATIONAL MONETARY FUND 17 MONGOLIA Figure 2. Fiscal and Monetary Sector Developments The consolidated deficit has remained large and debt levels have reached a record high. External and Domestic Debt 1/ Mongolia: Fiscal Balance (In percent of GDP) (in percent of GDP) 10 90 External Debt 80 5 Domestic Debt 70 60 0 50 40 -5 30 -10 20 Off budget balance (DBM) 10 -15 0 2014 2010 2011 2012 2013 Sources: Mongolian authorities and IMF staff estimates. 1/ Debt coverage expanded from 2013 onward. Sources: Mongolian authorities and IMF staff estimates. Reserve money growth has slowed owing to FX reserve loss. credit growth has slowed. Credit Growth, PSP, Mortgage, and Deposit Reserve Money Growth and Contribution (Billion togrogs in percent) 100 4000 140 60 90 40 40 20 2000 -10 0 1500 -60 -20 1000 -110 -40 500 Credit growth (in percent) (RHS) 70 60 50 2500 40 30 20 10 0 2014M9 2012M11 Sources: Mongolian authorities and IMF staff estimates. 2014M11 0 Oct-14 Jul-14 Apr-14 Jan-14 Jul-13 Oct-13 Jan-13 Apr-13 Oct-12 Jul-12 Apr-12 Jan-12 Deposit placed at banks Mortgage loan 3000 -60 -160 Total PSP 3500 2014M7 80 Reserve Money Growth (y/y, RHS) 2014M5 NDA Contribution to Reser ve Money Growth 190 2014M3 NFA Contribution to Reser ve Money Growth 2014M1 (Jan. 2012- Dec. 2014) 2013M9 240 2014 The BOM has unwound some of its monetary easing, and 2013M11 2013 2013M7 2012 2013M5 2011 2013M3 2010 2013M1 On budget balance Source: Mongolian authorities. The policy rate is now in line with the range suggested by a Taylor-rule analysis. Nonperforming loans have risen significantly. Actual and Implied Policy Rate Bank Capitalization, Asset Quality and Liquidity (In percent) 16 35 (In percent, Jan. 2012-Jan. 2015) 30 12 10 3.8 Bank capital to risk-weighted assets Total liquid assets to total asset Nonperforming loans to total loans (New Definition-RHS) 14 3.4 25 3.0 20 2.6 15 2.2 10 1.8 Actual Policy Rate (average) Implied Policy Rate INTERNATIONAL MONETARY FUND Jan-15 Sep-14 Nov-14 Jul-14 May-14 Jan-14 Mar-14 Sep-13 Nov-13 Jul-13 May-13 Mar-13 Jan-13 Sep-12 Nov-12 2015Q1 2014Q4 PSP, BOM Deposit and Mortgage (weighted average) Sources: Mongolian authorities and IMF staff estimates. 18 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1 2012Q4 2012Q3 2012Q2 2012Q1 0 Jul-12 2 May-12 4 Jan-12 6 Mar-12 8 Sources: Mongolian authorities and IMF staff estimates. Caution is needed in interpreting FSI indicators given pervasive forbearance and rapid credit growth. MONGOLIA Figure 3. External Sector Developments The current account balance has improved on an improved Copper exports have more than doubled thanks to OT-1s trade balance. production Exports Current Account Balance (In millions of USD) 1000 Trade Services Income Transfer 500 7,000 (USD million) Copper concentrate 6,000 Non-monetary gold Coal Iron ore Crude petroleum oils Cashmere, washed Exports, f. o.b. 5,000 0 4,000 -500 3,000 2,000 -1000 1,000 2014 2013 2012 Sources: Mongolian authorities and IMF staff estimates..while imports have declined on slowing investment. FDI has dropped sharply Foreign Direct Investment Imports (In millions of U. S. dollars, 2012Q1 -2014Q4) (cif, USD million) Consumer goods Fuel Intermediate goods Other imports 1400 Capital goods 1200 1000 6,000 800 5,000 600 4,000 400 3,000 200 2,000 0 1,000 -200 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 The REER appreciated strongly in the past few months, and EBA-lite analysis suggests the currency remains overvalued. Exchange Rates of the Togrog Financial Outflows (Index, 2010100, Jan. 2012-Jan. 2015 an increase is an appreciation) (In millions of USD) Trade credits 2013Q1 Source: Mongolian authorities. and there have been large financial outflows. 200 2012Q4 2012Q1 2014 2013 2012 2011 2010 Sources: Mongolian authorities and IMF staff estimates. 2012Q3 -400 0 2012Q2 7,000 2011 2010 Source: Mongolian autorities. 8,000 Proj 0 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1 2012Q4 2012Q3 2012Q2 2012Q1 -1500 Loans NEER REER REER (10 year average) Bilateral exchange rate against USD 140 Currency and deposits 0 130 120 -200 110 -400 100 90 -600 80 -800 70 Source: Mongolian authorities. Oct-14 Jul-14 Apr-14 Jan-14 Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 60 Jan-12 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1 2012Q4 2012Q3 2012Q2 2012Q1 -1000 Sources: Mongolian authorities and IMF staff estimates. INTERNATIONAL MONETARY FUND 19 MONGOLIA Figure 4. Inclusive Growth Indicators Poverty remains widespread but has continued to decline as has unemployment. Change in Unemployment Rate, Average of 200714 (In percent) Vietnam Sri Lanka Thailand Peru Colombia Mongolia Chile China Pakistan -8 -6 -4 -2 0 2 Source: IMF, WEO database Inequality, however, has been on the rise and inflation volatility is high, hurting the poor. Change in Inflation, Average 1995-2014 Change in Gini Index (in Gini points) -12 -10 -8 -6 -4 -2 0 2 4 6 Nepal (2003-2010) Peru (2002-2010) Kazachstan (2002-2009) Cambodia (2004-2009) Sri Lanka (2002-2010) Chile (2003-2009) Vietnam (2002-2008) Bangladesh (2000-2010) Pakistan (2002-2008) India (2005-2010) Mongolia (2002-2008) Lao P. D.R. (2002-2008) 70 60 (In percent) Highest 50 40 30 20 10 0 6 Source: IMF, WEO database. Mongolia scores relatively well in terms of human Chile 4 Peru 2 Cambodia 0 Bangladesh -2 India -4 Vietnam -6 Pakistan -8 Sri Lanka -10 Mongolia -12 Source: World Development Indicators. Myanmar -10 and it has a reasonably attractive business environment. development Doing Business Index (Ranking in 189 countries, higher rank better environemnt) Human Development Index (HDI) HDI, 2011 Chile Average HDI (1990-2014) 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 72 Kazakhstan 77 Vietnam 78 China 90 Sri Lanka 99 Kyrgyz Republic 102 Zambia 111 INTERNATIONAL MONETARY FUND Nepal Myanmar Bangladesh Pakistan Cambodia Lao P. D.R. India Mongolia Sri Lanka Peru Kazakhstan Chile Lao PDR Source: Human Development Report 2014 (UNDP). 20 41 Mongolia 148 Bangladesh 173 0 50 100 150 Source: World Bank/IFC Doing Business Database, 2015 Report. MONGOLIA Table 1. Mongolia: Selected Economic and Financial Indicators, 201120 (Baseline) 2011 2012 2013 2014 Est. 2015 2016 2017 2018 Projections 2019 2020 44300 (In percent of GDP, unless otherwise indicated) Real sector Nominal GDP (in billions of togrogs) 13174 16688 19118 21844 24315 27101 30144 34094 38525 17.3 12.3 11.6 7.8 4.4 4.2 3.8 6.2 6.4 9.2 7.7 8.3 19.4 24.2 9.0 -0.5 -4.0 6.0 7.0 20.0 Non-mineral real GDP growth 19.9 13.3 9.8 3.6 3.0 5.8 6.2 6.2 6.2 6.3 GDP deflator (percent change) Consumer prices (End-period percent change) 15.1 9.4 12.8 14.2 2.6 11.2 6.0 10.7 6.6 8.0 6.9 7.4 7.1 7.1 6.5 6.8 6.2 6.6 5.3 6.5 Gross national saving Public Private Gross capital formation Public Private 30.4 9.4 21.1 56.9 13.4 43.6 27.7 3.3 24.4 55.0 12.4 42.7 26.6 7.5 19.2 52.1 16.4 35.7 24.3 4.1 20.2 32.6 15.1 17.5 21.5 1.4 20.1 32.6 11.2 21.4 20.3 0.3 19.9 37.6 8.2 29.4 19.5 0.9 18.6 37.1 7.5 29.6 21.1 2.3 18.9 38.0 7.5 30.5 23.3 3.1 20.2 36.5 7.3 29.2 27.2 3.1 24.2 33.0 7.3 25.7 General government accounts Total revenue and grants Mineral revenue Non-mineral revenue Total expenditure and net lending 1/ On-budget structural balance (excluding DBM spending) 33.9 7.8 26.1 37.9 29.8 5.0 24.8 38.9 31.3 5.1 26.2 40.2 -1.2 28.0 4.6 23.4 39.0 -4.3 25.4 3.3 22.2 35.2 -4.2 25.1 2.8 22.3 32.9 -4.0 24.9 2.6 22.3 31.6 -3.1 25.4 3.0 22.4 30.6 -3.0 25.4 3.0 22.4 29.7 -2.0 25.8 3.6 22.1 30.0 -2.0 -4.0 2.8 -9.1 8.0 -8.9 6.8 -11.0 5.7 -9.8 3.7 -7.8 3.3 -6.7 2.0 -5.3 2.0 -4.2 2.0 -4.2 Real GDP growth (percent change) Mineral real GDP growth DBM spending On-budget plus DBM balance (In percent of GDP, unless indicated otherwise) Monetary sector Credit growth (percent change) Reserve money growth (percent change) 72.3 75.3 24.1 30.5 54.3 54.0 23.3 2.7 16.2 -0.9 15.5 8.3 16.0 8.1 16.3 10.2 16.9 10.4 17.1 13.2 Balance of payments Current account balance -26.5 -27.4 -25.4 -8.2 -11.1 -17.3 -17.6 -16.8 -13.2 -5.7 Debt indicators Total public debt 2/ Domestic public debt External public debt 32.7 9.1 23.5 51.3 12.3 39.0 67.3 21.1 46.3 76.5 21.6 54.9 81.5 25.6 56.0 87.6 25.2 62.4 92.6 32.3 60.2 89.1 30.8 58.4 84.9 28.8 56.2 80.1 26.1 54.0 8823.5 1568.6 7958.9 1668.8 7331.5 1411.1 6863.4 1266.2 5644.0 1276.6 5602.8 1282.9 5594.6 1295.0 5581.6 1310.6 5559.3 1329.5 5545.5 1384.9 Memorandum items: Copper prices (US per ton) Gold prices (US per ounce) Sources: Mongolian authorities and IMF staff projections. 1/ Includes DBM spending. 2/ Debt data reflects general government debt (including quasi-sovereign bonds issued by DBM) only before 2013, and starts to cover SOE debt from 2013 onwards. INTERNATIONAL MONETARY FUND 21 MONGOLIA Table 2. Mongolia: Summary Operations of the General Government, 201116 (Baseline) 2014 2011 2012 2013 2015 Budget Est. Budget 1/ 2016 Proj. Proj. (In billions of togrogs) Total revenue and grants Current revenue Tax revenue and social security contributions Income taxes Social security contributions Sales tax and VAT Excise taxes Customs duties and export taxes Other taxes Non-tax revenue Capital revenue and grants 4,468 4,455 3,909 919 473 1,114 294 337 772 545 14 4,976 4,941 4,291 895 674 1,297 312 327 786 650 35 5,984 5,980 5,120 1,117 874 1,435 449 381 863 861 3 6,888 6,887 6,257 1,284 1,086 1,702 598 426 1,161 630 0 6,122 6,120 5,248 1,098 971 1,371 454 355 998 872 2 6,481 6,417 5,430 1,151 1,236 1,254 666 377 747 987 64 6,186 6,122 5,309 1,080 1,182 1,304 621 377 746 813 64 6,805 6,748 5,830 1,211 1,335 1,467 673 418 726 918 56 Total expenditure and net lending Current expenditure Wages and salaries Purchase of goods and services Subsidies to public enterprises Transfers Interest payments 4,997 3,236 802 702 123 1,572 37 6,493 4,428 1,197 855 127 2,123 126 7,689 4,553 1,402 990 176 1,715 270 7,294 5,326 1,583 1,068 201 2,011 463 8,518 5,227 1,567 1,031 178 1,951 500 7,837 5,823 1,806 1,094 100 2,126 697 8,562 5,848 1,831 1,094 100 2,126 697 8,925 6,711 2,236 1,149 100 2,276 950 Capital expenditure and net lending 2/ Capital expenditure Domestically-financed Foreign-financed o/w DBM/Chinggis bond social benefit projects Net lending o/w DBM/Chinggis on-lending 1,761 1,281 1,229 51 2,065 1,783 1,428 355 258 282 217 3,136 2,517 1,237 1,280 1,026 619 498 1,968 2,006 1,808 198 3,292 2,382 1,506 875 642 910 845 2,015 2,015 2,715 2,115 1,014 1,101 795 600 600 2,214 1,764 594 1,170 550 450 450 On-budget balance (incl. grants) On budget structural balance (excluding DBM spending) DBM spending On-budget plus DBM balance 3/ -529 -529 -1,042 475 -1,517 -181 -228 1,524 -1,705 -406 -436 -910 -950 1,487 -2,397 -1,356 -982 -1,011 1,395 -2,376 -1,120 -1,084 1,000 -2,120 Financing Foreign (net) Domestic (net) Privatization receipts (valuation adj.) Domestic bank financing (net) Domestic non-bank financing (net) Stabilization fund accumulation 529 199 329 14 95 461 -241 1,517 3,062 -1,545 1 -1,835 376 -87 1,705 226 1,479 3 1,599 -77 -47 -30 2,397 1,539 858 23 1,226 -470 78 -30 2,376 790 1,586 114 1,816 -314 -30 2,120 1,461 660 9 614 0 36 Total revenue and grants Current revenue Tax revenue and social security contributions Non-tax revenue Capital revenue and grants 33.9 33.8 29.7 4.1 0.1 29.8 29.6 25.7 3.9 0.2 31.3 31.3 26.8 4.5 0.0 31.5 31.5 28.6 2.9 0.0 28.0 28.0 24.0 4.0 0.0 26.7 26.4 22.3 4.1 0.3 25.4 25.2 21.8 3.3 0.3 25.1 24.9 21.5 3.4 0.2 Total expenditure and net lending Current expenditure Of which: Wages and salaries Capital expenditure and net lending 2/ 37.9 24.6 6.1 13.4 38.9 26.5 7.2 12.4 40.2 23.8 7.3 16.4 33.4 24.4 7.2 9.0 39.0 23.9 7.2 15.1 32.2 23.9 7.4 8.3 35.2 24.0 7.5 11.2 32.9 24.8 8.3 8.2 On-budget balance (incl. grants) On-budget structural balance (excluding DBM spending) DBM spending On-budget plus DBM balance -4.0 -4.0 -6.2 2.8 -9.1 -0.9 -1.2 8.0 -8.9 -1.9 -2.0 -4.2 -4.3 6.8 -11.0 -5.6 -4.0 -4.2 5.7 -9.8 -4.1 -4.0 3.7 -7.8 Financing Foreign (net) Domestic (net) Banking system (net) Non-bank Stabilization fund accumulation 4.0 1.5 2.5 0.7 3.6 -1.8 9.1 18.3 -9.3 -11.0 2.3 -0.5 8.9 1.2 7.7 8.4 -0.4 -0.2 -0.1 11.0 7.0 3.9 5.6 -2.0 0.4 -0.1 9.8 3.2 6.5 7.5 -0.8 -0.1 7.8 5.4 2.4 2.3 0.0 0.1 7.8 32.4 47.0 -14.6 13,174 8,823 5,727 63.2 5.0 29.7 46.6 -16.9 16,688 7,959 5,888 28.4 5.1 31.0 47.6 -16.6 19,118 7,331 5,793 16.5 21,844 -7.9 4.6 28.4 47.3 -18.9 21,844 6,863 5,754 8.1 24,315 -10.9 3.3 26.6 42.3 -15.7 24,315 5,644 5,777 -1.9 2.8 26.4 39.1 -12.7 27,101 5,603 5,837 1.4 480 -39 0 (In percent of GDP) Memorandum items (in percent of GDP unless defined otherwise): Mineral revenue Non-mineral revenue (in percent of non-mineral GDP) Total expenditure (in percent of non-mineral GDP) Non-mineral overall balance (in percent of non-mineral GDP) Nominal GDP (in billions of togrogs) Copper price (Market, US per ton) (Structural, US per ton) Primary spending (change in percent) Sources: Mongolian authorities and IMF staff projections. 1/ Reflects 2015 supplementary budget passed in January 2015, with privatization receipts reclassified below the line. 2/ Includes DBM spending. 3/ Only part of DBM spending is included in the 2015 supplementary budget 22 INTERNATIONAL MONETARY FUND MONGOLIA Table 3. Mongolia: Monetary Aggregates, 201117 (Baseline) 2011 2012 2013 2014 2015 2016 2017 Projection (In billions of togrog, end of period) Monetary survey Broad money Currency Deposits 6,412 517 5,895 7,617 603 7,013 9,451 582 8,869 10,636 499 10,137 12,025 495 11,530 13,510 536 12,974 15,163 580 14,584 Net foreign assets 3,067 4,402 934 -1,702 -4,579 -6,192 -8,082 3,345 4,289 -1,370 5,660 -944 3,215 3,986 -3,040 7,026 -771 8,517 9,792 -1,048 10,840 -1,275 12,338 13,364 3 13,361 -1,027 16,604 17,316 1,789 15,527 -712 19,702 20,375 2,440 17,935 -673 23,245 26,228 5,425 20,803 -2,983 Reserve money 1,660 2,166 3,335 3,427 3,397 3,679 3,978 Net foreign assets 3,044 5,164 1,941 120 -2,673 -3,327 -3,468 -1,384 -714 342 879 -133 -2,999 -2,774 401 752 127 1,394 -1,685 4,297 1,627 410 3,307 -572 2,608 854 2,125 6,070 -760 2,198 23 4,655 7,006 -807 1,684 38 6,167 7,445 -971 1,874 55 6,598 12.5 2.7 2.1 23.3 61.2 13.1 -0.9 2.0 16.2 63.9 12.3 8.3 2.0 15.5 66.2 12.2 8.1 2.0 16.0 69.0 Net domestic assets Domestic credit Net credit to government Claims on non-banks (including MBS) Other items, net Monetary authorities Net domestic assets Net credit to government Claims on deposit money banks Minus: Central bank bills (net) Other items, net 1/ Memorandum items: Annual broad money growth Annual reserve money growth Velocity Claims on non-banks growth (including MBS) Claims on non-banks (in percent of GDP) (In percent, unless otherwise indicated) 37.7 75.3 2.1 72.3 43.0 18.8 30.5 2.2 24.1 42.1 24.1 54.0 2.0 54.3 56.7 Sources: Mongolian authorities and IMF staff projections. 1/ Starting in 2014, some of the BOMs unconventional easing programs are reflected in OIN (e. g. mortgage loans have been securitized, and the corresponding mortgage-backed securities assumed by the BOM). INTERNATIONAL MONETARY FUND 23 MONGOLIA Table 4. Mongolia: Balance of Payments, 201120 (Baseline) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Projections (In millions of U. S. dollars, unless otherwise indicated) Current account balance (including official grants) Trade balance Exports Mineral export Non-mineral export Imports of which. mining-related imports -2,759 -993 4,817 4,302 515 -5,810 -3,649 -3,362 -1,553 4,385 4,032 353 -5,938 -3,484 -3,192 -1,321 4,269 4,050 219 -5,590 -3,076 -985 1,002 5,775 5,196 579 -4,773 -2,388 -1,379 844 5,155 4,615 540 -4,310 -2,485 -2,268 -9 4,916 4,385 530 -4,924 -2,743 -2,447 -406 4,491 3,984 508 -4,898 -2,750 -2,539 -372 4,795 4,313 482 -5,167 -2,804 -2,164 117 5,569 5,087 482 -5,452 -2,921 -1,036 1,338 6,751 6,258 493 -5,413 -2,807 -1,161 -843 -1,100 -948 -1,314 -699 -1,323 -829 -1,312 -1,080 -1,366 -1,066 -1,211 -1,005 -1,293 -1,054 -1,381 -1,090 -1,448 -1,128 244 24 220 58 237 34 203 41 129 22 107 22 162 27 135 50 168 31 137 50 171 32 139 50 175 34 141 50 180 37 143 51 190 41 149 55 202 45 157 61 2,864 114 2,750 4,620 77 -406 -2,012 469 2 4,929 120 4,809 4,408 2,325 53 -2,473 496 0 1,438 126 1,312 2,098 -156 9 -1,376 737 0 813 126 687 542 192 -180 -663 743 53 -23 131 -154 1,069 -238 -129 -1,150 294 0 2,008 138 1,871 2,326 -32 -90 -834 501 0 597 146 451 1,901 -1,230 -102 -777 658 0 2,760 158 2,602 2,580 158 -57 -743 664 0 2,601 172 2,429 2,525 138 -97 -736 599 0 2,100 190 1,910 2,184 142 -226 -731 540 0 Errors and omissions 258 -71 -131 -422 0 0 0 0 0 0 Overall balance 364 1,497 -1,885 -594 -1,403 -260 -1,851 221 437 1,063 Services, net Income, net Current transfers General government Other sectors Of which: Workers remittances Capital and financial account Capital account Financial account Direct investment Portfolio investment Trade credits, net Currency and deposits, net Loans, net Other, net Memorandum items: Current account balance (in percent of GDP) -26.5 -27.4 -25.4 -8.2 -11.1 -17.3 -17.6 -16.9 -13.2 -5.7 Copper price (in U. S. dollars per ton) 8,823 7,959 7,331 6,863 5,644 5,603 5,595 5,582 5,559 5,546 Oil price (in U. S. dollars per barrel) Gold price (in U. S. dollars per troy oz.) Sources: Mongolian authorities and IMF staff projections. 24 INTERNATIONAL MONETARY FUND 104 105 104 96 51 59 64 67 68 68 1,569 1,669 1,411 1,266 1,277 1,283 1,295 1,311 1,329 1,385 MONGOLIA Table 5. Selected Economic and Financial Indicators, 201120 (Adjustment Scenario) 2011 2012 2013 2014 Est. 2015 2016 2017 2018 Projections 2019 2020 42166 (In percent of GDP, unless otherwise indicated) Real sector Nominal GDP (in billions of togrogs) Real GDP growth (percent change) Mineral real GDP growth 13174 16688 19118 21844 23660 26201 28988 32755 36732 17.3 12.3 11.6 7.8 2.9 4.2 3.9 6.5 6.6 9.3 7.7 8.3 19.4 24.2 9.0 -0.5 -4.0 6.0 7.0 20.0 Non-mineral real GDP growth 19.9 13.3 9.8 3.6 1.0 5.8 6.4 6.6 6.5 6.3 GDP deflator (percent change) Consumer prices (End-period percent change) 15.1 9.4 12.8 14.2 2.6 11.2 6.0 10.7 5.3 9.6 6.3 8.6 6.5 8.2 6.1 7.2 5.2 6.9 5.0 6.5 Gross national saving Public Private Gross capital formation Public Private 30.4 9.4 21.1 56.9 13.4 43.6 27.7 3.3 24.4 55.0 12.4 42.7 26.6 7.5 19.2 52.1 16.4 35.7 24.3 4.1 20.2 32.6 15.1 17.5 21.8 3.8 18.0 30.6 8.4 22.2 20.4 5.3 15.1 37.2 8.0 29.2 18.5 5.8 12.7 38.5 8.1 30.4 20.2 5.9 14.3 39.4 8.2 31.2 22.4 6.1 16.3 37.5 8.4 29.0 29.3 6.3 23.0 35.4 8.5 26.9 General government accounts Total revenue and grants Mineral revenue Non-mineral revenue Total expenditure and net lending 1/ On-budget structural balance (excluding DBM spending) 33.9 7.8 26.1 37.9 29.8 5.0 24.8 38.9 31.3 5.1 26.2 40.2 -1.2 28.0 4.6 23.4 39.0 -4.3 26.5 3.5 23.0 31.0 -1.9 26.1 3.0 23.1 28.8 -2.0 26.1 2.8 23.3 28.4 -2.0 26.9 3.4 23.5 29.2 -2.0 27.0 3.4 23.6 29.3 -2.0 27.5 4.3 23.2 29.8 -2.0 -4.0 2.8 -9.1 8.0 -8.9 6.8 -11.0 2.8 -4.6 0.5 -2.7 0.0 -2.3 0.0 -2.3 0.0 -2.3 0.0 -2.3 DBM spending On-budget plus DBM balance (In percent of GDP, unless indicated otherwise) Monetary sector Credit growth (percent change) Reserve money growth (percent change) 72.3 75.3 24.1 30.5 54.3 54.0 23.3 2.7 12.6 -3.3 12.9 6.4 13.7 7.4 13.8 11.4 14.4 12.0 15.1 14.6 Balance of payments Current account balance -26.5 -27.4 -25.4 -8.2 -8.8 -16.8 -20.0 -19.3 -15.0 -6.1 Debt indicators Total public debt 2/ Domestic public debt External public debt 32.7 9.1 23.5 51.3 12.3 39.0 67.3 21.1 46.3 76.5 21.6 54.9 81.3 23.5 57.9 81.8 21.8 60.0 81.4 19.7 61.7 76.5 17.7 58.9 72.5 16.0 56.5 67.4 14.5 52.9 8823.5 1568.6 7958.9 1668.8 7331.5 1411.1 6863.4 1266.2 5644.0 1276.6 5602.8 1282.9 5594.6 1295.0 5581.6 1310.6 5559.3 1329.5 5545.5 1384.9 Memorandum items: Copper prices (US per ton) Gold prices (US per ounce) Sources: Mongolian authorities and IMF staff projections. 1/ Includes DBM spending. 2/ Debt data reflects general government debt (including quasi-sovereign bonds issued by DBM) only before 2013, and starts to cover SOE debt from 2013 onwards. INTERNATIONAL MONETARY FUND 25 MONGOLIA Table 6. Mongolia: Summary Operations of the General Government, 201116 (Adjustment Scenario) 2014 2011 2012 2013 2015 Budget Est. Budget 1/ 2016 Proj. Proj. (In billions of togrogs) Total revenue and grants Current revenue Tax revenue and social security contributions Income taxes Social security contributions Sales tax and VAT Excise taxes Customs duties and export taxes Other taxes Non-tax revenue Capital revenue and grants 4,468 4,455 3,909 919 473 1,114 294 337 772 545 14 4,976 4,941 4,291 895 674 1,297 312 327 786 650 35 5,984 5,980 5,120 1,117 874 1,435 449 381 863 861 3 6,888 6,887 6,257 1,284 1,086 1,702 598 426 1,161 630 0 6,122 6,120 5,248 1,098 971 1,371 454 355 998 872 2 6,481 6,417 5,430 1,151 1,236 1,254 666 377 747 987 64 6,260 6,196 5,411 1,111 1,173 1,317 603 457 750 785 64 6,840 6,784 5,904 1,241 1,317 1,418 647 560 723 880 56 Total expenditure and net lending Current expenditure Wages and salaries Purchase of goods and services Subsidies to public enterprises Transfers Interest payments 4,997 3,236 802 702 123 1,572 37 6,493 4,428 1,197 855 127 2,123 126 7,689 4,553 1,402 990 176 1,715 270 7,294 5,326 1,583 1,068 201 2,011 463 8,518 5,227 1,567 1,031 178 1,951 500 7,837 5,823 1,806 1,094 100 2,126 697 7,338 5,356 1,711 1,047 100 1,801 697 7,537 5,441 1,671 1,084 70 1,666 950 Capital expenditure and net lending 2/ Capital expenditure Domestically-financed Foreign-financed o/w DBM/Chinggis bond social benefit projects Net lending o/w DBM/Chinggis on-lending 1,761 1,281 1,229 51 2,065 1,783 1,428 355 258 282 217 3,136 2,517 1,237 1,280 1,026 619 498 1,968 2,006 1,808 198 3,292 2,382 1,506 875 642 910 845 2,015 2,015 1,983 1,652 1,005 646 331 331 331 2,096 2,030 1,290 740 66 66 66 On-budget balance (incl. grants) On budget structural balance (excluding DBM spending) DBM spending On-budget plus DBM balance 3/ -529 -529 -1,042 475 -1,517 -181 -228 1,524 -1,705 -406 -436 -910 -950 1,487 -2,397 -1,356 -416 -446 662 -1,078 -565 -525 133 -697 Financing Foreign (net) Domestic (net) Privatization receipts (valuation adj.) Domestic bank financing (net) Domestic non-bank financing (net) Stabilization fund accumulation 529 199 329 14 95 461 -241 1,517 3,062 -1,545 1 -1,835 376 -87 1,705 226 1,479 3 1,599 -77 -47 -30 2,397 1,539 858 23 1,226 -470 78 -30 1,078 158 920 114 1,149 -314 -30 697 500 197 9 148 0 40 Total revenue and grants Current revenue Tax revenue and social security contributions Non-tax revenue Capital revenue and grants 33.9 33.8 29.7 4.1 0.1 29.8 29.6 25.7 3.9 0.2 31.3 31.3 26.8 4.5 0.0 31.5 31.5 28.6 2.9 0.0 28.0 28.0 24.0 4.0 0.0 27.4 27.1 22.9 4.2 0.3 26.5 26.2 22.9 3.3 0.3 26.1 25.9 22.5 3.4 0.2 Total expenditure and net lending Current expenditure Of which: Wages and salaries Capital expenditure and net lending 2/ 37.9 24.6 6.1 13.4 38.9 26.5 7.2 12.4 40.2 23.8 7.3 16.4 33.4 24.4 7.2 9.0 39.0 23.9 7.2 15.1 33.1 24.6 7.6 8.5 31.0 22.6 7.2 8.4 28.8 20.8 6.4 8.0 On-budget balance (incl. grants) On-budget structural balance (excluding DBM spending) DBM spending On-budget plus DBM balance -4.0 -4.0 -6.2 2.8 -9.1 -0.9 -1.2 8.0 -8.9 -1.9 -2.0 -4.2 -4.3 6.8 -11.0 -5.7 -1.8 -1.9 2.8 -4.6 -2.2 -2.0 0.5 -2.7 Financing Foreign (net) Domestic (net) Banking system (net) Non-bank Stabilization fund accumulation 4.0 1.5 2.5 0.7 3.6 -1.8 9.1 18.3 -9.3 -11.0 2.3 -0.5 8.9 1.2 7.7 8.4 -0.4 -0.2 -0.1 11.0 7.0 3.9 5.6 -2.0 0.4 -0.1 4.6 0.7 3.9 4.9 -0.8 -0.1 2.7 1.9 0.8 0.6 0.0 0.2 7.8 32.4 47.0 -14.6 13,174 8,823 5,727 63.2 5.0 29.7 46.6 -16.9 16,688 7,959 5,888 28.4 5.1 31.0 47.6 -16.6 19,118 7,331 5,793 16.5 21,844 -7.9 4.6 28.4 47.3 -18.9 21,844 6,863 5,754 8.1 23,660 -10.9 3.5 27.9 37.7 -9.8 23,660 5,644 5,777 -17.2 3.0 27.7 34.6 -6.9 26,201 5,603 5,837 -0.8 480 -39 0 (In percent of GDP) Memorandum items (in percent of GDP unless defined otherwise): Mineral revenue Non-mineral revenue (in percent of non-mineral GDP) Total expenditure (in percent of non-mineral GDP) Non-mineral overall balance (in percent of non-mineral GDP) Nominal GDP (in billions of togrogs) Copper price (Market, US per ton) (Structural, US per ton) Primary spending (change in percent) Sources: Mongolian authorities and IMF staff projections. 1/ Reflects 2015 supplementary budget passed in January 2015, with privatization receipts reclassified below the line. 2/ Includes DBM spending. 3/ Only part of DBM spending is included in the 2015 supplementary budget 26 INTERNATIONAL MONETARY FUND MONGOLIA Table 7. Mongolia: Monetary Aggregates 201117 (Adjustment Scenario) 2011 2012 2013 2014 2015 2016 2017 Projection (In billions of togrog, end of period) Monetary survey Broad money Currency Deposits 6,412 517 5,895 7,617 603 7,013 9,451 582 8,869 10,636 499 10,137 11,725 483 11,242 12,939 513 12,426 14,422 551 13,871 Net foreign assets 3,067 4,402 934 -1,702 -3,373 -4,261 -4,840 3,345 4,289 -1,370 5,660 -944 3,215 3,986 -3,040 7,026 -771 8,517 9,792 -1,048 10,840 -1,275 12,338 13,364 3 13,361 -1,027 15,098 16,172 1,123 15,049 -1,074 17,200 18,300 1,311 16,989 -1,100 19,262 20,710 1,392 19,318 -1,448 Reserve money 1,660 2,166 3,335 3,427 3,312 3,524 3,783 Net foreign assets 3,044 5,164 1,941 120 -1,466 -1,523 -1,607 -1,384 -714 342 879 -133 -2,999 -2,774 401 752 127 1,394 -1,685 4,297 1,627 410 3,307 -572 2,608 854 2,125 4,778 -734 1,298 19 4,233 5,047 -773 928 29 4,920 5,390 -925 901 39 5,453 12.5 2.7 2.1 23.3 61.2 10.2 -3.3 2.0 12.6 63.6 10.4 6.4 2.0 12.9 64.8 11.5 7.4 2.0 13.7 66.6 Net domestic assets Domestic credit Net credit to government Claims on non-banks (including MBS) Other items, net Monetary authorities Net domestic assets Net credit to government Claims on deposit money banks Minus: Central bank bills (net) Other items, net 1/ Memorandum items: Annual broad money growth Annual reserve money growth Velocity Claims on non-banks growth (including MBS) Claims on non-banks (in percent of GDP) (In percent, unless otherwise indicated) 37.7 75.3 2.1 72.3 43.0 18.8 30.5 2.2 24.1 42.1 24.1 54.0 2.0 54.3 56.7 Sources: Mongolian authorities and IMF staff projections. 1/ Starting in 2014, some of the BOMs unconventional easing programs are reflected in OIN (e. g. mortgage loans have been securitized, and the corresponding mortgage-backed securities assumed by the BOM). INTERNATIONAL MONETARY FUND 27 MONGOLIA Table 8. Mongolia: Balance of Payments, 201120 (Adjustment Scenario) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Projections (In millions of U. S. dollars, unless otherwise indicated) Current account balance (including official grants) Trade balance Exports Mineral export Non-mineral export Imports of which. mining-related imports -2,759 -993 4,817 4,302 515 -5,810 -3,649 -3,362 -1,553 4,385 4,032 353 -5,938 -3,484 -3,192 -1,321 4,269 4,050 219 -5,590 -3,076 -985 1,002 5,775 5,196 579 -4,773 -2,388 -1,034 1,147 5,155 4,615 540 -4,008 -2,485 -1,955 268 4,916 4,385 530 -4,648 -2,743 -2,333 -303 4,491 3,984 508 -4,794 -2,750 -2,375 -225 4,795 4,313 482 -5,021 -2,804 -1,990 267 5,569 5,087 482 -5,302 -2,921 -895 1,454 6,751 6,258 493 -5,297 -2,807 -1,161 -843 -1,100 -948 -1,314 -699 -1,323 -829 -1,269 -1,078 -1,326 -1,064 -1,196 -1,004 -1,274 -1,048 -1,364 -1,075 -1,437 -1,104 244 24 220 58 237 34 203 41 129 22 107 22 162 27 135 50 166 29 137 50 168 29 139 50 170 29 141 50 174 31 143 51 182 33 149 54 192 36 156 60 2,864 114 2,750 4,620 77 -406 -2,012 469 2 4,929 120 4,809 4,408 2,325 53 -2,473 496 0 1,438 126 1,312 2,098 -156 9 -1,376 737 0 813 126 687 542 192 -180 -663 743 53 266 124 143 1,069 58 -129 -1,150 294 0 1,993 123 1,870 2,326 -32 -90 -834 501 0 2,354 123 2,231 2,487 -36 -102 -777 659 0 2,466 129 2,336 2,315 158 -57 -743 663 0 2,286 139 2,147 2,245 138 -97 -736 597 0 1,757 153 1,604 1,881 142 -226 -731 537 0 Errors and omissions 258 -71 -131 -422 0 0 0 0 0 0 Overall balance 364 1,497 -1,885 -594 -768 38 21 91 295 861 Services, net Income, net Current transfers General government Other sectors Of which: Workers remittances Capital and financial account Capital account Financial account Direct investment Portfolio investment Trade credits, net Currency and deposits, net Loans, net Other, net Memorandum items: Current account balance (in percent of GDP) -26.5 -27.4 -25.4 -8.2 -8.8 -16.8 -20.0 -19.3 -15.0 -6.1 Copper price (in U. S. dollars per ton) 8,823 7,959 7,331 6,863 5,644 5,603 5,595 5,582 5,559 5,546 Oil price (in U. S. dollars per barrel) Gold price (in U. S. dollars per troy oz.) Sources: Mongolian authorities and IMF staff projections. 28 INTERNATIONAL MONETARY FUND 104 105 104 96 51 59 64 67 68 68 1,569 1,669 1,411 1,266 1,277 1,283 1,295 1,311 1,329 1,385 Table 9. Mongolia: Baseline and Policy Adjustment Scenarios, 2013-20 Baseline 2013 2014 2015 2016 Policy Adjustment 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 Real sector (change in percent) Real GDP growth 11.6 7.8 4.4 4.2 3.8 6.2 6.4 9.2 11.6 7.8 2.9 4.2 3.9 6.5 6.6 9.3 19.4 9.8 11.2 24.2 3.6 10.7 9.0 3.0 8.0 -0.5 5.8 7.4 -4.0 6.2 7.1 6.0 6.2 6.8 7.0 6.2 6.6 20.0 6.3 6.5 19.4 9.8 11.2 24.2 3.6 10.7 9.0 1.0 9.6 -0.5 5.8 8.6 -4.0 6.4 8.2 6.0 6.6 7.2 7.0 6.5 6.9 20.0 6.3 6.5 Revenue and grants Expenditure and net lending 1/ Current expenditure Capital expenditure and net lending 1/ 31.3 28.0 25.4 25.1 24.9 25.4 25.4 25.8 31.3 28.0 26.5 26.1 26.1 26.9 27.0 27.5 32.2 32.2 29.5 29.2 28.2 28.6 27.7 28.0 32.2 32.2 28.2 28.3 28.4 29.2 29.3 29.8 23.8 23.9 24.0 24.8 24.0 23.1 22.3 22.7 23.8 23.9 22.6 20.8 20.2 21.0 20.9 21.3 8.4 8.3 5.4 4.5 4.2 5.5 5.3 5.3 8.4 8.3 5.6 7.5 8.1 8.2 8.4 8.5 On-budget structural balance (excluding DBM spending) -1.2 -4.3 -4.2 -4.0 -3.1 -3.0 -2.0 -2.0 -1.2 -4.3 -1.9 -2.0 -2.0 -2.0 -2.0 -2.0 Mineral growth Nonmineral growth Consumer prices (end-period) Fiscal accounts (in percent of GDP, unless otherwise indicated) DBM spending 8.0 6.8 5.7 3.7 3.3 2.0 2.0 2.0 8.0 6.8 2.8 0.5 0.0 0.0 0.0 0.0 On-budget plus DBM balance -8.9 -11.0 -9.8 -7.8 -6.7 -5.3 -4.2 -4.2 -8.9 -11.0 -4.6 -2.7 -2.3 -2.3 -2.3 -2.3 Total public debt (in percent of GDP) Domestic debt External debt 67.3 21.1 46.3 76.5 21.6 54.9 81.5 25.6 56.0 87.6 25.2 62.4 92.6 32.3 60.2 89.1 30.8 58.4 84.9 28.8 56.2 80.1 26.1 54.0 67.3 21.1 46.3 76.5 21.6 54.9 81.3 23.5 57.9 81.8 21.8 60.0 81.4 19.7 61.7 76.5 17.7 58.9 72.5 16.0 56.5 67.4 14.5 52.9 24.1 54.0 54.3 12.5 2.7 23.3 16.2 15.5 16.0 16.3 16.9 17.1 24.1 54.0 54.3 12.5 2.7 23.3 12.6 12.9 13.7 13.8 14.4 15.1 -3192 -25.4 -1885 -985 -8.2 -594 -1379 -11.1 -1403 -2268 -17.3 -260 -2447 -17.6 -1851 -2539 -16.8 221 -2164 -13.2 437 -1036 -5.7 1063 -3192 -25.4 -1885 -985 -8.2 -594 -1034 -8.8 -768 -1955 -16.8 38 -2333 -20.0 21 -2375 -19.3 91 -1990 -15.0 295 -895 -6.1 861 19,118 21,844 24,315 27,101 30,144 34,094 38,525 44,300 28,988 32,755 36,732 42,166 Monetary accounts (change in percent) Broad money Reserve money Credit to the private sector (including MBS) INTERNATIONAL MONETARY FUND External accounts 2/ Current account balance (million USD) Current account balance (percent of GDP) Overall balance (million USD) Memorandum items: Nominal GDP (billions of togrogs) 19,118 21,844 23,660 26,201 Sources: Mongolian authorities and IMF staff calculations. 1/ Excludes DBM spending. 2/ The baseline scenario assumes no rollover of maturing bonds. The policy adjustment scenario assumes bond rollover of maturing sovereign debt (500 million), DBM debt (580 million) and MMC bonds (600 million),as well as TDB bonds (414 million). MONGOLIA 29 MONGOLIA Figure 5. Key Indicators in Baseline and Policy Adjustment Scenarios Real GDP Growth CPI Inflation (In percent) 14 BASELINE 12 (In percent) 12 ADJUSTMENT 10 11 BASELINE ADJUSTMENT 10 8 9 6 8 4 7 2 6 0 2013 2014 2015 2016 2017 2018 2019 2013 2020 2014 2015 Fiscal Balance: On-budget plus DBM 2017 2018 2019 2020 Public Debt (In percent of GDP) 0 2016 (In percent of GDP) 100 90 -2 80 -4 70 -6 60 -8 50 BASELINE -10 BASELINE ADJUSTMENT 30 -12 2013 2014 2015 2016 2017 2018 2019 2013 2020 2014 (Percent change) 60 55 2016 2017 2018 2019 2020 (Milion USD) 0 BASELINE 50 2015 Current Account Balance Credit Growth ADJUSTMENT 45 -500 -1000 40 -1500 35 30 -2000 25 -2500 20 BASELINE -3000 15 ADJUSTMENT -3500 10 2013 30 ADJUSTMENT 40 2014 2015 2016 2017 2018 INTERNATIONAL MONETARY FUND 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 MONGOLIA Annex I. Economic Impact of Mongolias Natural Resource Endowments Mongolia is unusually rich in mineral resources. The population of 3 million inhabits a country with an estimated 1 to 3 trillion worth of copper, gold, coal, oil, and other resources, close to growing markets in China and elsewhere in Asia. To exploit these reserves, Mongolia has in the last several years attracted very large FDI inflows into the sector that now accounts for around 20 percent of GDP and close to 90 percent of exports. Joint ventures between Mongolian companies (both public and private) and multinationals account for a significant proportion of mining production. Currently almost all production is for export, and transport linksespecially with Chinaare being substantially improved, which will allow unit costs to be reduced. A number of mega projects are underway that will significantly boost the mining sector and catalyze other investments. These include: A. The Oyu Tolgoi copper and gold mine Mongolia is on track to become a globally significant copper and gold producer, with the Oyu Tolgoi (OT) mine one of the largest in the world. The project is jointly owned by the Government of Mongolia (34 percent stake) and Turquoise Hill Resources (THR). Rio Tinto has a 50 percent stake in THR and is the project manager. The first-phase open-pit mine began construction in 2010 with investment exceeding 6 billion, and production commenced in 2013. The second phase (OT-2) will be underground, and output will markedly increase once production comes on stream toward the end of this decade (associated FDI inflows are estimated at over 5 billion). The commencement of the OT-2 project has been delayed by ongoing negotiations between Rio Tinto and the authorities over a number of issues. These include the appropriate treatment of significant cost overruns in OT-1, resolution of outstanding tax issues, the exact specification of activities, government permits, and a number of social and environment issues. However, both sides have stated that they remain committed to the project, with the intention for the project to commence in 2015. B. Tavan Tolgoi (TT) coal mine Coal reserves are estimated at well over 6 billion tons. Mongolia is already a major exporter of coal to China for both power generation and for use in the heavy industrial sector South Gobi Resources (in which THR has a 47.9 per cent interest) and Energy Resources (a subsidiary of the Mongolian Mining Corporation (MMC)) are major producers currently. Production is set to increase sharply with the commencement of the TT coal mine. The tender has been won by a consortium that includes leading Mongolian, Chinese and Japanese companies (MMC, Shenhua Energy, and Sumitomo Corporation, respectively). Negotiations on the production modalities are reported to be at an advanced stage. The total investment in TT is expected to be 4 billion. The business model is based on the export of coal to China and third countries, with the value added increased through more domestic processing including washing and power generation. Related investments also INTERNATIONAL MONETARY FUND 31 MONGOLIA include a new railway that will substantially improve export potential and a new power station that will supply power to OT and also to China. The continued development of the mining sector will have a number of important macroeconomic implications. Growth and development. Mongolian extraction costs are among the lowest in the world, meaning that the sector should be relatively unscathed from current price falls and may benefit as marginal producers exit. And while logistics have traditionally been a challenge in this landlocked nation, transport linksespecially with Chinaare being substantially improved, notably through the construction of a new railway. Mining exports to third countries will also benefit from recent agreement on duty-free access to Chinese ports. Over time, the intention is for more value-added processing to take place in Mongolia, creating potential for local employment growth and supporting the outlook for GDP. Supporting the external position. Resource wealth promises prosperity in the long run, but also substantial dividends in the next five years. OT-1 brought 6 billion of investment into a 10 billion economy over just a few years, during which time Mongolia was one of the worlds fastest growing economies. That first phase went into production last year and led to a 30 percent y/y increase in mining exports. OT-2 would bring in another 5 billion in FDI over the next few years. It would start production within a few years, and even on conservative projections, mineral exports would increase by another 25 percent. Strong mining prospects imply a fairly rapid improvement in fiscal and external imbalances. From 2017 to 2020, rapid growth would bring the public debt ratio down sharply, from 92 percent of GDP to 80 percent. While loans to Rio Tinto would have to be repaid, the fiscal balance could possibly move toward surplus and facilitate the accumulation of wealth for future generations in a planned sovereign wealth fund. The current account deficit is projected to narrow to just 6 percent of GDP in 2020, and pressure on reserves would steadily disappear. While this outlook would be less favorable if OT-2 remains undeveloped, macroeconomic imbalances would still be reduced substantially. An important implication is that the national balance sheet will be strengthened as these resources are extracted. While Mongolia presently faces an acute liquidity problem, accompanied by sovereign stress, it is solvent given the strong projected revenues from mining over the long term. Assuming the commencement of the large projects in 2015, the impact on GDP growth and external accounts will allow debt to start to decline sharply after 2017. (And even without OT-2, debt would still decline from 2018, albeit more slowly.) 32 INTERNATIONAL MONETARY FUND MONGOLIA Annex II. External Sector and Exchange Rate Assessment Mongolias external position is weaker than desirable, and the togrog overvalued by 10 - 15 percent. Balance of Payments, Exchange Rate Movements, and Reserve Adequacy The balance of payments has continued to face pressure. Despite substantial borrowing from abroad, GIR fell from 4 months of imports at end-2013 to around 2 months at end-February 2015. The nominal exchange rate depreciated by 14 percent in 2014, and while the REER initially Reserves Adequacy Under Different Approaches depreciated somewhat, it later appreciated strongly, reflecting (In months of imports) still high inflation and the BOMs FX intervention. 8.0 7.0 By almost all indicators, gross reserves are too lowbelow the traditional 3-months-of-imports benchmark, below the Greenspan-Guidotti rule suggesting 100 percent coverage of short-term debt, and only just above 20 percent of broad money. And according to the IMFs risk-based metric, the optimal range of reserves is 4 to 7 months of import cover.1 6.0 Risk Metric-based Optimal Range Implied GIR Actual GIR 5.0 4.0 3.0 2.0 1.0 0.0 3 month of imports 20 of Broad money 100 of Short-term debt 100-150 of Risk Metric Estimate of Current Account Gap and Exchange Rate Misalignment Methodology. This assessment adopts the External Balance Assessment-lite (EBA-lite) approach for frontier economies in addition to the External Sustainability (ES) and Equilibrium Real Exchange Rate (ERER) approaches in the CGER framework. The EBA-lite methodology has been developed as a successor to the macro balance approach used under CGER. One key difference is that EBA-lite makes a sharper distinction between a positive (descriptive) understanding of current accounts and real exchange rates and normative evaluations. Another is that EBA-lite takes into account a much broader set of factorsincluding policies, cyclical conditions, and global capital market conditions that may influence the current account and real exchange rate. As before, the ES approach measures the exchange rate adjustment needed to sustain a certain level of net foreign assets of the economy the ERER approach is based on empirical studies of the exchange rate that would be consistent with the economys productivity, fiscal soundness, external position, and other factors. Result. According to the EBA-lite approach, Mongolias current account deficit is 4 percent of GDP above the level consistent with desirable policies. This implies overvaluation of 11 percent. The External Sustainability approach points to a current account gap of 6 percent, indicating real overvaluation of 13 percent. The ERER approach implies an overvaluation of 14 percent. Approach Estimates of Togrog Overvaluation Current account gap (percent of GDP) Overvaluation (in percent) Real exchange rate elasticities EBA-Lite 4 11 0.4 External Sustainability 6 13 0.4 -- 14 -- Equilibrium Real Exchange Rate Source: IMF estimates 1 For Mongolia, one should arguably focus only on non-mining imports (half the total), as mining imports come with their own FDI financing. From this perspective, the optimal range would be 2 to 3 months of total imports, but being high in that range is advisable given the volatility of the mining sector, the extent of deposit dollarization, and the need to boost market confidence to facilitate debt rollovers in 2017/18 INTERNATIONAL MONETARY FUND 33 MONGOLIA Annex III. Development Bank of Mongolia The Development Bank of Mongolia (DBM) was established in 2011 as a state-owned, for-profit legal entity with the specific functions of conducting activities aimed at financing major projects and programs for the long-term development of Mongolia. One of the stated rationales is that domestic commercial banks have relatively high financing cost and their small sizes impose limits on the maximum amount of loans that can be granted to any single project. Financing. Nearly all DBM financing is either directly provided by the government or obtained through external borrowings that are fully guaranteed by the government. In addition to its equity contribution, the government has also transferred the proceeds of the 2012 sovereign Chinggis bond to finance DBM operations. Though DBM hopes to borrow in the future on the strength of its own balance sheet, so far all of its bond issuances and loans have been government guaranteed. This includes the 580 million DBM bond in 2012, the JPY 30 billion samurai bond in 2013, a 162 million loan from China Development Bank, and a 300 million syndicated loan from Credit Suisse in 2014. Spending. DBM broadly classifies its projects into two groups: those that are repayable from the state budget (i. e. non-commercial projects), and those that are self-financing, or commercial. The non-commercial projects include roads and other infrastructure and are implemented through line ministries, while the commercial projects include power plants, railway, aviation, housing finance, mining, housing construction, agriculture, light industry, and construction materials. The relative share of these two types of projects varies by year: in 2013, commercial projects accounted for around one-third of the total DBM spending the share increased to nearly 60 percent in 2014 and it is expected to decline again, to less than half, in 2015. The projects DBM undertakes typically require parliament and government approval, and there is no clear link between the sources of financing and the types of projects. Statistical treatment. International statistical manuals (GFSM 2014, SNA 2008 and BPM6), suggest an institutional unit approach under which all activities of an institutional unit should be allocated to one and only one institutional sector. In this case, all activities of DBM should be included in the (general) government sector since the majority of its activities are non-commercial/government in nature. In limited circumstances, international statistical manuals allow for commercial or market activities of general government units to be split out, but such quasi-corporations should be well defined units themselves, with separate accounts, separate management, and full autonomy of operation. The current commercial activities of DBM clearly do not satisfy these conditions. 34 INTERNATIONAL MONETARY FUND MONGOLIA Annex IV. Risk Assessment Matrix1 Sources of Risks Likelihood Potential Impact Recommendation External A surge in financial volatility Sharp growth slowdown and financial risks in China H L-M H: If markets reassess Mongolias Maintain exchange rate flexibility and tighten macro policies improve sovereign risk, filling the large external financing gap will be more investment climate to attract FDI. challenging, and banking-sector funding and liquidity pressure could increase. H: Exports could decline further, Medium term: maintain exchange rate intensifying BOP pressure and fiscal flexibility to preserve FX reserves revenue shortfalls. tighten macro policies. Long term: build resilience against external shocks realize inclusive growth via diversification of the economy. Domestic Run prudent macroeconomic policies redouble efforts to improve investment climate and move ahead with other projects. Further delay in OT-2 H H: A delay in OT-2 would weaken growth prospects and worsen external and fiscal balances. Accommodative fiscal policy H H: Loose fiscal policy could further Undertake fiscal consolidation in line intensify BOP pressure and add to with goals of the FSL. debt burdens. Loose monetary policy M-H Elevated banking fragilities H Uncertain business climate M-H H: Loose monetary policy could worsen BOP pressure and raise banking-sector risks. Monetary policy should be tightened further and the BOMs unconventional easing programs discontinued. H: The buildup of credit and liquidity risks undermines financial stability, which in turn threatens macroeconomic stability. H: The uncertain environment could impede FDI inflows and further weigh on investors confidence. Enhance provisions and capital strengthen supervisory framework phase out forbearance. Improve business climate, clarify tax issues, and enhance transparency. 1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize, in the view of IMF staff). The relative likelihood of risks listed is the staffs subjective assessment of the risks surrounding the baseline (low is meant to indicate a probability below 10 percent, medium a probability between 10 and 30 percent, and high a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutuallyexclusive risks may interact and materialize jointly. INTERNATIONAL MONETARY FUND 35 MONGOLIA Annex V. Implementation of Past IMF Recommendations The authorities have agreed on the need for policy adjustment and responded to some of the recommendations made in past Article IV consultations. Key recommendation Fiscal Policy Tighten fiscal policy so as to bring deficit gradually down to FSL limit. Maintain the long-term debt limit of 40 percent of GDP and gradually bring debt ratio down to this level. Monetary Policy Phase out unconventional easing programs at the BOM. Tighten monetary policy Maintain exchange rate flexibility Implementation The authorities targeted to keep the on-budget deficit below the FSL limit, but off-budget spending by DBM has been large. They recently brought DBMs noncommercial spending onto the budget, and aim to reduce the deficit to 2 percent of GDP by 2018. The authorities amended FSL and passed a new Debt Management Law (DML), loosening the definition of debt, temporarily raising debt limit, and setting a downward debt trajectory towards the original limit. The BOM phased out its deposits at commercial banks and scaled back PSP lending. It plans to continue implementing the mortgage program, though at a slower rate. Meanwhile, the BOM introduced a program to provide financial support at the request of commercial banks for their corporate clients in late 2014. BOM raised the policy rate twice in the past six months and, as noted above, committed to slowing its easing programs. The nominal exchange rate depreciated by 14 percent in 2014, though the REER appreciated strongly in late 2014, reflecting still high inflation and the BOMs FX intervention. Financial Policy Strengthen bank supervision, restrict FX loans to unhedged borrowers, and increase loan provisions. 36 INTERNATIONAL MONETARY FUND Fund TA on bank supervision provided specific recommendations on bank supervision, which the BOM welcomed. The BOM raised risk weights for FX loans in 2014 and introduced a definition of hedged borrowers for prudential purposes. BOM also introduced a 1 percent general provision for newly issued performing loans. MONGOLIA Annex VI. Summaries of Background Analytical Work A. Analyzing Alternative Fiscal Paths for Mongolia1 This paper uses a simple spreadsheet-based approach to analyze different long-term fiscal paths for Mongolia and shed light on the countrys appropriate deficit and debt targets. It concludes that the country should be running small surpluses and that there is no justification to adjust the FSLs targets on a permanent basis. 1. There has been considerable public debate about the right fiscal targets for Mongolia. Short-term balance of payment pressures clearly suggests the need for consolidation, and good budgetary practice suggests that DBM spending should be brought on budget. But should the consolidated deficit be brought down to the FSLs target of 2 percent of GDP, or is this too tight to permit needed infrastructure investment Also under debate is the appropriate debt limitis the FSLs threshold of 40 percent of GDP too restrictive 2. This paper applies some basic fiscal concepts for resource-rich economies. The permanent-income hypothesis (PIH) would suggest that revenues from exhaustible resources be shared equally with future generations, either in terms of constant dollars per capita, or in terms of a share of nonmineral GDP. But with current generations poorer than future ones, and thus likely to have a higher marginal utility of consumption, a modified PIH (MPIH) framework, which allows some frontloading of consumption and then a payback period of larger fiscal surpluses later, may be more attractive. It is also possible to take a broader perspective, and instead of focusing solely on the consumption-savings decision, to also consider the possibility of investment. Under the so-called Fiscal Stability Framework (FSF), spending can be frontloaded to develop infrastructure, and depending on the rate-of-return, the extent to which future fiscal surpluses are needed can be reduced or eliminated, without compromising future generations welfare. The paper simulates fiscal paths for Mongolia under these three different frameworks using a spreadsheet template developed in conjunction with the 2012 Board papers on resource-rich developing countries.2 3. Under reasonable parameter values, the PIH prescribes that Mongolia should currently be running a small fiscal surplus. Table A1 summarizes a sensitivity analysis showing the appropriate fiscal balance for different assumptions about the value of Mongolias mineral wealth, the rate at which minerals prices rise, and the governments tax take from the sector. As shown in the highlighted row, if mineral wealth is 1 trillion, prices grow at 3 percent (broadly in line with historical averages), and the government earns 20 percent of exports in taxes, then delivering an equal share of nonmineral GDP to all generations would require a primary surplus this year of nearly 5 percent of GDP. This translates to an overall surplus of 2 percent of GDP. Even if the most optimistic parameters are chosen (wealth of 3 trillion, price growth of 5 percent, and a revenue take of 25 percent), the overall deficit should be no more than 3 percent of GDP. According to this analysis, 1 Summarizes a paper under preparation by Baoping Shang (FAD) and Koshy Mathai (APD). 2 Macroeconomic Policy Frameworks in Resource-Rich Developing Countries, IMF Policy Paper, Aug 24, 2012. Also, Fiscal Regimes for Extractive Industries: Design and Implementation, IMF Policy Paper, Aug 15, 2012. INTERNATIONAL MONETARY FUND 37 MONGOLIA Mongolias current consolidated deficit of 10 percent of GDP is far out of line, and, most likely, even the 2 percent of GDP deficit allowed by the FSL is too large. 4. An appeal to the MPIH framework does not change the conclusion that Mongolias fiscal stance is currently too loose. The top-right chart in Figure A1 presents alternative paths for the overall fiscal balance over time. While the PIH requires a surplus for the next fifty years or so (when resource revenues are strong) and a deficit only thereafter, it is possible to construct an MPIH path that features the 10 percent deficits that are currently observed however, as shown in Figure A1, to allow such frontloaded consumption, the next generation would need to run substantially tighter fiscal policy to compensatean unrealistic intergenerational social contract. 5. Neither does the conclusion change under the FSF framework. Observed deficits stem largely from heavy infrastructure spending, rather than from handouts/consumption. If spending is indeed devoted to investment, then no future payback period is needed under the FSF paths, and indeed, lifetime wealth is higher. However, even if it is assumed that the return on investment for infrastructure projects that are properly selected and managed could reach 25 percent in Mongolia, reflecting its pressing infrastructure needs, constraints on both absorptive capacity and capacity to borrow would substantially lower this return when spending is as high as observed in the past few years. As a result, an FSF path with more moderate frontloading is shown to deliver similar consumption (primary, current expenditure) but higher wealth for every generation. 6. Finally, even if there were a justification for temporarily running large deficits, permanent FSL limits should not be adjusted. As shown in Figure A1, while certain constellations of parameters may support a path of heavy upfront investment, it would soon be expected that the fiscal balance would turn to substantial surplus, permitting the buildup of a large sovereign wealth fund. In other words, the fiscal deficit will naturally evolve over the lifecycle of the mines. The FSL, however, sets a single deficit limit for every year. This should not be loosened for all years just to permit a (hopefully) short-lived increase in deficits. Similarly, there appears to be little justification for raising the gross debt limit of 40 percent of GDP. As wealth is accumulated, there may still be a need for some gross debt, in order to allow fiscal maneuverability, but this would presumably be a small amount. 38 INTERNATIONAL MONETARY FUND MONGOLIA Table A1. Fiscal Balances Under PIH Total resources at current prices Equal share of non-mineral GDP Implied non-mineral Mineral price Government primary balance Implied 2015 growth rate revenue share (percent of nonprimary balance (percent) (percent) mineral GDP) (percent of GDP) Equal amount per capita in real terms Implied 2015 nonmineral primary Implied 2015 balance (percent of primary balance non-mineral GDP) (percent of GDP) 3 trillion 5 25 -12.0 0.0 -38.0 -21.0 3 trillion 5 20 -9.6 0.0 -30.4 -16.8 3 trillion 5 15 -7.2 0.0 -22.8 -12.6 4.4 -20.1 -6.8 3 trillion 3 25 -6.3 3 trillion 3 20 -5.1 3.5 -16.1 -5.4 3 trillion 3 15 -3.8 2.6 -12.1 -4.1 3 trillion 1 25 -3.8 6.3 -12.3 -0.5 3 trillion 1 20 -3.1 5.0 -9.7 -0.4 3 trillion 1 15 -2.3 3.8 -7.3 -0.3 1.5 trillion 5 25 -6.7 4.0 -21.4 -7.9 1.5 trillion 5 20 -5.4 3.2 -17.1 -6.3 1.5 trillion 5 15 -4.1 2.4 -12.8 -4.7 1.5 trillion 3 25 -3.9 6.2 -12.3 -0.7 1.5 trillion 3 20 -3.2 4.9 -9.8 -0.6 1.5 trillion 3 15 -2.3 3.7 -7.4 -0.4 1.5 trillion 1 25 -2.5 7.1 -8.0 2.6 1.5 trillion 1 20 -2.0 5.7 -6.4 2.1 1.5 trillion 1 15 -1.5 4.3 -4.8 1.6 1.0 trillion 5 25 -4.9 5.3 -15.5 -3.3 1.0 trillion 5 20 -3.9 4.3 -12.4 -2.7 1.0 trillion 5 15 -2.9 3.2 -9.3 -2.0 1.0 trillion 3 25 -3.0 6.8 -9.4 1.5 1.0 trillion 3 20 -2.4 5.4 -7.5 1.2 1.0 trillion 3 15 -1.8 4.1 -5.6 0.9 1.0 trillion 1 25 -2.0 7.4 -6.4 3.8 1.0 trillion 1 20 -1.6 5.9 -5.1 3.0 1.0 trillion 1 15 -1.2 4.4 -3.8 2.3 Source: IMF staff calculations. INTERNATIONAL MONETARY FUND 39 MONGOLIA Figure A1. Mongolia: Sustainability Assessment Indicators 4 Non-mineral primary balance (Percent non-resource GDP) 2 15 0 10 -2 5 -4 0 -6 -8 -10 -12 -14 30 28 26 24 22 20 18 16 14 12 10 PIH perpetuity Modified PIH perpetuity FSF-aggressive investment path FSF-moderate investment path -5 -10 -15 Modified PIH perpetuity FSF-aggressive investment path FSF-moderate investment path Sources: IMF staff calculations. Primary current expenditure (Percent of GDP under PIH) Interest payment from new borrowing (Percent of GDP under PIH) PIH perpetuity Modified PHI perpetuity FSF-aggressive investment path FSF-moderate investment path Cumulative financial savings/debt (Percent of GDP under PIH) 20 18 16 14 12 10 8 6 4 2 0 PIH perpetuity Modified PHI perpetuity FSF-aggressive investment path FSF-moderate investment path Sources: IMF staff calculations. Cumulative financial savings/debt (holding FSF primary expenditure the same beyond the scaling up period GDP under PIH) 500 (Percent ofPIH perpetuity 400 300 MPIH Perpetuity FSF-aggressive investment path FSF-moderate investment path 200 100 PIH perpetuity MPIH Perpetuity FSF-aggressive investment path FSF-moderate investment path Sources: IMF staff calculations. 40 PIH perpetuity Sources: IMF staff calculations. Sources: IMF staff calculations. 350 300 250 200 150 100 50 0 -50 -100 -150 Overall balance (Percent of GDP) INTERNATIONAL MONETARY FUND 0 -100 -200 Sources: IMF staff calculations. MONGOLIA B. A Sustainable Public Investment Path for Mongolia: A Model-Based Analysis3 This paper complements the first by looking at optimal fiscal paths, but using an entirely different methodology. Rather than a spreadsheet-based analysis focused on fiscal variables alone, this paper offers results from a DSGE model tailored to resource-rich economies. This permits an investigation of the implications of different fiscal policies for key fiscal and non-fiscal variables such as debt, consumption, investment, and the real exchange rate. This paper also finds that fiscal consolidation is needed and that the FSL limits should not be adjusted. 7. This paper adopts a structural model-based analysis to help assess policy decisions regarding the management of natural resources in Mongolia. The study uses a dynamic stochastic general equilibrium (DSGE) model with natural resource wealth in a small open economy. The model combines elements of frameworks developed in Araujo et al. (2013), Buffie et al. (2012), Berg et al. (2013), and Melina et al. (2013), in analyzing natural resource management for developing countries. The DIGNAR toolkit is used to analyze various public investment plans in Mongolia. The model captures the investment-growth nexus as well as investment efficiencies and absorptive capacity constraints.4 It thus helps to inform the authorities about the tradeoffs involved in investing resource revenues to boost growth while maintaining fiscal sustainability and macroeconomic stability. 8. The model captures the key features of resource-rich developing countries and is carefully tailored to Mongolias particular circumstances. It features two types of households, including poor households with no access to financial markets, and includes traded and non-traded sectors as well as a natural-resource sector. Public capital, subject to inefficiencies and absorptive capacity constraints, enters production functions in both the traded and non-traded sectors. The government has access to different types of debt (concessional, domestic, and external commercial) and a resource fund, which can be used to finance public investment plans. The resource fund can also serve as a buffer to absorb fluctuations of fiscal balances for given projections of resource revenues and public investment plans. Fiscal adjustments through tax rates and government noncapital expenditureswhich may be constrained by ceilings and floors, respectivelymay be triggered to maintain debt sustainability. The model is calibrated using historical data for Mongolia and parameters widely accepted in the literature. 9. The model is estimated under two different public investment paths. Under a fiscal consolidation path, the government restrains public investment so as to manage the debt. The aggressive investment path, by contrast, maintains currently observed investment levels to develop infrastructure and boost growth. 10. Since uncertainty and volatility are intrinsic to resource economies, the public investment paths are each analyzed under a baseline scenario and an adverse scenario. 3 Summarizes From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia, forthcoming IMF working paper, prepared by Pranav Gupta, Grace Bin Li (both RES), and Jiangyan Yu (APD). 4 The model includes only real variables and cannot be used to analyze monetary policy or inflation. INTERNATIONAL MONETARY FUND 41 MONGOLIA Baseline scenario: Copper mining production is estimated to increase from 0.2 million tons in 2013 to around 1 million tons by 2020, when the second phase of OT goes into production. It is also assumed that political constraints make it impossible to increase consumption or labor taxes, and the government thus relies on external commercial borrowing. Adverse scenario: Resource revenues are hit by a negative shocke. g. a further delay in OT2, or a drop in copper prices similar to that observed in 2009. 11. As shown in Figure A2, the aggressive investment path substantially increases fiscal risk. While it yields faster growth than under fiscal consolidation, it also implies that public debt and external, commercial debt in particularrises substantially. And the situation is even worse if the adverse scenario obtains. Finally, rapid investment will quickly lead to investment inefficiencies (poor planning, higher-than-expected costs, bad governance, supply bottlenecks, lack of complementary infrastructure, etc.), further underscoring the need for fiscal restraint. 12. The aggressive investment path would also put pressure on the external sector. As shown in Figure A3, the togrog is currently overvalued and should be allowed to depreciate. Aggressive government investment would lead to overheating, bid up the relative price of nontradables, widen the current account deficit, and impede the pace of the required real depreciation. 13. In sum, a DSGE-model-based analysis confirms earlier findings that frontloaded fiscal consolidation is needed. The analysis in this paper stresses the benefits of adopting a comprehensive approach to enhancing absorptive capacity, managing natural resource wealth in a way that avoids Dutch disease, and sustaining the longer-term diversification of growth. In Mongolia, given the nontrivial role of the natural resources sector, it is particularly important to look beyond traditional metrics of investment pace. While the ambitious scaling up of public investment can generate higher non-mineral growth, it can also pose substantial challenges to debt sustainability and macroeconomic stability. 42 INTERNATIONAL MONETARY FUND MONGOLIA Figure A2: Resource Output, Revenues, and Fiscal Variables Left column: Baseline Scenario Right column: Adverse Scenario) Pub. inv. ( of GDP) Pub. inv. ( of GDP) 20 20 15 15 10 10 5 14 16 18 20 22 24 5 14 Total public debt ( of GDP) 16 18 20 22 24 22 24 Total public debt ( of GDP) 100 100 90 80 80 70 60 60 40 14 16 18 20 22 24 50 14 External commercial debt ( of GDP) 80 60 60 40 40 16 18 20 22 24 20 14 Stabilization fund ( of GDP) 25 20 20 15 15 10 10 5 5 16 18 20 22 20 16 18 20 22 24 Stabilization fund ( of GDP) 25 0 14 18 External commercial debt ( of GDP) 80 20 14 16 24 0 14 Fiscal Consolidation 16 18 20 22 24 High Investment Level INTERNATIONAL MONETARY FUND 43 MONGOLIA Figure A3: Fiscal and External Variables, and Growth (Left column: Baseline Scenario Right column: Adverse Scenario) Pub invest. efficiency () Pub invest. efficiency () 70 70 65 65 60 14 100 16 18 20 22 24 Public capital ( from SS) 60 14 80 60 60 40 40 20 20 14 5 16 18 20 22 24 Real exchange rate ( from SS) 14 0 -5 -5 -10 -10 -15 14 16 18 20 22 24 -15 14 Additional Current Account Deficit ( of GDP 6 4 4 2 2 16 18 20 22 24 Fiscal Consolidation 44 INTERNATIONAL MONETARY FUND 22 24 16 18 20 22 24 16 18 20 22 24 Additional Current Account Deficit ( of GDP 6 0 14 20 Real exchange rate ( from SS) 5 0 18 Public capital ( from SS) 100 80 16 0 14 16 18 20 High Investment Level 22 24 MONGOLIA C. MongoliaRisks of Rapid Credit Growth5 This paper uses techniques from the literature to conclude that Mongolia experienced a potentially harmful credit boom in 2013. Mongolia: Credit to Private Sector (In percent) 200 70 Growth 60 Credit to GDP (RHS) 150 50 40 100 30 50 20 0 10 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 -50 1994 0 1992 14. Mongolia has seen strong credit growth in 2011-2013. Credit grew by an average of 50 percent per year during 201113. In 2013, the strong growth was driven mostly by construction and real-estate loans, largely as a result of the central banks easing programs. This led the banking sectors loan-to-deposit ratio to rise to 123 percent and the credit-to-GDP ratio to 57 percent in 2013. In 2014, credit growth decelerated, but the credit-GDP ratio rose further to 61 percent. Sources: Mongolian Authority 15. This paper analyzes whether the strong credit growth constitutes a bad credit boom and discusses the risks of such a boom.6 The paper takes a three-step approach. It first assesses the medium-term trend of credit, using various filtering techniques.7 The second step is to calculate the credit gap obtaining from the difference between the actual credit and the medium term trend. Finally, it looks at whether the credit could represent a bad credit boom by estimating credit gap with respect to certain threshold.8 The paper also uses the direct approach found in DellAriccia and others (2012), where a 20 percent annual increase in the credit-to-GDP ratio is taken as the threshold of natural credit increase. 16. The estimation concludes that Mongolia experienced harmful credit booms in 2011 and 2013. In 2013, credit exceeded its threshold in all methodologies, with equilibrium credit in 2013 estimated at around 50 to 55 percent of GDP. Similarly, Mongolia experienced a credit boom in 2011 of about 3 to 5 percent of GDP higher than the appropriate levels. In 2014, credit (including mortgage-backed securities) remained above the threshold level. 5 Prepared by Firman Mochtar (APD). 6 Given cross country data availability, the panel estimation employs the 200013 data series. 7 One method is to use a rolling Hodrick-Prescott (HP) filter to find the potential and long-term credit-GDP trend (as applied by BIS (2010), Borio and Lowe (2002), Borio and Drehman (2009) as well as Hilbers and others (2006)). A second method follows Mendoza and Terrones (2008), who also applied the HP filter, but using the whole sample period rather than a rolling sample period. The third method (backward-looking, rolling, and cubic trend) is taken from DellAriccia and others (2012). Finally, Gersl and Seidler (2011) use economic fundamentals to estimate the equilibrium credit-GDP ratio. 8 Gersl and Seidler (2001) and BIS (2010) use the absolute credit gap about 2 percent of GDP as threshold, while Borio and Lowe (2002) use 4 percent of GDP. Others use relative credit gap to its long term trend and set 5 percent as the threshold credit gap (see Gourinchas and others, 2001 and Hilbers and others, 2005). INTERNATIONAL MONETARY FUND 45 MONGOLIA Table A2: Mongolias Credit Gap and the Sign of Bad Boom across Method ( to GDP) 2000 2001 2002 2003 Ad hoc threshold 1/ Backward-looking, rolling, cubic trend 2/ - Absolute threshold 2 percent 4/ - Absolute threshold 4 percent 5/ - Relative treshold 5 percent 6/ Hodrick Prescott Filter over entire series 3/ - Absolute threshold 2 percent 4/ - Absolute threshold 4 percent 5/ - Relative treshold 5 percent 6/ Hodrick Prescott Filter Rolling/Recursive 7/ - Absolute threshold 2 percent 4/ - Absolute threshold 4 percent 5/ - Relative treshold 5 percent 6/ Structural Panel 8/ - Absolute threshold 2 percent 4/ - Absolute threshold 4 percent 5/ - Relative treshold 5 percent 6/ 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -6.8 46.1 48.8 60.3 7.3 7.8 9.1 38.5 -3.4 0.6 -4.9 30.8 -1.3 22.6 0.0 0.9 1.2 1.8 -1.3 -2.4 -2.4 1.5 -2.8 -3.6 -4.2 2.9 0.0 4.8 0.0 0.9 1.2 1.8 -1.3 -2.4 -2.4 1.5 -2.8 -3.6 -4.2 2.9 0.0 4.8 -0.1 10.3 8.9 8.0 -4.9 -7.9 -7.2 3.6 -6.5 -8.0 -9.7 6.0 0.0 8.4 -5.5 -4.6 -2.4 3.7 2.1 0.6 -0.4 7.6 2.5 -0.9 -6.6 1.6 -2.9 4.5 -5.5 -4.6 -2.4 3.7 2.1 0.6 -0.4 7.6 2.5 -0.9 -6.6 1.6 -2.9 4.5 -44.4 -31.2 -13.5 17.8 8.8 2.2 -1.4 22.1 6.7 -2.1 -14.5 3.2 -5.5 7.9 -0.6 2.7 5.0 8.6 5.6 3.4 2.1 7.0 1.1 -1.7 -4.7 2.6 -1.0 4.5 -0.6 2.7 5.0 8.6 5.6 3.4 2.1 7.0 1.1 -1.7 -4.7 2.6 -1.0 4.5 -8.2 37.2 48.9 55.4 27.6 14.0 7.4 19.7 2.7 -3.9 -10.8 5.4 -1.9 7.9 -10.1 -8.9 -5.3 -0.2 0.4 -0.5 -2.6 4.6 -0.7 2.6 -2.0 4.9 4.5 13.2 -10.1 -8.9 -5.3 -0.2 0.4 -0.5 -2.6 4.6 -0.7 2.6 -2.0 4.9 4.5 13.2 -59.2 -46.7 -26.0 -0.7 1.8 -1.7 -8.0 12.1 -1.7 6.9 -4.8 10.7 9.8 27.2 Notes: Credit boom by definition 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ Good Bad Boom if credit to GDP ratio increase by more than 20 percent, in DellAricia and others (2012). The deviation from trend is greater than 1.5 time standard deviation and annual growth credit exceeds 10 in DellAricia and others (2012) Mendoza and Terrones (2008) Gourinchas and others (2001) and BIS (2010) Borio and Lowe (2002) Relative to its trend, in Gourinchas and others (2001) and Hilbers and others (2005) Borio and Lowe (2002), Borio and Drehman (2009), Hilbers and others (2006), and BIS (2010) Gersl and Seidler (2001) Source: IMF Staff estimate 17. The Mongolian credit boom in 2013 was higher than in other peer countries in the region. Cross country data show that the Mongolian credit gap in 2013 was bigger than those of other countries in the region. The finding remains relevant when the credit gap is compared to historical levels of peer income countries in the region, except Indonesia and Lao PDR (Figure 3). International Comparison: 2013 Credit Gap vs Credit Historical Comparison. Credit Gap vs Credit (In percent to GDP-Gap using HP Filter Rolling method) (In percent to GDP-Gap using HP Filter Rolling method) 8 Lao Indonesia (2007-2013) 4 Myanmar (2009-2013) 2 5 Mongolia 2013 Cambodia (2009-2013) Phillipines (2007-2013) Credit Gap Credit Gap 10 Laos PDR (2009-2013) 6 Korea (1982-1986) 0 Srilanka (2005-2010) -2 India (2011-2013) Nepal Mongolia Cambodia Phillipines 0 Srilanka Bangladesh -5 India China (2004-2007) -4 -10 Malaysia (1987-1990) -6 Vietnam -8 0 20 40 60 80 100 Credit to GDP Sources: IMF Staff estimate 46 Indonesia Myanmar INTERNATIONAL MONETARY FUND 120 140 -15 0 20 40 60 Credit Source: IMF staff estimates 80 100 120 MONGOLIA 18. Many empirical papers conclude that excessive credit is harmful. Credit booms can propagate excessive demand, generate economic Mongolia: NPL and Liquid Asset to Total Asset Ratio overheating, and trigger asset price bubbles. Such (In percent) 3.3 unfavorable developments would reduce domestic 3.1 competiveness, widen external imbalances, and foster 2.9 2.7 depreciation. Rapid credit growth also raises banking 2.5 and broader financial-sector vulnerabilities, given the 2.3 2.1 typical deterioration of asset quality. This early 1.9 warning seems relevant to the FSI data Mongolias 1.7 NPL Ratio Liquid Asset to Total Asset (RHS) credit quality has started to deteriorate since mid of 1.5 2013 and liquidity has tightened as reflected in the decreasing liquid asset ratio. Sources: Mongolian Authority 35 30 25 20 15 10 19. Various country experiences also show that prolonged credit booms can lead to banking crises and substantial output losses. Laeven and Valencia (2013) documented the impact of banking crises on output, debt, and asset quality. Hilbers and others (2005) pointed out that the cost of a credit boom to the economy will depend on the nature of credit, the rate of credit growth, the main providers of credit, the main borrowers, the sectoral loan composition, the currency composition of loans, and the maturity of loans. Table A3: Banking Crises Outcomes, 19702011 Output Loss Increase in Public Fiscal Cost Peak NPLs ( GDP) Debt ( GDP) ( GDP) ( of total loans) All 23.2 12.1 6.8 25.0 Advance 32.4 23.6 4.2 5.0 Emerging 33.6 9.1 8.3 29.5 Developing 0.7 10.9 10.0 35.0 Country Source: Hilbers, Otker-Robe, Pazarbabosioglu, and Johnsen (2005) 20. The policy implications are clear: credit should be managed properly to sustain the economy without risking a crisis. Among others, DellAriccia and others (2012) summarize the major policy recommendations to deal with credit booms. These include fiscal, monetary, and macroprudential tools. Policy coordination across different authorities and across borders may also need to be strengthened. INTERNATIONAL MONETARY FUND 47 MONGOLIA Annex VII. Policy Agenda for Strengthening the Banking Sector Important legal and regulatory reforms have been passed, but bank supervision needs further upgrading. A recent TA mission outlined priority actions, as follows: Improve the accuracy of risk recognition and management Restructured loans should be subject to a stricter prudential treatment and reported on a regular basis to the BOM (STwithin 18 months). The 1-percent general provision coefficient should apply to the entire stock of performing loans (ST). Discontinue the current explicit regulatory forbearance vis--vis the loans provided under the PSP (ST). Implement a more structured and forward-looking assessment of the borrowers condition, including its hedging capacity against foreign exchange risks (ST). Perform a comprehensive asset quality review to assess comprehensively the real condition of the loan portfolio of banks (ST). Strengthen the resilience of banks Increase the Tier 1 capital for SIBs to 10.5 percent from the current 9 percent (ST). Require targeted capital increases (Pillar 2 - like) in the banks that have high-risk profiles due to borrower, depositor, and foreign currency concentrations (ST). Increase the intensity of supervisory oversight of the vulnerable banks (ST). Introduce a capital countercyclical buffer considering the specific circumstances of external shocks and economic cycles in Mongolia (MTwithin 3 years). Improve the systemic oversight framework Enhance the quality and frequency of macro-financial and supervisory stress tests (MT). Enhance the BoMs capacity to link forward-looking analyses to the assessment of banks capital adequacy and set bank-specific capital requirements (MT). Enhance the early intervention framework Provide clear legal powers to the BOM to take prompt action to correct problematic situations, even in the absence of violations to regulations (ST). Improve the CAMELS methodology to make it more robust and forward looking and reorient it as a supervisory tool for early identification and prompt corrective action (ST). Define list of specific minor and major actions, relating them to the redesigned CAMELS factors (ST). Enhance the Supervisory Departments internal coordination and effectiveness, empowering the Supervisory Committee as the key decision maker (ST). Improve crisis contingency and management The Financial Stability Council should execute a Memorandum of Understanding for crisis preparedness and management, and prepare a work program that includes contingency planning (ST). Amend the Banking Law to explicitly forbid any court reversals of actions initiated as part of Provisional Administration and Receivership (MT). Amend the Banking Law triggers for Provisional Administration and Receivership to provide more flexibility and timeliness in intervention (MT). The ability to use budget financing for bank reorganization and the ability to return the intervened bank to original shareholders should be eliminated from the Banking Law (MT). 48 INTERNATIONAL MONETARY FUND MONGOLIA STAFF REPORT FOR THE 2015 ARTICLE IV March 19, 2015 CONSULTATIONINFORMATIONAL ANNEX Prepared By Asia and Pacific Department (in collaboration with other Departments) CONTENTS FUND RELATIONS 2 WORLD BANK-IMF COLLABORATION 5 RELATIONS WITH THE ASIAN DEVELOPMENT BANK 8 STATISTICAL ISSUES 11 MILLENNIUM DEVELOPMENT GOALS 14 MAIN DATA WEBSITES 15 MONGOLIA FUND RELATIONS (As of January 31, 2015) Membership Status: Joined: February 14, 1991 Article VIII General Resources Account: SDR Million Quota 51.10 Fund Holdings of Currency 52.88 Reserve Position in Fund 0.14 SDR Department: SDR Million Net cumulative allocation 48.76 Holdings 42.93 Outstanding Purchases and Loans: SDR Million Stand-by Arrangements 1.92 Latest Financial Arrangements: Approval Type Date Stand-by 04/01/2009 1 09/28/2001 ECF 1 07/30/1997 ECF Expiration Date 10/01/2010 07/31/2005 07/29/2000 Percent Quota 100.00 103.49 0.27 Percent Allocation 100.00 88.05 Percent Quota 3.75 Amount Approved (SDR Million) 153.30 28.49 33.39 Amount Drawn (SDR Million) 122.64 12.21 17.44 Projected Obligations to Fund (SDR Million based on existing use of resources and present holdings of SDRs): Forthcoming 2015 2016 2017 2018 2019 Principal 1.92 Charges/interest 0.02 0.00 0.00 0.00 0.00 Total 1.93 0.00 0.00 0.00 0.00 Safeguards Assessments: An update safeguards assessment of the Bank of Mongolia (BOM) finalized in June 2009 found that the BOM has continued to improve its safeguards framework since the previous assessment. The BOMs financial reporting and audit practices generally comply with international standards. The assessment made recommendations to (i) strengthen certain aspects of the BOMs oversight mechanism, (ii) remove external audit qualifications caused by lack of access to central banks vaults, and (iii) improve the timeliness of audit completion and publication of the banks financial statements. The authorities have since confirmed that the auditors were granted access to its vaults since end-2009, and the timing of audit completion has improved. 1/ 2 Formerly PRGF. INTERNATIONAL MONETARY FUND MONGOLIA Exchange Arrangement: On March 24, 2009, the BOM instituted a foreign exchange auction allowing the determination of the exchange rate mainly by market forces. The de facto and de jure exchange rate arrangements are currently both classified as floating, though the de facto exchange rate arrangement could potentially by reclassified to crawl-like, pending further observation. (through end-May 2015). Mongolia accepted the obligations of Article VIII, Sections 2, 3, and 4 on February 1, 1996. Mongolia maintains two multiple currency practices (MCPs) subject to Fund jurisdiction. First, the modalities of the multi-price auction system give rise to an MCP since there is no mechanism in place that ensures that exchange rates of accepted bids at the multi-price auction do not deviate by more than 2 percent. The Executive Board approved the multiprice auction MCP until June 22, 2010 (Decision No. 14365 of June 23, 2009), and its further extension until March 15, 2012 or the next Article IV consultation whichever is earlier (Decision No. 14669 of June 23, 2010 and Decision No. 14365 of March 16, 2011). The MCP, however, could not be resolved by March 15, 2012, and would be continued as long as the multiple price foreign exchange auction mechanism remains in place. Therefore the MCP is unapproved, and since the criteria for approval of this MCP are not in place, staff does not recommend Executive Board approval of said measure. In addition, Mongolia has an official exchange rate (reference rate) that is mandatorily used for government transactions (as opposed to the commercial market rate). Therefore, by way of official action, the authorities have created a market segmentation. While Order 699 of the BOM issued on December 3, 2010, sets forth that the reference rate is determined based on the weighted average of market rates used from 4 PM of the previous day to 4 PM of the current day, staff is of the view that this Order does not eliminate the market segmentation and the multiplicity of effective rates arising from it. Accordingly, in the absence of a mechanism to ensure that the commercial rates and the reference rate do not deviate by more than 2 percent, the way the reference rate is used in government transactions gives rise to an MCP subject to Fund approval. Since the criteria for approval of this MCP are not in place, it remains unapproved. Mongolia imposes exchange restrictions for security reasons in accordance with United Nations Security Council Resolution No. 92/757 concerning certain transactions with the Federal Republic of Yugoslavia (Serbia and Montenegro) that have been notified to the Fund under Decision 144 (11/4/94). The BOM notes that hitherto there have been no cases where exchange rates of accepted bids at the multi-price auction deviate by more than 2 percent, and plans to introduce a mechanism to ensure the deviation would never exceed 2 percent. The BOM is also working on the development of an indicative spot exchange rate. Article IV Consultation: The 2013 Article IV consultation (IMF Country Report No. 14/64) was concluded by the Executive Board on November 15, 2013. Mongolia is on a 12month cycle. INTERNATIONAL MONETARY FUND 3 MONGOLIA ROSC Assessments: The following ROSC assessments have been undertaken: Data Dissemination (May 2001), Fiscal Transparency Module (November 2001), Fiscal update (May 2005), Data Dissemination (April 2008), Monetary and Fiscal Policy Transparency (September 2008), Banking Supervision (September 2008). Recent Financial Arrangements: An 18-month Stand-by Arrangement in an amount of equivalent to SDR 153.3 million (300 percent of quota) was approved on April 1, 2009. The Executive Board successfully completed the final review on September 8, 2010. FSAP Participation: Mongolia participates in the Financial Sector Assessment Program (FSAP). The first, second, and third FSAP missions took place in May 2007, September 2007 and November 2010 respectively. The latest report (IMF Country Report No. 11/107) was published in May 2011. Technical Assistance in 2014-2015: Missions: Medium Term Budget Framework (FAD), March 2014 and January 2015 Banking supervision (MCM), January - February 2015 External sector statistics (STA), May, June and October 2014 and February 2015 Strengthening LTO (FAD), May, June, August and September 2014 and January 2015 Treasury operations (FAD), March and October 2014 Cash management (FAD), April 2014 AML/CTF (LEG), October 2014 SDDS assessment (STA), October 2014 Price statistics (STA), October 2014 Resident Representative: The resident representative position was discontinued in September 2011, though the office remained open, staffed by local economists, and managed remotely by a non-resident representativemost recently, Ms. Yuko Kinoshitawho was based in the IMFs Regional Office for Asia and the Pacific in Tokyo. As of April 2014, Mr. Neil Saker will take up his assignment as resident representative based in Ulaanbaatar. 4 INTERNATIONAL MONETARY FUND MONGOLIA WORLD BANK-IMF COLLABORATION 1. World Bank and IMF country teams maintain a close working relationship. The teams, led by Ms. Chorching Goh (Lead Economist, GMFDR) and Mr. Koshy Mathai (Mission Chief) collaborate on a range of macroeconomic and structural issues. 2. Cooperation and coordination is exemplary. It pertains to the following: IMF surveillance. World Bank staff participates in Policy Consultation Meetings ahead of Article IV consultation missions and comments on staff reports. World Bank staff also participates in selected meetings of the Article IV mission team with the authorities. This facilitates the discussions, especially as regards policies in areas of mutual interest such as bank restructuring, social welfare reform, and fiscal policy. Development Policy Credits (DPC) and Country Partnership Strategy (CPS). In turn, Fund staff participated in the design and review of the Banks DPCs and was kept informed about the development of the Banks new CPS for FY1317. Banking system issues. Both country teams have been active in this area, including by fielding technical assistance missions. The teams coordinate closely to provide the authorities with consistent advice while avoiding unnecessary duplication of efforts. The two teams also continue to educate the public and parliamentarians on banking sector issues in an effort to build support for reforms. Structural reforms. Staff of the IMF and the World Bank have worked together successfully to provide technical assistance in expenditure management, the Fiscal Stability Law, the Integrated Budget Law, the Social Welfare Law, the Investment Law. and taxation of the mineral sector and on-going work on the Sovereign Wealth Fund Law. Staff also actively collaborated in the first assessment of Mongolias PFM system using the Public Expenditure and Financial Accountability (PEFA) framework. Policy Outreach. Both country teams jointly hosted a high-level conference on macroeconomic outlook as a forum for discussing economic developments and key challenges with key policy makers. 3. Based on the close collaboration, the World Bank and the IMF share a common view about Mongolias macroeconomic and structural reform priorities. These include: Promoting long-term growth. Managing the mineral wealth to ensure strong, sustainable, and equitable growth with low inflation. This includes the importance of avoiding the resource curse and the productive use of mineral wealth management. Macro-economic stability. This includes ensuring that the boom-bust policies of the past are not repeated. The Fiscal Stability Law adopted in 2010 with the support of the IMF and INTERNATIONAL MONETARY FUND 5 MONGOLIA the World Bank is a key step, and it is critical that it be strictly adhered to from 2013, the first year the law is effective. At the same time, fiscal policy also has to be mindful of the macroeconomic policy mix and medium and long-term fiscal sustainability. Monetary policy. The Bank of Mongolia (BOM)s large monetary stimulus, through its socalled price stabilization program, mortgage program, and liquidity injection, distorts markets and is bound to ratchet up inflation. The stimulus program should be phased out and the BOM should focus on further strengthening the monetary policy framework. The flexible exchange rate regime should be maintained. Protecting the poor. The 2012 Social Welfare Law envisages replacing existing costly universal cash transfers with means-tested benefits that would reach the poorest households. Full implementation of the law would represent a big step forward in strengthening the social safety net and increasing fiscal flexibility. Concrete action following the adoption of the law is important from a socio-economic perspective as well as a fiscal perspective. Strengthening the banking system. Key steps include continued improvement in bank regulation and supervision, ramping up risk disclosure and managementespecially given elevated systemic risks in the sector illustrated by the recent failure of Saving Bankand strengthening the newly established Mongolian Deposit Insurance Corporation. 4. The teams agreed to continue the close cooperation going forward. Table 1 details the specific activities planned by the two country teams along with their expected deliveries. It was also agreed that further details on collaboration, as necessary, would be agreed at the technical level as work progresses. 6 INTERNATIONAL MONETARY FUND MONGOLIA Table 1. Mongolia: Bank and Fund Planned Activities in Macro-Critical Structural Reform Areas Bank Work Program Products Analytical and Advisory Services Expected Delivery Date Semi-Annual Economic Update Ongoing Policy notes on selected economic topics Financial Sector Monitoring and Policy Dialogue (banking supervision, deposit insurance, housing finance, payment system, financial capability and consumer protection, AML/ATF) Capital Markets Strengthening and Development TA Public Expenditure and Financial Accountability (PEFA) Report TA on SWF TA on improving debt management system Ongoing Ongoing June 2016 April 2015 Ongoing Ongoing Ongoing Ongoing November 2013, April 2015 April, June, September, and December 2014 February 2015 Ongoing Ongoing Operational Supervision missions multi-sectoral TA Credit (fiscal policy and public expenditure system, Banking, social welfare) Preparation of Development Policy Credit Operation Fund Work Program Article IV-Board Meetings Missions STA: National account statistics, BOP statistics FAD: Tax administration for large taxpayers, mineral taxation regime INTERNATIONAL MONETARY FUND 7 MONGOLIA RELATIONS WITH THE ASIAN DEVELOPMENT BANK 2 Mongolia became a member of the Asian Development Bank (AsDB) in February 1991. The AsDB has been Mongolias largest source of multilateral development finance for more than two decades and since Mongolia joined AsDB, the country has received 60 loans totaling US1.3 billion, 12 Asian Development Fund grants and 2 Japan Fund for Poverty Reduction (JFPR) grants for US218 million. In addition, 184 TA and JFPR TA grant projects with total value of 110.9 million have been implemented and AsDB has supported trade through its Trade Finance Program, with a total value of 106 million. AsDB has also approved 2 ongoing financing facilities for urban development and urban transport, with up to 377 million currently available for drawdown. In 2011, Mongolia gained access to AsDBs ordinary capital resources (OCR), alongside AsDBs concessional lending from ADF however Mongolia no longer has access to ADF grant financing. Given its AAA credit rating, AsDB makes funding available for development projects on highly favorable terms. This change was welcomed by the Government of Mongolia as large amounts of capital are needed to finance infrastructure investments and, improvement of social services, and to address urgent environmental problems. AsDB has provided financial, technical and policy support in areas ranging from urban infrastructure, agriculture, energy, finance, education, health, to social protection and transport. AsDB has also provided over 100m private sector financing for commercial banks. The Mongolia Country Partnership Strategy (CPS) 201216 was approved by AsDBs board in April 2012. The CPS is prioritizing (i) transport, energy, and water supply infrastructure (ii) access to education and health and (iii) regional economic cooperation in order to support sustainable and inclusive growth of economy. In August 2014, reflecting changed government priorities and to meet AsDBs focus on employment creation and economic diversification, two strategic adjustments was made to the Interim CPS 20142016: (i) the inclusion of two additional sectors (agriculture, natural resources and rural development and finance) and (ii) scaling up OCR resource allocations to meet pressing development needs, from 50m annually to 200m. For 2015, AsDB has offered to provide loans for US200 million and US72 million from OCR and ADF funding sources, respectively. In addition, technical assistance worth US11 million and JFPR grant worth US10 will be provided. AsDBs operations will concentrate on the following sectors in the following years: Transport. Transport is the largest sector of AsDB operations in Mongolia. Under the Central Asia Regional Economic Cooperation (CAREC) program, for which AsDB acts as Secretariat, AsDB is financing construction of the countrys two main international road corridors, connecting Mongolia 2 8 Data provided by Asian Development Bank staff. INTERNATIONAL MONETARY FUND MONGOLIA to the Peoples Republic of China and the Russian Federation. As a result, travel times from Ulaanbaatar (UB) to the PRC border have recently come down from 20 hours to 7 hours. With a view to boosting Mongolian exports, AsDB is also supporting Mongolia to harmonize cross-border transport procedures, under the CAREC program, and developing logistics infrastructure and systems in Zamyn-Uud on the border with the Peoples Republic of China. AsDB also plans to support a public transport system for UB, based on bus rapid transit. Urban Development. AsDB is helping to improve living conditions and greater access to basic services, including water, sanitation, and heating, to poor people in urban areas across the country, including UB, provincial capitals and smaller towns in the mineral-rich Gobi area, where communities are coping with a large population influx in response to new mining operations. AsDB plans to extend basic urban infrastructure and construct socio-economic facilities in peri-urban areas of UB city, home of nearly half of the population, to upgrade existing sub-centers for improved economic, housing, and employment opportunities, and reduced environmental pollution. AsDB recently approved the 320 million Ger Area Development Programme, with 160m financing from AsDB, Euro 50m from the European Investment Bank and the remainder financed by the Government. Energy. Insufficient and unreliable power and heating are becoming bottlenecks to growth and threaten livelihoods. AsDB aims improve energy efficiency and capacity in UB, through upgrading electrical transmission and distribution networks, by increasing efficiency of existing energy sources, and preparing to finance the countrys first major 1.3 billion publicprivate partnership to construct a new energy efficient combined heating and power plant in UB with proper emission reduction equipment. AsDB will pilot the application of different renewable energy sources, including solar thermal heating in remote districts. Ausbildung. AsDB has supported the governments efforts to reform and develop the education system in all subsectors (pre-primary, primary, secondary, tertiary, technical and vocational education and training). To meet pressing labor market demands, AsDB currently supports reform of higher education has recently approved substantial financial support modernize vocational training, as well as promoting PPPs in pre-primary and primary education Health and Social Protection. AsDB has made major investments to improve primary health services and supports policy reforms and investments in the hospital sector, drug and blood safety and hospitals hygiene. AsDB assisted the government in introducing proxy means testing to target the poor, reformation of several universal benefits, introduction of the food stamp program as the first poverty-targeted benefit in the country, and passage of the amended Social Welfare Law in January 2012 that legalized the reforms. AsDB will continue to support the efficiency and transparency of the delivery of social welfare and insurance services. Another planned area of support is the improvement of access to education, employment and health care for disabled persons, who tend to be left aside from the basic services. Agriculture, Natural Resources and Rural Development. Recognizing the significant potential of agriculture for employment creation, Mongolia needs to diversify the economy by developing value chains for high-quality, locally made agricultural products. Establishing genuine Mongolian brands, INTERNATIONAL MONETARY FUND 9 MONGOLIA and developing rigorous quality control and standardization of products would help Mongolian companies to penetrate overseas markets. AsDB has been and will continue supporting this potential through the development of agro-processing companies, and establishing brands. Sanitary and phytosanitary measures are essential for Mongolia to boost its trade of agriculture products and AsDB supports the country to upgrade these to international standards. Mongolia faces severe development challenges in terms of sustainable growth, such as, grasslands desertification, water scarcity, and a growing number of climate change-related disasters. AsDB will support the sustainable management of natural resources (i. e. water, land, forests, and peatlands) water security and information management protected area management climate change adaptation institutional strengthening and rural renewable energy and livelihood improvement. AsDB aims to strengthen natural disaster risk management. Working with private sector banks, AsDB has made over 80m available for the development of micro, small and medium enterprises, especially in agribusiness. Finance. While almost 90 of registered businesses in Mongolia are SMEs, most of them have limited access to finance and are unable to contribute sufficiently to diversification of the economy, employment creation, and economic growth. The expected outcome of AsDBs interventions in the financial sector is the increased use of more efficient financial intermediation by private sector enterprises and individuals to support diversification of the economy and employment creation, in particular in the agriculture sector. AsDB will help safeguard financial sector stability, improve access to finance for SMEs through the support of financial infrastructure, and support long-term financing for investments in infrastructure and green development. 10 INTERNATIONAL MONETARY FUND MONGOLIA STATISTICAL ISSUES (As of March 3, 2015) I. Assessment of Data Adequacy for Surveillance General: Data provision to the Fund is broadly adequate for surveillance, but some shortcomings exist in the estimation of GDP and treatment of missing observations in price indices. The priority areas for improvement are national accounts and price statistics, and also the migration of government finance statistics to a new methodology. National Accounts: The National Statistics Office (NSO) currently compiles and publishes annual and quarterly GDP by production and expenditure approaches. Estimates are broadly in line with the 1993 SNA and are based on various census/surveys and administrative data sources. Annual GDP data are available for 19902013. The constant price estimates use the base year 2005. The NSO has recently improved the quality of national accounts data, but weaknesses remain, including in the estimation of capital formation, imputed rent estimates, estimation of GDP in constant prices, and coverage of the informal sector and small-scale activity (especially in the services sector). The NSO is currently finalizing a supply-use table (SUT) for 2010 at current prices based on the 2008 SNA methodology and has plans for implementing SUT as an integral part of the annual compilation process, in current and constant prices. The SUT represents an important tool for the improvement of national accounts estimates in Mongolia. Price Statistics: The consumer price index (CPI) was rebased in January 2008 with expenditure-derived weights from the 2005 Household Income and Expenditure Survey. The NSO has published a national CPI for Ulaanbaatar and 21 aimags (provinces) since January 2008, and a housing price index since October 2008. CPI compilation can further be improved by expanding the sample to include more varieties and financial services and appropriate treatment of missing observations. The NSO also publishes a producer price index (PPI). The major shortcoming with the currently compiled PPI for industry continues to be the lack of imputation for missing pricesboth temporarily and permanently missing prices. Government Finance Statistics: Currently, the concepts, classifications, and definitions used to compile sub-annual and annual fiscal statistics for the consolidated general government operations series used in APD generally follow the guidelines of the GFSM 1986. The authorities have indicated an intention to adopt a migration path to the GFSM 2001 methodology. STA assists the authorities compile and disseminate monthly and annual (cash-based) general government series in the GFSM 2001-based Statement of Sources and Uses of cash (Revenue, Expenditure, Transaction in Assets and Liabilities). A 2015 GFS TA mission will seek to compile a complete an annual (and quarterly) balance sheet and integrated presentation of stock and flows for the consolidated general government sector using the accrual (IPSAS-based) accounts maintained by the Ministry of Finance. The mission will also seek to encourage the reporting of public sector debt statistics (PSDS), as these are not reported systematically to the World Bank for dissemination on the PSDS Website. Monetary and Financial Statistics: BOMs monetary and financial statistics conform to the concepts and definitions of the Monetary and Financial Statistics Manual (MFSM) methodology as the authorities implemented recommendations of the latest monetary and financial statistics (MFS) missions. In particular, the monetary data were improved by the proper classification of repurchase agreements, accrued interest, and financial derivatives. The coverage of monetary statistics was expanded beginning in February 2010 to include data of Savings and Credit Cooperatives (SCCs) that collect deposits and since May 2010 data for some other financial corporations (OFIs) have been disseminated in the BOMs Monthly Statistical Bulletin. The September 2009 mission provided recommendations to reconcile the BOM and the Ministry of Finance data on government financing, INTERNATIONAL MONETARY FUND 11 MONGOLIA and finalized the standardized report forms for the data of the BOM and other depository corporations for publication in International Financial Statistics beginning in November 2009. The July/August 2011 mission discussed the quality of data of the nonbank financial institutions (NBFIs), insurance companies, and securities companies that are reported to the Financial Regulatory Commission (FRC) and recommended their use in the compilation of monetary statistics. However, due to insufficient coordination among various agencies, this recommendation has not been implemented. Financial sector surveillance: With regard to financial soundness indicators (FSIs), Mongolia currently does not report data to the Fund for dissemination on the Fund website. External Sector Statistics: For compilation of external sector statistics (ESS), the Bank of Mongolia (BOM) follows the statistical framework of the fifth edition of the Balance of Payment Manual (BPM5) and expects to begin compiling and reporting ESS using the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) during the first half of 2015. The coverage of the balance of payments statistics has been broadened by extending the International Transaction Reporting System (ITRS) to nonbank financial institutions and by increasing the number of direct reporting private enterprises. Since May 2014, BOM has produced 2012-annual international investment position data for submission to STA. Priorities for improvement are to (1) submit quarterly external debt statistics to the World Banks Quarterly External Debt Statistics (QEDS) database in collaboration with the Ministry of Finance (2) release the first quarter data for 2014 using the BPM6 statistical framework and (3) assess the State Registry Offices database on all enterprises registered in Mongolia to determine whether all relevant enterprises with direct investment are included in the BOMs ESS surveys. II. Data Standards and Quality Mongolia participates in the General Data Dissemination System (GDDS). 12 INTERNATIONAL MONETARY FUND A data ROSC mission visited Mongolia in September 2007 to update the May 2000 assessment of the macroeconomic statistics. The report was published in April 2008. MONGOLIA MongoliaTable 2. Common Indicators Required for Surveillance (As of February 25, 2014) Date of Latest Observation Date Received Frequency 6 of Data Frequency of 6 Reporting Frequency of 6 Publication Exchange rates 02/25/15 02/25/15 D D D International reserve assets and reserve liabilities of the 1 Monetary Authorities 02/25/15 02/25/15 D D M Reserve/base money 01/31/15 02/23/15 M M M Broad money 01/31/15 02/23/15 M M M Central bank balance sheet 01/31/15 02/23/15 M M M Consolidated balance sheet of the banking system 01/31/15 02/23/15 M M M Interest rates 12/31/14 01/16/15 M M M Consumer price index 01/31/15 02/18/15 M M Revenue, expenditure, balance 3 and composition of financing 4 general government 12/31/14 01/16/15 M Revenue, expenditure, balance and composition of 3 financing central government 12/31/14 01/16/15 Stocks of central government and central government5 guaranteed debt 12/31/14 External current account balance. Memo Items: Data Quality Data QualityMethodological Accuracy and 8 7 Reliability soundness O, LO, LO, LO O, O, O, O, LNO M O, LO, O, O LO, LO, LO, O,O M M LO, LNO, LO, O LO, O, LO, LO, LNO M M M 02/08/15 A A A 12/31/14 02/03/15 M M M O, O, O, LO LO, O, LO, LO, LO Exports and imports of goods 12/31/14 02/03/15 M M M GDP/GNI 2014Q4 02/2015 Q Q Q O, LNO, O, LO O, LO, LO, LO, LNO Gross external debt 2014Q3 01/16/15 Q Q Q 2 1 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes and bonds. Foreign, domestic bank, and domestic nonbank financing. 4 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments. 5 Including currency and maturity composition. 6 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I), Not Available (NA). 7 Reflects the assessment provided in the data ROSC or the Substantive Update (published in April 2008, and based on the findings of the mission that took place during September 128) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O) largely observed (LO) largely not observed (LNO) not observed (NO) and not available (NA). 8 Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies. 2 3 INTERNATIONAL MONETARY FUND 13 MONGOLIA MILLENNIUM DEVELOPMENT GOALS Goal 1: Eradicate extreme poverty and hunger Employment to population ratio, 15, total () Employment to population ratio, ages 1524, total () GDP per person employed (constant 1990 PPP ) Income share held by lowest 20 Malnutrition prevalence, weight for age ( of children under 5) Poverty gap at 1.25 a day (PPP) () Poverty headcount ratio at 1.25 a day (PPP) ( of population) Vulnerable employment, total ( of total employment) Goal 2: Achieve universal primary education Literacy rate, youth female ( of females ages 1524) Literacy rate, youth male ( of males ages 1524) Persistence to last grade of primary, total ( of cohort) Primary completion rate, total ( of relevant age group) Adjusted net enrollment rate, primary ( of primary school age children) Goal 3: Promote gender equality and empower women Proportion of seats held by women in national parliaments () Ratio of female to male primary enrollment () Ratio of female to male secondary enrollment () Ratio of female to male tertiary enrollment () Share of women employed in the nonagricultural sector ( of total nonagricultural employment) Goal 4: Reduce child mortality Immunization, measles ( of children ages 1223 months) Mortality rate, infant (per 1,000 live births) Mortality rate, under-5 (per 1,000 live births) Goal 5: Improve maternal health Adolescent fertility rate (births per 1,000 women ages 1519) Births attended by skilled health staff ( of total) Contraceptive prevalence ( of women ages 1549) Maternal mortality ratio (modeled estimate, per 100,000 live births) Pregnant women receiving prenatal care () Unmet need for contraception ( of married women ages 1549) Goal 6: Combat HIV/AIDS, malaria, and other diseases Children with fever receiving antimalarial drugs ( of children under age 5 with fever) Condom use, population ages 1524, female ( of females ages 1524) Condom use, population ages 1524, male ( of males ages 1524) Incidence of tuberculosis (per 100,000 people) Prevalence of HIV, female ( ages 1524) Prevalence of HIV, male ( ages 1524) Prevalence of HIV, total ( of population ages 1549) Tuberculosis case detection rate (, all forms) Goal 7: Ensure environmental sustainability CO2 emissions (kg per PPP of GDP) CO2 emissions (metric tons per capita) Forest area ( of land area) Improved sanitation facilities ( of population with access) Improved water source ( of population with access) Marine protected areas ( of territorial waters) Net ODA received per capita (current US) Goal 8: Develop a global partnership for development Debt service (PPG and IMF only, of exports of goods, services and primary income) Internet users (per 100 people) Mobile cellular subscriptions (per 100 people) Telephone lines (per 100 people) Fertility rate, total (births per woman) Other GNI per capita, Atlas method (current US) GNI, Atlas method (current US) (billions) Gross capital formation ( of GDP) Life expectancy at birth, total (years) Literacy rate, adult total ( of people ages 15 and above) Population, total (millions) Trade ( of GDP) Source: World Bank, World Development Indicators database. 14 INTERNATIONAL MONETARY FUND 1995 2000 56 38. 7 8. 57 38. 7 12. 57 57 30. 5. 56 60 33. 68 75 81 98 97 89 87 93 99 98 93 114 99. 130 98 8 103 133 227 46 11 101 124 179 49 4 98 107 154 52 15 97 103 145 50 85 63 85 92 49 65 97 29 36 97 26 32 34. 57 120. 26 97 67 120 97. 19 99 55 74 99 14 19. 68. 314 0.1 0.1 0.1 39. 253 0.1 0.1 0.1 51. 214 0.1 0.1 0.1 77. 181 0.1 0.1 0.1 84 1.3 3.4 7.8 47 63. 91 1.0 3.1 7.5 49 68. 91 0.7 4.2 7.0 55 82. 112. 6.9 56 85. 160 10 0 0 3 3 7 1 6 5 2 4 10 93 7 2 3 18 124 6 2 470 1900 1.1 5.2 29.0 40.8 62.9 66.9 97.8 98.3 2.39 2.71 121.9 117.1 3770 10.7 61.4 67.3. 2.84 112.2 460 1.1 26.8 61.2. 2.29 82.1 2010 2012/13 MONGOLIA MAIN DATA WEBSITES National Statistics Office (nso. mn) National Accounts Consumer Price Inflation Agricultural and Industrial Production Petroleum Imports Electricity Production and Consumption Coal Production Retail Prices Employment Exports and Imports Bank of Mongolia (mongolbank. mn) Monetary Survey Consolidated Balance Sheet of Commercial Banks Distribution of Bank Credit to the Nongovernment Sector Net Credit to Government Interest Rates Balance of Payments Services and Income Accounts Official Reserves of the Bank of Mongolia Selected Indicators of Commercial Bank Foreign Exchange Operations Nominal and Real Exchange Rates Securities Market Data Government Budget Accounts Ministry of Finance (mof. gov. mn) Government Budgetary Operations National Development and Innovation Committee (ndic. gov. mn) Long - and medium-term development strategy Economic and social policies Investment policy coordination Development Bank of Mongolia Financial Regulatory Commission (frc. mn) FRC decisions Total assets of regulated entities (insurance companies, securities and broker firms, non-bank financial institutions, savings and credit unions) Consolidated income statements of regulated entities (insurance companies, securities and broker firms, non-bank financial institutions, savings and credit unions) INTERNATIONAL MONETARY FUND 15 MONGOLIA March 19, 2015 STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATIONDEBT SUSTAINABILITY ANALYSIS Approved By Markus Rodlauer and Masato Miyazaki (IMF) and Satu Khknen and Mathew Verghis (IDA) The Debt Sustainability Analysis (DSA) has been prepared jointly by IMF and World Bank staff, in consultation with the authorities, using the debt sustainability framework for lowincome countries approved by the Boards of both institutions. Based on the LIC-DSA analytical framework and a broader coverage of public debt than previously used, this debt sustainability analysis (DSA) concludes that Mongolia is at high risk of public debt distress under the baseline scenario. 1 This is not because debt is on an ever-increasing path over the medium-term, but rather because key debt indicators are currently elevated and, while expected to decline over time, would still remain above the relevant thresholds for a number of years. This assessment shows a significant deterioration of debt dynamics since the 2013 Article IV, which suggested a moderate risk under a strong policy scenario. In 2014, the fiscal deficit ceiling set forth under the Fiscal Stability Law (FSL) was breached, DBM borrowed large amounts at commercial terms, and the BOM continued to draw down its swap line established with the Peoples Bank of China (PBC). Public debt could rise further in the near term as the newly passed Debt Management Law allows more room for the government to contract debt and guarantees.2 1 The low-income country debt sustainability framework (LIC DSF) recognizes that better policies and institutions allow countries to manage higher levels of debt, and thus the threshold levels are policy-dependent. Mongolias policies and institutions, as measured by the World Banks Country Policy and Institutional Assessment (CPIA), place it as a medium performer, with an average rating of 3.43 during 2011-13. The relevant indicative thresholds for this category are: 40 percent for the NPV of debt-to-GDP ratio, 150 percent for the NPV of debt-to-exports ratio, 250 percent for the NPV of debt-to-revenue ratio, 20 percent for the debt serviceto-exports ratio, and 20 percent for the debt service-to-revenue ratio. These thresholds are applicable to public and publicly guaranteed external debt. 2 This DSA is based on end-2014 debt data. The fiscal year for Mongolia is JanuaryDecember. The 2013 DSA (see IMF Country Report No. 14/64) was based on end-2013 debt data. MONGOLIA A. Background 1. Based on the LIC-DSA framework and a broad coverage of public debt, this DSA concludes that Mongolia faces a high risk of debt distress under the baseline scenario. This DSA assesses public debt, including general government debt, Euro bonds issued by the Development Bank of Mongolia, the drawing of the PBOC swap line by the Bank of Mongolia (BOM), and also borrowing by, and government guarantees for SOEs, which were not included in the previous DSA as such data were not reliably available at the time.3 External public and publicly guaranteed (PPG) debt reached more than 56 percent of GDP by end-2014, and key external debt indicators have breached, or are projected to breach, the relevant indicative thresholds debt-service ratios spike in various years when external bonds mature, and some of these breaches are significant in magnitude and persist for extended periods under both baseline and stress tests. Public debt stood at 77 percent of GDP, and will stay above the benchmark for almost the entire projection period (2015-2035).4 Total external debt rose to 170 percent of GDPreflecting, in large part, intercompany lending in the mining sectorundermining the economys resilience to external shocks. The elevated debt ratios have also raised market concerncredit rating agencies have downgraded Mongolias sovereign rating several times since the issuance of Eurobonds in late 2012 and have maintained a negative outlook, and Mongolias sovereign spreads are among the highest of all frontier economies. 2. Debt dynamics have worsened since the 2013 DSA, mainly reflecting a substantial increase in domestic public debt and external PPG debt. The strong policy scenario of the 2013 DSA, which envisaged significant fiscal restraint and monetary tightening, did not take place. Instead, the 2014 on-budget deficit reached 4 percent of GDP compared to the FSL limit of 2 percent, and off-budget spending by the Development Bank of Mongolia (DBM) amounted to 6 percent of GDP, keeping the consolidated fiscal deficit at 11 percent of GDP, similar to 2013. Debt dynamics have deteriorated substantially, reflecting extensive borrowing by the DBM, further drawing of the swap line by BOM, and large amounts of domestic bonds issued close to end-2014 (see table 1). Moreover, exchange rate depreciation caused external debt to increase further relative to GDP. The expansion of public debt coverage to include borrowings by, and government guarantees for, SOEs, raises the reported debt ratio by 8 percent of GDP in 2013.5 But the elevated debt risk is mainly attributable to aggressive borrowing rather than this expansion of coverage. On the authorities definitioni. e. in NPV terms, and excluding the PBOC swap drawingspublic debt amounted to 55 percent of GDP at end-2014, in excess of the FSLs 40 percent limit. 3. The institutional framework of debt management has also been altered. Even the authorities estimatei. e. considering their calculation of debt NPV with the Bank of Mongolias 3 The authorities definition of public debt excludes the BOM swap line. And debt as defined under the FSL and DML has recently been changed to exclude SOE debt and secured government guarantees. Moreover, the authorities consider debt in NPV, not nominal, terms. 4 The public debt benchmark is derived on an empirical basis, and varies among countries with their respective CPIA score. 5 2 This broad coverage is in line with the DSA Guidance Note (2013). INTERNATIONAL MONETARY FUND MONGOLIA swap line excludedshows public debt amounted to 54.7 percent of GDP at end-2014 and thus far exceeded the 40 percent threshold enshrined in the FSL. Recent amendments to the FSL and a new Debt Management Law narrowed the definition of debt to government debt only by excluding SOE borrowing and government guarantees secured by government securities. This legal framework also laid out a path for bringing the deficit and government debt back to the original limits within a few years. The new laws will thus provide additional room for the government to contract debt and provide guarantees in the near term. Staff does not support the narrowing of public debt coverage, nor the temporary increase of debt ceiling. Staff also explained the need to include all DBM spending and BOM swap line drawing in public debt for the following reasons: DBM spending. All DBM activities should be included in the statistics (revenue, expenditure, deficit, and financing) of general government for Mongolia. This practice reflects the institutional unit approach as stated by international statistical manuals (GFSM 2014, SNA 2008 and BPM6). Although in limited circumstances international statistical manuals allow for commercial or market activities of general government units to be split out, but the current activities undertaken by DBM clearly do not satisfy the requirements. BOM swap. Since this DSA covers the entire public sector, BOMs liability relating to the swap should be included. Composition of Public Debt (percent of GDP) 2013 2014 Government External Debt 32 31 Government Domestic Debt 12 14 Government Guarantees (incl. DBM Debt) 6 12 Non-Guaranteed SOE Debt 9 7 BOM Foreign Liability 9 13 Total Public Debt ( of GDP) 67 77 4. Mongolias long-term prospects remain bright, but liquidity risks are high in the near term. The countrys resource wealth is estimated at 1 trillion to 3 trillion, and this is assumed to continue being realized gradually. Mongolia is thus projected to be solvent given the strong projected revenues from mining over the long term. It does, however, face serious liquidity pressures and risks in the short run, before mining exports ramp up. Until then, financing outsized prospective fiscal and BOP deficits will be difficult, and thus policies should be focused to avoid building up excessive debt and manage BOP pressure. 5. The authorities have embarked on policy tightening, but more needs to be done. Part of DBMs spending has been brought on budget, and the consolidated fiscal deficit is expected to decline this year. The authorities target ambitious deficit reduction (to 5 percent of GDP this year, and 2 percent by 2018, excluding commercial DBM spending) but this is not likely to materialize on current policies. (Responding to these concerns, the authorities envisage a government resolution to cut spending administratively, to be backed up by a second supplementary budget later in the year). The BOM has hiked the policy rate twice, slowed the pace of PSP and mortgage INTERNATIONAL MONETARY FUND 3 MONGOLIA lending, and proposed transferring the existing stock of PSP loans to the governments balance sheet nonetheless, credit growth is higher than desirable. The authorities have redoubled efforts to reach agreement with investors on large projects and introduced other structural measures to boost exports and reduce imports. Steps have been taken to strengthen the banks and to improve bank supervision and crisis preparedness. Nevertheless, these policy adjustments may not be sufficient to ensure macro-stability. Under the baseline, the consolidated fiscal deficit (including all DBM spending) would decline but remain above the FSL limit (2 percent of GDP). A large BOP financing gap, estimated at about 2 billion over the next three years (discussed below), will be financed at least partly by public borrowing or debt contracted with government guarantees.6 6. Baseline assumptions differ significantly from those in the strong policy scenario used in the previous DSA: The previous DSA projected the fiscal deficit to fall below 2 percent of GDP in 2016, while here it drops to 4 percent from 2019. The previous DSA projected a complete phaseout of unconventional monetary easing programs, which helped to bring credit growth down to around 13 percent, while here some of these programs continue, albeit on a smaller scale, and credit growth is around 16 percent. Reflecting updated information on OT-1 output, mining growth is revised down from an average of 5 percent to 3 percent, while nonmineral growth is revised down from 6 percent to 5 percent, on account of weakened near-term investor confidence. Given weaker activity, this DSA also revises CPI inflation down from a medium-term average of 7 percent to 7 percent. The real exchange rate is assumed to remain constant. Finally, while there was no BOP financing gap in the previous DSA, the current BOP envisages a financing gap (relative to zero reserves) of 2 billion mainly because of weaker capital and financial inflows.7 It is assumed that 62 percent of the financing gap will be filled by government borrowing or debt with government guaranteesthis ratio is consistent with the share of public external debt in total external debt (excluding intercompany lending). This borrowing also reflects additional borrowing space created by the revised legal framework (the revised FSL and the new DML). B. Debt Sustainability under Baseline Scenario 7. Debt is not on an ever-increasing path under the baseline scenario. Both external and public debt scaled by GDP would fall after an initial period.8 This reflects promising prospects of the mining sector in outer years and fiscal adjustment measures enshrined in the legal system. Nevertheless, the debt path is sensitive to external shocks. Meanwhile, disputes surrounding OT-2, 6 The financing gap is defined as the shortfall of BOP financing after FX reserves fall to zero. Considering the need to build up FX reserves, the financing needs could be even larger. 7 An important difference is that the current DSA baseline assumes no rollover of the maturing sovereign and quasisovereign bonds in 2017, while the previous DSA assumes a full rollover of these debts. 8 4 Residuals reflect large capital outflows under currency and deposits and change of FX reserves. INTERNATIONAL MONETARY FUND MONGOLIA which is assumed to be addressed by end-2015 under the baseline, add to economic uncertainty. Should it be further delayed, growth prospects would be dampened, fiscal risk would rise, and BOP financing gap could be wider, but the debt path would still trend down slowly. To put the debt trajectory on a more sustainable footing, more needs to be done. Below is a summary of the debt indicators under the baseline scenario: External DSA 8. Mongolias external PPG debt indicators have all breached, or are projected to breach, the thresholds, and will remain above these thresholds, in some cases for a prolonged time. The detailed results are as follows: The present value of external PPG debt reached 57 percent of GDP by end-2014, far above the indicative threshold of 40 percent.9 It is expected to peak at 64 percent of GDP in 2016, and gradually moderate to below the threshold in 2025 onwards. The present value of external PPG debt would peak at 170 percent of exports in 2017, and stay above the threshold of 150 percent in about half of the projection period. The present value of external PPG debt in relation to revenue would slightly breach the threshold only in 201617. It would peak at 259 percent in 2017, and decline steadily, falling to 113 percent in 2035. Debt service indicators, i. e. debt service-to-exports and debt service-to-revenue, would briefly breach the thresholds several times (each time for just one year), including in 2017 and 2022, when the Chinggis bonds mature. 9. Meanwhile, these debt indicators are susceptible to various standard shocks such as a sharp exchange rate depreciation and decline of BOP inflows. Given a one-time 30 percent exchange rate depreciation, the present value of external PPG debt would peak at 89 percent of GDP in 2017 and stay above the indicative threshold for almost the entire projection period the present value of external debt-to-revenue would peak at 359 percent and stay above the threshold for seven years and debt service-to-revenue would peak at 70percent in 2017 and stay above its threshold until 2027. In the case of a one-standard deviation shock to non-debt creating BOP flows, the present value of debt-to-exports would peak at 235 percent in 2017 and stay above the threshold through the whole projection period and debt service-to-exports would breach its threshold in 14 out of the 21-year projection period. 10. The standard historical scenariowhere key variables follow historical paths and debt ratios thus decline rapidlydoes not seem to represent a possible outcome. For example, FDI inflows peaked at more than 4 billion per year in 2011-12, and have since dropped sharply to just 542 million in 2014. Even if OT-2 is launched soon, FDI would likely peak at only 2 billion in the next few years. By the same token, real GDP growth would also be more moderate in the future barring the investment boom observed in 201112. 9 The discount rate is 5 percent, according to the DSA guidelines. INTERNATIONAL MONETARY FUND 5 MONGOLIA Public DSA 11. Public ratios would remain elevated across the projection period. The present value of public debt-to-GDP ratio peaks at 95 percent of GDP in 2017 and then falls gradually, to 53 percent by end-2035. This ratio has been far above the benchmark (56 percent), and is expected to decline below the benchmark only in 2032 onward. The present value of public debt-to-revenue ratio would peak at just below 400 percent in 2017, and thereafter falls gradually to just above 200 percent in 2035. The debt service-to-revenue ratio would spike several times, peaking in 2017 at 71 percent and hovering around 40 percent in most of the projection period. Debt could rise further if some banks need to be recapitalized, and if this requires fiscal resources. 12. The alternative scenarios and bound tests indicate that the projected paths of debt indicators are sensitive to alternative assumptions. In particular, the scenario in which the primary balance is fixed at the level prevailing in 2014 illustrates a steadily rising trend of debt ratios, underscoring the urgent need for fiscal consolidation. 13. The uncertainty surrounding OT-2 represents an important downside risk, but debt ratios would still decline steadily even if the project were delayed by three years. In this context, the present value of external PPG debt would peak at 70 percent of GDP in 2017, and decline thereafter steadily, to 27 percent of GDP at the end of the projection period meanwhile, the present value of public debt would reach 103 percent of GDP, and then decline consistently, to 53 percent of GDP by 2035. The present value of external PPG debt would stay above its threshold for 10 years, and the most severe shock would cause this ratio to peak at 98 percent of GDP in 2017, though it would fall over time, to below the threshold close to the end of the projection period. Spikes of external debt service ratios would be more severe than under the baseline assumption of no delay in OT-2. C. Debt Sustainability under Policy Adjustment Scenario 14. Macro policies need to be tightened to keep current account deficits at more manageable levels and to improve the fiscal position. One possible adjustment scenario is summarized below: Fiscal. The fiscal path needs to be secured with Parliamentary approval for measures to control spending, both on-budget and off, as part of a coherent, medium-term macro framework. In the adjustment scenario, all DBM spending is brought on-budget and the fiscal deficit would be reduced to 2 percent of GDP in 2017 onward. Monetary. The BOM should cease all unconventional easing programs targeting particular industries or involving direct lending to the private sector, returning to traditional centralbanking functions these programs should, if desired, by conducted by the government, competing with other spending priorities for funds within the budget. The monetary stance should be tightened further, to control credit growth and support the BOP. Credit growth slows to about 12 percent (y/y) in the adjustment scenario. 6 INTERNATIONAL MONETARY FUND MONGOLIA Exchange rate policy. Foreign-exchange intervention should be limited to dealing with episodes of excessive volatility, and the exchange rate should be allowed to move flexibly. Growth and inflation. Given the policy tightening, non-mining growth would initially slow to 1 percent in 2015 and then gradually pick up to 6 percent over the medium term. Real exchange rate is assumed to depreciate by 4 percent per year in 2015-17 barring BOM intervention. The exchange rate depreciation will have pass-through effects on inflation, which would stay high at 9 percent in 2015 and gradually moderate to 6 percent. Balance of payments. Macro policy tightening, lower growth and real exchange rate depreciation will all help compress imports. Current account deficit will decline by about 800 million in the next three years, compared to the baseline. As a consequence, the balance of payments will have no financing gap and FX reserves will stand at 1 months of imports by end-2017. 15. Debt dynamics improve significantly under the policy adjustment scenario. The present value of external PPG debt would peak at 63 percent of GDP in 2017, and decline to below its threshold in 2023 (compared to 2025 in the baseline). Unlike in the baseline, the present value of Mongolia: PV of Public Debt (Percent of GDP) debt-to-export and debt-to-revenue will not breach their relevant thresholds under the policy adjustment scenario. Debt service ratios would still breach their thresholds several times, but by a smaller margin than under the baseline. The present value of public debt would peak at 83 percent of GDP in 2017 Baseline (compared to 95 percent in the baseline), and Adjustment scenario falls steadily thereafter, to below the benchmark Baseline with OT-2 delayed in 2024 onward. 120 100 80 60 40 20 0 2014 2019 2024 2029 2034 D. Authorities Views 16. The authorities generally concurred with this assessment, but highlighted a few observations. First, they doubted whether the BOM swap line should be included in the public debt, wondered if this practice is broadly applied, and noted that, as a swap, and not an outright loan, there is a counterpart asset in togrog. They noted that public debt as defined in the FSL does not include the central banks debt, and that public debt is calculated in NPV terms. Second, their calculation of public debt in NPV terms differs from staffs estimate. Third, the budget only includes non-commercial activity of the DBM, while staff include all DBM lending. As a consequence, staffs estimates of the fiscal deficit and of debt are larger than those presented by the authorities. E. Conclusion 17. This DSA concludes that Mongolia suffers from high risk of debt distress. In recent years, the authorities have embarked on borrowing to finance rapidly growing budget and offbudget spending. External PPG debt has almost doubled from around 30 percent of GDP to just INTERNATIONAL MONETARY FUND 7 MONGOLIA below 60 percent in the past four years. Public debt stood at below 80 percent of GDP by end-2014, and could further increase given the lax fiscal policy and loosening of borrowing limits offered by the DML. Although debt indicators, mainly external and public debt scaled by GDP, would decline steadily under the baseline, they would remain elevated for prolonged periods. 18. The debt dynamics exhibit a high vulnerability to shocks and bound tests. External PPG debt ratios would rise dramatically in the case of a sharp exchange rate depreciaiton or negative shocks to BOP inflows. Public debt would be on an ever-increasing trajectory should the primary deficit remain at the level prevailing in 2014. Moreover, total external debt, both public and private, has reached about 140 percent of GDP, and this has made the macro-financial stability highly susceptible to exchange rate movements and flucutation of BOP flows. 19. These risks call for immediate policy actions. Although some fiscal adjustment measures have been announced, they are not sufficient to safeguard macro-financial stability and to ensure debt sustainability in case of adverse shocks. Staff suggests more pronounced policy tighening instead. Under a policy adjustment scenario, debt indicators improve significantlyexternal debt indicators either do not breach their thresholds, or breach them with a smaller margin public debt as a share of GDP would fall below the benchmark more quickly than under the baseline. Macroeconomic Assumptions The baseline scenario assumes the authorities current policies, including those proposed under the CMAP framework (but not the latest fiscal cuts that are under consideration). The details are summarized below: Real sector. It is assumed that OT-2 will start construction from late 2015 and begin operation in 2020. Fiscal. The authorities target the fiscal deficit at 5 percent of GDP for 2015, and aim to bring the deficit down to 2 percent of GDP by 2018. However, given certain unrealistic assumptions and the need to reflect all DBM spending in the budget, staff project the fiscal deficit to remain close to 10 percent of GDP in 2015, and gradually to decline to 4 percent of GDP from 2019 onward. Monetary. While the BOM has raised the policy rate twice in recent months and scaled down some monetary easing programs, other unconventional programs have continued and expanded. Given these developments, staff project credit growth at about 16 percent over the medium term. Balance of payments. The current account deficit is projected to average 13 percent of GDP over the medium term, before OT-2 starts to export mining commodities in 2020. FDI would average about 2 billion per year on account of OT-2 related investment. In 2017, maturing debt of more than 1 billion would exert heavy pressure on the BOP. A large financing gap is expected to emerge, and it is assumed that about two-thirds of this gap will be filled by public borrowing. Exchange rate. Staff project a constant real exchange rate, along with declining reserves. The adjustment scenario instead assumes that: (i) the fiscal deficit, with all DBM spending brought on budget, is brought down to 2 percent of GDP from 2017 onward (ii) unconventional easing programs at the BOM are transferred to the budget or discontinued altogether, and credit growth drops to 12 percent (iii) the exchange rate is allowed to move flexibly and (iv) market rollovers are easier. With these assumptions, BOP financing gaps are closed. 8 INTERNATIONAL MONETARY FUND MONGOLIA Figure 1. Mongolia: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2015-2035 1/ a. Debt Accumulation 12 0 10 -2 90 8 -4 80 6 -6 4 -8 2 -10 0 -12 -2 2015 2020 2025 2030 2035 -14 -16 -4 70 60 50 40 30 20 10 0 Rate of Debt Accumulation Grant-equivalent financing ( of GDP) Grant element of new borrowing ( right scale) 2015 c. PV of debt-to-exports ratio 250 b. PV of debt-to GDP ratio 100 2020 2025 2030 2035 d. PV of debt-to-revenue ratio 400 350 200 300 250 150 200 100 150 100 50 50 0 0 2015 2020 2025 2030 2035 e. Debt service-to-exports ratio 45 2015 70 35 60 30 2025 2030 2035 f. Debt service-to-revenue ratio 80 40 2020 50 25 40 20 30 15 20 10 10 5 0 0 2015 2020 Baseline Threshold 2025 2030 2035 Historical scenario 2015 2020 2025 2030 2035 Most extreme shock 1/ Sources: Country authorities and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a One-time depreciation shock in c. to a Non-debt flows shock in d. to a One-time depreciation shock in e. to a Exports shock and in figure f. to a One-time depreciation shock INTERNATIONAL MONETARY FUND 9 MONGOLIA Figure 2. Mongolia: Indicators of Public Debt under Alternative Scenarios, 2015-2035 1/ Fix Primary Balance Public debt benchmark Baseline Historical scenario Most extreme shock 1/ 180 160 PV of Debt-to-GDP Ratio 140 120 100 80 60 40 20 0 2015 700 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2023 2025 2027 2029 2031 2033 2035 2023 2025 2027 2029 2031 2033 2035 PV of Debt-to-Revenue Ratio 2/ 600 500 400 300 200 100 0 2015 2017 2019 2021 100 90 Debt Service-to-Revenue Ratio 2/ 80 70 60 50 40 30 20 10 0 2015 2017 2019 2021 Sources: Country authorities and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. 2/ Revenues are defined inclusive of grants. 10 INTERNATIONAL MONETARY FUND Table 1. Mongolia: External Debt Sustainability Framework, Baseline Scenario, 2012-2035 1/ (in percent of GDP, unless otherwise indicated) Actual External debt (nominal) 1/ of which: public and publicly guaranteed (PPG) Change in external debt Identified net debt-creating flows Non-interest current account deficit Deficit in balance of goods and services Exports Imports Net current transfers (negative inflow) of which: official Other current account flows (negative net inflow) Net FDI (negative inflow) Endogenous debt dynamics 2/ Contribution from nominal interest rate Contribution from real GDP growth Contribution from price and exchange rate changes Residual (3-4) 3/ of which: exceptional financing PV of external debt 4/ In percent of exports PV of PPG external debt In percent of exports In percent of government revenues Debt service-to-exports ratio (in percent) PPG debt service-to-exports ratio (in percent) PPG debt service-to-revenue ratio (in percent) Total gross financing need (Millions of U. S. dollars) Non-interest current account deficit that stabilizes debt ratio Historical Average 6/ Standard Deviation 6/ Projections 2012 2013 2014 2015 2016 2017 2018 2019 2020 99.3 39.0 38.6 -17.7 25.7 21.6 43.5 65.1 -0.7 -0.3 4.8 -35.9 -7.5 1.8 -6.3 -3.0 56.4 0.0 148.4 46.3 49.1 6.9 22.4 21.0 39.7 60.7 -0.6 -0.2 2.0 -16.7 1.2 3.2 -11.3 9.3 42.2 0.0 187.8 54.9 39.4 10.8 2.7 2.7 53.4 56.0 -0.7 -0.2 0.7 -4.5 12.6 5.7 -12.2 19.1 28.6 0.0 185.5 56.0 -2.3 -5.5 4.8 3.8 46.5 50.3 -0.7 -0.2 1.7 -8.6 -1.7 6.3 -8.0 3.2 0.0 187.8 62.4 2.3 -7.8 10.5 10.5 42.6 53.0 -0.7 -0.2 0.6 -17.8 -0.6 6.9 -7.5 10.1 0.0 181.7 60.2 -6.1 -2.8 10.2 11.6 37.2 48.9 -0.6 -0.2 -0.8 -13.7 0.7 7.5 -6.8 -3.3 0.0 173.3 58.4 -8.4 -10.5 9.6 11.1 36.5 47.6 -0.6 -0.2 -0.9 -17.1 -3.0 7.3 -10.3 2.1 0.0 164.3 56.2 -9.0 -12.3 6.3 7.7 38.5 46.3 -0.6 -0.2 -0.9 -15.4 -3.2 7.0 -10.2 3.3 0.0 153.8 54.0 -10.5 -20.1 -0.3 0.6 41.7 42.4 -0.5 -0.2 -0.4 -12.1 -7.6 6.1 -13.8 9.6 0.0. 8.5 16.3 2.2 5.9 3.2 7.5 -433.3 2107.9 -13.0 -26.7 188.4 353.1 55.6 104.1 198.3 19.2 4.6 8.8 1617.8 -36.7 186.7 190.0 184.9 175.9 166.5 401.3 446.4 496.9 481.8 431.9 57.1 64.6 63.4 61.0 58.3 122.8 151.8 170.5 167.0 151.3 226.8 259.3 255.6 240.9 230.0 26.1 28.9 54.1 33.8 31.6 6.7 8.2 32.8 12.4 11.9 12.5 14.1 49.1 17.8 18.1 1850.0 1398.0 2998.9 1376.9 1163.5 7.1 8.2 16.3 18.0 15.3 155.6 372.7 55.8 133.6 216.9 25.5 9.1 14.7 316.7 10.1 13.0 11.6 -1.4 1.1 -19.1 14.2 2015-2020 Average 2025 2035 97.8 37.9 -10.4 -12.0 0.5 2.1 28.2 30.4 -0.3 -0.1 -1.3 -8.7 -3.9 3.0 -6.9 1.6 0.0 58.5 28.9 -2.5 -1.6 4.2 6.5 15.8 22.2 -0.3 -0.2 -1.9 -4.2 -1.5 1.8 -3.3 -0.9 0.0 2021-2035 Average 2.3 -0.3 -6.8 98.0 57.4 346.9 364.5 38.1 27.8 134.8 176.4 150.2 113.1 34.6 25.2 23.2 20.8 25.8 13.3 1638.6 5469.7 10.9 6.7 Key macroeconomic assumptions Real GDP growth (in percent) GDP deflator in US dollar terms (change in percent) Effective interest rate (percent) 5/ Growth of exports of GampS (US dollar terms, in percent) Growth of imports of GampS (US dollar terms, in percent) Grant element of new public sector borrowing (in percent) 12.3 5.1 3.4 -1.7 5.4 11.6 -8.6 3.2 -6.9 -4.8 7.8 -11.4 3.6 28.4 -11.8 10.8 3.9 2.1 17.7 22.5 7.4 16.4 1.4 30.5 44.4. 4.4 -0.5 3.5 -9.4 -6.8 4.2 0.9 3.9 -3.8 11.0 3.8 2.1 4.2 -7.3 -2.4 6.2 2.2 4.4 6.5 5.6 6.4 2.1 4.4 14.7 5.7 9.2 1.0 4.1 19.5 1.0 5.7 1.3 4.1 3.4 2.4 -7.8 6.9 1.5 3.0 4.9 5.2 5.8 1.8 3.1 5.5 5.5 6.5 1.5 3.0 1.4 3.6. -8.6 -13.8 -14.7 -2.4 -3.2 -4.0 -6.7 -9.0 -7.5 29.7 31.3 28.0 25.2 24.9 24.8 25.3 25.4 25.7 25.3 24.6 24.7 Aid flows (in Millions of US dollars) 7/ of which: Grants 44.0 18.2 22.2 0.0 34.6 0.0 64.8 32.1 46.6 26.4 35.1 8.5 36.1 8.1 37.2 7.8 38.3 7.5 45.5 6.1 68.3 4.2 of which: Concessional loans Grant-equivalent financing (in percent of GDP) 8/ Grant-equivalent financing (in percent of external financing) 8/ 25.9. 22.2. 34.6. 32.8 -0.1 -1.8 20.2 -1.1 -11.5 26.7 -1.5 -14.1 28.0 0.0 -1.1 29.4 -0.1 -2.0 30.9 -0.1 -2.9 39.4 -0.2 -6.0 64.2 -0.3 -8.7 18.1 2.1 -4.5 6422 41.0. 21.7. 49.5 55.3 103.3 4.6 4.0 6893 3.9 49.8 56.9 121.7 6.7 5.1 8239 10.8 50.0 64.3 150.4 8.2 6.0 8622 2.9 50.3 63.2 168.9 32.5 8.5 9000 2.7 50.5 60.8 165.4 12.2 8.6 9364 2.4 54.9 58.1 150.0 11.8 10.4 9861 3.0 60.6 55.6 132.6 9.0 8.5 10181 -1.1 91.5 37.9 133.3 22.9 7.7 15899 1.3 175.6 27.7 173.1 20.4 Memorandum items: Nominal dollar GDP growth PV of PPG external debt (in Millions of US dollars) (PVt-PVt-1)/GDPt-1 (in percent) Gross workers remittances (Millions of US dollars) PV of PPG external debt (in percent of GDP remittances) PV of PPG external debt (in percent of exports remittances) Debt service of PPG external debt (in percent of exports remittances) 7.1 4.3 -0.2 -6.9 8.1 1.1 Sources: Country authorities and staff estimates and projections. 11 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ Includes both public and private sector external debt. Derived as r - g - (1g)/(1gg) times previous period debt ratio, with r nominal interest rate g real GDP growth rate, and growth rate of GDP deflator in U. S. dollar terms. Includes exceptional financing (i. e. changes in arrears and debt relief) changes in gross foreign assets and valuation adjustments. For projections also includes contribution from price and exchange rate changes. Assumes that PV of private sector debt is equivalent to its face value. Current-year interest payments divided by previous period debt stock. Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. Defined as grants, concessional loans, and debt relief. Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). MONGOLIA INTERNATIONAL MONETARY FUND. Government revenues (excluding grants, in percent of GDP) INTERNATIONAL MONETARY FUND MONGOLIA 12 Table 2. Mongolia: Public Sector Debt Sustainability Framework, Baseline Scenario, 2012-2035 (in percent of GDP, unless otherwise indicated) Actual 5/ Average 2012 2013 5/ Projections Estimate Standard 2015-20 Deviation Average 2015 2014 2016 2017 2018 2019 2020 2021-35 Average 2025 2035 Public sector debt 1/ of which: foreign-currency denominated 51.3 43.7 67.3 50.1 76.5 56.4 81.5 56.0 87.6 62.4 92.6 60.2 89.1 58.4 84.9 56.2 80.1 54.0 67.0 37.9 54.1 28.9 Change in public sector debt Identified debt-creating flows Primary deficit Revenue and grants of which: grants Primary (noninterest) expenditure Automatic debt dynamics Contribution from interest rate/growth differential of which: contribution from average real interest rate of which: contribution from real GDP growth Contribution from real exchange rate depreciation Other identified debt-creating flows Privatization receipts (negative) Recognition of implicit or contingent liabilities Debt relief (HIPC and other) Other (specify, e. g. bank recapitalization) Residual, including asset changes 18.7 2.1 8.2 29.8 0.1 38.0 -6.1 -3.9 -0.3 -3.6 -2.2 0.0 0.0 0.0 0.0 0.0 16.5 16.0 9.8 6.2 31.3 0.0 37.5 3.6 -4.1 1.2 -5.4 7.7 0.0 0.0 0.0 0.0 0.0 6.2 9.2 8.6 7.9 28.0 0.0 35.9 0.8 -4.0 0.9 -4.9 4.8 -0.1 -0.1 0.0 0.0 0.0 0.6 5.0 5.3 5.4 25.4 0.3 30.8 0.0 -0.9 2.4 -3.3 0.9 -0.1 -0.1 0.0 0.0 0.0 -0.3 6.1 1.8 2.8 25.1 0.2 27.9 -0.5 -0.8 2.5 -3.3 0.3 -0.4 -0.4 0.0 0.0 0.0 4.2 5.0 0.3 1.4 24.9 0.1 26.3 -1.0 -0.6 2.7 -3.2 -0.4 0.0 0.0 0.0 0.0 0.0 4.6 -3.5 -3.2 0.2 25.4 0.1 25.6 -3.4 -3.1 2.2 -5.4 -0.3 0.0 0.0 0.0 0.0 0.0 -0.2 -4.2 -3.9 -1.1 25.4 0.0 24.3 -2.8 -2.6 2.7 -5.3 -0.2 0.0 0.0 0.0 0.0 0.0 -0.3 -4.9 -4.6 -0.6 25.8 0.0 25.1 -4.0 -4.6 2.6 -7.2 0.6 0.0 0.0 0.0 0.0 0.0 -0.2 -1.5 -2.2 0.0 25.4 0.0 25.3 -2.2 -2.3 2.1 -4.4. 0.0 0.0 0.0 0.0 0.0 0.7 -0.8 -0.8 0.3 24.6 0.0 24.9 -1.1 -1.2 1.8 -3.0. 0.0 0.0 0.0 0.0 0.0 0.0 Other Sustainability Indicators PV of public sector debt of which: foreign-currency denominated of which: external PV of contingent liabilities (not included in public sector debt) Gross financing need 2/. 10.3. 12.2 77.2 57.0 55.6. 16.0 82.7 57.1 57.1. 14.4 89.8 64.6 64.6. 12.0 95.8 63.4 63.4. 19.1 91.7 61.0 61.0. 11.4 87.1 58.3 58.3. 10.4 81.9 55.8 55.8. 9.4 67.1 38.1 38.1. 12.6 53.0 27.8 27.8. 9.9 PV of public sector debt-to-revenue and grants ratio (in percent) PV of public sector debt-to-revenue ratio (in percent) of which: external 3/ Debt service-to-revenue and grants ratio (in percent) 4/ Debt service-to-revenue ratio (in percent) 4/ Primary deficit that stabilizes the debt-to-GDP ratio Key macroeconomic and fiscal assumptions Real GDP growth (in percent) Average nominal interest rate on forex debt (in percent) Average real interest rate on domestic debt (in percent) Real exchange rate depreciation (in percent, indicates depreciation) Inflation rate (GDP deflator, in percent) Growth of real primary spending (deflated by GDP deflator, in percent) Grant element of new external borrowing (in percent) 3.9 3.8 1.3 275.3 325.0 357.6 385.0 361.7 342.9 317.9 264.7 215.8 7.1 19.4 275.3 198.3 28.8 328.3 226.8 35.4 360.5 259.3 36.8 386.0 362.4 343.5 255.6 240.9 230.0 71.1 44.0 45.5 318.4 216.9 39.1 264.9 215.8 150.2 113.1 49.8 38.9 7.1 -10.5 19.4 -9.8 28.8 -1.3 35.8 0.4 37.1 -3.3 71.3 -3.6 44.1 3.7 45.6 3.1 39.1 4.2 12.3 0.7 8.8 -8.8 12.8 13.4. 11.6 2.8 20.0 19.8 2.6 10.0. 7.8 3.1 4.2 10.2 6.0 3.3. 4.4 4.8 3.5 1.6 6.6 -10.4 -8.6 4.2 5.7 2.2. 6.9 -5.6 -13.8 3.8 5.9 1.3. 7.1 -2.2 -14.7 6.2 6.0 -0.3. 6.5 3.3 -2.4 6.4 5.9 2.0. 6.2 1.2 -3.2 9.2 5.9 2.3. 5.3 13.0 -4.0 10.8 1.5 11.0 1.1 9.7 3.9 7.4 1.1 8.1 13.3 7.6 5.5 Sources: Country authorities and staff estimates and projections. 1/ Debt data reflects general government debt (including quasi-sovereign bonds issued by DBM) only before 2013, and starts to cover SOE debt from 2013 onwards. 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 5.7 5.7 1.8. 6.4 -0.1 -7.8 49.8 1.5 38.9 1.1 6.9 6.0 1.9. 5.5 7.7 -6.7 5.8 6.6 2.3. 5.8 6.3 -9.0 0.0 6.5 6.3 2.2. 5.5 6.4. MONGOLIA Table 3. Mongolia: Sensitivity Analysis for Key Indicators of Public Debt, 2015-2035 2015 2016 2017 Projections 2018 2019 2020 2025 2035 PV of Debt-to-GDP Ratio Baseline 83 90 96 92 87 82 67 53 83 83 83 86 93 92 89 103 100 86 105 99 84 107 97 82 108 95 78 120 103 75 153 171 83 83 83 83 83 91 95 91 118 101 98 108 99 125 107 94 104 93 121 103 90 99 87 116 98 85 93 80 111 92 71 77 58 98 76 60 62 32 92 61 325 358 385 362 343 318 265 216 325 325 325 342 369 365 357 414 403 337 413 390 329 421 382 320 418 369 308 473 406 304 622 695 325 325 325 325 325 361 379 362 469 402 392 435 397 503 430 370 409 367 477 404 352 389 342 458 385 328 362 312 431 358 280 305 230 388 301 243 252 128 375 249 35 37 71 44 45 39 50 39 35 35 35 35 37 37 63 72 74 38 46 47 39 49 49 35 45 44 44 67 65 38 82 90 35 35 35 35 35 37 37 36 40 37 72 72 68 94 74 45 48 44 54 48 46 50 46 57 49 40 43 39 50 43 51 55 47 70 54 42 43 29 63 43 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages A2. Primary balance is unchanged from 2015 A3. Permanently lower GDP growth 1/ B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2016-2017 B2. Primary balance is at historical average minus one standard deviations in 2016-2017 B3. Combination of B1-B2 using one half standard deviation shocks B4. One-time 30 percent real depreciation in 2016 B5. 10 percent of GDP increase in other debt-creating flows in 2016 PV of Debt-to-Revenue Ratio 2/ Baseline A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages A2. Primary balance is unchanged from 2015 A3. Permanently lower GDP growth 1/ B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2016-2017 B2. Primary balance is at historical average minus one standard deviations in 2016-2017 B3. Combination of B1-B2 using one half standard deviation shocks B4. One-time 30 percent real depreciation in 2016 B5. 10 percent of GDP increase in other debt-creating flows in 2016 Debt Service-to-Revenue Ratio 2/ Baseline A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages A2. Primary balance is unchanged from 2015 A3. Permanently lower GDP growth 1/ B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2016-2017 B2. Primary balance is at historical average minus one standard deviations in 2016-2017 B3. Combination of B1-B2 using one half standard deviation shocks B4. One-time 30 percent real depreciation in 2016 B5. 10 percent of GDP increase in other debt-creating flows in 2016 Sources: Country authorities and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants. INTERNATIONAL MONETARY FUND 13 MONGOLIA Table 4. Mongolia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-2035 (in percent) Projections 2015 2016 2017 2018 2019 2020 2025 2035 57 65 63 61 58 56 38 28 57 57 61 65 51 66 48 64 46 62 49 60 36 46 0 42 57 57 57 57 57 57 63 67 72 78 68 89 63 73 83 88 64 88 60 70 80 85 62 85 58 67 77 81 59 81 55 64 73 78 56 77 37 45 50 57 38 53 27 30 36 33 28 38 123 152 170 167 151 134 135 176 123 123 143 152 138 176 131 175 119 161 117 144 128 163 0 270 123 123 123 123 123 123 148 175 148 183 147 148 167 230 167 235 139 167 163 226 163 232 136 163 148 205 148 211 123 148 130 181 130 186 108 130 131 189 131 201 108 131 171 220 171 210 143 171 227 259 256 241 230 217 150 113 227 227 244 260 207 264 188 253 181 245 191 234 143 181 0 173 227 227 227 227 227 227 254 271 291 313 274 359 253 293 336 353 260 355 238 277 317 334 245 335 228 265 302 321 233 320 214 250 284 302 220 301 148 179 196 223 150 208 111 120 147 135 115 156 PV of debt-to GDP ratio Baseline A. Alternative Scenarios A1. Key variables at their historical averages in 2015-2035 1/ A2. New public sector loans on less favorable terms in 2015-2035 2 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2016-2017 B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/ B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017 B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/ B5. Combination of B1-B4 using one-half standard deviation shocks B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/ PV of debt-to-exports ratio Baseline A. Alternative Scenarios A1. Key variables at their historical averages in 2015-2035 1/ A2. New public sector loans on less favorable terms in 2015-2035 2 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2016-2017 B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/ B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017 B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/ B5. Combination of B1-B4 using one-half standard deviation shocks B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/ PV of debt-to-revenue ratio Baseline A. Alternative Scenarios A1. Key variables at their historical averages in 2015-2035 1/ A2. New public sector loans on less favorable terms in 2015-2035 2 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2016-2017 B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/ B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017 B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/ B5. Combination of B1-B4 using one-half standard deviation shocks B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/ 14 INTERNATIONAL MONETARY FUND MONGOLIA Table 4. Mongolia: Sensitivity for Key Indicators of Public and Publicly Guaranteed External Debt, 2015-2035 (continued) (in percent) Debt service-to-exports ratio Baseline 7 8 33 12 12 9 23 21 7 7 8 8 28 32 10 12 9 12 7 9 16 20 0 29 7 7 7 7 7 7 8 9 8 8 8 8 33 39 33 35 28 33 12 16 12 16 10 12 12 16 12 15 10 12 9 12 9 12 8 9 23 30 23 31 20 23 21 27 21 26 17 21 12 14 49 18 18 15 26 13 12 12 13 14 42 47 14 18 13 18 11 15 18 22 0 19 B1. Real GDP growth at historical average minus one standard deviation in 2016-2017 B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/ B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017 B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/ B5. Combination of B1-B4 using one-half standard deviation shocks B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/ 12 12 12 12 12 12 14 14 16 14 14 20 50 50 66 52 53 70 18 20 24 23 19 25 18 20 24 23 19 26 15 17 20 20 15 21 26 29 35 34 28 37 13 15 18 17 14 19 Memorandum item: Grant element assumed on residual financing (i. e. financing required above baseline) 6/ -14 -14 -14 -14 -14 -14 -14 -14 A. Alternative Scenarios A1. Key variables at their historical averages in 2015-2035 1/ A2. New public sector loans on less favorable terms in 2015-2035 2 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2016-2017 B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/ B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017 B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/ B5. Combination of B1-B4 using one-half standard deviation shocks B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/ Debt service-to-revenue ratio Baseline A. Alternative Scenarios A1. Key variables at their historical averages in 2015-2035 1/ A2. New public sector loans on less favorable terms in 2015-2035 2 B. Bound Tests Sources: Country authorities and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U. S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline. while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. INTERNATIONAL MONETARY FUND 15 Statement by the Staff Representative on Mongolia April 3, 2015 This statement summarizes additional information on economic developments and policies that have become available since the staff report was issued. This information does not alter the thrust of the staff appraisal. 1. The most recent economic data have been broadly as envisaged. Inflation has continued to moderate, dropping to 9 percent in February. The economy registered a trade surplus in the first two months of the year, with exports up 27 percent over 2014, and imports down 25 percent, but the overall balance of payments remains in deficit. Fiscal revenue has stayed weak, with collections in the first two months of the year accounting for 11 percent of the annual budget. 2. The authorities have confirmed their agreement with many of the key Article IV recommendations and are in the process of implementing policy changes. In a letter shared with staff on March 26, 2015, they outlined their policy intentions, including their commitment to a medium-term fiscal consolidation path, and detailed their recent policy efforts. In particular: The authorities are targeting a fiscal deficit of 5 percent of GDP in 2015, including the non-commercial spending of the Development Bank of Mongolia (DBM), and intend to reduce this gradually to 2 percent of GDP by 2018. The authorities have linked the payment of civil-service wage increasesabout percent of GDP, and restricted to lower-income workersto budget revenue performance and scheduled such payments for the end of the year. They are also considering the possibility of freezing DBM spending. Remaining loans under the Price Stabilization Program (PSP) will be transferred to the government balance sheet by end-June. Working groups have been set up to analyze the appropriate future for PSP and mortgage lending. A comprehensive set of measures is envisaged to strengthen DBM governance. In particular, an independent assessmentpossibly with assistance from the World Bankwill be conducted to determine the bankability of the DBMs commercial projects, and the DBM will be brought under supervision of the Bank of Mongolia (BOM). The authorities consider measures to protect the most vulnerable as a high priority and are considering options to strengthen the effectiveness of existing social programs with high impact on the poor (such as child allowances and food stamps). The authorities are committed to exchange-rate flexibility. 2 In order to strengthen the banking system, the BOM intends, over 201517, to: increase loan loss provisions tighten requirements for recognition of nonperforming loans increase the minimum paid-in capital of banks raise the Tier-1 capital adequacy ratio (CAR) to 10 percent for systemically important banks incorporate PSP loans into banks CAR calculations increase sectoral risk weights and impose additional capital requirements on banks with higher risk profiles. The authorities are working on a range of steps, including tax measures, to improve the investment climate. 3. The authorities efforts to strengthen policies are welcome, although additional steps will be needed, and full and early implementation will be critical. Press Release No. 15/169 FOR IMMEDIATE RELEASE International Monetary Fund Washington, D. C. 20431 USA IMF Executive Board Concludes 2015 Article IV Consultation with Mongolia On April 3, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the 2015 Article IV Consultation1 with Mongolia. Medium - to long-term prospects are promising given Mongolias large natural resources. In the near term, however, the country continues to face balance-of-payments (BOP) pressures on account of low foreign direct investment (FDI) and weak commodity prices, as well as expansionary macro policies. Imports have now started to taper off, and, with the first phase of the Oyu Tolgoi copper and gold mine now in operation, exports have picked up. The trade balance has thus improved, but with FDI and other financial-account flows still depressed, the overall BOP remains weak. In addition, public debt has risen sharply, and the banking sector should be watched closely in the wake of the rapid credit expansion over the past two years. Barring a change in policies and/or major new developments in the real economy, these trends are likely to continue. Risks are to the downside, and relate to possible difficulties in securing agreement on major investment projects, as well as to the possibilities of a further slowdown in China or a surge in global financial market volatility. Recognizing these challenges, the new government has already taken some policy action. It has implemented a Comprehensive Macro Adjustment Plan which targets a substantial reduction in the fiscal deficit, phases out some of the Bank of Mongolias unconventional easing programs, and introduces a number of structural measures to boost exports and substitute for imports. However, additional measuresnow under discussionare needed to underpin the fiscal deficit targets, strengthen monetary and banking-sector policies, and ensure the most vulnerable are protected from the impact of the necessary macro adjustment. Executive Board Assessment Executive Directors noted that Mongolias economic prospects remain promising over the medium to long term given its natural resource wealth, although the country faces substantial macroeconomic challenges in the near term. Directors welcomed the policy adjustment envisaged by the authorities and called for further adjustment to strengthen the balance of payments and public finances, safeguard financial stability, and strengthen social safety nets. 1 Under Article IV of the IMFs 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 countrys economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. 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 countrys authorities. An explanation of any qualifiers used in summings up can be found here: imf. org/external/np/sec/misc/qualifiers. htm. Directors agreed that an ambitious consolidation approach would be needed to strengthen the fiscal position. They welcomed the steps already taken and the authorities readiness to undertake additional fiscal reforms. Directors saw scope for further cuts in public spending, including that of the Development Bank of Mongolia (DBM), complemented with measures to raise revenue, protect the poor, and improve the effectiveness of subsidies and other social programs. They looked forward to the passage of a supplementary budget that includes these measures. Directors also supported the authorities intention to phase out unconventional easing programs by the central bank and encouraged them to bring all DBM spending onto the budget. Directors agreed on the need for some monetary tightening, while ensuring that banks remain adequately liquid, to help control credit growth and strengthen the balance of payments. They also encouraged the central bank to limit deficit financing. These steps should be complemented with continued efforts to enhance governance at the central bank and the DBM. Noting the role of exchange rate flexibility as a shock absorber for the economy, Directors agreed that foreign exchange intervention should be limited to smoothing excessive volatility. Directors recommended a comprehensive approach to addressing risks in the banking system. They considered it a priority to bolster banks provisions and capital buffers, eliminate forbearance, strengthen risk recognition, and enhance supervisory and crisis preparedness frameworks. Directors commended the authorities for the progress in strengthening the regime against money laundering and terrorism financing. Directors supported ongoing efforts to foster high, inclusive growth, by improving the investment climate, enhancing competitiveness, and promoting economic diversification. More broadly, they emphasized that prudent management of natural resources is critically important for lasting growth and inter-generational equity. It is expected that the next Article IV consultation with Mongolia will be held on the standard 12month cycle. Mongolia: Selected Economic and Financial Indicators, 201115 (Baseline Scenario) 2011 2012 2013 2014 2015 Proj. Real sector (percent change) Real GDP growth 17.3 12.3 11.6 7.8 4.4 7.7 8.3 19.4 24.2 9.0 Non-mineral 19.9 13.3 9.8 3.6 3.0 Consumer prices (end-period) 9.4 14.2 11.2 10.7 8.0 15.1 12.8 2.6 6.0 6.6 Revenue and grants 33.9 29.8 31.3 28.0 25.4 Expenditure and net lending 1/ 37.9 38.9 40.2 39.0 35.2 On-budget balance (incl. grants) -4.0 -6.2 -0.9 -4.2 -4.0 Mineral GDP deflator General government budget (in percent of GDP) On-budget structural balance (excluding DBM spending) -1.2 -4.3 -4.2 DBM spending 2.8 8.0 6.8 5.7 -4.0 -9.1 -8.9 -11.0 -9.8 Broad money 37.7 18.8 24.1 12.5 13.1 Private credit 2/ 72.3 24.1 54.3 23.3 16.2 Interest rate on 7-day central bank bills, end-period (percent) 12.3 13.3 10.5 12.0 -2759 -3362 -3192 -985 -1379 -26.5 -27.4 -25.4 -8.2 -11.1 Trade balance -993 -1553 -1321 1002 844 Exports 4817 4385 4269 5775 5155 Imports -5810 -5938 -5590 -4773 -4310 4620 4408 2098 542 1069 32.7 51.3 67.3 76.5 81.5 9.1 12.3 21.1 21.6 25.6 23.5 39.0 46.3 54.9 56.0 Togrogs per US (end-period) 1396.4 1392.1 1659.3 1888.4 Togrogs per US (period average) 1265.5 1357.6 1523.9 1817.9 -10.6 -2.0 -14.7 -4.9 -5.8 9.0 -7.5 3.4 13174 16688 19118 21844 24315 On-budget plus DBM balance Money and credit (percent change) Balance of payments (in millions of US) Current account balance (including official transfers) (In percent of GDP) Foreign direct investment Public and publicly guaranteed debt (in percent of GDP) Total public debt 3/ Domestic debt External debt Exchange rate Nominal effective exchange rate (end-period percent change) Real effective exchange rate (end-period percent change) Nominal GDP (in billions of togrogs) Sources: Mongolian authorities and IMF staff estimates. 1/ Includes DBM spending. 2/ Includes securitized mortgage loans. 3/ Debt data reflects general government debt (including quasi-sovereign bonds issued by DBM) only before 2013, and starts to cover SOE debt from 2013 onwards. External debt includes drawing of central bank swap line. Statement by Barry Sterland, Executive Director for Mongolia and Dorjkhand Togmid Advisor to Executive Director April 3, 2015 On behalf of the Mongolian authorities, we would like to thank the mission team for their candid policy consultation and the effective engagement. The current Government was formed in November 2014 and has set about dealing with the macroeconomic challenges it inherited. Mongolian Authorities are in broad agreement with staffs analysis and policy recommendations, especially on the strengthening fiscal position, maintaining prudent monetary policy, bolstering financial stability and improving the investment climate. The Authorities have commenced concrete actions to adjust macroeconomic and financial policies in response to all the broad areas of weakness identified by the staff. They express their willingness to address the macroeconomic and development challenges facing Mongolia through continued cooperation with the Fund. Economic Outlook Mongolia has made strong development progress in recent years, retains enormous longrun economic potential, but faces challenges in ensuring sustained and stable growth in the short to medium-term. Economic growth of Mongolia remained at 7.8 percent and per capita income reached 4,000 in 2014, but growth is expected to slow in the next few years. The economy remains vulnerable to boom-bust cycles and has faced sharp declines in FDI over the past few years. Mongolia faced a severe balance of payment shock in late 2012 throughout 2013 and 2014 though measures were taken to achieve a soft landing. Commodities super cycle turned down, capital flows toward emerging markets and developing economies reversed, and net foreign direct investment to GDP ratio substantially declined from 45 percent to only 5 percent over the last three years. The balance of payment shock was particularly intense in 2013 though authorities consider the impacts on trade, the current account, and economic activity were significantly lessened in 2014 as a result of policy adjustments. Real GDP growth gradually slowed down from 12.3 percent in 2012 to 11.6 percent in 2013 and 7.8 percent in 2014. Inflation has decreased gradually in past years and appears broadly under control, and actions have been taken to slow credit and money growth. Annual CPI inflation decreased from 14.0 percent in 2012 to 9.3 percent as of February 2015. Supply-driven inflationary pressure has been substantially decreased. The Bank of Mongolia (BOM) has gradually tightened its monetary policy stance by increasing the policy interest rate twice, 1.5 percentage points in July 2014 and 1.0 percentage point to 13 percent in January 2015. Real interest rates are now strongly positive and money and credit growth have slowed significantly. These decisions have reduced aggregate demand and the current account deficit, curbed inflationary pressure, and promoted macroeconomic and financial stability. 2 Uncertainty in the balance of payment outlook still remains a concern, and the authorities are pursuing a range of options to reduce risks on this front. The baseline forecast indicates that overall balance of payment could face a 1.4 billion dollars financing deterioration in 2015 due to mainly unfavorable external environment for the mineral exports and a sharp fall of the FDI inflows in the past two years. We note that recent import data has been weaker than the assumptions of this baseline which, if this weakness persists, may assist in ameliorating financing needs. However, authorities accept that a range of actions must be explored to deal with this challenge. They are working closely with a range of international financial organizations and bilateral partners on the possible options for external financing to fill this gap, including the extension of the local currency swap facility between the BOM and PBOC that has been playing a crucial role in mitigating the impacts of the shocks. The authorities have indicated that the PBOC has reaffirmed that it is fully committed to continuing the facility and willing to extend the swap line. Ongoing close consultation with the IMF and responsiveness to its recommendations will assist in this process of engagement with other financing partners. Furthermore, efforts are ongoing to advance negotiations on major projects with a significant potential impact on development and FDI flows. Finally, authorities stand ready to take additional corrective action, if required, to deal with unfolding risks, by adjusting import-intensive spending or fiscal policy. Fiscal Policy The authorities are committed to significant reductions in structural deficit targets, including limiting off-budget and reducing quasi-fiscal operations and integrating them into the Budget. In order to strengthen Mongolias fiscal position, the authorities have secured Parliamentary approval of the Amendment to the Fiscal Stability Law (FSL), Debt Management Law (DML), and the Comprehensive Macroeconomic Adjustment Program (CMAP). As a result, the authorities will achieve a 2015 fiscal deficit of 5 percent of GDP, including non-commercial Development Bank of Mongolia (DBM) investment, decreasing the deficit by 1 percentage point for each year to reach the deficit target of 2 percent of GDP by 2018 and implement a cost-saving regime in the budget through prioritizing spending. Concrete measures have been introduced to cut budget expenditures and increase the revenue in line with these fiscal objectives. Budget resources earmarked for civil servants wage increase have been decreased by 60 percent and targeted at maintaining real wages of low wage earners, equivalent to a reduction in spending by 0.6 percent of GDP. Authorities are considering ways of targeting non-social welfare related subsidies. On the revenue side, the authorities increased the customs duties and excise tax rates on imported oil, in response to the recent declines of oil prices. The Government of Mongolia has started implementing recommendations of international financial organizations to limit off-budget and quasi-fiscal operations and 3 integrate them to the budget. The parliament has agreed to the integration of off-budget quasi fiscal spending into the central budget. This includes several programs currently operated by the Bank of Mongolia. A comprehensive set of actions are being undertaken to improve the legal environment and governance structure of the DBM to match international principles and standards and to ensure the successful operation of the bank in international financial markets. As a first step, the authorities are planning to transfer non-commercial lending activities in the pipeline of the DBM to the budget after conducting an independent assessment on the portfolio. While commercial DBM spending is not being fully integrated with central budget at this stage controls are being greatly enhanced to ensure these investments are driven by market considerations. The Minister of Finance will now approve financing of projects and activities included in the 2015 budget, to ensure consistency with the budget deficit and macroeconomic conditions (including BOP requirements). Furthermore, the DBM shall now obtain the Finance Ministers opinion when taking on a direct or contingent liability or any other explicit or implicit financial obligations regarding the consistency of any such liabilities with the FSL. Controls are being put in place to prevent political intervention in decision making processes, and more generally, improve governance and oversight. Another key element regarding control is that the Finance Minister and the Governor of the Bank of Mongolia will jointly approve supervision rules on DBM operations, effectively putting the DBM under the BOM supervision. Amendments along these lines will be introduced to Parliament in the Spring Session. The authorities are also investigating the potential to transfer key social programs currently in the Future Heritage Fund to the central budget. The authorities will keep fiscal settings under review to ensure public debt is managed appropriately. The Medium-term Debt Management Strategy and the Comprehensive External Debt Servicing Plan have been revised in accordance with the newly adopted Debt Management Law and the CMAP was approved by the Financial Stability Committee on March 13 of this year. Under this approach, the authorities will initiate active debt and liability management operations to ensure further debt is serviced or rolled over in a way that is consistent with macroeconomic stability. The authorities are taking step to underpin Mongolias long time fiscal future through the establishment of a sovereign wealth fund. The draft Law on Future Heritage Fund is expected to be reviewed and passed during the 2015 Spring Session of the Parliament. The fund would be designed consistent with international best practices. The aim is to ring fence a certain portion of mining revenues to support future development needs, while also supporting the realization of counter-cyclical policies. Monetary and Exchange Rate Policy Supply-driven inflationary pressure has been substantially decreased and inflation appears broadly under control. There has been a positive change in the composition of inflation since 4 2013, with supply shock inflation being significantly reduced. The BOM considers that this positive development is due to the PSP and a range of measures reducing headline inflation. The inflation outlook consistent with the Bank of Mongolias medium-term target of 7 percent, and real interest rates are now strongly positive. Monetary policy will continue to be managed in a prudent way to control inflationary pressures. The BOM considers unconventional monetary policy measures have assisted in achieving a soft landing and is now phasing out programs as planned in the context of the broader macroeconomic adjustment program. The BOM considers its unconventional monetary policy measures, including the price stabilization program (PSP), as instrumental in achieving a softlanding for the economy, mitigating impacts in the balance of payment shock on the economy and risks of a potential economic crisis, reducing supply-driven pressures on inflation, and ensuring financial sector stability. With the implementation of the CMAP, measures are being taken to normalize unconventional aspects of the monetary policy and the BOM has been intentionally phasing out the program as planned. Remaining PSP loans shall be transferred to the Government by the end of the 1st half of 2015, and this process has already commenced. The Government and the BOM are jointly examining the Sustainable Mortgage Financing Program including how it aligns with long term efforts to boost domestic savings and possible response options. The Bank of Mongolia remains committed to a flexible exchange rate regime. If necessary, the Bank of Mongolia intends to intervene only for the purpose of smoothing out excessive exchange rate volatility. The Bank of Mongolia will look for opportunities to enhance monetary policy decision making frameworks at an appropriate time. Structural Reforms The authorities are committed to improving the investment climate to assist growth and contribute to the resolution of BOP challenges. The authorities have submitted Parliament draft amendments to simplify tax laws and enhance their contribution to private sector growth, including by reducing inconsistencies and ambiguities. The authorities proposed amendments to the VAT to reduce the informal sector, support small businesses, and simplify the administrative procedures. They have also prepared an amendment to the corporate income tax law to support non-mining business activities. Financial Sector The Bank of Mongolia is taking action to strengthen the banking sector, enhance banking system safety, proactively address potential systemic risks, and ensure financial stability. The Bank of Mongolia received IMF technical assistance (TA) on enhancing systemic 5 oversight and crisis preparedness capabilities in February 2015. The Bank of Mongolia has already started implementing the recommended actions provided by the TA by reflecting them in its Medium term strategy on banking supervision, including phasing in measures to ensure better risky loan recognition, improve provisioning and capital buffers, and improve risk weights among other actions. These actions will be implemented progressively. Conclusion The Mongolian authorities are committed to taking decisive action to ensure macroeconomic stability, thus laying a sound basis for longer term development. They are implementing measures across a wide range of areas, including those identified by Fund staff, and understand the need to further transition policy if circumstances require. Authorities greatly value ongoing engagement with the Fund and will keep staff recommendations under close review. View Full Document Click to edit the document details Share this link with a friend: Most Popular Documents for FINANCE 5550 SampICRGIssue1 Politcal risk. pdf University of Sydney FINANCE 5550 - Fall 2016 m pl e INTERNATIONAL COUNTRY RISK GUIDE Sa Volume XXXVI, Number 1 January 2015 Publis SampICRGIssue1 Politcal risk. pdf FINS5550 Final exam instructions semester 1 2016 (3).pdf University of Sydney FINANCE 5550 - Fall 2016 THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF BANKING AND FINANCE SEMESTER 1 2016 FINS FINS5550 Final exam instructions semester 1 2016 (3).pdf Topic 9 Insights and Summaries. docx University of Sydney FINANCE 5550 - Fall 2016 Dear Sir, This weeks lecturer looks at economic capital which is the amount of risk c Topic 9 Insights and Summaries. docx Topic 7 Insights and Summaries. docx University of Sydney FINANCE 5550 - Fall 2016 Dear Sir, In this weeks lecture we look at market risk and liquidity risk. Market ris Topic 7 Insights and Summaries. docx FINS5550 final exam guidelines S1 2016 (2).pdf University of Sydney FINANCE 5550 - Fall 2016 SEMESTER 1 2016 FINS 5550 INTERNATIONAL BANK MANAGEMENT FINAL EXAM GUIDELINES There w FINS5550 final exam guidelines S1 2016 (2).pdf Topic 6 Insights and Summaries. docx University of Sydney FINANCE 5550 - Fall 2016 Dear Sir, Operational risk is the risk that arises after accessing financing and syst Topic 6 Insights and Summaries. docx