Five years ago Mongolia’s 17 percent growth rate, vast coal and copper resources and strategic location next to China made it an emerging-market darling. Today its financial leaders are headed for Washington to meet with the International Monetary Fund to seek assistance to deal with an economic crisis.
Newly elected Prime Minister Erdenebat Jargaltulga is making the request for funds as his country is reeling from the downturn in mining following a peak in commodity prices in 2011. Disputes with investors including Rio Tinto Group haven’t helped, leading to a collapse in foreign investment and leaving the government with a growing budget deficit.
“The Mongolian authorities have made a request for financial assistance from the IMF to support their economic program, which is intended to address balance of payments pressures and stabilize the economy,’’ IMF spokesman Gerry Rice said in an e-mailed statement Friday.
Discussions with the IMF will begin next week when Mongolian authorities are in Washington to attend the annual meetings of the IMF and the World Bank, according to the statement. An IMF team led by Mission Chief for Mongolia Koshy Mathai is scheduled to visit the capital Ulaanbaatar in late October to continue discussions.
Mongolia had $19.2 million of foreign direct investment inflow in August, down from $34.6 million in July, according to data released by the Bank of Mongolia on Friday. In 2012 Mongolia recorded $4.45 billion in FDI, mainly due to the construction of the first phase of the Oyu Tolgoi copper mine, operated by Rio Tinto, the world’s second-largest mining company.
Frustrated voters swept the Democratic Party from power in June, giving the Mongolian People’s Party an overwhelming mandate to address the deterioration of the economy. One of Erdenebat’s first objectives has been to consolidate several budgets to enhance transparency after the previous government had pushed millions of expenditures off the central budget. It also hiked the benchmark interest rate by 4.5 percentage points to 15 percent to prop up the currency.
Erdenebat is facing more than $1 billion in debt repayments in 2017 and early 2018 after the government borrowed heavily to finance road and infrastructure projects. The spending hasn’t helped the economy, which expanded 1.4 percent in the first half of 2016 and 2.3 percent last year, according to the National Statistical Office. Growth will probably slow to 0.3 percent this year before rising to 1.4 percent next year, the Asian Development Bank said in a statement Friday.
The budget deficit doubled this year to $826 million in the first eight months and expenditures were up 24 percent while revenue remained flat, the National Statistical Office said. The central bank has $1.28 billion in foreign currency reserves after it burned cash to defend the tugrik, which has fallen more than 10 percent this year and is one of the worst performing exotic currencies tracked by Bloomberg.
In August, the finance minister said the economy is in crisis and the government pitched a series of austerity measures and taxes that were later overturned by parliament. The government is now drafting an “Economic Stabilization Plan” which will include several large-scale infrastructure projects including the development of the Tavan Tolgoi coking coal mine and a network of railways to connect the mines to China.
Erdenebat has also announced measures to ease red tape and improve ties with the business community through a Council for Protecting Investors’ Rights. Within this council, a working group will be established to research and report cases of misconduct, bureaucracy or unlawful investigations against investors.