A downturn in commodity prices caused the Mongolian GDP growth rate to fall from 17.3 percent in 2011 to just 2.3 percent in 2015. The IMF will provide $425 million payable over ten years with the World Bank, Asian Development Bank, Japan, South Korea, and other partners lending around $3 billion at favorable rates. China will also continue to increase a currency swap line worth approximately $2.19 billion to mitigate the crisis.
Neil Saker, the IMF representative for Mongolia, said, “[the bailout]is their program and along the lines of their recovery plan. Strong country ownership will increase the chances of success.”
Saker also noted that three conditions for a bailout were met, including passage of a supplementary 2017 budget, a declaration to refrain from quasi-fiscal activities, and a positive review of the Mongolian bank’s assets.
The IMF claimed that Mongolia’s tax rates of around ten percent were far too low in comparison to similar developing countries. The Mongolian government has promised to raise rates of six different taxes, including tobacco and alcohol products. Additionally, the government decided not to raise government salaries until 2019, given that inflation is very low and fears of a decrease in real income are minimal.
“The IMF medicine is bitter for the population, but in order to save the economy you have to do things that are not popular,” said Khashchuluun Chuluundorj, an economist at the National University of Mongolia. “This is a break from the past when the government was only doing populist things, like distributing money or stocks and lowering taxes.”
The IMF bailout should lower interest rates and improve confidence to help spur growth and stability for the Mongolian economy. A rise in the price of coal is already beginning to greatly improve the value of Mongolian exports in 2017.