Mongolia completes $5.5bn IMF bailout deal after 2016 slump in growth

By bne IntelliNews February 20, 2017

Mongolia has reached a $5.5bn bailout agreement with the International Monetary Fund (IMF), the Fund said in a statement on February 19.

The deal has been reached just weeks prior to the country’s development bank facing a repayments deadline on a $580mn bond. The IMF will provide Mongolia with funds totalling $440m, with the World Bank, Asian Development Bank, Japan and South Korea offering $3bn in preferential loans.

The Financial Times has reported that the ADB intends to lend Mongolia about $300mn in budgetary support per year over the next three years, which will replace previous loans of an equivalent amount. Mongolia is also requesting an extension of the Chinese government’s $2.2bn central bank swap agreement, which has been its largest single source of foreign financing.

With repayments worth $1bn in debt due by January 2018, Mongolia's leaders have so far met with representatives of the IMF, China, India and Japan for crisis relief talks.

According to data uploaded last week, Mongolia’s growth slumped to 1% in 2016 down from 2.3% growth in 2015. A boom in FDI helped Mongolia rack up astronomical GDP growth of 17.5% in 2011. But stalled talks over the underground development of the giant Oyu Tolgoi gold and copper mine in 2013-2015 and the subsequent freefall in commodity prices have badly hit an economy reliant on mining coal, copper and gold.

In addition, Mongolia registered a net foreign direct investment (FDI) outflow of $4.28bn in the first 10 months of 2016.

However, the price of copper, which accounts for around a third of Mongolian exports, grew by over 20% within the past three months amid supply risks and signs that U.S. President Donald Trump will ramp up infrastructure spending. That will have a positive impact on Mongolia’s economy.

The country is expecting FDI to sway the economy back to growth thanks to the $6bn underground expansion at Rio Tinto's Oyu Tolgoi copper mine, which began in 2016, following a deal reached in May 2015 that ended two years of stalled talks between the Mongolian government and the Anglo-Australian miner Rio Tinto.

However, the underground expansion is only set for completion by 2019. Rio believes the mine, when launched, will account for 30% of the economy. The IMF expects economic growth to recover by 2019, reaching 8% as foreign exchange reserves grow to $3.5bn, a level not seen since 2012.

Related Articles

London NEX-listed Indigo claims it got nod to avoid mention of “Iran” in disclosure papers

A listed British investment company linked to one of Iran’s largest investment banks failed to disclose that its focus is on the Islamic Republic, Euromonitor wrote on November 21. Iran’s ... more

Hungary's central bank unveils new stimulus to bring down long yields

The Monetary Council of the Magyar Nemzeti Bank announced new monetary policy measures at its November 21st meeting, while keeping the base rate and the overnight rates unchanged, as expected. ... more

IMF welcomes ongoing efforts to improve Uzbek investment climate, notes growth risks

The International Monetary Fund (IMF) has welcomed Uzbekistan’s ongoing efforts “to adopt a more effective macroeconomic stabilisation framework and to improve the economy’s ... more

Dismiss