MACROECONOMIC ISSUES Amid Global Trends

BCM SUMMIT

April 21, 2016

Randolph S. Koppa, Executive Vice Chairman, TDB

Some Key Lessons Learned

• Poor discipline after first bond issue in 2012 costly

• Global environment has investors averse to emerging markets

• Commodities prices dominate investor sentiment

• Access to markets is not automatic

Investor concerns

• Fiscal and Monetary discipline is key

• Policy consistency is critical

• Stability and enforcement of laws

• Proactive approach; i.e. make decisions on key projects

Trade Balance Continues to Show Surplus

Positive trade balance trend has been maintained since 2014 Production increases have helped offset price decreases

4

Strong copper production, coupled with import compression

0

500

1,000

1,500

2,000

2,500

3,000

Copper Coal Crude Oil Iron Ore Gold

US

D in

Mil

lio

ns

Export of main commodities

(2010 through 2015)

Source: National Statistical Office

-4,000

-2,000

0

2,000

4,000

6,000

8,000

2008 2009 2010 2011 2012 2013 2014 2015

US

D in

mil

lio

ns

External trade

Export Import Trade Balance

External Accounts Have Stabilized

Trade surplus helped current account deficit to narrow … which continues to help FX reserve level to stabilize

5

Positive trade balance helped to narrow the current account deficit

-4,000

-3,500

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

2008 2009 2010 2011 2012 2013 2014 2015

US

D M

illi

on

s

Current Account Balance

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 2009 2010 2011 2012 2013 2014 2015 2016

US

D M

illi

on

s

Gross International Reserve

Source: Bank of Mongolia

Foreign Investment The Missing Ingredient

-5%

0%

5%

10%

15%

20%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2009 2010 2011 2012 2013 2014 2015

US

D M

illi

on

s

FDI (LHS) OT capex (LHS) GDP growth (RHS)

Forward-Looking Policy Measures

7

Tightened policies, trade agreements and domestic business support pave the way for future growth

Macroeconomic policy

amendments and

trade agreements

● The Law on Economic Transparency passed

● Comprehensive Macro Adjustment Plan (“CMAP”) approval by the parliament

● Japan: Signed economic partnership agreement

● China: Signed extensive bilateral economic partnership agreements

● China, Russia: Signed a memorandum on compiling a guideline for building the trilateral

economic corridor

Fiscal policy changes

and debt

management

● Fiscal Stability Law amended by the parliament

● Debt Management Law (“DML”) approved by the parliament

● Integrate DBM financed projects into the budget

● 2016 – 2018 Government Debt Management Strategic document was passed

Monetary policy

● Policy rate reduced to 12% in January 24, 2016

● Phased out Price Stabilization Programme

● Minimum paid-in capital requirement for banks raised to MNT 50 billion by YE 2017

● Received IMF Technical assistance to enhance systemic oversight

Support for industries

and diversification

● Initiatives to create value-added downstream natural resources exports

● Stronger support for local SMEs, e.g. processing of F&B, wool and cashmere, leather, textiles

Making FDI easier ● Streamlining application process and improving legislative environment

● Supportive PPP structures and concession agreements for developing infrastructure

Source: Government of Mongolia, Ministry of Finance of Mongolia, Bank of Mongolia, Ministry of Industries

Comprehensive macro Adjustment Plan (CMAP) provides a legal framework for a policy reform

8

Gradual tightening of

monetary policy stance since

July 2014

Phasing out of programs

under unconventional

monetary policy measures as

planned

Prudential macro and micro

measures to prevent

systematic and idiosyncratic

risks in financial sector

Continued commitment to

the exchange rate flexibility

in alignment with macro

economic fundamentals

Inclusion of quasi-fiscal

expenditures into the

consolidated budget,

including DBM spending and

Price Stabilization Program

(PSP)

Gradual reduction of

government debt and

structural fiscal deficit under

the Fiscal Stability Law

Reduction of DBM social

project spending in line with

prudent monetary and fiscal

policies

Implementation of longer

term fiscal budget planning

Prudent fiscal policy to

promote external balance

Stability oriented

monetary policy

Macro-economic adjustment

policy with close dialogue with

IMF, World Bank and ADB,

which was reflected in the

Parliament ratified

Comprehensive Macro

Adjustment Plan (CMAP)

• Measures to support

economic diversification

(productions, competitiveness

and absorption capacity)

• Initiation of the long-term

sustainable savings policy

(sustainable mortgage

financing program)

• Enhancing DBM’s governance

and independence

Structural

reforms

Debt Management Law

introduced contingent

liability management,

liability management

operations, and institutional

arrangement for prudent

debt management policy

2016-2018 Government

Debt Management Strategy

ratified by Parliament

Government External Debt

Servicing Plan

Proactive liability

management

Active presence in the

international markets

Enhanced debt

management strategy

Addressing short-term balance of payments pressures, consolidating off-budget fiscal spending,

and implementing longer-term structural adjustment measures

Source: Government of Mongolia, Ministry of Finance of Mongolia, Bank of Mongolia, Ministry of Industries

Conclusions and Recommendations

• The macroeconomic plan is credible with investors

• Keys to accessing debt markets as a sovereign are

fiscal and monetary policy performance

• Plan needs to be followed

• Continuity of policies is essential

Thank you for

your attention.