IMF team visited Ulaanbaatar to conduct the 2022 Article IV discussions from September 15 to September 28, 2022. The IMF reported that stronger policy adjustment is urgently needed to address Mongolia’s rising internal and external imbalances.

This entails ensuring much greater exchange rate flexibility, strengthening international reserves to facilitate large external debt rollovers in 2023, and further tightening monetary policy by promptly phasing out the Bank of Mongolia’s quasi fiscal operations by allowing the Anti-Pandemic Law to expire by end-2022.

Strong fiscal consolidation is urgently needed in 2023. Introducing substantial targeting of social assistance toward the vulnerable and progressivity in personal income taxation would signal a welcome and durable shift in the direction of fiscal policy toward prudence.

Substantial cuts in public investment will also be needed, including through greater transparency, strong oversight, and reprioritization of SOE investment projects as a matter of utmost priority. Strong banking supervision will be necessary for the sound execution of banking reforms at a time of economic uncertainty.

In sum, Mongolia’s economic resilience depends critically on Parliamentary actions in the coming months, notably on the 2023 budget.

Key structural and institutional reforms are needed. The insolvency reform, which is supported by IMF and World Bank advice, should be expeditiously approved by Parliament to help facilitate the resolution of unsustainable debts in the economy.

The FRC, MOF, BOM, and the deposit insurer (DICOM) should develop an effective crisis management framework including effective information exchange arrangements to enhance their response to possible downturns. Designing a bank resolution framework would be helpful in this regard.