IMF Report 2014 – Mongolia

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IMF Report 2014 – Mongolia
Mongolia has made impressive progress in developing its economy
Spearheaded by foreign direct investment (FDI)-financed development of the mining sector, per capita income has increased five-fold, to more than US$3,000, over the past decade. Medium-term prospects are promising as mining output is projected to expand further over the next five years. Foreign investors’ optimism about Mongolia’s prospects was illustrated by successful international bond issuances in 2012. A private mining company, a private bank, the state-owned Development Bank (DBM), and the sovereign (the US$1.5 billion “Chinggis” bond) raised a total of US$3bn (30%of GDP).
The strong growth of the economy has helped reduce poverty. Over the past two years, poverty has declined by more than 11 percentage points, to 27 percent of the population in 2012. However, indicators for inequality and unemployment suggest that there is scope to make growth more inclusive, despite relatively high social spending compared to Mongolia’s peers.
However, macroeconomic policies have been unsustainably loose the past two years. Government expenditure increased by 70 percent in real terms between 2010 and 2012, with growing importance of off-budget spending. In late-2012, the BOM embarked on a major monetary stimulus, which added to growing BOP pressures. During 2012 and the first half of 2013, BOP pressures were mostly reflected in a decline in the BOM’s Net International Reserves (NIR). In recent months, the exchange rate has become more flexible. Capitalization and liquidity of the banking system have improved. However, dollarization remains high and the provisioning regime for commercial banks lags Asian peers.