Mongolia Guide, Dec 2009

In 1H2009, the negative dynamics continued with economy contracting 1.3%YoY versus 13.3%YoY in 1H2008 due to mainly copper price dipping below US$3,100 per tonne and current account deficit approaching to 6.5% of GDP. It led to further depletion of hard currency reserves. The government had no room for maneuver, as the initial budget for 2009 envisaged 6.1% deficit, despite optimistically assuming an average copper price of US$6,700 per tonne for the year. Faced by severe fiscal difficulties, the government of Mongolia requested assistance from the international financial institutions (IFIs), China, Russia, Japan and other countries. On April 1, 2009 the IMF approved a US$229.2mn loan with immediate disbursement of US$76.4mn to stabilize the Mongolian economy. The IMF disbursed further US$39mn in June 2009, the next tranche of US$24mn is expected to be disbursed in September 2009. China, Russia and Japan pledged to provide several million of US$ soft-loans to Mongolia. Timely support from IFIs and foreign partner-countries helped Mongolia to weather worst of the crisis so far. Recent recovery of commodities prices are also helping to stabilize the Mongolian economy. In June, a budgetary assumption for copper price was increased to US$ 3,995 from US$ 3,400 per tonne. The fiscal deficit has stabilized at around 5.5%. The Central Bank has built up foreign exchange reserves of over US$800mn in July.