IMF official outlines economic risks
Steve Barnett, the Assistant Director of the International Monetary Fund's (IMF's) Office for Asia and the Pacific, has outlined four key short-term challenges and risks Mongolia will have to face as it continues toward development.
Those are overheating, global risks, fiscal policy and exchange rate.
Overheating is simply growth that comes too fast. He explained that growing too fast in the short run often results in high inflation, exchange rate volatility, wage pressures, and “Dutch disease.” All of these effects could heighten fears of a “hardlanding,” especially if there are “external shocks” to affect the economy. That in turns leads to the general threat of global risks. A slowdown in the global economy is dangerous for any country, but it is especially so for Mongolia as they could affect copper and coal prices, as happened in 2008.
A return to a boom-bust policy would make Mongolia vulnerable to another crisis, and hopeful MPs will not fall victim the temptation to make promises that involve greater spending as elections near.
Fiscal policy is at the center overheating and economic volatility. Government spending increased 60 percent last year and is set to rise a further 30 percent this year. This kind of growth is too great and will most likely result in inflation. Barnett recommended immediate scaling back of government spending to “a much more prudent rate of growth.” Finally, a flexible exchange rate should be maintained, and is perhaps most important to a healthy economy. While it is fine for the Central Bank to intervene to smooth excess volatility, it should not target any specific level for the exchange rate. He explained that this strategy is simply ineffective and will only deplete national reserves.
Source : bcmongolia
Those are overheating, global risks, fiscal policy and exchange rate.
Overheating is simply growth that comes too fast. He explained that growing too fast in the short run often results in high inflation, exchange rate volatility, wage pressures, and “Dutch disease.” All of these effects could heighten fears of a “hardlanding,” especially if there are “external shocks” to affect the economy. That in turns leads to the general threat of global risks. A slowdown in the global economy is dangerous for any country, but it is especially so for Mongolia as they could affect copper and coal prices, as happened in 2008.
A return to a boom-bust policy would make Mongolia vulnerable to another crisis, and hopeful MPs will not fall victim the temptation to make promises that involve greater spending as elections near.
Fiscal policy is at the center overheating and economic volatility. Government spending increased 60 percent last year and is set to rise a further 30 percent this year. This kind of growth is too great and will most likely result in inflation. Barnett recommended immediate scaling back of government spending to “a much more prudent rate of growth.” Finally, a flexible exchange rate should be maintained, and is perhaps most important to a healthy economy. While it is fine for the Central Bank to intervene to smooth excess volatility, it should not target any specific level for the exchange rate. He explained that this strategy is simply ineffective and will only deplete national reserves.
Source : bcmongolia
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