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ECONOMIC MONTHLY REPORT

January 2018

Indicators:

Budget balance 114.2 billion togrog /January, 2018/

GDP growth 5.1%

/2017/

FDI 1355.1 million USD

Foreign trade balance 62.7 million USD

Non-performing loans 1,193.6 billion togrog

International reserves 3008.1 million USD

Total equilibrated revenue of the General Government Budget is 530.4 billion togrog, the expenditure is 416.2 billion togrog.

The growth is mainly driven by increases in transportation (16.7%), manufacture (22.8%) and net taxes on products(18.6%)

Foreign direct investment to Mongolia reached 1.4 billion USD in 2017.

Exports decreased by 1.1% and reached 423.8 million USD while imports grew by 30.3% and reached 361.1 million USD.

Non-performing loans reached 1193.6 billion togrog, increasing 3.5% compared to the previous month, while overdue loan amounts declined to 960.5 billion togrog, 113.6 billion togrog lower than in the previous month.

The international reserves increased by 1.3 times compared to same period in previous year and reached 3008.1 million USD as of December 2017.

Average exchange rate announced by Mongolbank is

2426.3 togrog/USD

Mongolbank policy rate is

11.0%

Inflation

6.9%

Labour force participation rate is 62.4%, while unemployment rate is 7.3%

Main export commodity prices and exports

- 50.0

100.0 150.0 200.0 250.0

- 300.0 600.0 900.0 1,200.0

Copper concentrate

Volume (thous.t) Price ($/t)

-

1,000.0

2,000.0

3,000.0

4,000.0

-

20.0

40.0

60.0

80.0 Coking coal


- 1.0 2.0 3.0 4.0 5.0

-

500.0

1,000.0

1,500.0 Gold

Volume (t) Price ($/ounce)

- 200.0 400.0 600.0 800.0

1,000.0

- 15.0 30.0 45.0 60.0 75.0

Crude oil

Volume (thous.bar) Price ($/bar)


January 2018

Macroeconomic analysis January, 2018

Economic Growth

Annual GDP growth rate reached 5.1 per cent. The main industries, contributing to this economic growth are manufacture and transportation-ICT. The manufacture industry grew by 22.8 percent, so the transportation by 17 percent and ICT by 8 percent. The contribution of these industries, put together, is 2.6 percentage points to the economic growth. In contrast, the mining industry decreased the GDP growth by 1.6 percentage points due to fact that the the own value added declines by 6.9 percent.

Agriculture: 26.5 million female breeding stock that have been counted in the beginning of 2017 have produced 21.8 million newborn animals, with a survival rate of 96.2 percent. The number of newborn animals increased by 2.9 million, which is 15 percent higher compared to previous year. This growth is due to the significant reduction in natural loss of adult animals. Losses of adult animals are 888 thousand in the last year, which is around half of those in the previous year.

The natural loss in animal is mainly due to reductions in the loss of sheep and goats by 750 thousands, put together.

Table: Livestock breeding, loss of adult animals, in thousands

Highlights:

Mongolian government repays the first part of USD 1.5 billion of Chinggis Bond.

In January, 2018, General government budget revenue has exceeded the expenditure in the first time since May, 2013.

IMF reaches Staff-Level Agreement on the Third Review of Mongolia’s Extended Fund Facility. IMF mission concludes that macro-economic performance under the program has been positive, with all quantitative targets met by large margins.

Moody's Investors Service upgraded the Government of Mongolia's long-term issuer ratings and the senior unsecured ratings to B3 from Caa1. It expressed that the outlook remains stable.

2017.01

2017.02

2017.03

2017.04

2017.05

2017.06

2017.07

2017.08

2017.09

2017.10

2017.11

2017.12

2018.01 -

200.0

400.0

600.0

800.0

- 15.0 30.0 45.0 60.0

Iron ore


- 3.0 6.0 9.0

12.0 15.0 18.0

-

600.0

1,200.0

1,800.0

Zinc concentrate



January 2018Indicators 2016

Female breeding stock 20 481.4 23 4316.3

Survived birth rate 85.8 88.5

Newborn animals 19 721.7 22 642.0

Natural loss of animals

1,452.1 888.0

In 2017, 524.3 thousand hectares of land were planted in 2017, of which 390.9 thousand hectares of crops, 15.1 thousand hectares of potatoes, 8.4 thousand hectares of vegetables and 26.2 thousand hectares of forage plants. The total planted land was increased by 19.0 thousand hectares or 3.8% from the previous year.

In 2017, 238.1 thousand tonnes of cereals, 121.8 thousand tonnes of potatoes, 82.1 thousand tonnes of vegetables were harvested and 1008.1 thousand tonnes of gross hay harvest, 52.3 thousand tonnes of handmade fodder were produced. Compared to the end of the previous year, harvest of cereals decreased by 245.4 thousand tonnes (50.7 percent), potatoes by 43.5 thousand tonnes (26.3 percent), vegetables by 12.3 thousand tonnes(13.1 percent ), hay harvest by 267.3 thousand tonnes(21.0 percent) and handmade fodder increased by 6.5 thousand tonnes (14.2 percent) respectively.

Industry and construction: Industrial output increased by 30 percent compared to the previous year and reached 12.9 trillion togrog at nominal term. This increase is due to the mining and extraction industry where total output increased by 2.3 trillion togrog, i.e. 32.8 percent, compared to the the previous year. Coal production increased by 1 trillion togrog i.e. 78.7 percent.

Table. Industrial sector output, billion tugrik

Indicator 2016 2017

Mining and extractive 7 067.4 9 386.0

Manufacture 1 998.7 2 625.8

Utility 616.6 648.6

Total industrial sector output

9 927.1 12 932.7

Source: NSO

Table. Production levels of select industrial sectors

Products Quantity 2016 2017

Coal thous.t. 35 488.9 47 101.4

Crude oil thous.bar 8 249.8 7 624.1

Copper concentrates

thous.t. 1 445.1 1 317.1

Gold kg 18 435.7 19 846.8

Iron ores and concentrates

thous.t. 7 146.1 11 369.7

Livestock meat t. 8 949.9 24 526.7

Cement thous.t. 432.4 675.2

Metal steel thous.t. 16 819.3 21 090.5

Metal foundries thous.t. 16 592.7 16 348.8

Copper cathode t. 15 009.6 14 644.0

Source: NSO

Transport: In 2017, 53.9 million tonnes of freight and 215.7 million persons (double counting) were carried by all modes of transportation. Compared to the previous year the amount of freight increased by 13.5 million (33.5 percent) tonnes and the number of passengers carried decreased by 48 thousand (18.3 percent). Of those, 31.2 tonnes of freight and 212.2 million persons (double counting) were carried by auto transportation and this represents an increase of 10.8 million (53.6 percent) tonnes for freight but a decrease of 48.5 million (18.6 percent) passengers. 22.7 million tonnes of freight and 2.6 million passengers were carried by railway with the freight carried increased by 2.7 million (13.6 percent) tonnes but the passenger number declined by 21.9 thousands (0.8 per cent).


January 2018GDP growth by expenditure approach. The real GDP growth in 2017 which calculated by expenditure approach was mainly driven by gross capital formation and household consumption. The real gross capital formation increased by 36.2 percent and real household consumption increased by 4.3 percent compared to previous year. The main factors affecting gross capital formation growth were the intensification of the big projects in the mining sector including construction of the 2nd phase of OT project and operation growth of the coal mining projects. Therefore, GDP growth at 2010 constant price reflected positive contribution from the gross capital formation by 10.6 percentage points. The real household consumption increased by 4.3 percent compared to previous year due to economic strengthening such as decreasing unemployment and increasing income in household. The household consumption had positive contribution to GDP growth by 1.8 percentage points.

General government budget indicators

According to the General Government’s Budget Performance for January 2018, the rate of actual equilibrated revenue is 104.7% compared to the plan, total expenditure implementation is 46.1% and total budget deficit is 114.2 billion togrog, which is 598.5 billion togrog more than planned.

Looking at the General Government’s Budget revenue by items, 88.4% of the equilibrated income comes from taxes while the remaining 11.6% comes from non-tax incomes.

Tax incomes increased by 107.7 billion togrog or 30% compared to the same period in the previous year and reached 468.6 billion togrog. This growth is driven by corporate income tax by 83 percent, excise tax by 63 percent, social insurance by 32 percent and the royalty income by 62 percent higher than planned performances.

Non-tax revenue decreased by 12.1 billion togrog or 22% compared to the same period of the previous year and reached 61.5 billion togrog.

Table. General Government Budget income decomposition

Billion togrog 2017.01 2018.01TOTAL REVENUE AND GRANTS 483.5 606.8

FUTURE HERITAGE FUND 65.8

STABILIZATION FUND - 10.7 TOTAL EQUILIBRATED REVENUE AND GRANTS 440.6 530.4

Tax revenue 360.9 468.6 Income tax 74.1 118.0Social security contribution revenue 77.0 101.4Property tax 5.1 4.6Value added tax 88.9 78.7Excise tax 38.3 62.4Income of special purposes 0.9 0.6Revenue of foreign activities 29.8 30.8Other taxes 46.9 55.3

Non tax revenue 79.7 61.8 Common non-tax revenue 73.6 61.5Capital revenue 0.1 0.1Grants and revenue 6.0 0.2

Source: Ministry of Finance

General Goverment’s budget expenditure was planned to be 416 billion togrog but the actual expenditure turned out to be 416.2 billion togrog with a 46.1% execution rate, while Central Government’s budget expenditure was planned to be 734.4 billion togrog but the actual expenditure was 345.7 billion togrog with a execution rate of 47.1%.

Current expenditure:

● Goods and service expenditure - 181.3 bill.togrog

● Wage expenditure - 129.9 bill.togrog● Interest paid - 44.4 bill.togrog, ● Current transfer - 183.7 bil.togrog.

○ Allowances and aids to the veterans and elder people - 0.6 bil.togrog


January 2018○ Child money 13.7 bill.togrog, ○ Gratification to elder people 10.3

bil.togrog, ○ Government reserve - 19.2

bil.togrog Table. General Government expenditure decomposition

in billion togrog 2017.01 2018.01TOTAL EXPENDITURE AND NET LENDING

465.93 416.2

TOTAL EXPENDITURE 463.8 420.8CURRENT EXPENDITURE 414.7 414.26

Expenditure on goods and services

186.2 181.3

Interest 62.3 44.4Subsidies 2.9 4.8Current transfers 163.2 183.7

CAPITAL EXPENDITURE 49.1 6.6

Net lending minus repayments 2.1 -4.6

EQUILIBRATED TOTAL BALANCE

-25.3 114.2

Source: Ministry of Finance

Since the beginning of the year, 16.2 and 308.9 billion togrog have been repaid for a principle amount for the international project loans and for the Government’s external bonds. New project loans with a preliminary worth of 4.0 billion togrog have been obtained and Government's long term local bond worth 276.5 billion togrog have been repaid. During the stated period Mongolia’s general government’s total budget surplus was 114.2 billion togrog, while that of the central government budget was 18.2 billion togrog.

Monetary sector indicators

Money supply has increased by 31.6 percent compared to the same period in the previous year, and 0.6 percent from a month earlier and reached 15.8 trillion togrog in January 2018. Main factors behind this high annual growth are increasing saving deposits in domestic currency by 46.1 percent, current accounts in domestic currency by 37.7 percent and current accounts in foreign currency by

39.4 percent. The money supply in January 2018 consists of deposits in domestic currency with 54.9 percent, deposits in foreign currency with 15.3 percent, and current accounts in domestic currency with 13.2 percent.

Figure. Money supply, total loans outstanding, in billion togrog

02000400060008000

1000012000140001600018000

Broad money Loans

Source: Mongolbank

As of January 2018 the curreny in circulation reached 801.9 billion togrog, which is 8.9% increase over a year earlier.

Deposit statistics

Total deposits reached 11.1 trillion in January 2018, which is 30.4 percent higher than previous year. This is due to growth with 46.1 percent in domestic currency deposits, despite 5.9 percent decrease in foreign currency deposits.

Figure. Deposit statistics, annual percentage change


January 2018

2013

-1

2013

-5

2013

-9

2014

-1

2014

-5

2014

-9

2015

-1

2015

-5

2015

-9

2016

-1

2016

-5

2016

-9

2017

-1

2017

-5

2017

-9

2018

-1

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Total deposits Domestic currensy deposits

Foreign currensy deposits

Source: Mongolbank

Loan statistics

Total outstanding loans have increased by 10.3 percent in January 2018 compared to a year earlier and reached 13.6 trillion togrog. Non-performing, normal loans have increased by 13.0 percent, 11.0 percent and overdue loans have decreased 0.9 percent. The normal loans accounts for 84.4 percent of the total outstanding loans, while overdue and non-performing loans occupy 6.9 percent and 8.7 percent each.

Non-performing loans have reached 1193.6 billion togrog as of January 2018 and their share in the total loans outstanding have increased to 8.7%. This growth is driven by that private sectors loans increased by 3.5% and public sector loans increased by 2 times more than previous month.

Figure. Non-performing loans and their share in the total loans

2011

-12

2012

-9

2013

-6

2014

-3

2014

-12

2015

-06

2015

-09

2015

-12

2016

-03

2016

-06

2016

-09

2016

-12

2017

-03

2017

-06

2017

-09

2017

-120.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

012345678910

Public sectorPrivate sectorIndivdualsOtherOther financial corporation

Inflation

Consumer price index has increased by 6.9 percent from the the same period in previous year, 1.4 percent from the previous month in January 2018. The inflation is mainly driven by rise by 11.6 percent in transport services, 5.5 percent in education services, 5.8 percent in food items and beverages and 11.3 percent in housing, water, electricity and gas supply. The supply side factors mainly contributed on the food price. For example, there were decline in the potato harvest by 26.3 percent and vegetable harvest by 14.9 percent compared to the same period in the previous year.

Figure. Inflation decomposition

2011.12

2012.03

2012.06

2012.09

2012.12

2013.03

2013.06

2013.09

2013.12

2014.03

2014.06

2014.09

2014.12

2015.03

2015.06

2015.09

2015.12

2016.03

2016.06

2016.09

2016.12

2017.3

2017.6

2017.9

2017.12

-5.0

0.0

5.0

10.0

15.0

20.0

Food inflation(non meat) Meat inflationNon food inflation/non fuel/ Fuel inflationInflation/UB/ Series6

Foreign trade

Preliminary estimation indicates that in the January 2018, the external trade turnover reached USD 785.0 million, which is 11.2 percent higher than the same period of the previous year and the trade balance reached USD 62.7 million, which is 58.6 percent higher than the same period in the previous year.

Considering trade with main partner countries, China accounts for 61.3 percent of the total trade turnover, Russia for 16.3 percent. Trade with the PRC increased 0.3% compared to the same period in 2017 while that with the Russian Federation also increased 52.2%.


January 2018

Figure. External trade turnover, in million USD

2016.01 2017.01 2018.01* -

200.0

400.0

600.0

800.0

1,000.0

130.0 151.4 62.7

528.2

705.7 785.0

Export Import Trade balanceTrade turnover

Source: NSO

Exports: Goods and commodity exports decreased to USD 423.8 million, by 1.1 percent than the same period in the last year. This growth is mainly driven by a decrease in export volume of copper concentrate and coking coal. In particular, volume of copper concentrate export decreased by 27.1 percent and coking coal export volume decreased by 34.8 percent.

Figure. Main export commodities, in million USD

Source: NSO

The main commodities with trade partners:● Crude oil, copper concentrate, iron ore and zinc

concentrate- 100 percent to the PRC; ● 96.1 percent of coal is to PRC, 3 percent is to

Hong Kong, 0.8 percent is to Singapore and 0.1 percent is to the United Kingdom;

● Unwrought and semi-manufactured form gold- 100 percent to the United Kingdom;

● Cow and horse skins, in processed and unprocessed form, and sheep and goat skins- mostly to the PRC;

● Washed cashmere- 100 percent to the PRC;● Combed cashmere- 100 percent to India.

Imports: Goods and commodity imports reached USD 361.1 million, growing by 30.3 percent from the same period in the last year. The import growth is driven by imports of live animals, animal, vegetable products, prepared foodstuffs, diesel fuel,

machinery, equipment, base metals and articles thereof and all sorts of auto vehicles.

Major items in the total import are:

- Mineral products is USD 90.4 million or 25.0 percent of the total imports,

- Machinery, equipment, electric appliances and their spare parts- USD 80.1 million or 22.2 percent of the total imports,

- Hides and skins, chemical and chemical industry products, plastics, wooden and paper articles, textile articles, footwear and headwear, natural and cultured stones, precious metal and jewellery- USD 58.6 million or 16.2 percent of the total,

- Live animals, vegetable origin products, food products- USD 49.4 million or 13.7 percent of the total,

- Auto, air and water transport vehicles and their spare parts- USD 43.3 million or 12.0 percent of the total;

- Base metals and artices thereof- USD 25.3 million or 12.0 percent of the total,

- Other products- USD 13.9 million or 3.9 percent of the total.

Balance of payment

Commodity Measurement

2017 Jan

2018 Jan Growth

Main mineral commodities 381.6 361.5 -5.3%Copper concentrate 137.0 126.9 -7.4%

Volume thous.t 133.7 97.4 -27.1%Unit price $/t 1,024.9 1,302.2 27.1%

Coal 168.4 135.8 -19.3%Volume miln.t 2.6 1.9 -25.7%

Unit price $/t 65.0 70.5 8.5%Gold 18.2 27.2 49.3%

Volume t 0.5 0.6 33.3%Unit price $/t 39.0 43.7 12.0%Unit price $/ounce 1,253.9 1,403.9 12.0%

Crude oil 30.7 34.6 12.7%Volume thous.bar 592.6 555.5 -6.3%

Unit price $/bar 51.7 62.2 20.3%Iron ore 15.2 17.6 16.1%

Volume thous.t 259.8 436.7 68.1%Unit price $/t 58.4 40.3 -30.9%

Zinc ore 12.1 19.5 60.8%Volume thous.t 8.7 11.2 28.9%

Unit price $/t 1,395.3 1,739.6 24.7%Others 46.9 62.4 32.9%

TOTAL 428.5 423.8 -1.1%


January 2018In 2017 the balance of payment turned into positive USD 1.5 billion.

As looking at these accounts, the current account has a deficit of USD 984.4 million, 41 percent higher than the same period in the previous year while capital and financial accounts balance is increased by 1.8 times and reached USD 2.5 billion.

Figure. Balance of payment /million USD/

The reasons behind the rise in the current account deficit was that primary income balance increased by 57 percent.

Despite exports /f.ob/ grew 21 percent, imports /f.o.b/ grew, which resulted in 55 percent growth in the goods sub-account.

Service account deficit has decreased by 10 percent from the previous year. Herein, due to the increase with 22 percent in the volume of main 3 commodity products including coal, copper, iron ore has boosted transportation revenue by 61 percent than the last year even import growth suported the transport cost of goods. About other service components, tourism balance decreased by 19 percent, financial service decreased by 88 percent, telecommunication and information service decreased by 35 percent, business services decreased by 19 percent.

In the meantime, the increase in the capital and financial accounts by 1.8 times that resulted in the balance reaching USD 2.5 billion is mainly due to the increase with 62 percent in FDI and increase

with 2.4 times in Currency Deposit account. Net portfolio investment was positive USD 471.4 million, it is 3 percent lower than the same period of the previous year due to the Trade and Development Bank’s bond repayment of RMB 700 million/USD 117 million on July 20, 2017, that was first issued in 2014, and the Government's long term bond addition of (“Khuraldai” bond’s residual) USD 133.7 million, (“Gerege” bond’s residual) USD 411 million. Also external concessional loans within Extended Fund Facility program (IMF), including USD 200 million from ADB, USD 120 million from World bank, JPY 32 billion /equal to 283 million usd/ from JICA, contributed to financial account to increase by 2 times than last year.

In 2017, the foreign direct investment into Mongolia increased by 162 percent and reached USD 1.4 billion, in net terms. In particular, equity investment reached USD 725.3 million and debt instruments reached USD 629.8 million.

Figure. Foreign direct investments, monthly /million USD/

2015

.01

2015

.04

2015

.07

2015

.1

2016

.01

2016

.04

2016

.07

2016

.1

2017

.01

2017

.04

2017

.07

2017

.1

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

Эх үүсвэр: МонголбанкInternational reserves

International reserve reached USD 3008.1 million and is enough to cover 8.3 months of import needs in December 2017. Mongolbank sold USD 533.7 million and bought USD 397.7 million in the last year.

Figure. International reserves /million USD/


January 2018

-500.0

500.0

1500.0

2500.0

3500.0

1296.3

3008.1

Source: Mongolbank

The amount of gold Mongolbank purchased, the major component of Mongolia’s international reserve, reached 20.0 tonnes in December 2017, 9.3 percent higher than the same period of the previous year.

Figure. Amount of gold Mongolbank purchased /kg/

Source: MongolbankExchange rate

Official exchange rate announced by Mongolbank averaged annually 2439.6 togrog per USD in 2017. This appreciated by 2.5 percent from the beginning of the year, but depreciated by 13.5 percent from 2016.

As of January 2018, average exchange rate is fluctuated around 2426.3, with a normal distribution.

Figure. Change in exchange rate growth fluctuation /+ depreciation, - appreciation/

The appreciation of togrog is due strong commodity demand, the Mongolia’s participation in the IMF’s “Extended Fund Facility Program” and to the successful issuance of “Khuraldai” and “Gerege” bond on the international financial market resulted in the balance of payment reaching 1.5 billion USD.

Figure. Official exchange rate of togrog per USD

Source: Mongolbank, TDB, Naiman Sharga

A histogram of average daily volatility of exchange rates in the 2017 reveal flexible exchange rate fluctuations.There are daily average fluctuations for 243 days and the lowest daily appreciation is 0.36 percent while the highest average depreciation is 0.66 percent.

Figure. Daily exchange rate fluctuation


January 2018

Source: Mongolbank

Labor market

In 4th quarter of 2017, labor force has increased by 10.3 percent. 92.7 percent of the economically active population is employed. Employees increased by 11.8 percent due to the higher growth in Agriculture, Extractive, wholesale-retail and transportation sectors.

Table. Employment

Indicators 2016 IV 2017 IVThousand personsEconomically active population 1,239.8 1,367.2

Employed 1,132.8 1,266.9 Unemployed 107.0 100.3Economicall inactive population 814.1 822.7

In percentagesLabor force participation rate 60.4 62.4

Employment rate 55.2 57.9Unemployment rate 8.6 7.3

Source: NSO

Economically inactive population consists of 240.9 thousand students and school children (29.3 percent), 264.9 thousand (32.2 percent) pensioners and elderly, 105.4 thousand (12.8 percent) people looking after their children, 62.8 thousand (7.6 percent) houseworks and 60.4 (7.3 percent) thousand handicapped.

Labor force participation rate is 62.4 percent in the national level, 55.6 percent in the urban area, and

75.5 percent in the countryside, which is relatively high. The reason why the labor force participation rate is lower in the urban areas is that the share of those studying in education institutions is higher than in the countryside.

Unemployment rate is 7.3 percent at the country level and gender disaggregation reveals that unemployment rate for males is 7.8 percent while that of females is 6.8 percent.

Macroeconomic policy divisionEconomic Policy Department

Ministry of Finance

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