The Mongolian economy experienced strong growth in the first quarter of 2012, with GDP increasing 16.7% compared to the same period last year. However, the state budget deficit also rose as spending increased more quickly than revenues. Additionally, the foreign trade deficit widened by 74% due to rising imports. Inflation remains high at 15.4% despite falling slightly, as food and housing prices increased substantially. With the upcoming elections, further spending increases threaten to drive inflation even higher in the coming months.

1. MONTHLY MACROECONOMIC OVERVIEW
May 2012
MAIN INDICATORS: GDP, STATE BUDGET, FOREIGN TRADE, EXCHANGE RATE, INFLATION
Source: NSO, BoM
The quarterly economic growth reached 16.7%
GDP reached MNT 2.3 trillion at the current price and
MNT 980 billion at the 2005 price in the first quarter of
2012, up by 30% at the current price and 16.7% at the 2005
price compared to the same period of last year.
A growth of 16.7% is 1.7 times higher than the first quarter
of the last year.
The budget deficit reached MNT 405 billion
Total state revenue of budget increased by 19% and
expenditure increased by 50% compared to the same period
of the previous year, representing a deficit of MNT 405
billion in the equilibrated balance in the first 5 months of
2012.
The expansion of revenue was mainly due to the 36%
increase in VAT, the 50% increase in social insurance
premium income, the 26% increase in corporation income
tax and the 59% increase in personal income tax. The
growth in spending was supported by the 47% increase in
subsidies and transfers and the 32% increase in wages and
salaries.
The foreign trade deficit rose by 74%
Total turnover of foreign trade reached USD 4.4 billion,
showing increases of 18% compared to the same period of
last year. It depends on an 8% increase in exports and a
25% increase in imports. Foreign trade balance showed a
deficit of USD 0.9 billion.
Exports are primarily supported by shipments of mineral
products which contribute 90% of the total exports,
specially coal. The increase in imports was mainly due to
imports of fuel and cars. Copper concentrate exports and
heavy machines imports decreased.
MNT exchange is more stable against the USD
MNT exchange rate depreciated against the USD by 0.4%
compared to the previous month and 6.7% compared to the
same period of the previous year.
The total amount of foreign currency reserves decreased by
2% compared to the previous month and increased by
17.4% compared to the same period of previous year.
MNT exchange rate which had a trend of appreciation is
more stable in last few months.
Inflation (yoy) fell slightly
The inflation rate is 3.7 times higher compared to the same
period of the previous year, but it decreased by 0.6 unit
compared to the previous month. Nationwide inflation rate
was 16% and it reached 15.4% in this month.
The increase of 15.4% in average rates of prices was mainly
due to 24.6% increase in food price, as well as the 23.5%
increase in restaurants and hotels. In more details, meat and
apartment rent price increases are the main forces of high
inflation.
9.8
16.8
20.7 19.3
16.7
0
5
10
15
20
25
0
1
2
3
4
1Q11*
2Q11*
3Q11*
4Q11*
1У'12
Economic growth
GDP, at
current prices
(left)
GDP growth
(right)
(%)(MNT trillion)
1.5 1.5
0.0
1.8
2.2
(0.4)
-1
0
1
2
3
Revenue Expenditure Balance
State budget
2011
2012
(MNT trillion, in first 5 months)
1.6
2.1
(0.5)
1.7
2.6
(0.9)-2
-1
0
1
2
2
3
Export Import Balance
Foreign trade
2011
2012
1,318
1,150
1,250
1,350
1,450
05'11
06'11
07'11
08'11
09'11
10'11
11'11
12'11
01'12
02'12
03'12
04'12
05'12
Exchange rate
 - to depreciate
 - to appreciate
1.8
4.3 4.2
1.0
9.2
15.4
0
4
8
12
16
20
Monthly YTD YOY
Inflation
2011
2012
(1$=...₮, monthly average)
(Consumer price index growth, nationwide, in May)
(USD trillion, in first 5 months)
Economic Policy and Competitiveness Research Center
www.ecrc.mn

2. MONTHLY MACROECONOMIC OVERVIEW
May 2012
FINANCIAL SECTOR: MONEY SUPPLY, DEPOSITS, LOANS
Source: NSO, BoM
Summary
> The Parliament of Mongolia adopted the Law on the Regulation of Foreign Investment in Entities Operating in
Strategic Sectors, and the Law on Innovation.
> Workshop titled "Mongolia' Competitiveness: Where are we heading?" was held.
> The international forum titled "Productive growth of economy and legal reform" was held.
Inflation is already too high and the substantial increase in budget spending and cash handouts are still increasing.
The allocation of MNT 330 thousand which is first phase of grant MNT 1 million to elder and disabled citizens was
delayed and the handout started to be distributed from the end of this month. The government also decided to oncrease
civil service wages by 23% from May and the average monthly wage increased to MNT 630 thousand. Furthermore, the
Government also decided to increase average pensions from MNT 165 thousand to MNT 222.9 thousand from 1st May.
As the election is approching soon, the political parties rush into fulfilling their previous election promises. This results in
a sudden budget expansion and an increased money in circulation which triggers unhealthy, high inflation. The inflation
rate reached 15.4% nationwide and it was drived by meat and apartment rent price increases.
Higher inflation affects more in part low and middle income people. Commercial banks are starting to tighten loan
conditions due to high inflation and increases in policy rates. It will be a pressure for small-to-medium enterprises. But
there are no trends to decrease in money supply, deposits and loans. The exchange rate of MNT against the USD is more
stable because of high foreign currency reserves and especially intervention of the BoM, even though there is a foreign
trade deficit which leads to an outgoing flow of capital.
In the next month, there are still expectations of inflation boom which will be driven from increase of cash handouts and
continued significant inflationary pressures after election.
Money supply is increasing
M2 increased by 24% compared to the same period of the
previous year and reached MNT 6.7 trillion. It also
increased by 5.8% which is the highest increase in 2012
compared to the last month. The currency issued in
circulation increased by 10% last month and it reaches
11.6% of total money supply.
Monthly money supply growth was mainly due to increase
of deposits in foreign currency and currency outside banks.
Deposits in foreign currency are increasing
The total amount of deposits increased by 28.7% compared
to the same period of the previous year and 6.1% compared
to the previous month.
Deposits in foreign currency increased by 41% compared to
the same period of the previous year, while deposits in
MNT increased by 24%.
Share of deposits in foreign currency in total deposits
reached 28% and the share of deposits in MNT decreased
by 3%.
Loans outstanding are increasing and non-performing
loans are decreasing
Loans outstanding reached MNT 6.1 trillion and increased
by 3.1% compared to previous month and 44.1% compared
to same period of the previous year. Shares of non-
performing loans decreased and reached 5.2% of the total
amount of loans. The growth rate of the loans outstanding is
decreasing compared to previous year even though monthly
increase rate is growing.
Monthly highlights
> The Cabinet decided to set the nominal value of the stock of Erdenes Tavan Tolgoi LLC at MNT933.
> Moody's downgraded the debt ratings of some Mongolia banks (Golomt bank, Khan bank, TDBM and Xac bank) to B1
from Ba3.
11.7
11.5
11.1
11.6
10
11
12
13
0
2
4
6
8
04'11 05'11 04'12 05'12
Money supply
M2 (left)
Share of Currency
issued in
circulation (right)
(MNT trillion, at the end of month) (%)
3.2 3.3
4.0 4.2
0
2
3
5
6
04'11 05'11 04'12 05'12
Deposits
Foreign
currency
MNT
Total
9.6 9.4
5.3 5.2
0
5
10
15
0
2
4
6
8
04'11 05'11 04'12 05'12
Loans
Loans
outstanding
(left)
Share of Non-
performing
loans (right)
(%)(MNT trillion, at the end of month)
(MNT trillion, at the end of month)
Economic Policy and Competitiveness Research Center
www.ecrc.mn