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Japan to allocate $280-million soft loan to Mongolia

Japan will allocate a 32 billion JPY ($283.3 million) soft loan to the Government of Mongolia. The loan agreement was signed by Finance Minister Ch. Khürelbaatar and Foreign Minister D. Tsogtbaatar, representing Mongolia, and Executive Senior Vice President of Japan International Cooperation Agency (JICA) Kazuhiko Koshikawa on December 5.
The soft loan, which will be used for financing social, economic, and budget policy reform, will be granted as the first installment of a US$850 million soft loan approved by Japan last March, as part of bailout package provided by the International Monetary Fund’s Extended Fund Facility program. Mongolian Finance Minister has noted that the loan will have an 0.8 percent annual interest rate, a 0.1 percent prepayment penalty, a repayment period of 20 years, and a 6-year grace period for repayment of the principal loan amount.

The President had again vetoed the 2018 budget, but…

Mongolia’s President Kh. Bat-tulag in December, for the second time, imposed a veto on the 2018 budget, which was passed by parliament in November. The President had said the planned deficit would violate the terms of an International Monetary Fund (IMF) bailout agreement.
Mongolia and the IMF agreed to a $5.5 billion bailout in May to stabilize its floundering economy and its currency, the tögrög, which went into freefall last year.
In return, Mongolia agreed to end expansionary monetary policies, introduce austerity measures, raise some taxes and reduce welfare spending.
But the Mongolian parliament failed to meet the terms agreed with the IMF after failing to narrow the deficit in next year’s budget, claimed President Battulag. He said that the 2018 budget deficit would amount to MNT2.5 trillion ($1.03 billion) or 9.5 per cent of GDP – Gross Domestic Product, with planned expenditure at MNT7.7 trillion.
He said both expenditure and the deficit for 2017 and 2018 have continued to rise at the same rate as in previous years.
President Battulag also criticized the “inefficient investment projects” and plans for the construction of state-owned buildings while citizens were forced to pay higher taxes.
A new progressive income tax will be levied at between 10 and 25 percent starting from 1 January 2018, compared with a flat rate of 10 percent now, which is one of the three taxes that is expected to increase in 2018 as agreed with IMF.

Mongolian Government’s loses the legal dispute over 49 percent of the Erdenet copper mine

The launch of the joint Soviet-Mongolian Erdenet copper plant in 1978 built by the Soviet (Russians) Union

Mongolia’s Supreme Court has ruled against the government’s attempt to nationalize a 49 percent stake in Erdenet Mining Corporation, one of Asia’s biggest copper mines in the north of the country, which until the early 1990s was a joint Mongolian-Russian enterprise.
The former Prime Minister from the Democratic Party Chimed Saikhanbileg, on the very eve of the 2016 Parliamentary elections made a surprise announcement that Erdenet was henceforth a wholly 100 percent Mongolia-owned company. The opposition then – the Mongolian People’s Party, was taken by surprise and after it was swept to power in the 2016 elections, the 49 percent stake in Erdenet was disputed and the MPP Government decided to take it nationalize it.
The former Prime Minister Saikhanbileg had later revealed that the owner of the holding was a company called Mongolian Copper Corporation (MCC), which had bought the 49 percent of the Erdenet from the Russian Government in 2016 for $400 million.
MCC is reported to now seek compensation through international arbitration over the Mongolian government’s alleged breach of international rules on investors’ rights.
Erdenet, which become operational in 1978 (image above), today annually produces 530,000 tons of copper concentrate and is one of the largest tax contributors in the country.

World Bank supports Mongolia’s reforms with $120 million financing

The World Bank’s Board of Exe-cutive Directors on 1 December approved US$120 million in financing to support Mongolia’s efforts to restore debt sustainability, strengthen the social protection system, and enhance the competitiveness of the economy.
The Mongolia Economic Management Support Operation First Development Policy Financing or DPF comes at a critical juncture and aligns with the country’s moves towards strong policy adjustment.
A sharp drop in commodity prices and foreign investment, compounded by expansionary policies, created severe economic challenges for Mongolia.  The budget deficit grew rapidly and borrowing on the international markets both contributed to a four-fold increase in government debt, while expansionary policies contributed to a sharp currency depreciation and a significant loss of international reserves since 2013, says a World Bank press release.
The press release, quoting James Anderson, the World Bank’s Country Manager for Mongolia, said “This program endorses many of the measures that the government has taken to put Mongolia’s economy on a healthier path. Policy reforms in priority areas will help fiscal adjustment, strengthen the social protection system, and improve the competitiveness of the economy. Together with the long-term and affordable financing from the program, the reforms will help stabilize government debt, while strengthening the social safety net.”
Although Mongolia’s legal system includes controls over fiscal deficits, these controls were largely circumvented in the past several years through off-budget expenditures. By consolidating off-budget and quasi-fiscal expenditures, spending priorities will be debated during budget negotiations. Reducing capital expenditure – the largest source of spending increase in 2016 – is also a priority target. Measures to boost revenues include a more progressive personal income tax system that will reduce taxes for lower income groups, as well as increases in excise taxes on alcohol and tobacco, supporting both health and revenue objectives. Other reforms to expand the tax base will follow in the coming years.
The program also endorses the government’s efforts to rebalance the social welfare system in favor of the poor, notably by strengthening the Food Stamp Program and laying the foundation for a poverty-targeted benefit. Mongolia experienced a sharp increase in poverty between 2014 and 2016, a reminder of the need for a robust system of protecting the poorest during economic downturns. The program includes reforms aimed at making the pension system sustainable.

EBRD lends $8 mln to pharmaceutical manufacturer Monos

European Bank for Reconstruction and Development (EBRD), is lending US$8 million to Monos Holding LLC – a holding company of Monos Group, one of the leading pharmaceutical conglomerates in Mongolia – to help the firm invest in new equipment to expand manufacturing capacity, develop training, and reorganize long-term capital financing to support its wholesale business.
The five-year loan will enable Monos Group to become more competitive, by supporting the certification of manufacturing capacity and improving employee skills through training. By the end of 2019 the firm aims to secure Good Manufacturing Practice (GMP) certification and to have at least 30 new employees who are trained regularly according to GMP standards.
The optimization of the company’s balance sheet will support Monos Group in becoming more resilient, according to the EBRD.
The Bank is a leading institutional investor in Mongolia. To date the EBRD has invested more than €1.42 billion in over 92 projects in the country. Its investments aim to make the local economy more competitive, integrated and resilient. According to the EBRD’s latest regional economic forecast, published in November, the Mongolian economy will grow by 2.6 per cent this year and 3.0 per cent in 2018.

Oyu Tolgoi to more than double its gold production in 2018

Mumbai-based Capital Market writes that Rio Tinto-controlled Turquoise Hill is expecting its majority-owned Oyu Tolgoi copper and gold mine in Mongolia to churn in 2018 more than double the amount of the precious metal forecast for this year, with operating costs dropping about 2.8 percent. In an update that went almost unnoticed, according to Capital Market, the Canadian miner has said it expected Oyu Tolgoi to produce 240,000 to 280,000 ounces of gold concentrate next year, more than double the 100,000 to 140,000 ounces initially expected for 2017.
The Vancouver-based company also forecast the mine to generate 125,000 to 155,000 tons of copper in 2018, slightly less than the 130,000 to 160,000 tons predicted for this year. Operating cash costs for 2018 are expected to be about $700 million, down from the $720 anticipated for this year as a result of lower concentrator and logistics costs. Capital expenditures for 2018 on a cash-basis are expected to be approximately $150 million for open-pit operations and $1.1 billion to $1.2 billion for underground development, writes Capital Market quoting Turquoise Hill.

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