PDF《MONGOLIA》

11 percentage points, to

27 percent of the population in 2012. However, indicators for inequality and unemployment suggest that there is scope to make growth more inclusive, despite relatively high social spending compared to Mongolia'

s peers (Figure 4). 3. However, macroeconomic policies have been unsustainably loose the past two years. Government expenditure increased by

70 percent in real terms between

2010 and 2012, with growing importance of off-budget spending. In late-2012, the BOM embarked on a major monetary stimulus, which added to growing BOP pressures. During

2012 and the first half of 2013, BOP pressures were mostly reflected in a decline in the BOM'

s Net International Reserves (NIR). In recent months, the exchange rate has become more flexible. Capitalization and liquidity of the banking system have improved. However, dollarization remains high and the provisioning regime for commercial banks lags Asian peers. 4. This year'

s consultation focused on the need to adjust macroeconomic policies to rein in domestic demand growth, curtail balance of payments pressures, and contain inflation. In particular, discussions centered on the implementation of the

2010 Fiscal Stability Law (FSL)―which has now become effective and which prescribes a

2 percent of GDP limit on the structural fiscal deficit (Appendix II)

1 ―as well as the need for a significant correction in the monetary policy stance.

1 The new fiscal framework implied by the

2010 Fiscal Stability Law (FSL) was adopted in the aftermath of the 2008/09 balance of payments (BOP) crisis. It focuses on prudent natural resource management, taking into account absorptive capacity constraints―in particular, macroeconomic stability and overheating concerns, and concerns about the efficiency of scaled-up public investments, as well as intergenerational concerns. The framework was designed with substantial input from the IMF (FAD), consistent with the principles and international experience summarized in the

2012 IMF Policy Paper on Macroeconomic Policy Frameworks for Resource-Rich Developing Countries. In turn, that paper noted that the Mongolian fiscal policy framework anchored by the FSL constitutes a relevant example for other middle- and low-income countries with large revenue from nonrenewable resources. Staff Recommendations Made in the Context of the Last Two Article IV Consultations ? Scale back the growth of total government spending in view of inflation and BOP pressures. ? Take off-budget spending into account when determining the macro-economically sustainable level of total government spending. ? Monetary easing should be contingent on demand pressures abating and prudent fiscal policy. ? BOP pressures should be reflected more in movements in the exchange rate. ? Continue efforts to strengthen the soundness and resilience of the banking system. MONGOLIA INTERNATIO........