PRESENTATION

1. Mongolia: Ensuring long-run stability
Bank of Mongolia
“Mongolia Investment Summit 2013”
London, UK
16-18 April 2013
Zoljargal Naidansuren
Governor
Bank of Mongolia

2. 2Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Real economic growth: Short-term slowdown, but still in double digits
Source: NSO, Bank of Mongolia
10.2%
8.9%
-1.3%
6.4%
17.5%
12.3%
-10%
-5%
0%
5%
10%
15%
20%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Agriculture Industry
Services Net taxes on products
GDP -8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
Blanchard Quah with 2 factors
Blanchard Quah with 2 factors, forecast
Blanchard Quah with 4 factors
Band pass filter
Hodrick Prescott filter
Kalman Filter
Real economic growth
• 2006-2008 Average: 9.2%
• 2010-2012 Average: 12.1%
No overheating pressure
Forecasts
Output gap
Gap is
neutral

3. 3Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Terms of trade in 2012: Short-term deterioration
Source: Bank of Mongolia
0.0
0.5
1.0
1.5
2.0
2.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2007/01
05
09
2008/01
05
09
2009/01
05
09
2010/01
05
09
2011/01
05
09
2012/01
05
09
2013/01
Terms oftrade (rightscale)
Exportprice index
Importprice index
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
2001/01
09
05
2003/01
09
05
2005/01
09
05
2007/01
09
05
2009/01
09
05
2011/01
09
05
2013/01
YoYchange in ToT
YoYchange in Xp
YoYchange in Ip
2013/02:
1.432

4. 4Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
BOP and FX international reserves
Source: Bank of Mongolia
-225
1123
-1500
-1000
-500
0
500
1000
1500
2000
2500
I'09
II'09
III'09
IV'09
I'10
II'10
III'10
IV'10
I'11
II'11
III'11
IV'11
I'12
II'12
III'12
IV'12
Capital and financial account
Current account
Overall BOP
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2007/01
05
09
2008/01
05
09
2009/01
05
09
2010/01
05
09
2011/01
05
09
2012/01
05
09
2013/01
Months
Million$US
Gross international reserves
Imports coverage (RHS)
Rule of thumb (3 months)
Reserves:
4 billion
$US
BOP surplus:
1.37 bln. $US

5. 5Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Why slowdown in growth and BOP pressure in 2012?
• Real GDP growth slowed down from 17.5% in 2011 to 12.3% in 2012
• FDI declined by 17%
Why?
• China effect  uncertainty in regional and global investment environment
• Euro zone risks
• Legal environment uncertainty
Source: UNCTAD, IMF, WB, Central banks’ statistics
FDI decline
2011 2012 (%)
Mongolia 17.5% 12.3% -17%
Vietnam 5.9% 5.1% -15%
India 6.8% 5.4% -15%
Kyrgyzstan 5.7% 1.0% -46%
Peru 6.9% 6.0% -4%
Malaysia 5.1% 4.4% -24%
Real GDP Global FDI inflows declined by 18% in
2012 (UNCTAC).
Total Chinese outward investment in 2012
reached $79.7B, grew by 6.9%, but
Chinese outward investment to developing
and emerging countries in 2012 declined
by 49.7% to $22.6B.

6. 6Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Recent developments
 Chinese leadership change is done  Less uncertainty
 Amendment to the “Strategic foreign investment law” (Parliament floor)
- Applicable only for foreign state-owned companies
- Not applicable to private foreign companies
- No benchmark level on investments for approval
- Private & small-scale investments are expected to be encouraged
 Overall Macroeconomic Stability and Confidence
- Monetary policy has been more coherent and proactive
 “Mongolia needs a long-term, stable environment for investments…”
Elbegdorj Tsakhia, President of Mongolia
Source: Official speech for Opening the Spring Session of the Parliament

7. 7Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
More attractive and stable FDI environment
 Investment Law (“Investment Constitution”) will be approved during
this spring parliament session (Govt. draft).
- Investments in real sectors, rural vs. urban areas
- Export-oriented and High-tech investments
- Overall investment stability  Investment attraction and stimulation
- Legal rights, interests and obligations of investors …
 National Security Council Guidance:
- Only 1/3 of any (infrastructure and industrial) project investments to be
financed by sovereign bond proceeds
- Bond proceeds will attract more FDI (at least $3B) into Mongolia

8. 8Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Revision on the Securities Law
 To make the law consistent with securities market development and its perspective
(new terms vs. new regulations);
 To better regulate operations of securities market participants (professional
investors and their requirements, regulations on IPOs, issuance of stocks,
certificates, derivatives);
 To improve transparency and accountability of securities market operations
(reporting obligations);
 To protect the rights of market participants, including investors (information
equality);
 To improve effectiveness of public authorities’ supervision (new procedure on
financial supervision and more predictability).
 Securities market operations will meet international standards;
 New financial products, services and instruments will be developed;
 Overall market risks will be mitigated;
 Investment opportunities will significantly be increased.

9. 9Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
1,100
1,150
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
-500
-400
-300
-200
-100
0
100
200
300
400
500
600
2008/01
03
05
07
09
11
2009/01
03
05
07
09
11
2010/01
03
05
07
09
11
2011/01
03
05
07
09
11
2012/01
03
05
07
09
11
2013/01
MillionUSD
FX net flows
Togrog referance rate, RHS
FX net flows and reference exchange rate
Source: Bank of Mongolia
Stability since the last crisis (Q4 2008 – Q1 2009)
Daily average exchange rate volatility: only 0.08% in 2012
BOM: Fully committed to flexible exchange rate
Outlook: More FX net inflows and stable FX market

10. 10Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Money supply
Source: Bank of Mongolia
7,238
16%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2008-01
2008-03
2008-05
2008-07
2008-09
2008-11
2009-01
2009-03
2009-05
2009-07
2009-09
2009-11
2010-01
2010-03
2010-05
2010-07
2010-09
2010-11
2011-01
2011-03
2011-05
2011-07
2011-09
2011-11
2012-01
2012-03
2012-05
2012-07
2012-09
2012-11
2013-01
M2 (billion togrog)
YoY change (%)

11. 11Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Banking sector: Assets and outstanding loans
Source: Bank of Mongolia
12,215
39%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0
2000
4000
6000
8000
10000
12000
14000
2007-01
2007-07
2008-01
2008-07
2009-01
2009-07
2010-01
2010-07
2011-01
2011-07
2012-01
2012-07
2013-01
Banking sectortotalassets
(billion togrog)
YoYchange(%) 7,168
1.8%
2%
3%
4%
5%
6%
7%
8%
9%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2006
2007
2008
2009
2010
2011
2012
2013
Total loans outstanding (million togrog)
NPL/Loan ratio (R.Scale)

12. 12Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Monetary policy guideline - 2013
Macroeconomic Stability
Financial Stability
Financial infrastructure and
institutional development
• Inflation targets: 8% end-2013, 5-
7% for 2014-2015
• Flexible exchange rate
• Central bank independence,
openness and transparency
• Financial sector soundness
• Risk-based supervision
• Legal environment on collateral
assets
• Deposit insurance system
• Payments system
• Financial service accessibility
and inclusiveness
• Securities Law
Financial
Stability
Macro
Stability
Long-run
sustainable
growth
Monetary policy

13. 13Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
14.2
9.4
-5
0
5
10
15
20
25
30
35
I II III IV I II III IV I II III IV I II III IV I
2009 2010 2011 2012 2013
Other
State regulated (administrative)
Fuel
Meat
Foods (excl. meat)
Inflation is under full control
Source: NSO, Bank of Mongolia
Low
inflation
Fiscal
Stability Law
Proactive &
Transparent
Monetary
Policy
Better Policy
Coordination
Supply
Shock
Elimination
Program with
the Govt.
MPC decisions from 2013:
Jan: Cut the policy interest rate by 0.75 pp
Feb: Interest rate corridor
Apr: Cut the policy interest rate by 1.00 pp

14. 14Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
0.8
1.3
2.0
2.8
2.5
2.2
0.6
0.2
0.8
1.8
1.0
0.8
0.0
0.5
1.0
1.5
2.0
2.5
3.0
OCT NOV DEC JAN FEB MAR
Oct 2011 - Mar 2012 (without PSP)
Oct 2012 - Mar 2013 (with PSP)
Headline and core inflation: Downward trend
Source: Bank of Mongolia
2012 Jan-Mar: 7.5%
2013 Jan-Mar: 3.6%
2011 Oct-Dec: 4.1%
2012 Oct-Dec: 1.6%
9.4%
9.5%
9.3%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2007/01
05
09
2008/01
05
09
2009/01
05
09
2010/01
05
09
2011/01
05
09
2012/01
05
09
2013/01
CPI inflation
Food inflation
Non-food inflation

15. 15Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Macroeconomic policy
• Fiscal policy  Countercyclical and disciplined
– Fiscal Stability Law: Budget rules and Stabilization fund
– Public investments to abolish supply shocks
– Targeted social welfare program
• Monetary policy  Countercyclical and proactive
– Low and stable inflation (from double digit to 6% inflation)
 Macro stability and sustainable growth
– Financial stability
– Flexible exchange rate policy
– Supply shock elimination program with the Govt.
– Financial infrastructure and institutional development
– Legal environment

16. 16Монгол Улсын гадаад секторын тойм, тулгамдсан асуудлууд
Macroeconomic policy
• Economic policy
– Overall economic competitiveness
– Essential infrastructure investments and development
– Export promotion: EXIM
– Industrial clusters: Value-added products
– Light industry: Ecological food products, cashmere, wool, leather etc.
– Financial market development: Pension fund reform, Wealth fund,
Government bond market, Mortgage financing scheme, Legal
environment
– Increase nationwide savings and investments

17. Thank you for your kind attention
BANK OF MONGOLIA
BANK OF MONGOLIA
Baga toiruu – 3, 15160
Ulaanbaatar 46, Mongolia
www.mongolbank.mn