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February 20, 2017

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Home » Business » Economy

Mongolia and IMF agree on US$5b bailout

THE Mongolian government and the International Monetary Fund said yesterday that they and other partners have agreed to a more than US$5 billion loan package to help get Mongolia’s economy back on track.

The deal is subject to approval by the IMF’s executive board, which is expected to consider Mongolia’s request in March.

Under the preliminary agreement, the IMF would provide US$440 million over three years. The Asian Development Bank, World Bank, Japan and South Korea are together expected to provide up to US$3 billion, and the People’s Bank of China is expected to extend its 15 billion yuan (US$2 billion) swap line with the Bank of Mongolia for at least three years, the IMF said in a statement.

Mongolian Finance Minister Choijilsuren Battogtokh said that the six-month negotiations had been tough, and that the government would be revising its 2017 budget before the IMF executive board considers the loan.

He said the government proposed increasing revenue by increasing taxes, and by raising the retirement age from 55 to 65 for women, and from 60 to 66 for men. Its proposals have to be approved by parliament during a session in March, which is likely because the ruling Mongolian People’s Party has a clear majority.

Battogtokh said that with the loan package, the government estimated growth would be “below zero percent” in 2017, 1.8 percent in 2018 and 8.1 percent in 2019.

The economy of mineral-rich Mongolia has been hit hard in recent years by a sharp decline in commodity prices and a collapse in foreign investment.

Mongolia’s national debt now stands at about US$23 billion, or twice the annual economic output, and a US$580 million payment to foreign bondholders is due March 21. Battogtokh said that the government, at the IMF’s suggestion, will refinance the US$580 million bond with another similar commercial bond.

“We will offer the new bonds at a market-friendly rate,” the finance ministry said on its website.

The IMF statement said the loan agreement would mean Mongolia has to strengthen its banking system and adopt fiscal reforms to ensure that budget discipline is maintained.

Generally, terms required by the IMF as a condition for such lending prompt complaints in borrower countries that the conditions hurt the poor or undercut economic growth by reducing social spending or investment in public facilities.

Adding to Mongolia’s woes is an exceptionally cold winter for the second straight year, which the Red Cross warned last week was putting the livelihoods of more than 150,000 nomadic herders and families at risk.

Dale Choi, an analyst with the Mongolia Metals and Mining research firm, said the agreement means investors can now make assumptions and investment decisions.

“It brings clarity, which investors have been waiting for,” he said.


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