The Government of Mongolia’s Program with the IMF

Published: 2017-02-20

The Government of Mongolia’s Program with the IMF

The Ministry of Finance and the Bank of Mongolia have successfully concluded the program negotiations with the IMF mission, visited Ulaanbaatar from 1-19 February 2017.  The Mongolian economy is staggering in last a few budget deficit and BOP imbalance while bonds are maturing. With both external and domestic challenges, dependency in the mining sector, weak fiscal discipline and fiscal consolidation budget deficit has increased tremendously, to be funded from expensive borrowing that increased the Government’s debt amount, debt services pressure, resulting in fiscal imbalance. In order to overcome the current challenges, to stabilize the economy and to sustain medium term economic growth we are planning to implement the “Extended Fund Facility” program with the IMF.

Extended Fund Facility which allows to implement wide range of activities in long run is devoted to those countries where the economic growth is deteriorated due to the structural mistakes and balance of payment is worsened substantially.

The implementation period of IMF’s Extended Fund Facility will be 3 years and within the EFF, IMF will provide 440 million USD, International financial institutions and partner countries together with IMF will provide concessional loans total of approximately 5.5 billion USD as a package to finance fiscal deficit and balance of payment.

Through improving BOP and ensuring macroeconomic balance, taking necessary policy actions to reduce medium term debt pressure, diversify the economic structure, change the dependency on commodity prices, establish a business friendly environment, economic growth in the medium term will reach 8.1 percent and inflation 6.1-7.0 percent.

We are planning to reduce fiscal deficit gradually through strengthening the fiscal consolidation, tightening the fiscal discipline, establishing sustainable budget revenue generation and enhancing the budget expenditure efficiency to accomplish fiscal stability.

In this regards, we have reached an understanding on tax reforms measures in line with the following principles: to have least negative impact on the economy,  not to increase income disparity and limit some consumption which have negative impact in social, health and environment,

In order to accumulate  adequate resources to ensure the sustainable budget revenue,  policy measures such as introduction of tax on savings earning, progressive personal income tax, increase of excises on some products, increase of customs duty on tobacco will be implemented.

Policy actions such as more targeting of social protection and welfare programs towards the most vulnerable low-income population, decreasing fiscal pressures from change in demographic composition and legal environment, reform in the pension system, maintaining wage levels until there is real economic growth and increase in revenue, freezing management expenditures will be taken to ensure step by step budget expenditure reduction.

In order to accomplish debt sustainability fiscal deficit will be reduces gradually with more long term and low interest rate concessional funding to replace expensive and short term domestic bonds that would lessen the debt services pressure in the budget.

DBM concessional projects, financed from the bond, will be transferred to the budget while DBM’s governance and independence will be improved and will operate purely on commercial manner.

In the monetary side following policies are included in the program. Monetary policy will remain appropriately tight, with low inflation target and BOM’s governance will be strengthened with clear mandate, the exchange rate will be flexible in connection with the macroeconomic indicators and BOM stop its engagement in additional quasi-fiscal activities.

To ensure the financial sector sustainability and to determine the efficiency of financial intermediaries, we will conduct the bank’s’ Asset quality reviews in line with international standards. Based on the quality reviews, measures will be taken to strengthen the stability and efficiency of systems in the finance sector.

With the joint implementation of the IMF program, budgetary discipline shall be strengthened, an increase of budget shall be provided, debt burdens shall be lifted, deficit in balances shall be removed, favourable business environment shall be created, foreign investors’ confidence shall be restored, and favorable environment to ensure economic stability will be created.

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