CURRENT ECONOMIC SITUATION OF MONGOLIA, AND THE MEASURES TO ADDRESS THE DOWNTURN

Transcription

1 CURRENT ECONOMIC SITUATION OF MONGOLIA, AND THE MEASURES TO ADDRESS THE DOWNTURN Speaker: S. Bayartsogt Minister of Finance March 14, 2009 Ulaanbaatar

2 Content 1. Economic Background 2. Government of Mongolia Medium-Term Policy Actions Medium term policy actions Short term policy actions to address the crisis 3. Comments

3 ECONOMIC BACKGROUND

4 Global indexes 16, , , , , , Dow SP500 Nikkei225 4, ,

5 Demand is falling in Mongolia s main trading partners % real growth China 6 4 Canada Russia 2 0 Euro Area USA E 2009F 2010F -2-4

6 index=100 in Jan 2004 Commodity prices Copper Coal Zinc Crude oil Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

7 BALANCE OF PAYMENTS

8 International reserves vs copper prices $ mn $/tonne Net international reserves Copper price (right axis) 4.1 months of imports 4.6 months of imports 10,000 8,000 6,000 4, months of imports 2,000 0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 0

9 INTERNATIONAL RESERVES AND EXCHANGE RATE Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan Change in net international reserves Exchange rate versus USD (right axis)

10 FISCAL BALANCE Expenditure Mining-related revenue Non-mining revenue Budget balance Non-mining balance Copper price (end-year, right axis) Mining-related revenue (% of total revenue): % of GDP $/tonne 2007: 39% 2008: 30% 8,000 7, ,000 5,000 4, Fiscal deficit: 5% of GDP Non-mining deficit: 15% of GDP 3,000 2,000 1,000 -

11 Bank deposits Банкууд дахь хадгаламжийн өсөлтийн хувь % year-on-year change All Хадгаламжи accounts йн жилийн өсөлтийн хурд FXdenominated хадгаламж Валютын accounts MNTdenominated Төгрөгийн хадгаламж accounts

12 Real GDP Growth % Percentage point contribution to real growth % real growth Transport, storage & communication Agriculture Mining & quarrying Real GDP growth (right axis) 2009 forecast: 2.7% real growth E 2009F 2 0

13 Measures taken by the Government of Mongolia Anti-Crisis Action Plan with 2 stages: Stage-I action plan: 05 November 2008 /Government Resolution #28/ Objective: To overcome financial and economic crisis in Mongolian economy due to global economic crisis and take measures to respond to the crisis Stage-II action plan: 09 March 2009/ Parliament Resolution #22/ Objective: To ensure sustainable economic basis in the medium term Stage III action plan /with the IMF support/ Objective: To overcome the economic crisis in Mongolia

14 II. SHORT AND MEDIUM-TERM POLICY MEASURES TO OVERCOME THE CRISIS

15 MEDIUM-TERM POLICY MEASURES Fiscal policy Social Protection Mining sector Banking sector

16 1. Fiscal policy To ensure fiscal sustainability: In 2009 Formulate and submit to the Parliament a draft law on Fiscal Responsibility In Limit of 2010 approved budget adhered to Elaborate new integrated budget law and submit to parliament To improve management of mining sector revenue: In 2009 Formulate mining revenue management options and debate in parliament

17 1. Fiscal policy (cont..) To improve budget formulation and implementation: In 2009 Improve the state investment planning Not to finance investment projects without feasibilty study In Develop and approve state investment program Strengthen the mechanism and procedures to select and develop the investment projects to be financed by the state budget

18 Include maintenance expenditures in the state budget; In Fiscal policy (cont..) Prioritize infrastructure sector maintenance to be financed by the state budget, set quantitative target (floor) for infrastructure sector maintenance expenditures to be financed by the state budget in 2010 and 2011;

19 2. Social protection To protect the poor by targeting the currently untargeted In 2009: Achieve fiscal savings by amending the budget Consolidate existing social transfer programs into one social protection program which reintroduces targeting to cover 60% of households Establish Complaint mechanism for CMP program Re-establish proxy means test Establish national beneficiary database Develop Impact evaluation methodology

20 2. Social protection (cont ) In 2010 Achieve fiscal savings: Consolidate social protection program to narrow targeting to 40% of households Conduct Impact evaluation In 2011 Achieve fiscal savings: Include only poorest families in social protection program Consolidate social protection program to narrow targeting to poor households as defined by national poverty line

21 3.MINING SECTOR To improve mining legal environment, sectoral policy and fiscal framework In 2009 Clarify mining policy, including taxation as demonstrated by the OT agreement Develop and adopt draft standard investment agreements Develop and adopt regulations for mining cadastre by Cabinet

22 3. MINING SECTOR (cont ) In 2010 Utilize draft standard investment agreement in the new mining projects Regulate the cadastre according to revised regulatory framework In 2011 Introduce responsible mining practices Enhance regulatory capacity and monitoring in mining sector

23 3.MINING SECTOR (cont ) To increase employment for Mongolian workforce in mining In 2009 Formulate training plan and obtain donor financing commitment Increase number of Mongolians trained in relevant mining skills In Increase number of Mongolians trained in relevant mining skills

24 4.BANKING SECTOR To ensure the stability in the banking sector Improve the banking sector audit and supervision Assign respectable external auditor to complete auditing of troubled Anod bank Adopt a restructuring plan in banking sector Ensure the stability in the banking system, enhance risk management in the banks, adopt good corporate governance practices Mandate a well-sequenced increase of paid-in capital of commercial banks Improve the payment mechanisms for liquidity transmission between BoM and among banks

25 BANKING SECTOR (cont ) To strengthen the banking sector legal environment: Amendments to the laws on foreclosure of collateral which overly protect borrowers and impede loan recovery submitted to Parliament Improve legal framework of banking sector ensuring smooth bank resolution and M&A processes

26 Short-term policy measures /18 months/

27 Government s short-term program Objectives: Stabilizing the government s fiscal situation Allowing the exchange rate to adjust flexibly to its natural equilibrium while safeguarding international reserves Restoring public confidence in banking sector Protecting poor during the economic adjustment Term - 18 months Amount million USD Loan recovery period - 4 years /with the grace period of 2 years/ Projected fiscal financing gap: 145 million USD in million USD in 2010

28 CONTENT OF SHORT-TERM PROGRAM Macroeconomic framework Fiscal policy Monetary policy and exchange rate Banking sector

29 FISCAL POLICY Constrain fiscal deficits to 6% of GDP in 2009 and 4% of GDP in 2010 Reduce fiscal spending; Increase budget revenue; Overhaul of existing social transfer programs in cooperation with ADB and WB Develop legal framework for Fiscal Responsibility System Finalize investment agreements for larger mining projects

30 EXCHANGE RATE AND MONETARY POLICY Adopt flexible exchange rate policy Safeguard net international reserves Improve the structure of forex transactions Streamline central bank policy instruments

31 BANKING SECTOR Restore public confidence in banking sector Strengthen banking supervision Strengthen legal framework of banking system

32 MACROECONOMIC FRAMEWORK Economic growth not less than 2.75% Inflation level single digit target level Budget deficit not higher than 6% of GDP Economic growth 4.25% in 2010

33 1 CONDITIONS AND CRITERIA FOR THE SHORT TERM PROGRAM Amendments to the budget of 2009 MEASURES Amendment has been approved / / 2 Appointment of reputable external auditor to Anod Bank Auditor appointed 3 Revision and clarification of Blanket Deposit Guarantee 4 Initiating contacts with the creditors to start the process of resolving external arrears 5 Establishment of a foreign currency auction mechanism at the BOM 6 Revisiting the relevant laws to require Erdenet to pay taxes in Tugrug 7 Establishment of screen-based system for inter-bank foreign exchange transactions 8 Announcement of a plan for Anod Bank in consultation with the IMF based on diagnostic assessment of the external auditor Amendment has been reflected in the relevant draft law Relevant note has been provided to the IMF Analysis is still under progress Amendments have been made in the general taxation law which requires that the all taxes should be collected in Tugrug Under progress 9 A comprehensive review of social transfer programs Under progress 10 Submission to the parliament of revised banking laws and regulations 11 Submission to the parliament of draft Fiscal Responsibility Law Will resolve based on the external auditor s opinion Under progress Draft law has been formulated

34 4. Conclusion 1. Mongolian economic growth will be stabilized 2. Economic structure in the medium term will be rationalized and enhanced 3. Economic diversification will be ensured 4. Development of mining sector will be boosted and Duch Disease will be avoided 5. Economic robustness will be provided

35 Balance of payments support and safeguard international reserves (US$ million) Support for budget deficit (US$ million) Financing gap IMF World Bank ADB Other partners Total support Remaining gap

36 The Government of Mongolia is pleased to launch a productive co-operation with you. Thank you for your attention.