Mongol Bank held a press conference on April 21 to report on the performance of the economy and the issues it currently faces. During the media Q&A session following the report, Director General of the central bank’s Monetary Policy Department B.Bayardavaa answered questions about the nation’s economic outlook, inflation, and investment.
What is the economic outlook for 2017?
From what we have noticed since the beginning of 2017, there have been many positive signs for the economy. Looking at foreign trade, price increases for our country’s main exports have provided a positive jolt to the economy. We are still watching to see how sustainable the price increases are. This matter is dependent on a multitude of factors, including the reform of many foreign economic policies, the upcoming European elections, China’s policies, and several geopolitical issues.
In addition, the 580 million USD Development Bank of Mongolia bond that was to be repaid in March was refinanced. Investors seem to have a very positive, optimistic view of Mongolia’s economy at the moment. Looking at Mongolia’s export, it is dependent on the outlook for the Chinese economy. The performance of the economy last year was a lot better than what we forecasted. If this trend persists, it will have a positive effect on us.
The economic growth of Russia and Europe has been higher than forecasted, and it is looking like their economies will revive rather quickly. This is the role of positive external effects on our nation’s economy.
How is the domestic economy performing?
In terms of the domestic economy, due to commodity price increases, the export of gold and coal increased exponentially in the last six months of 2016. The volume of non-performing loans in the banking system has been decreasing. Business activity has also been strong recently.Unemployment has decreased. As the main factor contributing to the increase in non-performing loans, improvement in the mining industry has resulted in increased repayment of loans.
What large foreign investments will bemade this year? How will enrolling in the IMF program affect the economy?
Large foreign investments in 2017, such as the 800 million USD set to be invested by Oyu Tolgoi, will have a positive effect on the economy. Our negotiations with the IMF were successful. One of the major benefits of the program is that investors have a new perception of Mongolia.
For instance, credit rating companies have begun to change Mongolia’s ratings. When meeting with investment banks, they are very much interested in buying bonds issued by the government. Investors are hopeful that policy will be upheld and that there will be structural reforms made to the economy.
Can’t you quantify economic growth? Foreign financial institutions give exact numbers. Why do you beat around the bush and avoid speaking about exact numbers?
We do not avoid numbers, we do report them. According to the IMF’s forecast, the economic growth of Mongolia this year will be -0.2 percent. Most recently, a forecast made by World Bank put growth at almost two percent. Asian Development Bank estimates it will be around two percent. Mongol Bank’s estimation is also around two percent. This was discussed at the last Monetary Policy Council meeting. The reason it is so difficult to pin down an exact number is that the forecast is only a prediction. That prediction is based upon information currently available and the data we have today, and that is why it is so hard to say an exact number. Since it is so unclear,institutions and organizations that forecast growth show an interval graph, indicating the parameters of possible growth.
Starting on May 1, taxes on imports, petroleum, and automobiles will be increased. How will that affect the inflation rate?
During our discussion about the inflation forecast during the last Monetary Policy Council meeting, one of the factors we based our forecast on is the tax increases. Because it was clear that the taxes were going to be increased, we took them into account for our forecast. Our official forecast for the inflation rate is six to seven percent.