The International Monetary Fund has said it expects the Mongolian economy to rebound sharply this year thanks to the Oyu Tolgoi project, while inflation should remain under control. The IMF said in a statement after a visit to Mongolia that it reached a staff-level agreement with the authorities following a review of the country”s performance under the USD236-million IMF loan agreement approved in April 2009.

IMF mission chief Steven Barnett said the fund”s board would likely consider the review “in the coming weeks” and release the next loan tranche of about USD24 million.

“The Government and the central bank have implemented policies that have helped Mongolia cushion and adjust to the global economic crisis,” Barnett said, noting that this year”s severe winter would impact the economy. He did not elaborate.

He said gross domestic product growth was set to rebound to around 7 percent this year, boosted by the USD3 billion to USD5 billion development of the Oyu Tolgoi  mine. Mongolia expects the mining project to make a big difference to an economy that generated less than USD5 billion in GDP in 2008.

The economy grew by 8.9 percent in 2008 but growth was expected to slow to 2.7 percent in 2009, according to the World Bank.  Meanwhile, inflation could pick up to around 8 percent by year-end, driven in part by higher meat prices from the loss of livestock, before stabilizing at some 6 percent in 2011.

“The relatively favorable outlook is due in large part to prudent macro-management and continuing structural reforms,” Barnett said. Pushing ahead with economic reforms while maintaining sound policies, including a prudent fiscal stance, flexible exchange rate, and monetary policy geared to containing inflation, would help the economy expand, reduce poverty and contain inflation, he said.