2015年-世界发展银行全球_Mongolia_Economic_Update_November_2015_65页_2mb

Mongolia Economic Update - November 2015

Core Content Summary

Mongolia's economy faced significant challenges in 2015, marked by a sharp slowdown in growth and a weak external environment. The country's growth rate dropped to 3.0% in the first half of 2015, driven by declining domestic demand and weakening exports. These issues were exacerbated by a slump in investment due to falling foreign direct investment (FDI) and a drop in commodity prices, which negatively impacted real household income and consumption.

The current account deficit also narrowed, decreasing from 11.7% of GDP in 2014 to an expected 5% in 2015, though the economy remained vulnerable to external shocks. Inflation moderated to 4.9% in September 2015, largely due to declining food prices and subdued domestic demand. However, the central bank's interventions limited exchange rate flexibility, leading to an appreciation of the real effective exchange rate (REER), which increased the cost of imports and contributed to the current account adjustment.

Fiscal policy became tighter in response to large revenue shortfalls, with the budget spending execution reaching less than 80% of the plan. The supplementary budget for 2015 reduced spending by MNT 560 billion and aimed to mobilize additional revenues of MNT 340 billion to address a projected revenue shortage of MNT 900 billion. Despite these efforts, the revenue mobilization plan faced challenges, especially due to the weak economic environment and reliance on tax arrears.

The fiscal outlook for 2015-16 remains weak, with the budget deficit expected to stay above 5% of GDP. The draft 2016 budget, based on optimistic assumptions about coal exports and privatization, also includes risks. The consolidated budget deficit is projected to decline to 8-9% of GDP in 2015 and 6-7% in 2016, from 11% in 2014. The Development Bank of Mongolia (DBM) is expected to reduce its commercial portfolio spending to MNT 300-400 billion in the coming years.

Large external financing, including a $1.3 billion public sector borrowing, helped mitigate the balance of payments pressure in 2015, but at the cost of increasing external debt. Mongolia's external debt-to-GDP ratio rose to 180% in 2015, with the public sector debt reaching 62% of GDP. This increased vulnerability to exchange rate risks and international financial market volatility.

Key Economic Indicators

• Growth: Slowed to 3.0% in the first half of 2015, expected to further decline to 0.8% in 2016.
• Inflation: Moderated to 4.9% in September 2015, driven by falling food prices.
• Current Account Deficit: Expected to narrow to 5% of GDP in 2015 from 11.7% in 2014.
• External Debt: Rose to 180% of GDP in 2015, with public sector debt reaching 62% of GDP.
• Non-Performing Loans (NPLs): Increased from 5% to 7% of total loans in September 2015.
• Monetary Policy: Tightened, with the DBM's policy loans still substantial at MNT 3 trillion in August 2015.

Main Challenges and Prospects

• Weak Growth: Expected to continue in 2015-16, though a recovery in foreign investment may support non-mining sectors.
• Fiscal Vulnerability: Revenue shortfalls and reliance on external financing pose risks to fiscal sustainability.
• External Risks: A sharper slowdown in China and the commodity market could worsen Mongolia's economic situation.
• Exchange Rate Volatility: Limited exchange rate flexibility and increased central bank interventions raise concerns about sustainability.
• Banking Sector Strain: Deteriorating asset quality and rising NPLs indicate a need for stronger bank supervision and prudential regulations.

Policy Recommendations

• Fiscal Consolidation: Continue efforts to reduce the budget deficit and control off-budget expenditures.
• Exchange Rate Flexibility: Enhance exchange rate flexibility to better manage external imbalances and safeguard foreign exchange buffers.
• Phasing Out Quasi-Fiscal Programs: Transfer central bank financing for social programs to the government to maintain monetary independence.
• Strengthening Banking Safety Buffers: Improve NPL recognition and loan-loss provisions, and end regulatory forbearances on PSP loans.
• Social Welfare Reform: Better target social welfare programs to improve efficiency and support during economic downturns.

Conclusion

Mongolia's economic adjustment is ongoing, with a focus on restoring fiscal and economic stability. While long-term prospects are positive due to a growing educated population and mineral wealth, the short-term challenges remain significant. Continued policy reforms, including fiscal consolidation, enhanced exchange rate flexibility, and improved banking sector resilience, are essential to navigate the current economic landscape and mitigate future risks.