Mongolia reached an initial agreement with the IMF for a three-year program that includes a US$440 million loan package as part of a US$5.5 billion bailout to help the north Asian country with looming debt repayments.
“The Asian Development Bank, the World Bank and bilateral partners including Japan and Korea are expected to provide up to another US$3 billion in budget and project support, while the People’s Bank of China is expected to extend its 15 billion yuan [US$2.18 billion] swap line with the Bank of Mongolia for at least another three years,” the IMF said in a statement yesterday. “The total external financing package will thus be around US$5.5 billion.”
Growth in Mongolia last year slowed to 1 percent as commodity prices fell and growth slowed in China, the main buyer of the nation’s copper and coal exports. The country also saw foreign investment collapse after a dispute with Rio Tinto PLC over the Oyu Tolgoi copper mine.
The Extended Fund Facility is to support the government’s plan to address balance-of-payment pressures and also help the government repay looming debts, including the Development Bank of Mongolia’s US$580 million bond repayment due next month.
This marks the sixth time since 1990 that the IMF has bailed out Mongolia, the most recent a stand-by agreement in 2009 and 2010, according to an e-mail from IMF spokesman Keiko Utsunomiya.
The financing is to support a Mongolian program, “which intends to restore economic stability and debt sustainability as well as to create the conditions for strong, sustainable and inclusive growth,” the IMF statement said.
The agreement is subject to the confirmation of financing assurances, the completion of prior actions by the authorities, and the approval of the IMF Executive Board.
Ahead of the agreement, the Mongolian parliament amended the development bank law, making changes recommended by the IMF. The amendments were designed to depoliticize the bank and include a rule that board members cannot have held political office in the past five years.
Mongolia’s central bank had US$1.3 billion in foreign reserves at the end of December last year, well below the US$4.1 billion it held at the same time in 2012, when money was pouring into Mongolia’s mining sector amid a commodities boom.
The tograg fell 20 percent last year, fifth-worst among exotic currencies tracked by Bloomberg.
Foreign-exchange reserves should rise to US$3.8 billion by the end of the program, according to the IMF statement. By 2019, economic growth is projected to pick up to around 8 percent.
“Fiscal consolidation will leave room for the banking sector, over time, to extend more credit to the private sector, consistent with projected growth. These policies would also put public debt on a declining path over the course of the program,” the IMF said.
The country’s budget deficit at the end of last year tripled year-on-year to 3.67 trillion tograg (US$1.48 billion), while total external trade dropped 2.3 percent and non-performing loans in the banking system rose 25 percent.
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