According to Media Office of Government of Mongolia( on September 30,2011, Prime Minister of Mongolia S.Batbold has made a statement in connection of submission draft budget for 2012 and draft budgets for Social Insurance Fund and Human Development Fund

· The budget is aimed to fully fulfilling action program of Government

· At the end of 2012 GDP per capita will reach 6.3M MNT of 5362USD

· Equalized budget revenue in 2012 would be 6.4 trillion MNT or 36% of GDP, total expenditures 7.1 trillion MNT or 39.5% of GDP, budget deficit will be 4.1% compared 9.9% this year

· Record 1.5 trillion MNT will be invested from budget into investment and productive development

Also PM made a statement,

Regarding salaries,

· Salaries, pensions and subsidies are to be increased in 2012 by 53%. Average state public servants salary is be increased by 200,000MNT and will reach 600,000MNT(467USD)

· Salaries increased will be scaled, initially all equal 80,000MNT , next stage same percent 23%

Regarding 1.5M MNT from Human Development Fund

· In 2012 Government will implement fully 1.5M MNT bounty reflected in its action program from revenues of strategic deposits

· It has been reflected in the draft budget for the remaining 1M MNT to be issued to 334.2 thousand seniors and developmentally challenged citizens in cash-334.2B MNT, in tuition payment form to 170 thousand students – 83.6B MNT, in form of health services payment to 5 thousand citizens – 5B MNT, in residential purchase payments to 100 thousand citizens – 100B MNT.

· In coming year citizens will fully receive 1.5M MNT. Government is planning to issue 1M MNT with option to choose from either cash or shares of mineral deposits. In another words, citizens will have full freedom to sell those shares to Government and cash them.

According to IMF, International Monetary Fund (IMF) mission visited Mongolia during September 14 – 20, 2011, to hold Post-Program Monitoring discussions. The team met with the Mongolian authorities and others to discuss recent macroeconomic developments and policies and at the conclusion made the following statement:

We have had in-depth discussions with the authorities on the economic outlook and policy challenges. We believe that Mongolia has a bright economic future as it continues to develop its vast mineral resources. In the near term, however, we see substantial risks to the economic outlook.

· First, the economy is overheating. Inflation is already high and likely to rise further, which is exacting an especially heavy burden on the poor, and eroding the ability of Mongolia’s private sector to operate effectively. Rather than contending with these pressures, macroeconomic policies have returned to the boom-bust approach that culminated in the last crisis in 2009. Second, this heightened domestic risks of macroeconomic instability come at a time when the global economic outlook is worsening. Should international commodity prices fall sharply Mongolia’s exports and budget revenues would both be hit hard. The policies to address both high and rising inflation and to lessen vulnerabilities are clear: restrain fiscal spending and tighten monetary policy.

· The 2011 budget already included a sharp increase in spending of around 30 percent. This is a key factor behind the current overheating. Now the government has proposed a further increase in spending of 6½ percent of GDP just in the fourth quarter of this year. Such an increase would be highly risky and ill-advised. GDP growth in the second quarter already exceeded 17 percent and imports of consumer goods have risen by more than 80 percent. Further fiscal spending would only add to fuel to this overheating economy at a time when it least needs it.

· Similarly, in the 2012 budget, spending should be kept at or below the level that parliament already approved in the medium-term budget framework. Within that budget envelope the government should introduce a targeted system of social transfers.

· Finally, the newly created development bank is of significant concern. The development bank should not be used as a means to circumvent the fiscal stability law or as a vehicle for off-budget government spending. Doing so will add to fiscal risks, reduce fiscal transparency, and undermine the credibility of the landmark fiscal stability law passed last year.

· The recent tightening of monetary policy is welcome, but more needs to be done. The central bank should use a variety of tools. The policy interest rate should be further increased. For much of the year it has remained below the pace of increase of underlying inflation, allowing for a very rapid pace of credit growth (now reaching nearly 50 percent in real terms). Interest rate hikes alone, however, will not be sufficient. In addition, a range of macro-prudential measures should be implemented to help slow the pace of credit growth. These include measures to increase capital adequacy requirements, start to require provisions on new lending, raise reserve requirements, and tighten liquidity ratios. At this stage in the business cycle it is especially important to proactively manage risks and strictly enforce prudential regulations in order to prevent the buildup of future credit quality problems in the banking system (as become painfully evident in 2009).

According to World Bank on 08/24/2011


· Mongolia is again experiencing high levels of inflation. UB inflation was up 11.4 percent yoy in July, up from 5.5 percent in the previous month.

· Core inflation, excluding volatile energy and food prices, increased even faster, by 13.7 percent yoy

· the livestock herd continues to recover from the dzud and China’s food prices, especially meat, continue to rise (34 percent yoy in July), food prices are likely to remain high

· inflation is being stoked by increased government spending (up 27 percent, with most of it on wages and transfers), high spending by the private sector—producers and consumers alike—as reflected in the large import bill relative to last year: imports are up by 106 percent.

Banking sector

· Credit in the banking sector is growing very fast. The stock of outstanding loans grew by 46 percent yoy in real terms in July 2011.

· It is therefore imperative that the BoM enforces prudential norms on all Mongolian banks, and ensures that they maintain adequate buffer capital to absorb potential losses.

· The stock of the Non-Performing Loans currently stands at MNT 382 billion including those of the two failed banks. Together with loans in arrears, the ratio to total outstanding loans is about 10 percent in July and decreasing.

· However, because the volume of outstanding loans is rising fast, this should not be a reason for complacency.

· The volume of MNT deposits reached a record MNT 2.6 trillion in July, a 73 percent yoy increase.

· However, since real interest rates on local currency deposits are currently again in negative territory because of rising inflation, the attractiveness of local currency deposits must stem from the public’s expectation of an appreciating currency.

· Compared to July 2010, the average monthly exchange rate against the US$ appreciated by about 9 percent, or about one percent compared to the previous month. Nominal interest rates on US$ deposits are high by international standards: for certain time deposits they are as high as 14 percent. Such high rates are a cause for concern, as they may reflect liquidity problems rather than an unusually high profitability of project lending.


· On a 12 month rolling basis, the fiscal surplus reached 7.4 percent of GDP yoy in July.

· Annual revenues and grants grew by 46 percent in real terms in July yoy, in addition to increases in royalties, VAT, customs duties and corporate income tax.

· On the expenditure side, there was a very large increase (27 percent yoy) in expenditures in July, with capital expenditures up by 57 percent and current transfers up 48 percent, owing to cash handouts to citizens through the Human Development Fund (HDF).

· Such large increases in public expenditures risk throwing Mongolia back to a pro-cyclical fiscal stance.

· To counteract this tendency, the Fiscal Stability Law (FSL), passed in 2010, locked in counter-cyclical policies.

· However, because the core of the FSL—the structural balance of minus 2 percent of GDP—only starts in 2013, risks exist concerning its implementation, especially with elections around the corner in 2012. The FSL was supported by a large majority in parliament and will assist Mongolia in avoiding the typical pitfalls of growth for resource rich countries, especially the Dutch Disease. In the Netherlands, the Dutch Disease was eventually ―cured through a similarly broad-based political agreement centered on fiscal and wage restraint. If the Dutch example holds a lesson, it would be for Mongolia’s parliament to hold the course to implementing the letter and the spirit of the law , and to pass a supportive new budget law in the fall session.


· Mongolia’s economic outlook depends heavily on global macroeconomic factors: the current uncertainty and poor growth prospect s for the global economy are cause for concern.

· If there is another global recession, Mongolia’s small, open economy will be affected.

· In that case, China’s policy reaction will be crucial for Mongolia.

· If China reacts as fast and as strongly as it did in 2008 /9 then the effects of a global recession on Mongolia will be mitigated, largely owing to Chinese demand for minerals from Mongolia.

· Beyond this, it is up to Mongolia to capitalize on its excellent long term prospects by continuing the reform agenda it embarked on during the 2008/9 crisis.

According Frontier Securities,


· Mongolia is still a very small economy on the verge of a major expansion.

· Average annual real GDP growth over the coming 5 years will be at least 13% although we believe this is still a very conservative projection.

· Much of Mongolia’s fortunes will depend on future copper and coal prices which are significantly higher now than baseline scenarios in past GDP growth projections.

· While commodity prices might moderate we see a higher base as the more realistic scenario.

· In either case Mongolia will be the fastest growing economy worldwide over the coming 5 years.


· On the monetary front inflation has been very volatile ranging from 30% to flat out deflation in the course of just one year (2008/2009). Inflation has recently picked up again and is currently 8.9% and with recent rapid money growth, food price increases and expected fiscal expansion we expect this to be towards 14-16% by the end of 2011 only to moderate post-election in 2012.

· From 2013 the new fiscal stability law will come into force limiting the ability of the government to spend and borrow.

· It will then also become easier for the Bank of Mongolia to manage money flows as most major mining equipment investments for Oyo Tolgoi will have been dealt with.


· In a small economy like Mongolia many interests are linked leaving the system open to shocks. We do see efforts by politicians to implement reforms and believe that after the election next year the need for populist policies will diminish.

· Overall, as expected in any frontier growth market, there are many opportunities but also plenty of challenges in Mongolia.

· On balance, we are confident that Mongolia is set for some spectacular growth and that risk factors will not derail its progress, perhaps only slow it down.

From: Dale Choi, Frontier Securities [mailto:This email address is being protected from spambots. You need JavaScript enabled to view it.]

Sent: Tuesday, October 11, 2011 1:47 PM

To: 'Dale Choi, Frontier Securities'


According to Media Office of Government of Mongolia( on October 7,2011, Prime Minister of Mongolia S.Batbold has said in opening speech of autumn session of Parliament among other things

· Lately world economic condition has encountered difficulties and has come face to face to even more difficult challenge. Economists and officials say that there is possibility of new crisis and new difficulty

· IMF officials this week officially have stated that probability is increasing that financial crisis that is starting in some European countries might expand and growth in major economies might slow down. Some economists stress that this crisis could be even more prolonged

· How can Mongolia overcome double challenges in such difficult times? How to keep fast growth that has only started along with improving livings standards of people?

· Economy will deviate if a link in chain of favorable, competitive economic environment, investment, economic growth, jobs and poverty reduction will break

· Greek example clearly illustrates us that budget accumulation in principle has its limitations and borrowing capacity too has its own ending

· The only way to keep fast growth is to have an economy with sustainable growth and competitiveness and that encourages productivity and investment based on our advantages. If we firmly adhere to these views we can overcome double challenges.

· As a policy we view that it is absolutely necessary to commission into full production OT and TT projects already started and start other mining projects

· The next issue to pay attention to an issue of industrialization and processing. State will support and implement CTL plant. Work has started on Sainshand industrial hub, new railroad and iron ore mines in Darkhan/Selenge region. Decision has been made to build in Mongolia petroleum refinery. Those decisions will be made concrete business.

· Negotiations are ongoing to make Mongolian stake in UB Railways 51%

· III campaign of virgin lands will be continued and agricultural products import dependency will be eliminated, meat exports will be aimed at

· Government will actively support Thermal power plant No.5, major power source in Gobi region and other infrastructure works

· In coming year we plan to increase salaries 2 times in total by 50%

· In coming year we have estimated to issue to senior citizens and citizens with developmental difficulty 1 million MNT in cash, to all the rest to choose from options of 1 million MNT value

· We have submitted the budget to fulfill the promises to people and expand great productive development

From: Dale Choi, Frontier Securities [mailto:This email address is being protected from spambots. You need JavaScript enabled to view it.]

Sent: Monday, October 10, 2011 7:52 PM

To: 'Dale Choi, Frontier Securities'


According to Media Office of Government of Mongolia( on October 7,2011, Prime Minister of Mongolia S.Batbold has said in opening speech of autumn session of Parliament among other things

· Few months has been left until start of fourth year of Coalition Government. We view it would be beneficial to sum up results of work of Government for the past period and openly discuss about challenges lying ahead of the country

· We have passed double challenges of world economic and financial crisis in 2008-2009

· Since 2010 major mining and infrastructure projects have been immediately started to be implemented, engine of boosting development has been turned on.

· Economy that had negative growth of 1.6% in crisis, last year grew about 6%. By this year end it is likely that it will reach 20%.

· GDP per capita now is reaching 3000 USD. If economic growth is stable it would be possible to condition to form to reach 5000USD by end of 2012

· Total tax revenues increased 50.3% yoy including customs revenues increasing 1.6 times to 1.23 trillion MNT(about 1 billion USD)

· Unemployment rate is back into single digits 8.7%

· One of the good news is that productive development at first of the strategic deposits - OT has completed 50% mark

· By establishment of OT IA and using bountiful reserves of copper and gold, Mongolia has entered new stage of rigorous economic growth . It would impossible to refuse that that IA turned out to have to important significance to raising reputation of Mongolia on international level. In a future, by implementing the project successfully Mongolia would be able to overcome with little risk possible soon world economic and financial crisis.

· Members of National Security Council( President, Prime Minister and Parliament Speaker) have united position that Mongolia must continue implement OT project and provide support to commissioning it into operations

· We will not say that OT agreement and operations are perfect and superb in all aspects. Government too understands that.

· In near future we work pressuring that OT LLC will work supporting Mongolian suppliers and continue invest into business development initiatives to diversify economy, speed up implementation of duties of investments to develop infrastructure

· Erdenes TT has started extraction and paid to budget 116 billion MNT, it working with aim to export this 1 million tons and 3-4 million tons next year, by 3rd quarter of 2011

· As of September 2011 , 9 new mines have been commission YTD, there are 1207 mining and 2701 exploration licenses and they cover 15.3% of total territory

· It is likely that coal exports will reach 24 million tons in 2011

· Stripping has started for Dalanzadgad-TT-Sainshand-Choibalsan railroad by Mongolian Railways

· As of H1 of 2011 6040 apartments have been commissioned for use

· These works are result of cooperation of President, Parliament and Coalition Government. There is relatively short time left for us to finish what has been started and make a promises a business.


Dale Choi

This email address is being protected from spambots. You need JavaScript enabled to view it.