MONTHLY MACROECONOMIC OVERVIEW

August 2014

MAIN INDICATORS: GDP, STATE BUDGET, FOREIGN TRADE, EXCHANGE RATE, INFLATION

Source: NSO, BoM

Real year-on-year GDP growth for the first half of 2014 was

5.3%. Cumulative GDP for the six months to July totalled MNT

6.6 trillion in constant prices (USD 3.2 billion). Cumulative

GDP growth in current prices for the same period was 14.6%.

Real GDP growth for the quarter was primarily driven by

increases in the agriculture sector (which rose by 16.0%) and the

industry and construction sector (up 7.0%).

The cumulative fiscal deficit at August was MNT 153 billion - a

reduction of MNT 7.9 billion from the previous month.

For the first eight months of 2014, government expenditure

totaled MNT 3.95 trillion and revenue MNT 3.8 trillion. The

budget deficit at August was 16.6% higher than it was for the

same period last year. For the month of August, expenditure was

MNT 484.9 billion (1.9% higher) than July, while revenues fell

11.3% to MNT 492.8 billion. Total expenditure on Subsidies

and Transfers, worth 43% of total government expenditure,

increased by 12.4% year-on-year for August. Cost of goods and

services, which constitutes 49% of the total recurrent

expenditure, increased by 10.5% in the same period.

The foreign trade deficit shrank to USD 23 million, owing to

strengthening exports and a decline in the value of imports

in 2014. Cumulative foreign trade turnover in the 8 months to

August was worth USD 7.2 billion, an increase of 3.1% from the

same period last year. Imports accounted for USD 3.60 billion, a

decrease of 15.5% from last year, while exports rose 32.3%

relative to last year, reaching USD 3.58 billion. Mineral exports,

Mongolia's biggest export category have risen by 36.3% since

August last year. Mongolia's three biggest import

categories,vehicle imports, machinery and electrical goods, and

minerals have reduced by 43.4%, 28.4% and 6.8% respectively.

The USDMNT exchange rate depreciated a further one

percent in August, reaching 1862.2.

The average USDMNT in August represents an 11.2%

depreciation since the start of the year, and an 18.6% fall from

the same month last year. The Central bank 's policy rate

remained at 12% in August, following a 1.5 percentange point

increase in July. The tightening monetary policy is an attempt to

stabilize the continued decline of the Mongolian tugrik, as well

as to stifle the high inflation. Total foreign exchange reserves

held by the Central Bank increased to USD 1.86 billion for

August, a 38% increase from previous month and 41.4%

increase since reserves reached their lowest point for 2014 in

June.

The average annual inflation rate dropped to 13.7% .

The estimated average annual inflation rate fell 1.2 percentage

points in the previous month. The inflation rate in August was

0.4%, and 2014 cumulative inflation was 7.7%. Contributions to

the rise in prices included education (16.8 %), clothing and

footwear (1.6%), and housing, water, electricity (due to the 1.5

percent increase in the price of fuel).

8.4 12.8 11.6

7.5 5.3

0

6

12

18

0

2

4

6

2Q

1

3

3Q

1

3

4Q

1

3

1Q

1

4

2Q

1

4

Economic growth GDP, at 2010

constantprices (left)

GDP growth,

year-on-year,at constant

prices (right)

(%(MNT trillion)

3.5 3.6

(0.1)

3.8 4.0

(0.2) -1

0

1

2

3

4

5

Revenue Expenditure Balance

General Government budget

08'13

08'14

(MNT trillion, in the first 8 months)

2.7

4.3

(1.6)

3.58 3.60

(0.02)

-2

-1

0

1

2

3

4

5

Export Import Balance

Foreign trade

08'13

08'14

1.7

6.7 9.4

0.4

7.7

13.7

048

1216

Monthly YTD YOY

Inflation

08'13

08'14

(1$=...₮, monthly average)

(Consumer price index growth, nationwide, August)

(USD billion, in the first 8

1,862.17

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

08

'13

09

'13

10

'13

11

'13

12

'13

01

'14

02

'14

03

'14

04

'14

05

'14

06

'14

07

'14

08

'14

Exchange rate (USD/MNT)

- to depreciate

- to appreciate

Economic Policy and Competitiveness Research Center www.ecrc.mn

MONTHLY MACROECONOMIC OVERVIEW

August 2014

FINANCIAL SECTOR: MONEY SUPPLY, DEPOSITS, LOANS

Source: NSO, BoM

Summary

Total deposits fell by 1.2% in the month of August.

Total deposits now total MNT 6.96 trillion. Of this, MNT

deposits, worth MNT 5.45 trillion, represent 78.2% of total, with

foreign currency deposits worth MNT 1.52 trillion. MNT

deposits have increased by 37.2% since August last year, while

foregin currency deposits have increased by 8.5% for the same

period.

The value of Non Performing Loans increased by 3.4% in

the month of August. They now equate to 5.0% of total loans

outstanding.

Total value for loans outstanding increased by 0.9% for the

month, to reach MNT 12.3 trillion. This is an increase of 26.1%

since August last year. NPL rose 0.1 percentage points to total

MNT 620 billion. In nominal terms, this equals their equal-

highest ever value (May 2014) and a 33.4% increase from

August last year.

Monthly highlights

> According to the Ministry of Industry and Agriculture in 2014, the preliminary expected balances of Mongolia's food

production are: 466,600 tons of grain (of which 439,800 tons is wheat), 154,700 tons of potatoes, 100,200 tons of vegetables,

47,800 tons of oilseeds and 41.2 tons of seized forage. In addition, this year domestically-grown potatos are expected to supply

100 percent of national demand. Technical integrity of the harvest is 90%.

> The Northeast Asian Mayor's Conference of North East Asia was held on the 18-19 August. The Forum was the first for

Ulaanbaatar, and focused on four main topics;"Sustainable and Inclusive Cities", "Urban Management and Service Supply-

Technology Innovation Practice", "Economic Development of Northeast Asian Cities" and "Urban Environmental Management

and Green Development"

During the eight months to August 2014, the government's recurrent budget balance was MNT 153 billion, with revenue of

MNT 557.9 billion. The state budget balance was MNT 62.9 billion and the gross balance was a MNT 399.3 billion loss. Total

revenue and grants of MNT 623.4 billion were 14.1% less than the planned target of 76.5% of total expenditure. The causes of

this were corporate income tax, down MNT128.5 billion (27%), taxes on Goods and Services, down MNT 257.2 billion

(17.5%), and the category Other Tax Revenues, down MNT 252.1 billion, (32.9% less).

The foreign trade deficit decreased to USD23.0 million at August, a significant reduction from its value of USD1.5 billion in

August of last year. Over this period, exports have increased by 32.3%, driven by strong growth in Mongolia's traditional export

industries of minerals, textiles and jewellery & stones (36.3%, 17.4% and 9.7% respectively). Meanwhile imports have

decreased by 15.4%, with significant falls in the imported value of transportation vehicles, machinery & electronics and minerals

(-43.4%, -28.4% and -6.8% respectively).

The tugrik's depreciation against the US dollar has continued in August, following ongoing weakness in foreign direct

investment and high inflation. However, foreign inflows are expected to pick up, with the announcement of several major

projects moving forward, a stabilising in the legal environment for mining companies and contractionary monetary policy from

the Central Bank.

Foreign currency reserves at the Central Bank remain low, however they have improved from their record-low value at May

2014 to reach USD 1.86 billion. The initiaitive to increase gold sales to the Central Bank by giving favourable royalty rates to

producers ia also expected to contribute to a rise in reserves for the remainder of 2014.

The Money Supply (M2) increased to MNT 10.14 trillion,

while currrency in circulation also rose.

M2 rose by 0.6% compared to previous month, and 20.5%

relative to the same period last year. Currency in circulation rose

by 2.4% from previous month and 1.4 percent from the same

period last year to reach MNT 880.1 billion. Currency as a share

of M2 reached its highest level since January 2014, worth 8.7%

of total.

8.4 8.5 8.5 8.7

7

8

9

10

11

12

4

6

8

10

05'14 06'14 07'14 08'14

Money supply M2 (left)

Share of

Currencyissued in

circulation

(right)

(MNT trillion, at the end of month) (%)

9.1

9.8

12

.2

12

.3

5.0 4.8

4.9 5.0

2

4

6

8

10

02468

101214

07'13 08'13 07'14 08'14

Loans

Loans

outstanding

(left)

Share of Non-

performing

loans (right)

((MNT trillion, at the end

5.24 5.37 7.12 6.96

0

2

4

6

8

07'13 08'13 07'14 08'14

Deposits Foreign

currency

MNT

Total

(MNT trillion, at the end of month)

Economic Policy and Competitiveness Research Center www.ecrc.mn

MONTHLY MACROECONOMIC OVERVIEW

August 2014

Economic Policy and Competitiveness Research Center www.ecrc.mn

MONTHLY MACROECONOMIC OVERVIEW

August 2014

Economic Policy and Competitiveness Research Center www.ecrc.mn