Mongolia’s standing committee on the country’s budget formed by the Mongolian parliament approved terms of a potential $1bn credit line from India on April 26, state-run news agency Montsame reported on April 26. The Indian government committed to provide the credit line to Mongolia as part of Indian Prime Minister Narendra Modi’s visit to the country in May 2015. In March 2016, the governments of both countries started discussing the terms of the credit agreement - the Indian side proposed a 20-year soft loan with a 1.75% annual interest rate.
India’s commitment was made after the Mongolia reached a deal over the underground development of the Oyu Tolgoi mine, which was widely seen as a positive resolution to long-stalled talks that would pull Mongolia out of its struggles to attract foreign capital over the last couple of years, since the mine is considered a barometer for Mongolia’s investment climate. Prior to the signing of the deal, foreign direct investment (FDI) in Mongolia dwindled amid political uncertainty and a weakening economic cycle, which made investors and donors cautious. While the signing of the deal shored up FDI in the second half of 2015, the overall level of FDI net flows still stayed at $232mn at the end of 2015, below the 2014 levels. FDI amounted to $381.9mn in 2014, down from $2.14bn in 2013.
India's credit line will “support expansion of the country’s economic capacity and infrastructure”, Indian Prime Minister Narendra Modi said in a statement in May 2016.
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