Mongolian Officials Back IMF Program Amid Widening Budget Gap

(Bloomberg) -- With the currency hitting record lows and the budget deficit worsening, senior Mongolian officials said they support an assistance program from the International Monetary Fund.

Foreign Minister Munkh-Orgil Tsend said he was confident an agreement with the IMF would be in place by February. Khayankhyarvaa Damdin, chairman of the ruling party's parliamentary caucus, said at press conference on Monday that “Mongolia should enter the IMF program. In fact, we are losing time on this process.''

Mongolia is facing a financial crisis caused by a collapse in commodity prices, mounting debt and years of off-budget spending. Since coming to power in June, the Mongolian People's Party has announced an economic reform plan containing spending cuts, and asked the IMF's help.

In its first 100 days in office, the government cut spending, brought off-budget expenses into a single consolidated budget and conducted a probe into money owed to private and foreign companies. Munkh-Orgil doesn't expect to see a balanced budget until 2020, “Until then we are aiming to cut the budget deficit slowly but steadily,'' he said in Ulaanbaatar on Monday. 

“Priority number one was getting the fiscal house in order,'' Munkh-Orgil said. “Now we know exactly whom we owe to and how much.''

Due Debts

The nation has to repay more than $1 billion in debt by January 2018, foreign exchange reserves were at the lowest since 2009 at the end of September, and the tugrik dropped to an all-time low of 2411 to the dollar on Tuesday, a 17 percent decline this year.

The IMF “held very productive discussions with the Mongolian authorities'' on policies that could become part of an IMF-supported economic and financial program, the fund said last week after two weeks of talks.

The economic plan is under review by parliament, with the government saying it will return the budget to surplus, boost foreign reserves and increase investment. “I think parliament would want to make some changes but it is in agreement with the general thrust of the proposal,'' said Munkh-Orgil, adding that he expects parliament to accept the plan by the end of this month.

An IMF program could then be finalized in January for February, he said. That would ease financial concerns ahead of the March maturity of the Development Bank of Mongolia's $580 million bond.

While passage of the plan is not a prerequisite to an IMF program, it would be a “good complementary measure" said Munkh-Orgil. “The IMF representatives think this is an excellent plan. They are in full agreement with basically every line."

Signing up to an IMF plan would not shut the door to receiving financial aid from bilateral donors, Munkh-Orgil added.

The IMF “will welcome contributions and assistance from bilateral donors, as long as they are within the policy framework agreed by Mongolia and IMF," he said. "That gives us confidence that both the international community and Mongolia can agree on the program."

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, James Mayger, Jeff Kearns