2013, presentation, developing mongolia’s capital markets how will the role of the government and...

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 Монгол 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%

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

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


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

20

07

/01

05

09

20

08

/01

05

09

20

09

/01

05

09

20

10

/01

05

09

20

11

/01

05

09

20

12

/01

05

09

20

13

/01

Terms of trade (right scale)

Export price index

Import price index

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

20

01

/01

09

05

20

03

/01

09

05

20

05

/01

09

05

20

07

/01

09

05

20

09

/01

09

05

20

11/0

1

09

05

20

13

/01

YoY change in ToT

YoY change in Xp

YoY change in Ip

2013/02:

1.432


BOP and FX international reserves


-225

1123

-1500

-1000

-500

0

500

1000

1500

2000

2500

I '09

II '0

9

III '

09

IV '0

9

I '10

II '1

0

III '

10

IV '1

0

I '11

II '1

1

III '

11

IV '1

1

I '12

II '1

2

III '

12

IV '1

2

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 0920

08/0

105 09

2009

/01

05 0920

10/0

105 09

2011

/01

05 0920

12/0

105 09

2013

/01

Mo

nth

s

Mill

ion

$US

Gross international reserves

Imports coverage (RHS)

Rule of thumb (3 months)

Reserves:

4 billion

$US BOP surplus:

1.37 bln. $US


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.


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


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


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.


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

Mil

lio

n U

SD

FX net flows

Togrog referance rate, RHS

FX net flows and reference exchange rate


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


Money supply


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 (%)


Banking sector: Assets and outstanding loans


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 sector total assets (billion togrog)

YoY change (%) 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)


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


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

OtherState regulated (administrative)FuelMeatFoods (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


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


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%

20

07

/01

05

09

20

08

/01

05

09

20

09

/01

05

09

20

10

/01

05

09

20

11/0

10

50

92

01

2/0

10

50

92

01

3/0

1

CPI inflation

Food inflation

Non-food inflation


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


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

Thank you for your kind attention

BANK OF MONGOLIA

BANK OF MONGOLIA

Baga toiruu – 3, 15160

Ulaanbaatar 46, Mongolia

www.mongolbank.mn

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