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Mongolia Economic Update - November 2015



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Recent Economic Development

  • Sluggish domestic demand and weakening exports drag on growth.
  • Inflation moderates amid lower food price inflation and subdued domestic demand.
  • Steps were taken to restore fiscal sustainability in the medium term.
  • Fiscal policy became tighter amid large revenue shortfalls.
  • The supplementary budget for 2015 was adopted in early November and the draft 2016 budget is under discussion.
  • Public investment financed by the DBM became tighter.
  • Monetary conditions have tightened.
  • The banking sector remains under strain with tighter funding conditions and deteriorating asset quality.
  • Adjustment in the current account continues with import compression.
  • Large external financing mitigated the immediate balance of payments pressure, at the cost of higher external debt.
  • Exchange rate adjustment has been limited in recent months.

Economic Prospects and Challenges

  • Growth is expected to remain weak in 2015-16, but a recovery in foreign investment would begin to support the non-mining sector growth.
  • The fiscal outlook remains weak with the prospect of a slow revenue recovery.
  • The balance of payments prospects remain weak and the economy is vulnerable to shocks.
  • Meanwhile, substantial external downside risks lie ahead.

Policy Considerations

  • Macroeconomic policy needs to stay focused on restoring sound economic management.
  • Steps have been taken but further actions are needed.
  • Fiscal consolidation should continue and high caution is needed for further external financing.
  • Monetary policy should stay focused on maintaining price stability and reducing external vulnerability.
  • Exchange rate flexibility needs to be enhanced.
  • The safety buffers of the banking system need to be further strengthened.
  • Better targeting of the social welfare programs would help strengthen the social safety net in an economic downturn.

 

 

 

 



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