Challenges In Fiscal And Monetary Policies In Mongolia

This book provides quantitative evidence on the issues in fiscal and monetary policies in Mongolia and presents necessary policy recommendations for policymakers and academic circles. Mongolia belongs to a natural resource-based, transition economy and thus has faced the risk of the so-called resource curse—including the “Dutch Disease” and immaturity in market-based systems, particularly in financial markets. Consequently, reformations of resource allocation and policy governance in fiscal and monetary fields have been required. So far, however, there have been only a very limited number of quantitative studies in the Mongolian economy among the vast literature of Asian studies. This book applies scientific approaches to address fiscal and monetary issues, such as data-oriented and econometric methods (a structural vector auto-regression model, a spatial econometric model, and panel estimation with fixed effects, among others). In this manner, the book enriches empirical evidence in academic literature and also contributes to evidence-based policymaking. All the authors are young leaders of government officials in the Ministry of Finance, Financial Regulatory Commission, and National Statistics Office in Mongolia, who have been trained in academic research methodologies at Saitama University, Japan, on JICA-JDS scholarships. Thus, academic researchers and policymakers will be prominent members of the target audience for this work.

This paper discusses Mongolia’s Request for Purchase Under the Rapid Financing Instrument (RFI). The coronavirus disease 2019 pandemic has taken a large toll on economic activity in Mongolia, giving rise to urgent budget and balance of payments needs. The authorities have already taken several measures to limit the economic contraction and help the most vulnerable. Recent revisions to the budget allow for higher health and social spending as well as tax relief to affected households and businesses. In addition, the Bank of Mongolia has eased monetary and financial policies to help prevent a disorderly contraction in bank lending to the private sector. Emergency financing under the IMF’s RFI will provide much needed support to respond to the urgent balance of payments and budgetary needs. Additional assistance from development partners will be required to support the authorities’ efforts and close the financing gap. The authorities’ commitment to high standards of transparency and governance in the management of financial assistance is welcome.

Mongolia’s economic conditions stabilized by 2023H2, helped by China’s reopening. The economy was in a challenging position in 2022 with widening external and internal imbalances due to multiple global shocks, policy excesses and governance lapses. However, greater exchange rate (ER) flexibility; the government’s strenuous efforts to facilitate exports; an influx of new private external financing, and some moderation of global shocks helped lift economic activity, moderate inflation, and stabilize the external position by end-2022. Effective public debt management by the government mitigated rollover risks. A supplementary budget for 2023 introduced large and permanent expansions in wages, benefits, and pensions.

This Selected Issues paper analyzes economic development in Mongolia during 1997–99. Economic performance in 1997 was impressive. Aided by strong political support for rapid reform and a generally favorable external environment, financial policies were tightened, and significant reductions in inflation were achieved. Broad-based structural reforms were also undertaken, including steps to restore confidence in the banking system. However, conditions changed abruptly in 1998 as deterioration in the external environment and domestic political problems combined to erode the momentum for reform.

This book deals with the challenges of macro financial linkages in the emerging markets.

Singapore entered the COVID-19 pandemic with sizable policy space and robust economic policy frameworks, yet facing longer-term challenges. The economy has been severely impacted by the pandemic, but a bold, comprehensive, and coordinated policy package has helped cushion the economic fallout. Following a record contraction in the first half of 2020, activity has rebounded, and growth is projected to strengthen to 6 percent in 2021, underpinned by a recovery in domestic demand and a positive contribution from net exports. The uncertainty surrounding the outlook is larger than usual.

This publication examines Mongolia’s recent economic development and outlines reforms that would help the country take advantage of its many opportunities. Mongolia is rich in natural resources and, although landlocked, is well-placed to boost trade with its two giant neighbors. The country needs to diversify its economy beyond mining, enhance economic stability, and increase employment. To maximize Mongolia’s potential the government can improve macroeconomic management, enhance the skill base, and provide hard and soft infrastructure to promote trade and efficient logistics. Governance and institutional reforms are also crucial. The government will need to continue to drive reforms so that they are well implemented and deliver the intended change.

Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.