MONTHLY MACROECONOMIC OVERVIEW

July 2014
MAIN INDICATORS: GDP, STATE BUDGET, FOREIGN TRADE, EXCHANGE RATE, INFLATION
Real year-on-year GDP growth for the first half of 2014 was
5.3%. Cumulative GDP for the six months to July totalled MNT
6.6 trillion in constant prices (USD 3.2 billion). Cumulative
GDP growth in current prices for the same period was 14.6%.
Real GDP growth for the quarter was primarily driven by
increases in the agriculture sector (which rose by 16.0%) and the
industry and construction sector (up 7.0%).
The deficit for general government finances in the seven months to
July 2014 was MNT 160.9 billion - a reduction of MNT 79.7 billion
from the previous month. Total state budget revenue in July totalled
MNT 555.4 billion, while expenditure was MNT 475.7 billion (a surplus
of MNT 79.7 billion for the month) . Revenue increased by 8.7% y-o-y
to reach MNT 3.31 trillion, primarily driven by an 7.0% increase in
income tax revenue and a 3.6% increase in goods and services taxation
revenue. Meanwhile expenditure increased by 8.8% over the same period
to reach MNT 3.47 trillion, owing to rising costs of goods and services
(an increase of 10.9% y-o-y), increases in transfers and subsidies
(12.5%) and significant loan repayments made during the month.
The trade balance deficit further widened in July, reaching
USD 207.6 million for the first seven months of 2014. Total
turnover of foreign trade reached USD 6.0 billion, an increase of
0.8% when compared to the same period last year. The total
value of exports increased by 24.9% y-o-y while imports reduced
by 14.6% y-o-y. Compared to previous month, exports rose by
18.5% (USD 459.7 million) and imports rose by 19.4% (USD
511.1 million). The cumulative value of mineral exports
reached USD 2.44 billion in July, an increase of 31.8%
compared to same period last year. Mongolia's other major
export category, textiles (worth around 8.8% of total exports),
saw a 16% rise y-o-y. Imports of vehicles (including spare parts)
decreased by 42.9% y-o-y, while imports of machinery, and
electronics also decreased by 25.9% y-o-y.
The Mongolian Tugrik has further depreciated against the
major currencies this month, the MNT/USD average
exchange rate for July was 1,844.1. This represents a 1.1%
depreciation compared with last month, a 10.1% reduction since
the start of the year and a 25.1% depreciation y-o-y. In July,
foreign currency reserves reached USD 1.3 billion, an increase
of 2.4% when compared to the previous month. However,
relative to the same period last year, foreign currency reserves
are down 55%. In an effort to stem this slide, the Central Bank of
Mongolia increased its official policy rate to 12% in July (up
from 10.5% in June).
The annual year-on-year inflation rate rose to 14.9% in July.
This an increase of 6.6 percentage points when compared to
previous year . Inflation was 0.4% for the month of July and
7.2% for 2014 year-to-date. The causes of inflation continue to
be rising prices for food and non-alcoholic beverages, clothing
and footwear, transportation, and housing and related expenses.
8.4
12.8 11.6
7.5
5.3
0
6
12
18
0
2
4
6
2
Q
1
3
3
Q
1
3
4
Q
1
3
1
Q
1
4
2
Q
1
4
Economic growth
GDP, at 2010
constant prices
(left)
GDP growth,
year-on-year, at
constant prices
(right)
(% (MNT trillion)
3.0
3.2
(0.1)
3.3
3.5
(0.2)
-1
0
1
2
3
4
Revenue Expenditure Balance
General Government budget
07'13
07'14
(MNT trillion,
in the first 7 months)
2.4
3.7
(1.3)
2.9
3.1
(0.2)
-2
-1
0
1
2
3
4
Export Import Balance
Foreign trade
07'13
07'14
0.1
4.9
8.3
0.4
7.2
14.9
0
4
8
12
16
Monthly YTD YOY
Inflation
07'13
07'14
(1$=..., monthly average)
(Consumer price index growth, nationwide, July )
(USD billion,
in the first 7 months)
1,844.10
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
0
7
'
1
3
0
8
'
1
3
0
9
'
1
3
1
0
'
1
3
1
1
'
1
3
1
2
'
1
3
0
1
'
1
4
0
2
'
1
4
0
3
'
1
4
0
4
'
1
4
0
5
'
1
4
0
6
'
1
4
0
7
'
1
4
Exchange rate (USD/MNT)
Economic Policy and Competitiveness Research Center www.ecrc.mn
MONTHLY MACROECONOMIC OVERVIEW
July 2014
Source: NSO, BoM
FINANCIAL SECTOR: MONEY SUPPLY, DEPOSITS, LOANS
Source: NSO, BoM
Summary
For the second quarter of 2014, real GDP growth was 5.3 % year-on-year, a decrease of 3.1 percentage points when compared to
the same period last financial year. The agricultural, construction and industry sectors were the primary drivers of economic
growth in the first two quarters of 2014, while the information and communication sector witnessed a decline in economic
activity. Economic growth continues to slow due to a significant decrease in foreign direct investment and in spite of economic
stimulus projects intended to avoid stagnation. Furthermore, a high dependence on imports and continued depreciation of the
tugrik are eroding the purchasing power of individuals and firms (by as much as 30-35 %). Notably, domestic construction
activity has now also begun to decline. This month, the Central Bank took the step of tightening monetary policy to counteract
balance of payments difficulties caused by the softening tugrik and spiralling inflation.
In its statement, it emphasised the need for medium to long term financial and macroeconomic stability to prevent potential risks
and to protect the real incomes of citizens. However, it remains to be seen if the measure is sufficient to counteract the
inflationary pressures that continued to be provoked by off-book fiscal spending and the high reliance on foreign currency
imports. Other trends to heed in coming months are the recent decreases in the money supply, reduced credit availability, interest
rates , and an increase in the incidence of non-performing loans.
The money supply declined marginally for July to MNT 10.1
trillion, while currency in circulation also reduced slightly to
MNT 860 billion. The M2 money supply for July grew 24.6%
year-on-year while currency in circulation grew by 3.3%.
Currency in circulation now accounts for 8.5% of the M2 money
supply, a significant reduction from the same period last year,
when it was worth 10.3% of total.
Total foreign currency deposits increased, while total
deposits remained at MNT 7.1 million. Total foreign currency
deposits increased by 7.9% compared to last month to reach
MNT 1.6 trillion. This represents a growth of 27.3% y-o-y and
they now account for 22% of all deposits. Meanwhile, MNT
deposits fell by 2.4% in July, resulting in a slight reduction in the
value of total deposits for the month of July (0.8%).
The total value of outstanding loans plateaued in July, while
the value of non-performing loans increased. The total value
of outstanding loans reached MNT 12.2 trillion for July, a
decrease of MNT 77 billion or 0.6%, when compared to the
previous month. The annual interest rate (weighted average) for
loans in MNT increased by 0.6 percentage points to 19.2
percent.
Non-performing loans increased by MNT 33 billion (5.8%) to
reach MNT 600 billion. They now account for 4.9% of total
outstanding loans.
Monthly highlights
> Moody's downgraded Mongolia's sovereign rating further in July.
In its assessment of Mongolia, Moody's Investment Services reduced the credit rating to B2 from B1, with an accompanying
negative outlook looking forward . The government's issuer rating was also reduced to B2. In its assessment, Moody's cites a
strained external liquidity position as cause for the downgrade, most notably the significant drop in foreign exchange reserves in
recent months. Furthermore, the presence of expansionary fiscal and monetary policies in 2014 have further driven demand-
growth and inflation, bringing additional instability to Mongolia's banking sector and Balance of Payments.
>Mongolia and Japan signed off on a Free Trade Agreement (Economic Partnership Agreement) during President Elbegdorj's
visit to Tokyo.
> The Government of Mongolia (GoM) and Oyu Tolgoi LLC (subsidiary of Rio Tinto) reached an agreement on the Tavan
Tolgoi mine in southern Mongolia.
>The Mongolia-China Business Forum was held at the Mongolian National Chamber of Commerce and Industry.
> In its quarterly meeting held in July, the Monetary Policy Committee (MPC) increased its policy interest rate by 1.5 percentage
points to 12%. In the accompanying statement, the MPC said it intended for the measure to relieve pressures on the balance of
payments, to curb the high level of inflation both nationwide and in Ulaanbaatar, and to ensure greater stability of the financial
system moving forward.
The annual year-on-year inflation rate rose to 14.9% in July.
This an increase of 6.6 percentage points when compared to
previous year . Inflation was 0.4% for the month of July and
7.2% for 2014 year-to-date. The causes of inflation continue to
be rising prices for food and non-alcoholic beverages, clothing
and footwear, transportation, and housing and related expenses.
8.2 8.4
8.5
8.5
7
8
9
10
11
12
4
6
8
10
04'14 05'14 06'14 07'14
Money supply
M2 (left)
Share of
Currency
issued in
circulation
(right)
(MNT trillion, at the end
of month)
(%)
8
.
6

9
.
1

1
2
.
3

1
2
.
2

3.7
5.0 4.6
4.9
2
4
6
8
10
0
2
4
6
8
10
12
14
06'13 07'13 06'14 07'14
Loans
Loans outstanding
(left)
Share of Non-
performing loans
(right)
(%
(MNT trillion, at the end
of month)
5.0 5.2
7.1 7.1
0
2
4
6
8
06'13 07'13 06'14 07'14
Deposits Foreign
currency
MNT
Total
(MNT trillion, at the
end of month)
Economic Policy and Competitiveness Research Center www.ecrc.mn
MONTHLY MACROECONOMIC OVERVIEW
July 2014
For the second quarter of 2014, real GDP growth was 5.3 % year-on-year, a decrease of 3.1 percentage points when compared to
the same period last financial year. The agricultural, construction and industry sectors were the primary drivers of economic
growth in the first two quarters of 2014, while the information and communication sector witnessed a decline in economic
activity. Economic growth continues to slow due to a significant decrease in foreign direct investment and in spite of economic
stimulus projects intended to avoid stagnation. Furthermore, a high dependence on imports and continued depreciation of the
tugrik are eroding the purchasing power of individuals and firms (by as much as 30-35 %). Notably, domestic construction
activity has now also begun to decline. This month, the Central Bank took the step of tightening monetary policy to counteract
balance of payments difficulties caused by the softening tugrik and spiralling inflation.
In its statement, it emphasised the need for medium to long term financial and macroeconomic stability to prevent potential risks
and to protect the real incomes of citizens. However, it remains to be seen if the measure is sufficient to counteract the
inflationary pressures that continued to be provoked by off-book fiscal spending and the high reliance on foreign currency
imports. Other trends to heed in coming months are the recent decreases in the money supply, reduced credit availability, interest
rates , and an increase in the incidence of non-performing loans.
Economic Policy and Competitiveness Research Center www.ecrc.mn
MONTHLY MACROECONOMIC OVERVIEW
July 2014
Economic Policy and Competitiveness Research Center www.ecrc.mn
MONTHLY MACROECONOMIC OVERVIEW
July 2014
Loans outstanding
performing loans
Economic Policy and Competitiveness Research Center www.ecrc.mn