Mongolia told to strengthen finances

By:

Gavin O'Toole

Mongolia’s economy remains “extremely vulnerable” to external factors and it must strengthen its finances to achieve inclusive growth, it has been warned.

The World Bank has pointed to special spending needs in health and education – key sectors that play an essential role in the country’s long-term fight against poverty.

In a report on Mongolia’s revenue and public expenditure, the Washington-based bank also highlights poor returns on very high levels of capital expenditure.

“With high public debt, low tax rates and high exemptions, the Mongolian economy remains extremely vulnerable to external factors, including shifts in global demand, commodity prices, and exchange rate and interest rate shocks,” said Andrei Mikhnev, World Bank country manager for Mongolia.

“There is a clear need to strengthen fiscal buffers through increased savings during years of prosperity.” 

The report, Public Expenditure Review: Growing without Undue Borrowing, calls on the country to strengthen its fiscal foundations.

It says that at an average of about 11% of GDP in 2010–2016, Mongolian capital expenditure has been among the highest in the world. 

However, returns on this spending have been low due to poor selection of projects, long delays in implementation, high cost overruns, and low maintenance budgets.

“The report lays out key actions the country can take to enhance the efficiency of public investment,” said Jean-Pascal Nganou, the World Bank’s senior country economist and a lead author of the report.

“Development and implementation of a national road map to improve the efficiency of these investments is the top priority.” 

Mongolian revenues have been volatile and the World Bank economists recommend reducing the government’s dependence on the mineral sector by reforming the tax system. 

Low tax rates should be raised, exemptions need to be revised, and the tax base needs to be broadened, they say.

The government wage bill is also high and growing fast, which economists believe is closely linked to increased staff turnover owing to the frequent reorganisation of ministries.

While education spending is average compared to similar countries, the use of resources has been poorly planned and basic classroom learning materials have taken second place to expensive equipment. 

Spending on health is much lower than it was in 2003, and the report says critical reforms are needed to address the growing burden of non-communicable diseases.

Source:www.publicfinanceinternational.org

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Mongolia leaves benchmark interest rate unchanged at 11 pct to bolster economy

ULAN BATOR, March 23 (Xinhua) -- Mongolia's central bank has decided to leave the benchmark interest rate unchanged at 11 percent, local media reported Saturday.

"The decision aims to bolster the economic growth and cope with the inflation target framework in the medium term," said Bayarsaikhan Bayardavaa, head of the bank's monetary policy council.

The central bank has set a goal to stabilize inflation around the target rate of 8 percent in the medium term, Bayardavaa said, adding that annual inflation was at around 6.9 percent in February.

In addition, Mongolia's central bank has maintained its forecast for economic growth to be at least 6.9 percent this year.

Foreign direct investment in the resource-rich country, an increase in coal exports, and activity in non-mining sectors will be the main drivers of the country's economic growth this year, according to experts of the central bank.

The landlocked Asian country's gross domestic product in 2018 expanded 6.9 percent year on year to reach 18.1 trillion Mongolian tugriks (6.8 billion U.S. dollars).

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Mongolian central bank increase lending interest rate

<Monetary policy statement:

Monetary Policy statement:

Increasing the policy rate

Number: 2018/04

Effective date: 27 November 2018

At the unscheduled meeting held on 27 November 2018, the Monetary Policy Committee decided to increase the Policy rate by 1.0 percentage point to 11 percent.

As of October 2018, annual inflation measured by the consumer price index has reached 6.3 percent nationwide and 6.8 percent in Ulaanbaatar city. Although the price of commodities remained relatively high and economic growth reached 6.7 percent in the third quarter, exceeding previous expectations, uncertainties in the external sector remain elevated.

Approval of next year’s budget with a relatively high level of deficit, the US Federal Reserve’s decisions to raise its federal funds rate, and the People’s Republic of China’s action to limit its coal imports, are adversely affecting the balance of payments and thus creating pressures on the exchange rate. Hence, considering the uncertainties in the external sector, with the intention to preserve economic recovery at a medium term sustainable path, the Monetary Policy Committee decided to increase the policy rate, during its unscheduled meeting.

The decision is consistent with the Bank’s mandate to keep inflation rate around the medium term target rate and is intended to increase yield for assets in togrog, to support credibility of the national currency, and to sustain macroeconomic stability in the medium term.

The Bank of Mongolia decided to issue central bank bills with maturities of 28 weeks, starting from December 2018.

Extracts of the meeting minutes will be released in two weeks on the Bank of Mongolia’s website.

MONETARY POLICY COMMITTEE OF MONGOL BANK, MONGOLIAN CENTRAL BANK

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Mongolian parliament approves 2019 state budget

The Mongolian parliament approved the 2019 state budget on Friday with a deficit of 1.9 trillion Mongolian tugriks (762.7 million U.S. dollars), Xinhua reported.

In the state budget, revenue is projected to be about 9.7 trillion Mongolian tugriks, or 27.4 percent of the GDP, and spending is intended to be around 11.6 trillion Mongolian tugriks, or 32.8 percent of the GDP.

The budget deficit is largely linked to projects to be implemented with foreign loans including the construction of a waste water treatment plant in the capital Ulan Bator and roads along the Ulan Bator-Darkhan-Uul routes, according to the government.

The Mongolian government expects the economy to grow by about 5 to 8.5 percent and the inflation rate to be around 8 percent.

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Mongolia to crack down on money laundering, terrorist financing: PM

ULAN BATOR, Oct. 30 (Xinhua) -- Mongolia will stand firm on combating money laundering and terrorist financing, the country's Prime Minister Ukhnaa Khurelsukh said Tuesday.
"Money laundering and terrorist financing activities have negatively affected countries' economic growth and efforts to achieve sustainable development and eliminate poverty," he said.
What's more, he said that Mongolia, "with a vulnerable economy which is directly dependent on external factors," needs to pay special attention to fighting money laundering and terrorist financing.
Khurelsukh made the remarks at the opening ceremony of an international scientific conference on fighting money laundering, according to the government's press office.
According to data from Mongolia's National Police Agency, 26 cases of money laundering were recorded in the first half of this year, while only seven cases of this kind were reported last year in Mongolia.
Most of the money laundering cases in Mongolia are linked to fraud, embezzlement, bribery, tax evasion and drug trafficking, the agency said.

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Mongolia launches campaign to increase national saving awareness, financial literacy

ULAN BATOR, Oct. 23 (Xinhua) -- Mongolia has launched a campaign to increase national awareness on the importance of savings and the level of financial literacy, local media reported on Tuesday, citing the country's central bank.

The campaign is part of the activities held in the country on the occasion of the World Savings Day, which is celebrated every year on Oct. 31 across the world, the Bank of Mongolia said in a statement.

Under the two-week campaign starting Monday, several related activities will be organized across the country by the central bank in cooperation with commercial banks.

According to data released by the National Statistics Office of Mongolia, only 27 percent of Mongolia's total population have any savings, and 83 percent of those who have savings only have less than a million Mongolian Tugriks (less than 390 U.S. dollars) in their accounts.

Mongolia started marking the World Savings Day across the country since last year.

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Mongolia: Central Bank Gives Permission to Issue First Digital Currency

Mongolia’s largest mobile telecoms operator has become the country’s first licensed entity to issue its own digital currency. This is according to a report by the official state media outlet Montsame Friday, September 28.

Mobicom’s financial arm Mobifinance is now clear to issue the e-currency, dubbed “Candy,” to investors, Montsame confirms. The executives have received formal permission at a ceremonial event at the Bank of Mongolia’s headquarters Friday.
Commenting on the achievement, which comes around five months after the central bank approved formal digital currency regulation, Mobicom CEO Tatsuya Hamada appeared highly bullish on the phenomenon’s future role in the economy.
“As digital currencies have begun to circulate, ATMs and cards will become a thing of the past as well,” Montsame quotes him as saying.
According to the plans for digital currency put forward by the central bank in April, “regulation defines who will participate in digital currency system and how, process of getting permission, rights and duties of customers and service providers.”
“It also expected to support further development of FinTech technology and payment system,” Montsame stated at the time.
Candy already exists as an entire ecosystem for Mongolian consumers, who can use the digital currency to pay for various goods and services with a range of businesses.

Source:https://cointelegraph.com

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Fitch says Mongolian banks remain weak

Fitch Ratings has determined that Mongolia’s banking system remained weak with a high reported ratio of non-performing loans (NPLs) of 8.2% at end-May. The ratings agency thus moved on July 13 to list Mongolian banks among Asian lenders that are likely to see their growth constrained within the next two years.

Fitch maintains that the credibility of Mongolia’s reform process, which the country is partially undergoing due to an IMF-led $5.5bn agreement, will be tested by the transparency of a potential recapitalisation process and NPL resolution. The sector’s NPL accounts remained unresolved for some time prior to the Central Asian nation entering the bailout agreement.

“Mongolia has completed an asset-quality review, followed by a stress test, as part its IMF arrangement, which should raise the comparability of banks' financial profiles after adjustments are formally booked into their end-June 2018 statements,” the ratings agency said.

“New laws could further strengthen the authority of the regulator if consistently enforced. Moreover, the operating environment has become more supportive as economic growth has accelerated and government refinancing risks have declined,” it added. “Fitch upgraded its two rated Mongolian banks - Khan Bank and XacBank - in July 2018 to reflect these improvements.”

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Fitch Upgrades Mongolia to 'B'; Outlook Stable

Fitch Ratings-Hong Kong-09 July 2018: Fitch Ratings has upgraded Mongolia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B' from 'B-'. The Outlook is Stable. 

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS 

The upgrade of Mongolia's IDR reflects ongoing improvements to fiscal and external metrics and progress in meeting key IMF programme targets. 

Fiscal metrics have continued to improve since November 2017 when we revised the Outlook to Positive from Stable. General government revenue through May 2018 rose by 26% yoy, due to stronger than budgeted tax receipts associated with robust customs activity and the broader economic recovery. At the same time, expenditure rose by a modest 6%, broadly in line with the 2018 budget target. As a result, Fitch now forecasts a 2018 general government deficit of 3.9% of GDP, below the authorities' approved budget target of 5.9%, and consistent with the gross general government debt (GGGD)/GDP ratio remaining on a downward trajectory.

Fitch forecasts GGGD will decline to 75.3% of GDP by end-2018, down from 81.2% in 2017, and well below its 2016 peak of 91.4% following a commodity-price shock, sharp rise in expenditure, and large currency depreciation. The agency's baseline forecasts suggest GGGD will fall to about 70% of GDP by end-2020, assuming average nominal GDP growth of 12.7%, a budget deficit of 4.0%, and broad stability of the exchange rate. Nevertheless, this scenario will still leave Mongolia's GGGD/GDP ratio well above the current 'B' median of 62%. 

The IMF Executive Board completed its fourth review of Mongolia's three-year Extended Fund Facility in June 2018, citing strong performance under the programme and that all quantitative targets had been met as of end-March 2018. This will enable an additional disbursement of IMF funds and provide a supportive backdrop for other external donors to approve further disbursements under their respective arrangements that together form Mongolia's IMF-led USD5.5 billion external financing package, initiated in mid-2017.

External buffers have strengthened. Foreign reserves rose to USD3.3 billion by end-May 2018, up from about USD1.0 billion in early 2017, supported by donor inflows tied to the IMF programme. Fitch forecasts foreign reserve coverage will rise to 4.5x current-external payments by end-2018, up from 2.3x at end-2016, to exceed the 'B' median of 3.9x. The agency expects the current account deficit to widen further this year, but more than half of the increase will reflect a rise in capital goods imports tied to the Oyu Tolgoi copper mining project, which is funded via FDI. 

The growth outlook remains favourable. Real GDP growth accelerated to 6.1% in 1Q18, up from 5.2% in 2017, due to rising consumption and a surge in mining-related investment. Export volumes of coal and copper rebounded following an official visit of Mongolian Prime Minister Khurelsukh to China in April 2018, which appears to have resolved a customs dispute at the Chinese border that crippled the passage of cargo vehicles last winter. Fitch forecasts real GDP growth of 5.2% in 2018 and 6.3% in 2019, which balances our expectation of continued strength in private consumption and investment, with a large drag from net exports owing to a sharp rise in consumer and capital goods imports since early 2018.

The 'B' IDR also reflects the following key rating drivers:

The rapid improvement in fiscal metrics has benefitted from a strong external environment and rising commodity prices, which have lifted government revenue in excess of budget expectations. Against this backdrop, however, the authorities have delayed a variety of structural budgetary reforms, including the introduction of a progressive income tax, an extension of the retirement age, and the establishment of a politically independent fiscal stability council. This raises the risk that a waning commitment to further structural reforms could leave fiscal revenue vulnerable to swings in the external environment, or undermine the credibility of recent enhancements to Mongolia's fiscal policy framework.

Near-term refinancing risk has receded, with the sovereign facing no external bond maturities until after 2020. Nevertheless, Mongolia's heavy reliance on funding from external debt capital markets exposes the country to shifts in investor sentiment toward emerging market assets. Yields on Mongolia's 2023 US dollar bonds, for example, have risen by around 150bp since the beginning of the year, a trend shared by many emerging and frontier market issuers as a result of global risk aversion. High commodity export dependence, at 77% of current-account receipts, and export concentration to China, at 86% of exports, also leave Mongolia vulnerable to external shocks and constrains its ratings. 

A history of abrupt leadership changes, with Mongolia experiencing four different prime ministers over the previous five years, increases the potential for political shocks or policy reversals. In addition, commercial disputes persist between Rio Tinto, the country's largest FDI investor, and the government with regards to various aspects of the Oyu Tolgoi project. Fitch expects the disagreements will ultimately be resolved given the mine's long-term strategic importance for both parties, but this conviction may be tested in the run-up to Mongolia's parliamentary elections in mid-2020, given the prominence resource nationalism has played in previous electoral cycles. 

The completion of the asset-quality review has eased uncertainty over capital adequacy in the Mongolian banking system. The review revealed a system-wide capital shortfall equivalent to 1.9% of GDP, well below prior IMF estimates of up to 7.0%. Banks are expected to raise additional capital by end-2018, though the authorities have yet to specify the impacted institutions. A banking-sector recapitalisation law passed by parliament in June 2018 sets guidelines under which systemic banks can receive public capital injections. If public funds are indeed required, Fitch does not believe the expected amounts would pose a material funding challenge to the sovereign. Newly passed reform measures that give The Bank of Mongolia greater scope to implement macro-prudential policies may soon be tested in the face of rising household debt, which increased by 25% yoy to end-May 2018.

Structural factors, such as GDP per capita, governance indicators and doing business rankings score above 'B' category peers and provide considerable support to Mongolia's rating. Per capita income has the potential to rise substantially over the longer term if the country can successfully harness its substantial natural resources endowments via strategic mining projects, and deliver them more reliably to third markets via planned infrastructure investments. 

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Mongolia a score equivalent to a rating of 'B+' on the Long-Term Foreign-Currency IDR scale. 

Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR by applying its QO, relative to rated peers, as follows:
- External Finances: -1 notch to reflect repeated bouts of external financing stress.

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES
The main factors that could lead to positive rating action, individually or collectively, are:
- A track record of fiscal discipline supported by reforms to broaden the revenue base that leads to further declines in GGGD/GDP, and brings it more closely in line with 'B' rated peers.
- Continued implementation of credible and coherent macroeconomic policy-making that makes the economy less vulnerable to swings in commodity prices and the external environment.

The main factors that could lead to negative rating action, individually or collectively, are:
- Failure to meet IMF conditionality, resulting in the programme falling off track.
- Fiscal policy settings that put GGGD/GDP back on an ascending trajectory.
- Political instability sufficient to significantly disrupt FDI inflows or strategic mining projects.

KEY ASSUMPTIONS
- The global economy performs broadly in line with Fitch's Global Economic Outlook

The full list of rating actions is as follows:

Long-Term Foreign-Currency IDR upgraded to 'B' from 'B-'; Outlook Stable
Long-Term Local-Currency IDR upgraded to 'B' from 'B-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'B'
Short-Term Local-Currency IDR affirmed at 'B'
Country Ceiling upgraded to 'B+' from 'B-'
Issue ratings on long-term senior unsecured foreign-currency bonds upgraded to 'B' from 'B-'

Contact: 

Primary Analyst
Andrew Fennell
Director
+852 2263 9925
Fitch (Hong Kong) Limited
19/F Man Yee Building
68 Des Voeux Road Central
Hong Kong

Secondary Analyst
Jeremy Zook
Associate Director
+852 2263 9944

Committee Chairperson
Stephen Schwartz
Senior Director
+852 2263 9938

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IMF to allocate Mongolia fourth loan tranche in amount of 36.91 mln USD

ULAN BATOR, June 28 (Xinhua) -- Deputy Managing Director of the International Monetary Fund (IMF) Tao Zhang said Wednesday that Mongolia is making good progress under the Fund-supported program.

"All end-March 2018 quantitative targets under the program were met. Fiscal accounts showed robust performance posting a primary surplus, mainly reflecting a sharp increase in revenue. Meanwhile, international reserves have more than doubled since the start of the program," he said.

The IMF Executive Board completed the fourth review of Mongolia's performance under the program supported by a three-year extended arrangement under the Extended Fund Facility (EFF).

In this regard, the IMF will soon allocate Mongolia the fourth tranche in the amount of 36.91 million U.S. dollars.

The executive board approved the three-year bailout program for Mongolia in May 2017 to help the Mongolian government's economic recovery plan and focus on building foreign exchange reserves, putting debt on a sustainable path, strengthening the banking sector, and securing stable, inclusive growth over the long run.

Under the cooperation program, the landlocked East Asian country has received 184.55 million dollars from the global lender, which helped its economy avoid collapse during the crisis. 

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IMF Executive Board Completes Fourth Review under the Extended Arrangement for Mongolia and Approves US$ 36.91 Million Disbursement

June 27, 2018

• One year into the program, Mongolia’s economic performance continues to be strong with over-performance on key fiscal and reserves targets.
• Structural reforms to strengthen fiscal policy and the banking sector are moving ahead, but there have been some delays in implementation.
• With high public debt and the economy exposed to global commodity developments, authorities’ strong commitment to the program remains crucial.

On June 27, 2018, the Executive Board of the International Monetary Fund (IMF) completed the fourth review of Mongolia’s performance under the program supported by a three-year extended arrangement under the Extended Fund Facility (EFF). Completion of the review enables Mongolia to draw the equivalent of SDR 26.2088 million (about US$ 36.91 million), bringing total disbursements under the arrangement to SDR 131.0366 million (about US$ 184.55 million).

Mongolia’s performance under the program remains strong. The combination of strong policy implementation and a supportive external environment has helped the authorities over-perform on all end-March 2018 quantitative targets under the program. Progress has also been made on structural reforms, albeit with some delays.

Mongolia’s three-year extended arrangement was approved on May 24, 2017, in an amount equivalent to SDR 314.5054 million, or about US$ 434.3 million1 at the time of approval of the arrangement (see Press Release No. 17/193 ). The government’s Economic Recovery Program, supported by the IMF, aims to stabilize the economy, reduce the fiscal deficit and debt, rebuild foreign exchange reserves, introduce measures to mitigate the boom-bust cycle and promote sustainable and inclusive growth.

Following the Executive Board’s discussion of the review, Mr. Tao Zhang, Acting Chair and Deputy Managing Director, said:

“Mongolia is making good progress under the Fund-supported program. Helped by a favorable external environment and strong program implementation, growth has picked up and there has been a considerable improvement in fiscal sustainability, debt dynamics, and external buffers.

“All end-March 2018 quantitative targets under the program were met. Fiscal accounts showed robust performance posting a primary surplus, mainly reflecting a sharp increase in revenue. Meanwhile, international reserves have more than doubled since the start of the program.

“Reforms to strengthen the financial sector are ongoing with a focus on the follow-up to the asset quality review completed in January. Banks are in the process of raising capital to address any identified shortfalls. In addition, the authorities passed a law outlining when and how public funds can be used to preserve banking sector stability.

“Notwithstanding this progress, Mongolia remains vulnerable to external and internal shocks. It is therefore critical to take advantage of the current favorable economic environment to continue building fiscal and foreign exchange buffers, strengthen the banking sector, and improve the investment climate. A steadfast implementation of the authorities’ reform program is key to build resilience against shocks and ensure continued strong and inclusive growth.”

IMF Communications Department

MEDIA RELATIONS

PRESS OFFICER: TING YAN

PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG

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Mongolia's debt-to-GDP ratio forecast at 55.3% in 2019

Mongolia’s parliament approved the state budget for 2019 and forecast for 2020-2021.

According to the guideline of social and economic development in 2019, a total of 123 policy actions with 20 objectives will be implemented.

Some MNT 8.78 trillion will be spent on implementation of action plan reflected in the guideline.

MNT 5.17 trillion will be financed through the public and private partnership and investment.

In 2019, the public debt is forecast to grow by 10% reaching 55% to the GDP.

The budget deficit is forecast to decrease by MNT 314 billion and no new bonds will be issued to recover the budget deficit.

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IMF Reaches Staff-Level Agreement on the First Review of Mongolia’s Extended Fund Facility

August 2, 2017

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

An International Monetary Fund (IMF) staff team led by Mr. Koshy Mathai visited Ulaanbaatar from July 19 to August 2 to conduct discussions on the first review of the three-year Extended Fund Facility (EFF) arrangement approved on May 24, 2017, in an amount equivalent to SDR 314.5054 million, or about US$434.3 million (see Press Release No. 17/193 ).

At the conclusion of the visit, Mr. Mathai made the following statement:

“The economy is rebounding, with GDP growth likely to reach 2 percent this year on the back of strong coal production and exports, high private investment, and a return of confidence following the approval of the $5.5 billion IMF-led package.

Performance under the program has been good, with all quantitative targets on track. Fiscal results have been better than expected, supported by strong revenues and tight expenditure control. About half of the revenue overperformance will be saved, thus helping to reduce borrowing and control debt, while the remainder will be used to fund productive spending in line with the government action plan. Net international reserves have improved, reflecting strong export performance and capital inflows into the government securities market.

The authorities have moved ahead with their ambitious structural reform agenda, which will help to sustain growth over the medium term. The strengthening of the banking system is underway: the Asset Quality Review will soon be launched, important legal reforms are being drafted, and improvements to the regulatory and supervisory framework are being implemented. On the fiscal side, steady progress is being made in strengthening tax administration, tax policy, and budgetary controls, including through the establishment of a Fiscal Council. To strengthen the social safety net and target expenditures toward the most vulnerable, the government is fine-tuning the Child Money Program, with a commitment to target the program to less affluent families from 2018 and use the savings to increase food stamps for the poor.

The authorities and the team have reached staff-level agreement on the completion of the first review under the EFF arrangement, which is subject to review by the management and Executive Board of the IMF. The Board is expected to consider the first review in late September, and this could lead to a disbursement of SDR 27.9560 million, or about $37.82 million.

The team thanks the authorities for their cooperation, constructive dialogue, and hospitality during its stay in Mongolia.”

Source:IMF

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EBRD supports Mongolia’s micro and small businesses with local currency loans

The FINANCIAL -- EBRD lending programme boosts MSMEs’ access to scarce local currency finance in Early Transition Countries thanks to international donors.

The people of Mongolia are very attached to its long history and many of their old traditions are still very much alive. Gulmaira Akim is so proud of its folklore that she created a business out of it. Her micro enterprise produces handcrafts and souvenirs based on ancient designs.

“I started working during my university, when I used to sell traditional fabrics to tourists and pay for my studies,” she explained.  “Then, in 2006 I got married and I started producing small goods such as purses and ornaments together with my husband”.

Today Ms Akim employs dozens of people, mostly women, in the rural Nalaikh province where her workshop is based. When she receives large orders she reaches out to more embroiderers who work from home.

“For me it is important to give back to the community and employ elderly people or women with no formal education,” she said.

Mongolia’s wealth derives mostly from under its rich soil, through a large mining sector. Most finance and business operations are concentrated in the capital Ulaanbaatar, home to half of the country’s population.

So micro and small businesses such as Ms Akim’s are key for the development of rural areas as well as contributing to diversifying the economy and expanding the private sector.

But without adequate financial support, micro, small and medium-sized enterprises (MSMEs) would not be able to survive, let alone thrive.

On the other hand, Mongolian financial institutions are often not in a position to assume more risk and provide tailored products for this segment of potential clients.

One of the issues of lending to MSMEs is the high level of dollarisation, which, according to the latest Transition Report 2015-16, is significantly higher in the region where the EBRD invests than in other emerging market economies.

Loans denominated in foreign exchange expose small companies to the risks of depreciating local currencies. That is why the EBRD and its donors, including the Early Transition Countries (ETC)  Fund*, the Swiss Secretariat for Economic Affairs SECO and the US Department of Treasury, are partnering to extend local currency loans to local participating banks to lend to MSMEs in local currency at affordable interest rates.

This special Local Currency Programme, which provides long-term EBRD finance to small businesses through local partner financial institutions, is active in Armenia, Georgia, Kyrgyz Republic, Moldova, Mongolia and Tajikistan.

The EBRD financing is combined with policy dialogue with national governments to improve domestic financial intermediation in local currencies, with the lending now replicated by other International Financial Institutions.

Through the Programme, partner banks have an opportunity not only to reach out to underserved markets but also to develop the skills required to manage foreign exchange risk.

So far, around 300 thousand micro and small companies in the six countries have been able to borrow a total of around US$ 325 million thanks to the donors.

Thanks to the Programme, Ms Akim obtained a loan of 10 million Mongolian Tugrik (worth about US$ 5,000) through XacBank. She used it to upgrade her sewing machines, EBRD said.

“As a result of this improvement, the quality of our product is higher and we could better meet our clients’ needs, so our sales boosted,” she said. Thanks to the loan she secured a Fairtrade shop in Ulaanbaatar as a fixed client.

Now she has many fewer worries about repaying her loan. And, for a change, the depreciation of the tugrik against the US dollar is a blessing for her business, since most buyers are foreigners visiting her stunning country, happy to buy relatively inexpensive and beautiful souvenirs.

Source:Financial

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