Mongolia Receives US$5.5 Billion Bailout from the IMF

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By Dezan Shira & Associates

The cash-strapped Mongolian government has reached a deal with the International Monetary Fund (IMF), World Bank, Asian Development Bank, and sovereign nation funds from Japan, South Korea, and China to bail out its stricken economy. A US$5.5 billion bailout has been agreed to, part of which includes a US$440 million loan package.

The Mongolian economy has been badly hit by the China slowdown, with their southern neighbor being the largest single buyer of Mongolian commodities such as coal, copper, and iron ore. Demand has slumped in line with a retrenchment of construction and infrastructure in China and overseas markets. Economic growth in Mongolia has slowed to just one percent, and large amounts of foreign investment pulled out after a row over the development of the massive Oyu Tolgoi copper mine. Tourism has also plummeted after the cancellation of the previously available visa on arrival for most EU nations.

The bailout was necessary after Mongolia announced it would be unable to pay outstanding debts such as the Development Bank of Mongolia’s US$580 billion bond repayment due next month. It is the sixth time since 1990 the country has had to go cap in hand to the IMF for funds.

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The IMF stated that the bailout would support a Mongolian program “which intends to restore economic stability and debt sustainability as well as to create the conditions for strong, sustainable and inclusive growth.” As a result of the injection, the IMF said that Mongolian economic growth should reach about eight percent by 2019. If so, this means that the Mongolian economy has bottomed out and should start to rise.

Chris Devonshire-Ellis of Dezan Shira & Associates also cautioned “Other government policy reforms such as encouraging rather than discouraging tourism and foreign tourist spending in the country should go hand in hand with the IMF’s cash to wean the country off handouts and back to a sustainable path to growth, rather than just relying on the money.”

 

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Having confirmed the world’s largest coal deposits, and second largest deposits of copper, plus massive reserves of silver, gold, uranium and many other rare earths and other minerals, Mongolia is poised on the cusp on becoming a truly global player in the world commodity market.

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