Debt-crippled Mongolia finally gets $5.5bn IMF-led bailout

Debt-crippled Mongolia finally gets $5.5bn IMF-led bailout
By bne IntelliNews May 25, 2017

The International Monetary Fund (IMF) on May 25 signed off on a $5.5bn financial aid package to help Mongolia address its crippling debts and push through reforms. It is made up of $430mn in IMF funds tied to more than $5bn of financing from other international lenders.

The bailout, agreed in February, was originally to be finalised on April 28, granting Mongolia its first tranche before the start of May, but it was delayed by a controversial banking requirement for foreign investment-backed projects in a proposed law. The since annulled draft law stated that revenues from large-scale projects had to pass through a Mongolian bank account.

The three-year IMF-led arrangement also involves the World Bank plus Asian neighbours Japan, South Korea and China.

The expectation that IMF support would be waved through has already allowed resource-rich Mongolia to issue international bonds at somewhat lower interest rates. The heavily indebted country has been through years of ultimately unsuccessful expansionary domestic fiscal policy aimed at enabling it to overcome a four-year slump in the prices of copper and coal, its main exports.

The IMF, which has praised the country’s subsequent fiscal tightening, is now pushing Mongolia to strengthen the independence of its central bank and commitment to a market-determined exchange rate. The donors' programme will take a look at how the agribusiness and tourism sectors could expand economic growth.

The struggling Mongolian economy grew by only 1% in 2016, down from the 2.3% seen in 2015. The growth rates are extremely poor compared to what has been seen in some years of the past decade. For instance, a boom in FDI helped Mongolia rack up astronomical GDP growth of 17.5% in 2011.

Difficulties encountered in completing talks over the underground development of Rio Tinto’s giant Oyu Tolgoi gold and copper mine and a subsequent freefall in commodity prices have badly hit the economy.

The currency, which went into freefall last summer, is currently at less than half the value it had in 2008 in the run-up to the commodity super-cycle. Mongolia’s high interest rates, meanwhile, are burdensome to a population struggling to pay back personal and small business loans.

With deadlines looming for repayments of $1bn worth of debt by January 2018, Mongolia's leaders went into talks with representatives of the IMF, China, India and Japan for crisis relief talks.

Mongolia now finds itself receiving support from a number of sources including the IMF and World Bank, as well as the Asian Development Bank and the International Investment Bank.

News

Dismiss