Friday, July 4, 2014

Mongolia Brief July 4, 2014 Part II



Malaysian trade agency "advises businesses tap Mongolia"

Ulaanbaatar, July 4 (MONTSAME) Malaysia External Trade Development Corporation (Matrade) "is encouraging Malaysian companies to tap Mongolia's emerging highly affluence middle class".

According to this news published at bernama.com on Friday, a Deputy Chief Executive Officer Datuk Dzulkifli Mahmud said "Mongolian middle and high-end customers were embracing high-quality products and services due to their stronger purchasing power. The presence of many branded retail outlets in Ulaanbaatar reflects the new trend of consumption. It offers huge business and investment opportunities for Malaysian companies".
"For the first five months of 2014, Malaysia's trade with Mongolia increased 68.8 percent to RM59.8 million with exports increasing 70.9 percent to RM59.6 million compared with the same period of the last year.
"Last year, Malaysia's trade with Mongolia grew 42.3 percent to RM130.22 million with exports rising 46.2 percent to RM128.27 million, driven by petroleum products, electronics and electrical products, palm oil, processed food and wood products.
"Other potential sectors to tap in Mongolia include infrastructure development, tourism, hotels and hospitality, healthcare, prepared food, energy as well as mining."

WB calls for tighter economic policies to restore economic stability

Ulaanbaatar, July 4 (MONTSAME) In its newly released Mongolia Economic Update, the World Bank (WB) said the Mongolian economy is facing challenges from the large balance of payments pressure and high inflation.
The WB underscored that the economic vulnerability will likely continue under the current growth-oriented policies and urged that monetary and fiscal policies be tightened in order to restore economic stability and maintain financial soundness.
Three years of growth-oriented economic policies have successfully supported double-digit economic growth but also led to large economic imbalances. The Government and monetary authorities implemented strong economic stimulus measures in 2013 as the country gradually was losing growth momentum amidst falling foreign investment and the weakening global minerals market. Expansionary policies relying on quantitative easing and external debt-financing contributed to the country maintaining double-digit economic growth last year despite the weakening external environment. The policy-induced high growth, however, also came with significant balance of payments pressure and high inflation. The current account deficit remained close to 30 percent of GDP in 2013 for the third consecutive year, while the foreign direct investment (FDI) in 2013 dropped to half of its level from the year before. Double-digit inflation continued since mid-2013 and picked up to 13.7 percent in May.
“In 2014, the economy is undergoing an adjustment in response to the large external and internal imbalances. Domestic demand is now under growing pressure from high inflation and continued currency depreciation. Inflation rate exceeded nominal household income growth in the first quarter according to the World Bank’s estimation. Annual economic growth is expected to soften to 9.5 percent in 2014 reflecting waning domestic demand. Considering the still high domestic credit growth and currency depreciation, inflation will likely remain at a double-digit level for the remainder of the year,” said Taehyun Lee, WB Senior Economist.
Large balance of payments pressure will likely persist in 2014. The current account deficit will likely narrow in 2014 due to weak imports and stronger copper exports. However, surplus of capital and financial account is also dropping amidst further dampening of the FDI. The overall external financing gap of the balance of payments is easing this year compared with the year before but the financing gap of the first five months still remained high, reaching over five percent of expected annual GDP of 2014. The international reserve level in May declined to US$1.6 billion, down by 61 percent from its peak at the end of 2012. The reserve level is still enough to cover around three months of imports and the bilateral currency swap line with neighboring China will be able to provide a significant buffer. However, economic policies need to focus on addressing the large external imbalance to ensure stable and sustainable economic growth.
The WB also underscored the importance of close monitoring on deteriorating asset quality of banking sector. As domestic credit increased by over 50 percent over the last twelve months, the size of non-performing loans and past-due loans more than doubled to MNT 1 trillion in May, up from MNT 464 billion in the same month the year before. The NPL ratio remains relatively moderate but the ratio has been also growing in recent months. Close attention is also needed to signs of overheating of the housing market and the rising household debt, added the World Bank’s economic report.
The WB called for tighter monetary and fiscal policies and strengthened supervision on the banking system. "The recent signs of weakening aggregate demand reflect inevitable adjustment of the economy to restore domestic and external economic balances. Further economic stimulus relying on quantitative easing and large off-budget spending may not be much effective and will likely add to pressures on inflation and currency value. It would also likely accelerate depletion of international reserves through a slower adjustment of the balance of payments imbalance. Key task for economic policies now is to safeguard the economy from reaching more vulnerable situation. During the adjustment process, economic growth may become slower than previous years but will still remain higher than many other developing countries," said Taehyun Lee, the WB Senior Economist and Acting Country Manager.
Monetary policy needs to be tightened to address high inflation. Recent indicators show signs of a gradual tightening of the expanded balance sheet of the central bank. Continued tapering of quantitative easing would help ease inflationary pressure over time. Financial sector policy should focus on ensuring financial stability and enforce proper prudential regulations to banking operations including policy lending programs. Fiscal policy should adhere to the fiscal discipline of the Fiscal Stability Law. Legal institution for fiscal discipline is already in place, but implementation still remains questionable. Under the current trend, overall fiscal deficit will reach 10 percent of GDP due to continuous off-budget spending after 10.9 percent of GDP last year. Off-budget spending needs to be consolidated into the budget and the fiscal deficit needs to be kept within the target of the Fiscal Stability Law.
"No one can deny the great potential that Mongolia has. The country has proven it over the last three years with amazing growth and reduced poverty rate. Yet, the road to the future prosperity is a long-term process and the economy is facing short-term challenges in the middle of the road that need to be overcome by tighter and stability-oriented economic policies," concluded Chorching Goh, the WB Lead Economist for China, Mongolia and Korea.

Stock exchange news for July 4

Ulaanbaatar, July 4 (MONTSAME) At the Stock Exchange trades held Friday, a total of two million 321 thousand and 428 shares of 13 JSCs were traded costing MNT 531 million 216 thousand and 491.00.
"Silikat” /two million 297 thousand and 412 units/, "Hermes center” /18 thousand and 229 units/, "Remikon” /2,000 units/, "State Department Store” /1,835 units/ and "Tavantolgoi” /1,013 units/ were the most actively traded in terms of trading volume, in terms of trading value--"Silikat” (MNT 516 million 917 thousand and 700), "Tavantolgoi" (MNT four million 963 thousand and 700), "UB-BUK” (MNT three million and 500 thousand), "Hermes center” (MNT three million 011 thousand and 537) and "State Department Store” (MNT one million 073 thousand and 055).
The total market capitalization was set at MNT one trillion 562 billion 453 million 484 thousand and 574. The Index of Top-20 JSCs was 15,357.38, decreasing by MNT 117.41 or 0.76% against the previous day.

Mongolia-S.Korean nuclear medicine symposium to run

Ulaanbaatar, July 4 (MONTSAME) A "Mongolia-S.Korea Nuclear Medicine" symposium will be held this Saturday in Tuushin hotel themed "Today and Future of Nuclear Medicine in Mongolia".
Organizers are Siemens Korea, Jiguur Grand Group, Asia Oceania Federation of Nuclear Medicine and Biology (AONMB), and Mongolian Society for Interventional Radiology.
The symposium will be attended by AONMB president Bom Hee Seung, Siemens Korea president Park Hyeongu, along with representatives of Mongolian authorities such as Health Ministry, Health Development Center, Nuclear Medicine Society, and National Oncology Center. 

Some 100 will be granted Australian scholarships

Ulaanbaatar, July 4 (MONTSAME) A subsidiary arrangement of the "Australia Awards in Mongolia" program was signed in the Economic Development Ministry on Thursday.
Representing the Mongolian and Australian parties--the State Secretary for the Ministry of the Economic Development B.Shinebaatar and the Counselor at the Australian Embassy in Beijing Mr Geoff Bowen inked the arrangement that opens master decree education chances in Australia for 114 Mongolians in three year’s time (for 38 people each year). The Masters level scholarships are offered to Mongolians from both the public and private sector within principles to focus more on the involvement of the disabled and people from rural areas.
Australia Awards in Mongolia is designed to improve the human resources needs of selected Mongolian government agencies, develop economic sectors of priority to Mongolia, enhance the opportunities for knowledge sharing and institutional linkages between Australia and Mongolia.
The Australia Awards Mongolia operates under a Subsidiary Arrangement between the Governments of Australia and Mongolia and is managed by the Department of Foreign Affairs and Trade Post in Ulaanbaatar with oversight from Beijing.
In 2014, Australia will provide over AUD138.9 million for the scholarship program, the Australia Awards Mongolia will be implemented under funding of AUD 15 million in 2013-2016. Long-term scholarships that provide opportunities for Mongolians to study in Australia have been the cornerstone of Australia’s development assistance in Mongolia. The scholarships are one way to address human resources needs in Mongolia and to build people-to-people links.

Economic growth is expected to rise by 9.5% this year

July 4 (Mongolian Economy) The World Bank recently released the Mongolia Economic Update which underlines the vulnerable situation of Mongolia’s economy, which is said to progress if the nation continues to keep its current monetary and fiscal policies. While the country’s policies sustained economic growth in the past, it has also created its fair share of economic imbalances, leading to the withdrawal of foreign investment and the weakened state of its minerals market. 
Mongolia’s national inflation rate rests at 13.7%, showing steady increases from months past. This year, it is expected that large balance of payments pressure will continue. Its international reserve level has declined by 61%, since 2012, falling to USD 1.6 billion. It still is enough to cover important necessities, but it is imperative that they focus on addressing the large external imbalance in order to ensure stable and sustainable economic growth. In the last twelve months, domestic credit increased by over 50 percent and the size of non-performing loans and past-due loans more than doubled to MNT 1 trillion in May. The Government must pay careful attention to avoid overheating. The World Bank suggests that Mongolia should establish tighter monetary and fiscal policies while simultaneously strengthening supervision on the banking system. 
Taehyun Lee, the World Bank Senior Economist and Acting Country Manager, said that it is ineffective to rely economic stimulus on quantitative easing and large off-budget spending. Instead, this will add on to inflationary pressure. High inflation rates and currency depreciation is placing domestic demand under extensive stress. The most important step to take right now is to safeguard Mongolia’s economy from ending up in a more vulnerable situation than it already is in now. Through adjustment, economic growth may slow down even more, but it will still remain at levels faster than other developing countries. It is expected that annual economic growth will soften to 9.5 percent this year as a result of diminishing domestic demand. 
In order to solve for high inflation, it is necessary for the Government to impose tighter monetary policies. By tapering quantitative easing, the pressure of inflation will show signs of improvement. In addition, the fiscal policy should fall into line with the outlines set by the Fiscal Stability Law. Implementation is now more important than ever. With the Government’s current policies, fiscal debt is estimated to reach 10 percent of GDP. 
Chorching Goh, the World Bank Lead Economist for China, Mongolia and Korea, said that Mongolia has great potential, shown through its amazing growth and reduced poverty rate. However, the road heading in the right direction will require long-processes as the economy is still facing short-term challenges that can be overcome with tighter policies. 
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