Is Mongolia really facing an economic recession?

Finance Minister B.Choijilsuren reporting on socio-economic conditions of Mongolia

Minister of Finance B.Choijilsuren made a statement to the public to present information about the nation’s current socio-economic, budgetary, and financial conditions, after which, many people started asking if the country’s economic situation was truly in critical condition.


The Minister said that the four main indicators of the economy have consistently fallen over the last four years. Economic growth, which stood at 17.3 percent in 2012, is expected to be 1.3 percent at the end of this year. Falling prices for mineral products on the international market have negatively influenced the nation’s export revenue, budget savings, and foreign currency flow. Minister B.Choijilsuren underlined, “Because of inaccurate estimations and poor policies and decisions implemented over the last four years, Mongolia’s economic, budget, and financial conditions are in critical condition.”

Minister Choijilsuren went on to explain some of the factors that determine financial stability for Mongolia.


In 2014, money supply increased by 66 percent in comparison to 2011, but started decreasing in 2015. As of January 2016, the nation’s money supply had fallen to 9.85 trillion MNT.

“In times when the balance of payments deficit increased, and foreign direct investment drastically dropped, supplying a great amount of money to the market that wasn’t linked to economic conditions was one of the main factors putting a burden on Mongolia’s economy,” the Minister stressed.

Minister Choijilsuren noted that as a result of these poor decisions, banking system risk increased, foreign currency reserves dropped, and the MNT depreciated. In the last four years, money supply exceeded the nation’s economic growth by over 85 percent, which the Minister sees as evidence of the former government adhering to poor monetary policy.

B.Choijilsuren said that from 2011 to 2013, cashin transactions increased by 18 percent, but they started falling in 2014. As of February 2016, cashin transactions were 655 billion MNT. In February it increased by 183.7 billion MNT and reached 839.2 billion MNT, which created a cash shortage and contributed to the economic crisis.


As of the first six months of 2016, Mongolia’s domestic savings equaled 7.9 trillion MNT, while its debt stood at 12 trillion MNT. Non-performing and overdue loans reached 1.9 trillion MNT, 15.5 percent of all loans issued. The result was 11.6 times higher than it was in 2011.


The average interest rate for tugrug loans, which stood at 15.5 percent in 2011, went up by 5.7 percent, reaching 21.2 percent as of June 2016. Risk in the banking system and the interest rates for financial resources drawn by banks increased, following which, loan issuance is expected to shrink and loan interest rates are expected to increase.

In order to mitigate rising loan interest rates, the Cabinet and Mongol Bank say they have no choice but to take out long-term and concessional loans from international organizations and partnership countries.


In 2011, foreign direct investment in Mongolia equaled 4.62 billion USD, but the figure has consistently decreased since then and reached 110.2 million USD in 2015. As of the first half of 2016, foreign direct investment dropped to 35 million USD.

“This is the biggest sign that foreign investors have lost their trust in Mongolia,” Choijilsuren emphasized.


As of the end of 2015, Mongolia’s foreign trade turnover dropped to 8.46 billion USD, down by 2.95 billion USD compared to 2011. As of the first half of 2016, export was 2.2 billion USD, and import 1.5 billion USD, which was a result down by 13 percent in comparison to 2015.

Minister Choijilsuren claimed, “Positive foreign trade turnover in the last two years wasn’t because of good policy and activities carried out by the former cabinet, but because the tugrug rate depreciated by around 48 percent, and foreign investment, people’s purchasing power, and living standards have declined over the last four years.”


As of the first half of 2016, the balance of payments deficit equaled -93.6 million USD, while the overall balance was -46 million USD. The Finance Minister said that the increased deficit was symptomatic of the economic crisis and MNT depreciation. “The balance of payments deficit means that Mongolia is exporting its domestically produced wealth to foreign countries, and in the last four years, we lost wealth equal to 8.1 million USD,” the Minister pointed out.


The nation’s foreign currency reserves, which stood at 4.1 billion USD as of the end of 2012, have consistently decreased in the past four years. As of June 2016, Mongolia’s foreign currency reserves fell to 1.2 million USD. The new authorities of Mongol Bank reported that net foreign currency reserves dropped to -429 million USD.

“You all know that the drastic MNT exchange rate decrease was due to foreign currency reserve depletion. The MNT exchange rate depreciated by 58 percent against the nation’s main foreign trade currency. Specifically, it was estimated that entities with debt saw over 850 billion MNT in deficits per year due to exchange rate discrepancies,” stressed Minister Choijilsuren.


The economic crisis has impacted the stock market, and from 2011 to 2015 the nation’s stock market assessment fell by 40 percent, and shareholders saw losses of over 900 billion MNT.


In the past four years, international credit rating service provider Standard and Poor’s lowered Mongolia’s credit rating by four levels. The Finance Minister said that as a result of lower credit ratings, access to loans with low-interest rates and pleasant conditions for the Government of Mongolia and domestic companies has become limited. In April 2015, the former cabinet released 500 million USD in government bonds on the international market. The annual interest rate for the bond has reached 11 percent, which is six percent higher than the interest rate of the Chinggis Bond.


As of the first half of 2016, a total of 134,813 entities were registered in Mongolia, 66,388 of which have suspended their operations.

“This is the biggest example of how the nation’s economy and business environment has declined. Because thousands of companies closed their doors, unemployment increased, and people’s purchasing power and livelihoods have drastically grown worse. We can overcome today’s economic crisis based on the nation’s private sector. That’s why the state’s policy should be directed toward resuming the operations of entities,” noted the Finance Minister.


As of the first half of 2016, Mongolia’s total foreign debt stood at 23.5 billion USD, which was 210 percent higher than the nation’s GDP. The debt of the Cabinet reached five billion USD, Mongol Bank’s was 1.8 billion USD, Development Bank’s was 1.6 billion USD, the debt of commercial banks was 1.9 billion USD, the nation’s private sector’s loans reached 2.1 billion MNT, and loans taken out by investors reached 11.1 billion USD.


In the past three years, Mongolia’s state budget revenue was cut by over one trillion MNT, and two to three budgetary amendments were made every year. The Minister said that the great budget deficit Mongolia has consistently faced over the last four years has been due to the economic crisis and inefficiently spending taxpayer money.

In accordance with the Law on Budget Sustainability, budget deficit shouldn’t exceed four percent of the GDP, 974.9 billion MNT. However, as of the first seven months of 2016, the nation’s budget deficit reached two trillion MNT.

Minister Choijilsuren said that if Mongolia doesn’t make amendments to the budget immediately and mitigate budget expenses, the nation’s budget expenditure will reach 10.3 trillion MNT with 5.1 trillion in deficits by the end of 2016, which would exceed the nation’s GDP by 21.1 percent.

The Finance Minister also emphasized concerns about illegal financing not included in the state budget. He said that when budget revenue was cut by 1.8 trillion MNT, the former cabinet increased budget expenditure by violating the Law on Budget and other laws, increasing the public’s debt.

Under their “Good” programs, the former cabinet approved the spending of nearly 1.14 trillion MNT, and issued 553.8 billion MNT to fund the programs, taking out 596 billion MNT in loans.


According to preliminary budget performance reports, Mongolia paid 37.2 billion MNT in loan interest in 2011, but the figure rose to 1.8 trillion MNT in 2016, which was 29 times higher than interest payment in 2012.

“Because the previous cabinet financed many projects and programs through loans, budget pressure and debt ceilings have increased, following which, loan interest payment is expected to intensively increase in the future. Mongolia is going to start paying bond repayment in 2017. We warn that because prices for mineral products have fallen in the international market, and because Mongolia’s foreign currency reserves are not sufficient and Mongolia’s credit rating was dropped to –B2, when the budget deficit is over one trillion MNT in 2016, it will be really difficult to pay the bond repayment,” underlined B.Choijilsuren.

A series of graphs were presented to illustrate the data being discussed. “If we pay all of our debts in accordance with these graphics, and don’t take out any additional loans, the government has only 1.3 trillion MNT to finance all of its operations. This is not even sufficient to issue salaries to state servants, and the Cabinet would need 5.8 trillion MNT to conduct its operations.” the Minister said.

The Minister said that it was right to present the public with the realities of the state budget, and the economic and financial crisis in Mongolia. “Even though the economic situation is challenging, the Cabinet is feeling positive about the nation’s future and is working on a comprehensive plan to overcome these difficulties,” he said.

At the end of his statement, B.Choijilsuren said that the Cabinet will present its plan to the National Security Council, Parliament, and the public.

Following the Finance Minister’s speech, former Speaker of Parliament Z.Enkhbold made a statement on his Facebook page, giving advice to the new Finance Minister. Z.Enkhbold suggested that the Finance Minister give interviews after becoming well acquainted with his job, and said that the nation’s state budget equaled one trillion MNT, like it has over the last four years. He said B.Choijilsuren, who has been part of the budget working group every year, and Prime Minister J.Erdenebat, a former finance minister, know this situation well.

The former speaker also said, “The Finance Minister could ask the Finance Ministry and learn that the five percent interest rate housing program, and the Good herder, fence, share, and student programs are not included in the state budget. Individuals will repay their debts, not the state. Thanks to these programs, interest rates of 33 percent for loans issued were changed from two digits to one digit.”

He added, “Please don’t politicize the budget deficit and to stop these good policies, and get back to work. The elections have finished.”