A staff-level agreement has been reached for the first and second reviews of Mongolia’s extended fund facility program with the International Monetary Fund (IMF). The IMF staff team led by Geoff Gottlieb visited Ulaanbaatar from October 18 to 30 to conduct discussions on the first and second reviews of the three-year extended fund facility.
The IMF team reported a strong economic resurgence for Mongolia, exceeding expectations.
“The economy is growing more strongly than expected, with GDP growth likely to reach at least 3.3 percent this year on the back of strong coal exports, a robust recovery in services, and a return of confidence following the approval of the 5.5 billion USD IMF-supported package. Growth is expected to become more broad-based in 2018 as the domestic economy revives, but there are downside risks to the coal sector,” Gottlieb said in a statement.
According to the IMF team, all quantitative targets under the program have been met by Mongolia. Fiscally, Mongolia has been in a better position than expected, backed by stronger revenue and tight expenditure control.
The IMF team has said that the recently approved 2017 budget amendment and the 2018 budget draft bill are in line with the program.
“The overall fiscal deficit is likely to be 7.5 percent of GDP this year compared to 17 percent in 2016. The authorities’ proposed 2018 budget is in line with the revised program that envisages a deficit of 6.5 percent of GDP. The authorities have committed to save half of any revenue over performance should it materialize, thus helping to reduce borrowing and ensure debt sustainability,” Gottlieb stated.
The remainder of budget revenue will be used to fund productive one-off spending in line with the government action plan. Both this year and next, the authorities have allocated a one-time bonus to civil servants.
The structural reform agenda part of the extended fund facility is being undertaken by the Mongolian government. The agenda is designed to help to sustain growth over the medium term, promote diversification and competitiveness, and mitigate the boom-bust cycle.
In terms of the banking system, the asset quality review, part of the IMF program, is expected in mid-December and legal reforms are in the process of being drafted. Improvements to the regulatory and supervisory framework are also being implemented to strengthen the financial system.
“On the fiscal side, steady progress is being made in strengthening tax administration, tax policy, and budgetary controls, including through the establishment of a fiscal council and a high-level working group on tax policy. It is important that the reform momentum is maintained in 2018 to cement the long-term benefits of such policies on promoting inclusive and sustainable growth. In this regard, it is encouraging that the commitment of the new government to the program policies remains strong,” Gottlieb concluded.