On March 9, the Governor of the Bank of Mongolia Mr. Lkhagvasuren presented on the current economic situation to the journalists.

-What measures are taken to reduce and cover the current account deficit by the Bank of Mongolia?

Last year, the current account and payment deficit reached about USD 720 million. According to the projection, it was supposed to be USD 1.8 billion but decreased to USD 700 million at the end of the year. This deficit reduction was mainly driven by coal export. As of the end of 2022, a total of 31 million tons of coal were exported and it resulted in a decrease in the payment deficit, especially in the current account deficit. Another way to reduce the current account deficit is improving the service sector, in particular transportation services. With the stagnation in the mining sector, the transportation sector tends to become stagnant as well. In this sense, even though the Mongolian economy increased by 4.8 percent, the mining and transportation sector showed a decline.

If the production and export of the mining sector improve, the transportation sector will revive. In particular, the current account deficit of the service sector can be reduced if domestic companies and enterprises carry out the mining transportation. To that extent, it will reduce the payment deficit. Another positive impact could be an increase in foreign exchange reserves which will be resulted in stabilizing the foreign exchange rate.

According to the Ministry of Economy and Development, Mongolia can export 40-45 million tons of coal this year. If coal is transported by domestic companies from the mine-mouth to the border port at the border price, there is a possibility of making a profit of USD 1.6-2.4 billion, gaining additional income, and maintaining a balance of payments without deficit.

- The exchange rate and inflation rate are still the main concerns of people. What are your expectations in this regard?

In this regard, the balance of the payment should be improved. Since the international geopolitical tension started in February 2022, we observed its most prominent impact in May. The price index reached a record-high 16.5% and the foreign exchange reserves dropped to USD 2.4 billion. Comparing that period with today, the inflation rate is 12.3% and the foreign exchange reserves have reached USD 3.4 billion. These are, indeed, good signs. We are expecting that the inflation rate would be within our targeted level or down to 8%. These are the outcomes of the raise in the policy rate of the Bank of Mongolia. If this positive trend in the economy continues, the foreign exchange reserves will increase and the exchange rate will become more stable. Enterprises and citizens still have expectations that the US dollar will rise against MNT. Therefore, they are still preferring dollar deposits over MNT deposits.

- Can all commercial banks complete their IPOs within this year?

According to the amended Code on Banks, five systematically important commercial banks are obliged to become public companies and offer their shares to the public. Last year, Golomt Bank and State Bank listed their shares, while Khan Bank received their approval. Now the IPOs of Khas bank and Trade and Development Bank are pending. The code amendment that is pushing Mongolia’s banks to go public requires all systemic banks to list 20% by June 30, 2023. Since there is deadline, we are expecting their IPO’s will complete within this year.