The document discusses Mongolia's economic reforms and positive outlook. It notes that despite falling foreign direct investment, Mongolia has maintained macroeconomic stability with low inflation, a reduced current account deficit, and a trade surplus. The economy is moving towards a "new equilibrium" with balanced external payments. Several major investment projects and agreements with countries like Japan, India, and China will support growth going forward as Mongolia shifts from consumption to savings-based growth and prudent fiscal reforms.

1. “The New Equilibrium”:
Reforms to Sustainable Growth and Savings
Zoljargal Naidansuren
Governor
BANK OF MONGOLIA
Hong Kong
November 16-17, 2015

2. 2
Economic outlook: Strongly Positive
• What Mongolia has achieved so far while FDI dropped practically to “zero”:
o Maintained macroeconomic and financial stability
o Inflation down from 14% to 3.4%
o CAD to GDP decreased from -27% to -6% (Improved by +$3.1 billion)
o Trade surplus for 7 consecutive quarters (Improved by +$3.2 billion)
o The overall BOP improved by +$2.0 billion, compared to 2013
o Banking sector remains stable (CAR 17.3%, Liq. ratio 34.6%, NPL 5.1%)
o Real GDP growth still positive (3-4%)
o Unemployment rate stable at 7.2-8.2%
o FX official reserves still cover over 5 months of imports
• Economy towards “The New Equilibrium”.
The World’s Coolest Nationalities
4 5

3. 3
3.4 5.0 -0.3 +0.1
Track record on BOM’s message to investors since 2012
2
0
1
2
2
0
1
3
2
0
1
4
11.9 5.1 -3.2 -1.9
Inflation Rsrv. CAD BOP
14.0 9.9 -3.4 +1.7
Previous
presentations
Key highlights Main Outcomes
• Earliereconomic
adjustmentswhile
targeting inflation at 8%
• Investmentenvironment
• Middle-classsavings
11.0 4.9 -1.4 -0.5
• Policymix for economic
adjustments
• Reserve buffers and
cushions
• International cooperation
• Promoted external balance
• Extended and expanded
local currencyswap line
• Enhanced economiccoops
with CHN, JPN, RUS, IND
• Achieved soft-landing
• Improved med-term econ.
outlook/OT,TT,EPA,
infrastructureprojects/
• Issued Dim sum bond
• CMAP followed by phasing
out of UMP
• Advancein majorprojects
and decisions
• Access to RMB market
• Absorbed external shocks
and maintained stability
• Approved packageof laws
• Initiated sustainable
mortgagefinancing policy
Notes: Rsrv - FX Reserves’ importcoverage (by months), CAD - Current account deficit (by $US billion),
BOP - Overall balance of payments (by $US billion)
2013
2014
2015

4. 4
-3%
0%
3%
6%
9%
12%
15%
18%
3 6 9 12 3 6 9 12 3 6 9 12 3 6 10
2012 2013 2014 2015
Administered price inflation Importing goods' inflation
Other domestic goods' inflation Supplyshock inflation
14.0
5.0
3.4
7.0
0
2
4
6
8
10
12
14
16
18
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016*
2017*
2018*
3.4% Inflation: More policy options for further restructuring the economy
Sources: National Statistical Office
Inflation target has been achieved Structural change in inflation composition
Medium-termtarget

5. 5
6%
9%
15%
12%
23%
44%
36%
17%
2%
1% 0%
10%
20%
30%
40%
50%
0
1000
2000
3000
4000
5000
2006 2007 2008 2009 2010 2011 2012 2013 2014 1H-2015
FDI ($ million), Left
FDI to GDP (%)
-50%
0%
50%
100%
150%
200%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
57
-228
-710
-229 -379
-1747
-2354
-2082
538 763
-3000
-1500
0
1500
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(1-10)
12.3 11.6
7.8
3.0
-10%
-5%
0%
5%
10%
15%
20%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (1H)
Other Nettaxes onproducts Building &construction
Manufacturing Mining Agriculture
Net exports – key driver for GDP growth (2014-2015)
Trade balance ($US million) YoY change in imports (%)
Sources: National Statistical Office, Bank of Mongolia, Customs GeneralOffice
Real GDP growth
2009: Crash-landing
Monthly average
contraction of
imports = -34%
2013-2015: Soft-landing
Monthly average
contraction of
imports = -16%
Net FDI and its share to GDP

6. 6
-233
1705
-1867
-471
125
-3000
-2000
-1000
0
1000
2000
-3 362
-334
-27%
-6%
-30%
-20%
-10%
0%
10%
20%
-4 000
-3 000
-2 000
-1 000
0
1000
Current account balance
CAB to GDP ratio (Right scale)
$USmillion
Positive and robust swing in the balance of payments
Current account balance
($US million)
Overall balance of payments
($US million)
Sources: Bank of Mongolia estimates, National Statistical Office
-$3.6B
BOP shock
(30% of GDP)
within 1 year

7. 7
5.0
0
2
4
6
8
10
12
1 000
2 000
3 000
4 000
5 000
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7
2011 2012 2013 2014 2015
Official FX Reserve (LHS) ImportCoverage (months)
Ruleof Thumb (3months)
Earlier and smoother adjustment helps maintaining stability
Sources: Bank of Mongolia estimates, Bloomberg
YoY changes in NEER and REER FX Reserves and Import Coverage
31%
-23%
26%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2007
2008
2009
2010
2011
2012
2013
2014
2015
YoY change in
NEER
YoY change in
REER
Absorbed external shocks
Readjusted REER (2013-2014)

8. 8
0.23%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
MONGOLIA
Indonesia
Peru
Nigeria
Algeria
Philippines
South Africa
Mexico
Malaysia
Chile
Kazakhstan
Colombia
Myanmar
Australia
Russia
Brazil
8.8%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Philippines
MONGOLIA
Indonesia
Chile
South Africa
Myanmar
Peru
Malaysia
Mexico
Australia
Nigeria
Kazakhstan
Algeria
Brazil
Colombia
Russia
Some countries may be late for responding external shocks
Sources: Bloomberg
Exchange rate depreciation
against USD (2015)
Daily average volatility
of exchange rate (2015)
Mean:
18.0%
Mean:
0.84%

9. 9
Local currency swap line: Shall be extended and expanded, why?
• Statement of Chinese chairs at the IMF (Source: Statement of the IMF Board Directors, Apr 2015):
“We welcome the authorities’ determination to strengthen the economy, as manifested by the establishment of the
Comprehensive MacroAdjustmentPlan (CMAP). We encourage the authorities to implementthe necessary
macroeconomic adjustmentpromptly - with the backing of the swap line with the People’s Bank of China, which has
played an important role in helping address temporary financing challenges and mitigating shocks.”
• IMF Board Report (Source: TheIMF Board Report, Apr 2015):
“The Chinese chair emphasized the importance of the PBOC swap facility that has been played crucial role to finance
the BOP gap. Meanwhile, the PBOC swap line will continue to help responding to shocks, while facilitating required
macro-economic policy adjustment.”
• PBOC Governor Zhou Xiaochuan’s Statement (Source: 31st
Meeting of the IMF, Apr 2015):
o “China plans to make RMB more freely usable and set the goal of gradually making RMB a convertible currency”.
o “Efforts will be made to further facilitate the international use of the RMB by removing unnecessary policy barriers
and providing necessary infrastructure”.
o “China began to facilitate the use of the RMB in cross-border trade and direct investment; … continuously deepened
bilateral monetary cooperation, with 28 bilateral local currency swap agreements signed”.
• RMB as a reserve currency – IMF to include RMB in SDR currency basket (Source: IMF Statement, Nov 2015):
o IMF Staff has now formally assessed that the RMB meets the requirements to be a "freely usable" currency and the
IMF Executive Board to discuss issues on including RMB in the SDR basket in its November 30th meeting.

10. 10
Monetary aggregates are consistent with macro fundamentals
-10%
20%
50%
80%
Jan
2007
Jan
2008
Jan
2009
Jan
2010
Jan
2011
Jan
2012
Jan
2013
Jan
2014
Jan
2015
M2 growth
Housing MortgageIndicators 2012 2013 2014 2015
Outstanding mortgage loans (₮ billion) 845 1939 2845 3320
Mortgage loan to GDP ratio (%) 5.1% 10.2% 12.9% 15.1%*
Mortgage loans as a percentage of total loans (%) 12% 18% 23% 28%
Number of households with mortgage loans (‘000) 29.9 48.3 66.3 74.8
Mortgage loans’ NPL ratio (%) 0.6% 0.2% 0.4% 0.6%
*Estimated based on 2014 GDP number
Source: Bank of Mongolia
Credit growth

11. 11
34.6%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015M9
0%
10%
20%
30%
40%
50%
60%
Liquidity Ratio (>25%)
Banking sector has been stable
17.0%
5.1%
0%
4%
8%
12%
16%
20%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015M9
Non-performing loan ratio
Sources: Bank of Mongolia
17.3%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015M9
0%
4%
8%
12%
16%
20%
CapitalAdequacy Ratio ( >12%)
143%
100%
2010 2011 2012 2013 2014 2015M9
0%
50%
100%
150%
200%
250%
StableFunding Ratio

12. 12
Macro policy mix towards long-term sustainable growth
The New Equilibrium
BOP
[Surplus]
Public
Debt
[Sustainable]
Budget
[∅ deficit]
Sustainable
& Inclusive
growth
Average real
GDP growth:
6%-9%
Low & stable
inflation
Financial
stability
Diversified
economy
Non-mineral
export share:
30%
Stronger
middle
class
Share of
middle income
bracket: 60%

13. 13
Why there are extra policy options?
Previous
Challenges
Basically “no FDI” in
2014-2015
Budget deficit was high in
2014-2015
External demand has been
low since 2013
BOP was under stress
in 2013-2014
Policy outcomes
[2015]
Policy room /
options [2016 ]
Maintained
macroeconomic stability
Achieved inflation target
(from 14% to 3.4%)
Ensured
financial stability
Rebalanced the overall
balance of payments
Promote exports (non-
mineral share 30%)
Enhance economic
competitiveness
Increase middle-class
savings more
Diversify FDI and the
economy
Restructure public debt &
maintain its sustainability
Reform and adjust fiscal
policy and public finance
Normalized exchange rate
misalignments

14. 14
Shifting from a consumption-driven to savings-based economy
2007
2008
2009
2010
20112012 2013
2014
2015 2016-2018
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
-7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3%
FISCAL BALANCE/GDPFISCAL BALANCE/GDPFISCAL BALANCE/GDPFISCAL BALANCE/GDP
CURRENTACCOUNT BALANCE / GDP
2019-2023

15. 15
Why economic outlook is moderately positive?
• CMAP (2015): Promoted macroeconomic external balance no BOP deficit
• “The new equilibrium” (2016): Annulling “twin deficits” and sustaining “healthy” growth
• OT: Project-financing agreement by intl’ banks is expected in Nov/Dec ($4.2 billion FDI)
• TT: Final stage negotiations toward conclusion ($5.0 billion FDI)
• EPA with Japan effective from the beginning 2016 (covers 96% of bilateral trade turnover)
• $1.0 billion credit line to expand economic capacity and infrastructure with India
• $1.0 billion loan agreement with Chinese EXIM bank
• Local currency swap: Further extension and expansion to 20 billion RMB is possible.
• Fiscal policy reforms: Ongoing and continued
• Prudent management of public debt:
o Government external debt-servicing and liability management plan for 2016-2018, approved by
Governmentresolution [Oct 2015]
o Government debt management strategy for 2016-2018, approved by Parliamentresolution [May 2015]
o Debt management law, approved by Parliament [Feb 2015]

16. 16
Why economic outlook can be strongly positive?
• Macroeconomic policy for 2013-2015 had a full commitment to maintain
stability, prevent from potential risks, soft-landing and restructuring the overall
economy Achieved main objectives
• Policies now consistently aim for “The New Equilibrium”, which makes
economic outlook stronger toward sustainable growth.
• Low and stable inflation below target, restructured balance of payments, fully
financeable CAD, stable financial system, and rebalanced economy expand
policy rooms and options to economic diversification and competitiveness.
• FDI to be recovered from 1% equivalent to GDP in 2015 to 15-20% for 2016-
2018.
• New FDI influx in this positive environment shall have a long-term commitment
to and benefits from Mongolia.

17. Bank of Mongolia (Central Bank)
Baga toiruu-3, 15160 Ulaanbaatar 46, Mongolia
Tel: +976-11-322169
Fax: +976-11-311471
http://www.mongolbank.mn
Thank you for your
kind attention