1. The Monthly Economic Brief was prepared by the MFM GP Mongolia Team, composed of Taehyun Lee (Senior Country
Economist), Altantsetseg Shiilegmaa (Economist), Davaadalai Batsuuri (Economist), under the guidance of Chorching Goh (Lead
Economist) and Mathew A. Verghis (Practice Manager).
Industrial production data in the first three
months of 2015 indicates that Mongolia’s
growth continues to slow. Industrial production
growth softened to 13% in the first quarter of
2015, from 16% of the previous quarter, on
account of slower growth in mining and
electricity production.
Mining industrial production growth slowed to
14% (y/y) in the first quarter of 2015, down
from 21% of the previous quarter. Copper
concentrate production growth (y/y) in the first
quarter declined to 13% from 26% the previous
quarter, reflecting the waning high growth effect
from the production of OT mine that entered
into the second year of full production. Coal
production increased 16% from a year ago,
signaling the possibility of gradual recovery after
continued contractions in the previous two
quarters. Crude oil production growth also
slowed but maintained a robust 20.3% growth.
Gold production contracted by 10% for the first
three months from the same period the previous
year.
Manufacturing production and sales data in
recent months signal slowing consumption.
Manufacturing production growth picked up to
9% (y/y) in the first three months, from 3%
growth the previous three months. However,
unsold production of manufacturing goods
reached 11.3% of gross manufacturing
production in the first three months, up from 7%
in the previous quarter, indicating that increased
production is absorbed by growing inventories
due to weakening consumption. Production of
electricity and energy grew 6% (y/y), moderately
down from 8% the previous quarter.
National headline inflation slowed to single
digits in 2015, decelerating from 11% (y/y) at
the end of 2014 to 9.3% in March 2015. Overall
food price inflation (UB) declined to 3.7% in
March from 6.9% in December 2014. Core
inflation (UB) still remains in a double digit
territory but also decelerated to 11.9% from
12.6% over the same period.
Mongolia Monthly Economic Brief
May 2015
PublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorized
96497

2. Figure 1. Manufacturing production increased in March
but sales remained sluggish.
Figure 2. Mining industrial production slowed in February
and March.
Y/Y growth of manufacturing industrial production (3 month
rolling sum, %)
Y/Y production growth of key commodities (3 month rolling sum, %)
Source: NSO, WB staff estimates
The current account balance deteriorated in
February and March due to weakening export
growth. The current account recorded a surplus
of $117 million in January but deteriorated to a
deficit of $97 million in February and March.
Export growth dropped sharply from 54% in
January to negative 11% in March. Exports of
copper concentrates and crude oil dropped by
8% and 40% (y/y) respectively in March due to
lower prices despite increasing export volumes.
Coal exports continued to drop 23% (y/y) in the
first three months due to declines in export
volume and price. Imports continued to sharply
decline. Total imports (free-on-board term)
dropped 28.5% (y/y) in the first three months,
driven by a 30.8% drop in oil product imports.
Non-oil imports also dropped 29% during the
same period signaling continued weak domestic
demand for consumption and investment.
Figure 3. The current account balance deteriorated in
February and March amidst slowing exports.
Figure 4. Mineral export growth is slowing and imports of
investment and consumption goods continue to drop.
Growth of exports and imports and current account balance Y/Y growth of key export/import goods (3 month rolling sum, %)
Source: BoM, WB staff estimates
Further dampening of FDI strained the balance
of payments in the first three months. FDI
recorded a net outflow of $72 million in the first
quarter, a significant deterioration from a net
inflow of $294 million in the same period a year
ago. In March, FDI slightly recovered to a net
inflow of $5.7 million. Portfolio investment and
loans also displayed a net outflow of $29 million
in the first quarter. A significant net capital
outflow of $320 million was recorded under net
errors and omissions account which is usually
caused by discrepancies across different data
sources. The data discrepancy is expected to be
corrected by a revision of the BoP data. A net
financial inflow of $136 million through currency
and deposit account helped ease the mounting
BoP pressure. As a result, overall balance of
payments deficit reached $271 million in the first
quarter.
Gross international reserves remained stable in
February and March and the currency
depreciation slowed in April. Gross reserves
25%
50%
75%
100%
125%
150%
175%
-20%
-10%
0%
10%
20%
30%
40%
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Manufacturing production growth (y/y, %): LHS
Electricity production growth (y/y, %): LHS
Sold/gross manufacturing production (%): RHS
-50
-20
10
40
70
100
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Coal
Crude oil
Copper concentrates
-400
-300
-200
-100
0
100
200
300
-80
-60
-40
-20
0
20
40
60
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Exports (y/y, %): LHS
Imports (y/y, %): LHS
CA balance (million $, 3 month rolling sum): RHS
-100%
-50%
0%
50%
100%
150%
200%
250%
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Copper concentrate exports
Coal exports
Oil exports
Investment-related imports
Consumption-related imports

3. sharply dropped by $324 million (19.6%) in
January from the end-2014 level ($1,649 million)
and was maintained at $1,323 million (about 2½
months’ imports of goods and services) in March
as the PBoC bilateral currency swap facility
helped mitigate pressures on gross reserves. The
value of the tugrik depreciated by 5.1% against
the US dollar in Jan-Mar but gradually stabilized
since mid-April, on the back of growing
expectations on early conclusions of large mining
investment projects.
Figure 5. FDI further weakened in Jan-Mar to a net outflow
of $72 million, straining the balance of payments.
Figure 6. Gross FX reserves remained above $1.3 billion in
Feb-Mar and currency depreciation slowed in April.
Net capital flows (in millions of US$, 3 month moving average) Nominal exchange rate and gross FX reserves
Source: BoM, WB staff estimates
Bank asset qualities continued to deteriorate in
Jan-Mar. Outstanding NPLs and past-due loans
have increased by 63% and 108% respectively
over the past twelve months. Deterioration of
asset quality intensified in March. NPLs
increased 9.4% and past-due loans increased
41% in March compared with February. NPL ratio
to bank loans climbed to 3.9% in March, up from
3.1% at the end of 2014 and 2.5% at the end of
2013. Past-due loans ratio also rose to 4.6% of
bank loans in March from 2.5% a year ago.
Credit and liquidity conditions became tighter
in March. Bank credit growth (including
securitized mortgaged loans) continued to
decelerate to 15% (y/y) in March from 20% at the
end of 2014 and 58% in the same month last
year. Slowing credit growth reflects tighter tugrik
liquidity conditions and continued weak foreign
currency loan growth on account of sluggish
domestic currency deposit growth, unwinding of
the Price Stabilization Program, and persistent
wariness over currency depreciation pressure.
Net domestic credit growth also slowed but
maintained robust 27% growth (y/y) in March,
reflecting increasing net credit to the
government and BoM’s liquidity support to the
corporate sector provided via banks in late 2014.
Despite the robust net domestic credit growth,
broad money growth slowed to a negative 0.5%
growth (y/y) in March due to continued large
declines of net foreign assets reflecting
persistent BoP pressure on net international
reserve positions of depository corporations.
Figure 7. NPLs increased 9% and past-due loans increased
41% in Mar from the previous month.
Figure 8. Growth of bank loans and net domestic credit slowed
to 15% and 27% (y/y) respectively in March.
Size and ratio of NPLs and past-due loans (billions of MNT, %) M2 growth contribution (%p, y/y) and bank loan growth (%, y/y)
Source: BoM, WB staff estimates
-400
-200
0
200
400
600
800
1,000
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Portfolio investment & loans Currency and Deposits
Errors and omissions FDI
Overall BoP balance
1,100
1,300
1,500
1,700
1,900
2,100
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Apr/11
Jul/11
Oct/11
Jan/12
Apr/12
Jul/12
Oct/12
Jan/13
Apr/13
Jul/13
Oct/13
Jan/14
Apr/14
Jul/14
Oct/14
Jan/15
Apr/15
Gross FX reserves (billions of $): LHS
Exchange Rate (MNT/USD): RHS
0
5
10
15
20
0
200
400
600
800
1,000
1,200
1,400
Feb-08
Jul-08
Dec-08
May-09
Oct-09
Mar-10
Aug-10
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Feb-13
Jul-13
Dec-13
May-14
Oct-14
Mar-15
Size of NPLs (billions MNT)
Size of past-due loans (billions MNT)
NPL ratio (incl. failed banks, %): RHS
Past-due loan ratio (incl. failed banks, %): RHS
-50%
-25%
0%
25%
50%
75%
100%
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Private sector Non-bank financial institutions
Government & public sector Net Foreign Assets

4. The BoM continued to unwind the Price
Stabilization Program (PSP) in March and
strengthened capital requirement of banks in
April. BoM’s credit to the PSP has been gradually
withdrawn since late 2014 as one of the
measures to phase out unconventional policy
lending programs. Outstanding BoM’s credit to
the PSP declined 10% over the first three months
of 2015. A working group was formed to transfer
the PSP to the government by June. Outstanding
loans under the Housing Mortgage Program,
however, grew 8.3% over the first quarter,
reaching MNT 2.2 trillion in March. MNT 1.2
trillion of the mortgages were securitized by
Mongolia Mortgage Corporation (MIK) as of
March and 90% of securitized mortgages were
purchased by the BoM. Plans to phase out and
transfer the mortgage program to the
government are yet to be announced. BoM’s
outstanding credit to banks declined to MNT 1.8
trillion in March from MNT 2.6 trillion at the end
of 2014, reflecting the continued unwinding of
PSP loans and securitizations of mortgage loans.
BoM’s outstanding credit to non-bank sectors
(including MIK), however, increased to MNT 2
trillion in March from MNT 1.7 trillion at the end
of 2014 amidst increasing purchases of
securitized mortgages loans via MIK. On April 1,
the BoM announced to raise the minimum paid-
in capital of banks from MNT 16 billion to MNT
50 billion, from 2016 for systemically important
banks and from 2018 for other banks.
Weak budget revenue performance continued
to strain the fiscal space in March. Budget
revenues increased by 7.9% in Jan-Mar,
compared with the same period the previous
year. Budget revenues of the first three months,
however, fell short of the planned revenue
receipts by 7.2%. The revenue shortfall largely
came from foreign trade taxes (customs duties,
VAT and excise tax on imported goods) and
corporate tax that fell short of the budget plan
by 25.6% and 12.8% respectively. Facing weak
revenue receipts, the MoF has been containing
budget executions through tighter payment
control. Budget spending executions in the first
three months increased by 6.9% from the
previous year but remained at 70% of the
spending plan of the 2015 budget. In particular,
only 29% of the budget’s capital spending plan
was executed, taking the brunt of revenue
shortfalls. Tighter fiscal situation was further
compounded by rising sovereign borrowing
costs amidst tighter liquidity of the banking
system, with one-year government bond yields
hovering over 16% since last September. Despite
the MoF’s hard efforts to contain the spending,
another amendment of the 2015 budget seems
necessary in the coming months to meet the
FSL’s structural deficit ceiling (5% of GDP),
through proper commitment controls of
budgetary projects to avoid possible payment
arrears that have to be eventually paid by the
budget later.
Figure 9. BoM’s credit to banks continued to decline but claims
on non-bank sectors have been growing since late 2014..
Figure 10. Weal budget revenues and tighter bank liquidity
conditions continue to constrain the fiscal space.
Key domestic credit components of BoM’s balance sheet (in
trillions of MNT)
Y/Y growth of budget revenue/spending (year-to-date rolling sum,
%) and one-year government bond yields (%)
Source: BoM, WB staff estimates
0.0
1.0
2.0
3.0
4.0
5.0
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
BoM claims on banks
BoM claims on non-bank FIs
BoM claims on companies
BoM claims on government
8
10
12
14
16
18
-40%
-20%
0%
20%
40%
60%
Budet revenues (ytd rolling sum, y/y, %): LHS
Expenditures (ytd rolling sum, y/y, %) excl. DBM: LHS
One-year government bond yields (%): RHS

5. Annual external debt statistics released by the
BoM shows that Mongolia’s external debt rose
10.1% to $20.9 billion at the end of 2014, from
$19 billion in 2013. The external debt of
Mongolia rose to 175% of GDP in 2014, up from
152% in 2013. External debt has increased
steeply over the past four years from 92.5% of
GDP in 2011 amidst growing public external
financing and FDI-related intercompany debts.
Intercompany borrowings of foreign-invested
companies took up 51% of external debt in 2014,
followed by general government debt and
guarantees (24%), private sector debt (18%), and
central bank foreign liabilities (7.5%).
Public and publicly guaranteed (PPG) debt
continued to increase in 2014. External PPG
debt more than doubled in 2012 due to the
issuance of Chinggis bond ($1.5 billion) and
DBM’s euro bond ($580 million), and further
increased in 2013-14 reflecting growing
government guarantees and BoM’s foreign
liabilities. External PPG debt to GDP ratio
climbed to 54% in 2014, from 21% in 2011 and
43% in 2013. Outstanding government
guarantees almost doubled from $0.7 million in
2013 to $1.3 billion in 2014, due to new
guarantees issued to DBM’s external financing
including samurai bonds (30 billion yens), loans
from Credit Suisse ($300 million) and China
Development Bank ($112 million). BoM’s foreign
liabilities significantly increased in 2013-14, from
$413 million in 2012 to $ 1,567 million in 2014.
Private external debt also steeply grew over the
last two years. Private external debt excluding
intercompany lending rose from 19.1% of GDP in
2012, to 25.7% in 2013 and 31.7% of GDP in
2014. Banks’ external debt rose 52% and non-
bank private sector debt rose 71% over the last
two years reflecting increasing loans and bond
issuances of major banks and companies.
Intercompany lending – which accounted for
56% of external debt increase in 2011-13 in
tandem with large FDI inflow – increased only by
$273 million in 2014, a sharp slowdown from
$1.9 billion increase in 2013, amidst declining FDI
inflow.
Short-term external debt markedly increased in
both public and private sectors in 2013-14.
Short-term external debt reached $2.4 billion
(19.8% of GDP) in 2014, up by 163% from $902
million (7.3% of GDP) in 2012. BoM’s short-term
foreign liabilities sharply increased over the last
two years, from $336 million in 2012 to $1,497
million in 2014 reflecting increasing drawings on
a bilateral swap line between the central banks
of Mongolia and China. Private sector’s short-
term external debt increased 44% to US$ 877
million in 2014 from $605 million the previous
year. Short-term debt accounted for 23% of
private sector’s external debt in 2014. Reflecting
the increasing short-term debt and weakening
FX reserves, short-term debt to reserve ratio
deteriorated to 144% in 2014 from 71% in 2013.
Figure 11. External debt climbed to 175% of GDP in 2014
driven by rising PPG debt and private external debt.
Figure 12. ST external debt has been rapidly increasing in
2013-14.
External debt by holders (in percent to GDP, %) ST external debt by holders (billions of US$)
Source: External Debt Position 2014 (BoM), 2015 Budget (MoF), WB staff estimates
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014
PPG
Private
Intercompany lending
0%
20%
40%
60%
80%
100%
120%
140%
160%
0.0
0.5
1.0
1.5
2.0
2.5
2010 2011 2012 2013 2014
billion$
Private sector ST debt
BoM's ST foreign liabilities
ST debt to GDP (%): RHS
ST debt/gross FX reserves (%): RHS