Tag Archives: Economy

Changes to Mongolian Central Bank Guarantee Independent Operation



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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



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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



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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.

Major New Mongolia Wind Energy Project Secures Funding



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An international conglomerate has now closed a deal on financing to construct and manage a new 55 MW wind energy facility in Mongolia.

Located in Dornogobi province, the project will be Mongolia’s third and eventually its largest ever wind energy park. Turbines to power the park of 25 V110-2.0 MW turbines in 2.2 MW power-optimized mode, will be supplied by Danish company Vestas. European Investment Bank and the European Bank for Reconstruction and Development provide financing.

Traditionally Mongolia’s energy industry has been dominated by coal. Now, Mongolia’s wide open spaces and abundant wind allow for greater reliance on wind energy.

The new wind energy project will help Mongolia meet its energy needs resulting from higher demand, increased industrialization and urbanization trends.

Political Unrest in Mongolia Threatens IMF Review of Funding



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The Executive Board of the International Monetary Fund (IMF) on May 24, 2017 approved a three-year extended arrangement under Extended Fund Facility (EFF) for Mongolia to support the country’s economic reform program. Other financing partners, including the Asian Development Bank, the World Bank, Japan, and Korea, have also committed to provide budgetary and project support, and the People’s Bank of China has agreed to extend its swap line with the Bank of Mongolia. In sum, the total financing package amounts to about $5.5 billion. The Board’s approval of the arrangement enabled the immediate disbursement of about $38.6 million. Addition of these funds to reserve currency of Bank of Mongolia had positive impact on the country’s economy and improves outlook for foreign investment.

Prior to each quarterly disbursement, IMF staff monitors and reviews if the country’s progress in meeting the conditions under the program justifies the continuation of disbursement. By this standard IMF staff team visited Ulaanbaatar from July 19 to August 2, 2017 to conduct discussions on the first review of the EFF arrangement. At the end of the visit the IMF staff team concluded that performance under the program has been good, with all quantitative targets on track. According to Bank of Mongolia’s report, the IMF staff’s positive conclusion enabled subsequent funding from above mentioned financing partners within the EFF arrangement. The IMF staff conclusion is subject to review by the management and Executive Board of the IMF. The Board is expected to consider the first review in late September, and this could lead to a disbursement of about $37.82 million.

In the midst of this positive news, Mongolian politics remains unwieldy. On August 23, 2017 thirty members of Mongolian People’s Party (MPP) group in the parliament signed and submitted a petition to dismiss the Prime Minister J.Erdenebat, and consequently, the Government. This is likely to cause some level of political destabilization. History of some countries (e.g. Argentina, Greece) shows that political destabilization may cause IMF to suspend or even cancel its financial aid altogether. Though we have high hopes that these political issues will not escalate to that point in Mongolia.

It is critical that this happens not long after the stir occurred during the Presidential election, in connection with payout of children’s money by the Government. The IMF staff team disapproved such action by the Government. Therefore the Government committed itself to target the Children’s Money Program to less affluent families, which partially led to overall positive preliminary findings of the IMF staff team. Thus any kind of political destabilization may not only affect the further implementation of EFF arrangement, as well as country’s further economic well-being.

According to the Constitution of Mongolia, the petition to dismiss Prime Minister should be discussed and resolved by the parliament within 15 days. We will keep you informed here of the outcome, and potential consequences.

Mongolia is in the Middle of a Constitutional Amendment Process



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Mongolian Constitution has been in force for the last 25 years, dating from its adoption in 1992. It has been amended once in 1999 and again in 2001. It is the fourth Constitution of Mongolia since the first was adopted in 1924. Subsequent constitutions were put into place in 1940 and in 1960.

Mongolians today pay close attention to issues connected with the recent constitutional reform. A series of public consultations for Constitutional reform have been held in the Ulaanbaatar and in local aimags.

Several recommendations have been put forward for public discussion:

  • maintaining the current balance of power between the legislature and the executive branches of government;
  • strengthening the unity of the country;
  • consolidating how local administration is structured;
  • developing a professional, independent civil service;
  • strengthening the judiciary to improve the legal structure; and
  • creating a bicameral legislature that would include the State Great Hural and the State Congress. (Mongolians Discuss Constitutional Reform, supra.)

Taking the outcome of the public consultations into consideration, a consolidated proposal will be finalized and submitted to the parliament during the upcoming autumn session this year. However, the Democratic Party disagreed with this procedure and issued a statement demanding to hold a public referendum to hear voices of the people rather than organizing public consultations taking place in limited scope.

According to the Constitution, Constitutional amendments may be initiated by the President, members of the Parliament and the Government, as well as being proposed by the Constitutional Court to the parliament. A national referendum on constitutional amendment may be held where it is supported by at least two-thirds of the legislature. An amendment to the Constitution will have the same force as the Constitution when adopted by not less than three fourths of votes of all members of the parliament.

 At the moment, the general public is encouraged to provide inputs to the proposed amendments. More information may be found at the following website:  http://forum.parliament.mn/projects/171.

Mongolia Continues Cooperation with China on Mutual Free Trade Zone



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Chinese news media is reporting that China and Mongolia are beginning a new process of conducting a feasibility study regarding development of a new Free Trade Zone (FTZ).

This comes in the contest of the second China-Mongolia Expo, held in Hohhot, the capital of China’s Inner Mongolia region. The conference will occur in late September, and will serve as a forum to discuss issues of mutual cooperation and development between China and Mongolia.

Mongolia’s trade with China in the first six months of 2017 has been USD $3.1 billion. This is a 44.2% increase year-on-year. China mainly exports gas, diesel, food, machinery and equipment to Mongolia, and imports natural resources, fur and raw materials.

Talk of the new FTZ comes after the China-Mongolia Cross-border Economic Cooperation Zone (CECZ) was announced in 2015. The CECZ is a 18 square kilometer  territory evenly divided along the China-Mongolia border. The CECZ is intended to facilitate import/export processing, logistics, warehousing, and e-commerce.

The increase in economic cooperation between China and Mongolia is a core part of the wider China-Mongolia-Russia economic corridor, which seeks to facilitate integration of Mongolia with the economies and infrastructure of China’s northern territories and Russia’s far east.

Mongolia Presidential Election Maintains Divide Between Presidency and Parliament



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The people of Mongolia have just completed the election of the President of Mongolia. Battulga Khaltmaa, of the Democratic Party, is the victor. Mr. Khaltmaa follows Ts. Elbegdorj, also of the Democratic Party in serving as President. This will continue the previous dynamic of a Democratic Party President serving concurrently with a parliament dominated by the Mongolian People’s Party (MPP).

Mr. Khaltmaa achieved his win with 50.6% of votes cast, with a voter turn-out estimated at 60%. The MPP candidate received 41.2% of the vote, while 8.2% of ballots were returned in protest with no selection, a practice expressly allowed by the Election Law of 2015.

The MPP continues to hold a supermajority in parliament. Therefore, they will retain the capability to override any potential veto by Mr. Khaltmaa of proposed legislation. Still, his presence at the top is expected to force some concessions on the part of the parliament. Mr. Khaltmaa will be primarily responsible for foreign policy, and negotiations of treaties with foreign governments.

During the campaign, Mr. Khaltmaa advocated for state involvement in the economy, and management of natural resources. He has framed his pending presidency as a necessary balance against the MPP dominated parliament. It is expected that a period of adjustment will follow the election in which the parliament and Mr. Khaltmaa learn to work together and set boundaries.

Mr. Khaltmaa is called a Nationalist by Bloomberg. His campaign has promised to increase public access to wealth from Mongolia’s large resource mining projects. He has also promised to reduce trade imbalances Mongolia has with Russia China, a task which may be easier said than done. Even so, the rhetoric has not been overly hostile to foreign investment and the election is not expected to derail Mongolia’s recent efforts to revitalize its mining boom, or efforts to diversify its economy in the agricultural sector.

Mongolia’s Economic Diversification



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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



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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.