Category Archives: Economy

Obtaining a Construction Permit in Mongolia

As in many countries, Construction activities are required to have appropriate permits. Construction a construction permit will typically be issued for a period of 5 years. If the term of the construction permit expires, it may be extended for a further 5 years. Legal entities with a construction permit are allowed to perform construction activities as described by the permit within a target plot of land.  Construction projects without a permit are subject to official fines.

Different types of permits are available for different types of construction related work. Activities are classified in three separate areas i) construction of a new structure, ii) expansion and renovation of an existing structure and iii) demolition and removal of a structure. Each is also further subdivided according to the nature and complexity of the specific project and may be categorized as “low, “average” or “high” complexity. A construction permit is project specific and must match the work being performed. For example, a “high complexity” renovation permit will not allow a company to perform “low complexity” new structure construction.

A Construction permit is granted by the local provincial or from the city Governor. When a developer files to obtain the construction permit the developer should prepare and file an application describing the details of the construction along with relevant technical documentation.   Upon submission of the application the reviewing authority make a decision and issue the construction permit within 10 business days.

Changes to Mongolian Central Bank Guarantee Independent Operation

Finishing our series (part one here, part two here) reporting on changes to the operations of the Mongolian Central Bank we present here the new provisions which will work to solidify and encode in the law the bank’s operations as an independent entity, not directly under the control of the executive branch of the government.

Independence of the Central bank from Government.

The amendments explicitly provide for the independence of the Central bank from the government. It is clear that the government should not provide any direction to the Central Bank regarding the agreements and transactions the bank enters into or in any other matter unless explicitly provided for in the law. The Central Bank of Mongolia should not directly or indirectly grant credit to the Government of Mongolia and may only purchase long and short-term securities of the Government from primary or secondary market except where explicitly provided for in the law.

Granting Credit to the Government

Under the new law, the Central bank of Mongolia may grant temporary credit or buy a short- term Government Bond in order to meet seasonal liquidity needs of the government, subject to repayment before the end of the financial year. If the Central Bank of Mongolia bought bond/securities issued by the Government, it will be added to the credit balance of the Government. In the frame of open market operation, the long -term securities of Government purchased by the Central Bank of Mongolia contingent upon repayment in short terms will not be included in the total amount of the balance of temporary credits.

Supervision of Bank Activities

The Central Bank of Mongolia will have authority to establish procedures, regulations and instructions, and make decisions, and carry out supervision and enforcement activities relating to the licensing to establish banks and operating activities of banks. This includes matters relating to the maintenance of adequate paid in capital and liquidity of bank assets, improving the security of the banking system, and regulation of banking activities for the purpose of protecting the interests of depositors and customers.

New amendment also updated the range of Central Bank’s activities.

In order to implement its objectives, the Central Bank of Mongolia will conduct the following activities:

  • issuing and regulating currencies into transaction;
  • formulation and implementation of monetary policy;
  • acting as the Government’s fiscal intermediary;
  • supervision of banking and entities specified in the law activities;
  • organizing, reconciling and supervising of local/national payments and settlements system;
  • holding and management of the State’s reserves of foreign currencies;
  • protecting right and interest of customer, depositor;
  • implement balanced/proper macro policy.

Changes to Mongolia Central Bank Managment

New Amendments to the Law of Mongolia on Central Bank

In our previous post, we introduced changes to the law on the governance of the Mongolia Central Bank. In this post, we will take a closer look at the most important changes.

Monetary Policy Committee

According to the new amendments to the Law of Mongolia on Central Bank, major changes are coming for the management committees’ roles. For instance, the Monetary Policy Committee will consist of 7 members including 4 adjunct members, and members will be appointed in terms of 6 years. Monetary Policy Committee will discuss and decide following matters: a) a draft of state monetary policy; b) determine interest of instrument of monetary policy; c) determine required reserves amount of bank, requirement of proper balance of percentage and amount. Form/ Formula of Monetary policy committee’s activity will be meeting.

The Monetary Policy Committee will decide matters via a majority vote of members participating in the meeting and the chairman will make a final decision in case of a tie. The meeting of the monetary policy committee will be held no less than 4 times a year. If President of Central bank of Mongolia or not less than 3 members of committee proposed to hold a meeting, special meeting will be conducted. Monetary policy committee’s decision will be issued by resolution type/form/format and certified by the signature of the chairman of meeting.

Monetary Policy Instrument

The Central Bank of Mongolia will use the following instruments to implement the state monetary policy.

1) Setting of the amount and proportion of compulsory reserves to be maintained by banks;

2) Grant a credit to the banks and use financial instruments;

3) pursuing a unified policy on interest rate;

4) conducting open market operations;

5) imposing a ceiling on credit outstanding to be granted by banks.

The Central bank will develop/draft the procedure for the determination, assessment, supervision of the required compulsory reserves of banks.

Supervision Committee of Bank:

Supervision Committee of Bank will discuss and issue recommendations on the following matters regarding to implement power of Central Bank to supervise on the banks.

  • To implement to supervise banks, regulate bank’s activity pursuant to the law, a draft of resolution, methodology, procedure, guidance, rule in connection with enforcement measure to the bank;
  • Report on the supervision of the banks;
  • Proposal to grant credit to the bank, Corporation of Savings Insurance in order to stabilize banking and financial system under the law.

The composition and rule of Supervision committee of Bank will be approved by the President of Central Bank of Mongolia.

Parliament Confirms Changes for Central Bank of Mongolia

The Parliament of Mongolia has approved amendments to the law governing the Central bank of Mongolia. The changes will effect the legal status of the bank and its independence. The Bank’s decision making process has been adjusted based on the standards, practices and principles implemented by central banks in other countries so the operations of the Central bank of Mongolia will comport with the international standard. The amendments will enter into force from the April 1, 2018.

One big change coming is that the bank’s involvement and influence with matters such as the state budget will be circumscribed, making the bank more independent from the Government. At the same time, there will be a mechanism in place to ensure clear lines of communication between the government and the bank.

This amendment will contribute to the increase of independence of the Central Bank, proper development of monetary policy, improvement of implementation of legal circumstance, promotion of further price stability at the macroeconomic level and will help to provide greater financial stability, and to maintain and promote long term economic stability for the slowly growing Mongolian economy

Most of world’s Central banks are responsible for balancing inflation and price level, and such responsibilities are clearly provided for in relevant laws. However, the Mongolian Central bank’s mission had been to balance and stabilizing the National currency. The new amendments help to more clearly define the Central Bank’s goal. The amendment defines the Central bank’s objective as the “Price Stability”, this objective and goals is meeting and complying with international level and standard.

This is undoubtedly a positive development for the Mongolian economy. We will keep you updated and will have a more detailed discussion regarding the exact nature of the new amendments in an upcoming blog.

Mongolia’s Economic Diversification

Strategically located between Russia and China, Mongolia provides rare opportunities for savvy business leaders and investors to start new businesses and expand existing ones. In recent years, Mongolia has suffered economic hardship, as can be seen from the stark drop in GDP growth over the past few years.

As a consequence, the country has embraced economic evolution. Political and business leaders have been forced to seek ways to fuel the economy, not only from mining which was the backbone of Mongolia’s economy for many years, but also from other sectors such as agriculture, renewable energy and tourism. At the same time, a global wave of technology and entrepreneurship have impacted the way Mongolians think and do business, spurring bold initiatives and a reaching out to the international community.

According to the World Bank, while livestock provides subsistence, income, and wealth for nearly half of Mongolia’s population, only 7 % of exports consist of raw livestock materials and primary processed products. This is in stark contrast with statistics for the mining sector, which only employs 5% of the workforce but has produced nearly 90% of Mongolia’s exports since 2000. This imbalance has spurred the Mongolian government to initiate policies and programs that support export-oriented enterprises outside the mining sector.

However, small and medium sized enterprises, which make up more than 80 percent of registered businesses in Mongolia, lack the knowledge, skills, capital and networks to effectively develop and distribute products that can compete in international markets. Therefore, foreign talent, expertise, capital and connections and investment, are well sought after in the country.

In order to decrease the economic vulnerability and meet the needs of the majority of Mongolian society who are dependent on non-mining, agrarian sectors, Mongolian government has been obliged to diversify Mongolia’s economy. In doing so, in addition to export-oriented support policies and programs, Mongolian government has introduced various programs and policies supporting import substitution.

In addition to macro-economic motivations, a strong societal need for food security has led to the opening of a large variety of food factories. Many of them have been formed in partnership with foreign companies and experts who have the sophisticated technical skills to complement their Mongolian partners’ local knowledge.

In this country of vast territory, patriotic people and thirst for advanced technologies and international connections, savvy investors and business people will discover many opportunities.

Bank of Korea Assisting with Modernization of Mongolia’s Foreign Exchange Policy

The Bank of Mongolia, signed a cooperation agreement on June 21, 2017 with the Bank of Korea. The agreement solidifies plans by both organizations to cooperation regarding development of a comprehensive strategy for development of the foreign exchange market in Mongolia.

The Bank of Korea has been conducting a study on Mongolia’s foreign exchange market. The results of the study are expected to have an important impact on development of foreign exchange regulations and growth of the foreign exchange market in Mongolia.

Major complaints about the current state of the foreign exchange market in Mongolia include the lack of transparency in the process and inefficient operations. The study will draw on the Bank of Korea’s past experience in managing foreign exchange issues in Korea to set out a road map for Mongolia.

The plan is expected to help stabilize the exchange rate of the Mongolian Tugrug, which will facilitate a better environment for foreign investment and domestic economic growth.