Three Reasons Why Investors Are Still Betting on Mongolia www.fronteranews.com

The light at the end of the tunnel
Not all is well with Mongolia (AZIA). Growth in the economy has tumbled with commodity prices, which account for over 90% of its export earnings. The economy’s GDP grew at just 1% in 2016 due to, a) commodity price decline, and b) slowdown in China demand for copper (JJC) (CPER) and coal (KOL). Meanwhile, the nation’s debt has been burgeoning, reaching $23 billion as of 4Q16.

At a time when Mongolia’s banks threaten an economic crash, the Hong Kong-based Asia Frontier Capital is invested in the region. Thomas Hugger, chief executive officer, and founder of Asia Frontier Capital, a firm dedicated to investing in the Asian frontier markets (FRN) (FM), has maintained portfolio exposure to Mongolia for many years. “We see the light at the end of the tunnel,” Hugger recently told Frontera.

Hugger spoke about three key reasons for his belief in this frontier market’s long-term prospects.

1. Copper price recovery
Following a five-year slide (2011-2016), copper prices finally began to recover in early 2016. Over the past one year, the shiny metal’s price has surged 28.7%, with mining giants such as Anglo American (NGLOY), BHP Billiton (BHP), Glencore (GLNCY), and Rio Tinto (RIO), expecting it to rise further as excess supply seems to have come off the market. Moreover, the government initiated stimulus programs in China; which consumes 40% of world copper; have also contributed to the metal’s resurgence. Copper ore accounts for 42% of Mongolian exports.

Mongolia is ranked 12th in the world for copper reserves. The south Gobi Desert alone has an estimated of 35 million tons of copper. UK-based Central Asia Metals (CAML.L) and Rio Tinto (RIO), Canada-based Entrée Gold Inc. (EGI), Turquoise Hill Resources Ltd. (TRQ), and Kincora Copper Ltd (KCC) are among the foreign mining companies engaged in copper mining in Mongolia.

2. Coal price recovery
Coal, Mongolia’s number 2 export (14% of exports), has followed a similar trajectory; a five-year slide followed by a quick recovery through 2016 and continuing. Australian thermal coal has recorded a whopping 68.8% price gain over the past 1 year alone. Foreign companies engaged in coal mining in Mongolia include Australia-based Aspire Mining Limited (ASPXF) and Hong Kong-based Mongolia Energy Corporation Limited (MOAEF).

3. Foreign exchange influx
Hugger also expects the spat over Rio Tinto’s (RIO) $5.3 billion Oyu Tolgoi copper and gold mine in Mongolia to resolve soon. Rio Tinto would then be investing a lot into the second phase of the Oyu Tolgoi mine, thereby opening up a huge additional source of foreign exchange for the nation.

$440 million support extended by the IMF
The economy has recently been able to secure a $440 million loan package from the International Monetary Fund (IMF) to ease the country’s balance-of-payment pressures and support it’s government’s looming debt repayments. “The Asian Development Bank, the World Bank and bilateral partners including Japan and Korea are expected to provide up to another $3 billion in budget and project support, while the People’s Bank of China is expected to extend its 15 yuan billion ($2.2 billion) swap line with the Bank of Mongolia for at least another three years,” the IMF said in a statement on Sunday. The package is thus, a part of the $5.5 billion bailout envisaged for this frontier market.

According to Citigroup, we may see Mongolia tapping the international markets pursuant to the IMF package

Burger King and Tim Hortons owner to buy Popeyes for $1.8 billion www.reuters.com

Study explores Mongolia-Japan trade expansion opportunities www.en.montsame.mn

Mnuchin urges 'frank and candid' currency analysis www.nhk.or.jp

Mongolian economists on IMF`s Extended Fund Facility program www.mongolia.gogo.mn

On 19th Feb, 2017, International Monetary Fund (IMF) and Government of Mongolia have reached staff-level agreement on an economic and financial program to be supported by a three-year Extended Fund Facility for $440 million, as part of a $5.5 billion external financing package. 

Other international partners also plan to support the government’s program: the Asian Development Bank (ADB), World Bank, and bilateral partners including Japan and Korea are together expected to provide up to $3 billion in budget and project support; and the People’s Bank of China is expected to extend its RMB 15 billion swap line with the Bank of Mongolia for at least another three years.
As a result, Mongolian external debt to GDP ratio will be doubled than the international average while it has forecasted to reach 86.3 percent of GDP by 2017. 
On the other hand, some tax rates will be increased including excise taxes on vehicle, alcoholic products and tobacco as well as social insurance premium and personal income tax starting 1st of April, 2017 required by the IMF`s Extended Fund Facility program.
However, requirements related to increase of tax rates, new tax and social issues regarding salary and pension are irritating public. 
Thus we clarified the position of Mongolian professional economists on IMF`s Extended Fund Facility program.
Economist D.Angar: 
-I think it is the best action to overcome economic crisis. Mongolia was facing lack of discipline and financial accountability. Unfortunately, Mongolia has established an agreement with IMF after reaching its final stop to face economic collapse. IMF talks mainly about budget and monetary policy. However this time they suggested new proposal to conduct complex audit on the operation of commercial banks and financial system. Because they consider that it is not working well. IMF`s program is the only thing can fix it. If the Government of Mongolia fulfill the obligations required by the IMF on time, very positive result is awaiting us. Collapsed economy shall be restored with strict requirements. 
Economist Kh.Batsuuri:
-IMF`s program seems quite reasonable for me. IMF has eased the loan requirements in the last five years. However we should notice that what terms and conditions are hiding behind. It is significant for us to know all requirements even it is hidden.
IMF demanded to tax interest income on personal savings accounts and I think it is right. However, increasing social insurance premium and retirement age are wrong decision. 
Economist Kh.Bolorbold:
-World Bank and IMF have ruined Mongolian economy. We must acknowledge it at all levels. Reaching an agreement with IMF means that they are going to repay the previous loan that collateralized by Mongolian people with the people too. IMF have already became bankrupt at the end of 1990s. They take others money and make economic and political ultimatum. 
IMF has not developed any countries as they promised. Stopping all policies directed to social support might worsen Mongolian economy. 
Economist T.Bayarkhuu:
-There are no good news about IMF. We have been cooperating with the IMF since 1998. They are always causing fall in Tugrik rate. All countries that cooperated with the IMF went into debt. Extended Fund Facility program was implemented previously in Russia, Ukrain and Egypt which brought negative results, causing currency fall. Salary, pension, benefits will depreciate in Mongolia after the program and the country will trap in poverty. I think it is the program to make Mongolia as a geopolitical subsidary place against Russia and China through economic and financial method.

Saudi Aramco selects lead underwriters for $100 billion IPO: WSJ www.reuters.com

Mongolia reinforcing cooperation with UNESCO www.montsame.mn

Ulaanbaatar /MONTSAME/ UNESCO and the Government of Mongolia signed a comprehensive cooperation agreement aligned with the 2030 Agenda for Sustainable Development, during a ceremony with Director-General Irina Bokova and the Ambassador of Mongolia to UNESCO, Mr Mundagbaatar Batsaikhan on February 20, 2017.

Mongolian herders go solar www.news.mn

No less than 70% of Mongolian herders now have solar power. By installing portable solar home systems in the gers (yurts made of yak’s wool and felt), they have made life much easier in a land where the sun shines about 250 days a year.

World Bank says policy uncertainty weighs on trade growth www.xinhuanet.com

WASHINGTON, Feb. 21 (Xinhua) -- Global trade growth is constrained by a number of factors, and policy uncertainty is one of them, the result of a World Bank policy paper showed on Tuesday.

Russia considers introducing tax on cash transactions www.rt.com

The Russian Ministries of Finance and Economic Development are working on the way to reduce cash payments, business daily Vedomosti reports. The goal is to move away from the shadow economy and corruption that comes from money laundering and tax evasion.