Ulaanbaatar, March 14, 2009 — Mongolia’s external partners have welcomed the agreement that was reached between the IMF staff and the Government and are showing strong support for the implementation of the Government's economic reform plans.
The IMF has estimated that $205 million is needed to bridge the budget gap for 2009 and 2010. The Government has received firm pledges amounting to $160 million from the World Bank, the Asian Development Bank and Japan. Other partners have indicated that they will add to this and with some additional support we are optimistic that the combined effort will be sufficient to plug the estimated budget gap.
The announcement of support was made in response to the Government’s economic program, to be supported by the IMF and other development partners, which Finance Minister S. Bayartsogt unveiled during today’s extraordinary meeting with external partners.
The program outlines key actions to be taken by the Government to manage Mongolia’s economic downturn. Its major objectives are to recover economic sustainability through improved fiscal and monetary policies and protecting the poor and vulnerable people through a better targeted social safety net program.
The meeting comes right after last week’s draft 18-month Stand-By Agreement reached by Mongolian authorities with the IMF. The SBA will provide US$224 million to support external financing needs.
Partners believe that Mongolia’s growth continues to slow and may drop to as low as two to three percent in 2009, down from nine percent in 2008 due mainly to the global mineral price collapse.
The government is taking significant steps to address its economic imbalances. It has vowed to restore the health of its finances, allow the exchange rate to adjust, safeguard international reserves, bolster confidence in the banking sector and protect the poor during this adjustment period.
The Bank of Mongolia showed its commitment to economic reform by raising interest rates from 9.75 percent to 14 percent this week in a bid to restore the balance between saving and borrowing and to relieve some of the pressure on the exchange rate. This is also expected to allow the Mongol Bank to better manage the exchange rate without incurring further losses of international reserves.
These are the type of strong actions shown by the Government which led to the draft agreement with the IMF and which are very much supported by the external donor community.