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The role of BOM: Sustainable growth
Zoljargal NaidansurenGovernor
BANK OF MONGOLIA (BOM)
October 30-31, 2012
Hong Kong
2
Outline
• Macroeconomic overview
• Coordinated macro policy � Strong middle class
• Financial infrastructure and institutional development
3
Sustainable & balanced growth over 10%
Source: Bank of Mongolia, IMF, NSO
10.2%
-1.3%
17.5%
13.2%
16.8%
12.7%
8.0%
15.2%
8.3%
-5%
0%
5%
10%
15%
20%
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011 2012* 2013** 2014** 2015** 2016** 2017**
Bill
ion
US
D
Real GDP
Growth, yoy, RHS
Linear (Growth, yoy, RHS)
4
Growth prospects in Asian emerging economies
Source: WEO April 2012, IMF
17.5
8.06.9
6.1 6.3
13.2
8.2 8.1
7.07.5
15.2
-2
0
2
4
6
8
10
12
14
16
18
20
China India Indonesia Vietnam Mongolia
% 2011 2012* 2016*
5
Trade and FX turnover
0
1
2
3
4
5
6
2009 2010 2011 2012
Billion $
Foreign trade turnover1H of each year
Imports
Exports
0
2
4
6
8
10
12
14
2009 2010 2011 2012
Billion $
FX turnover1H of each year
FX outflows
FX inflows
Source: Bank of Mongolia, Customs General Office, Mongolia
6
Balance of payments and gross international reserves
-36
162166
581
38
181
-13
-177
359
112
-1500
-1000
-500
0
500
1000
1500
Q1'10
Q2'10
Q3'10
Q4'10
Q1'11
Q2'11
Q3'11
Q4'11
Q1'12
Q2'12
Capital & financial account
Current account
Overall BOP 0
2
4
6
8
10
12
0
500
1,000
1,500
2,000
2,500
3,000
2007
/01 05 09
2008
/01 05 09
2009
/01 05 09
2010
/01 05 09
2011
/01 05 09
2012
/01 05
Mill
ion
US
D
Gross reserves
Import coverage, months(RHS)
Source: Bank of Mongolia
7
Exchange rate system
Annual Report on Exchange Arrangements and Exchange Restrictions
(AREAER) 2010
FLOATINGMONGOLIA
No exchange rate target at all BOM Intervention is only for
smoothing excessive volatility
No capital control � Positive expectation on overall FX net flows
8
FX net flows and reference exchange rate
Source: Bank of Mongolia
Stability since March 2009Daily average volatility: only 0.08% in 2012
9
Is MNT a volatile currency?
Currencies(last 32 months)
Daily average volatility
(%)
Maximumdepreciationper day (%)
Maximumappreciationper day (%)
Australian dollar 0.62% 4.35% 3.00%
Canadian dollar 0.46% 3.36% 2.06%
New Zealand dollar 0.65% 5.03% 2.44%
Russian ruble 0.49% 3.18% 2.55%
Chilean peso 0.49% 4.78% 2.24%
South African rand 0.70% 5.03% 3.39%
Brazilian real 0.66% 5.05% 3.76%
Norwegian kroner 0.62% 3.31% 2.82%
Tanzanian schilling 0.36% 5.15% 9.34%
Papua New Guinea kina 0.18% 3.39% 3.20%
Mongolian togrog 0.20% 1.26% 1.69%
0.52% 4.26% 3.48%
10
Money supply
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,00020
08-0
1
2008
-04
2008
-07
2008
-10
2009
-01
2009
-04
2009
-07
2009
-10
2010
-01
2010
-04
2010
-07
2010
-10
2011
-01
2011
-04
2011
-07
2011
-10
2012
-01
2012
-04
2012
-07
Bill
ion
to
gro
g
M2 YoY change
Source: Bank of Mongolia
11
Inflation dynamic
Source: Bank of Mongolia
Demand pull inflation: � Monetary policy instruments
Cost push inflation: � Price stabilization program with the Government
12
Inflation target & projection
0
5
10
15
20
0
5
10
15
20
2011 I 2011 II 2011 III 2011 IV 2012 I 2012 II 2012 III 2012 IV 2013 I 2013 II 2013 III 2013 IV
%%
Source: Bank of Mongolia
Inflation target:
(end-2013): 8%
(2014-2015): 6%
13
Banking sector: Assets and outstanding loans
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
2,000
4,000
6,000
8,000
10,000
12,000
2005
-03
2005
-11
2006
-07
2007
-03
2007
-11
2008
-07
2009
-03
2009
-11
2010
-07
2011
-03
2011
-11
2012
-07
Total Assets
YoY change
Since the crisis:+260%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2006
-01
2006
-07
2007
-01
2007
-07
2008
-01
2008
-07
2009
-01
2009
-07
2010
-01
2010
-07
2011
-01
2011
-07
2012
-01
2012
-07
Bill
ion
tog
rog Loans outstanding
NPL to loan ratio
Source: Bank of Mongolia
14
Mortgage market
Developed countries
45%
40%38%
36%
13%10%
6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Герм
ан
Япо
н
Хон
г ко
нг
Син
гапу
р
Сол
онго
с
БН
ХА
У
Мон
гол
Mortgage / GDP2011
Japa
n
Ho
ng
Ko
ng
Sin
ga
po
re
Ko
rea
Ch
ina
Mo
ng
oli
a
Source: European Mortgage Federation, www.economywatch.com
IMF, Financial Stability Board
Ge
rma
ny
15
Coordinated macro policy ���� Strong middle class!
• Fiscal policy ���� Countercyclical– Adhere to Fiscal Stability Law
– Fiscal anchors and Stabilization fund
– Public investments to abolish supply constraints and increase absorption capacity
– Targeted social welfare program
– Reform of social insurance fund
• Monetary policy– Low and stable inflation � Macro stability and sustainable long-term growth
– Financial stability � Macro and micro prudential measures
– Flexible exchange rate
– Financial infrastructure and institutional development
– Special programs with the Government to stabilize supply driven inflation
16
Financial infrastructure and institutional development
• Reform on deposit insurance scheme frameworks– Replacing blanket deposit guarantee (reducing risk to government)
– Enhancing discipline and responsibility of banking sector
• Reform on social security system– Separating social security fund from budget
– Investing domestic capital market (development projects, mortgage market)
• Developing mortgage market– MBS domestic offering
– MBS access to foreign investors
• Developing Government bond market– New procedure introduced
– Secondary market development (benchmark yield curve)
17
Government bond market development
• New procedure introduced on 24 October 2012
– Providing primary and secondary market development
– Strengthening fiscal and monetary policies’ coordination
– Using T-bills as a monetary policy tool
• Some important dedication on the New procedure
– MOF to issue Government securities at regular basis
– BOM to conduct treasury auction
– Commercial banks acting as primary dealers
� Bond issued by Sep 2012: MNT 609.6 billion
� Bond to issue by Dec 2012: MNT 270 billion
18
Importance of Government Bond Market DevelopmentFiscal Policy
Monetary Policy
Market development
Investment Opportunity
• Financing the budget deficit
• Financing the public investments
• Using T-bills as a monetary policy tool
• Coordinating fiscal & monetary policy
• MNT benchmark yield curve
• Development of financial instruments
• Liquid asset
• Low risk investment
• Tax exemption on interest earnings
Ministry of Finance
Bank of Mongolia
Commercial banks
Institutional & Private Investors
• Issuing government securities
• Conducting treasury auction
• Acting as primary dealers
Pri
ma
ry m
ark
et
Se
con
da
ry m
arke
t
Bank of Mongolia (Central Bank)
Baga toiruu-3, 15160 Ulaanbaatar 46, Mongolia
Tel: +976-11-322169
Fax: +976-11-311471
http://www.mongolbank.mn
Thank you for your kind attention
Perfect timing and right place to invest in and cooperate with Mongolia