The increase in exports has prevented a sharp depreciation of the tugrug amid declining exports and a slowdown in foreign exchange inflows, highlighted a new study by the National Statistics Office (NSO).

The “Coronavirus and Economy” report, published on Monday, examines changes in the socioeconomic situation in Mongolia over the last eight months as result of impacts of the global COVID-19 pandemic. It covers inflation, money and loans, state budget, domestic production, trade and services, and transportation services.

Foreign reserves amounted to 3.6 billion USD as of August, increasing by 0.05 percent compared to last year and by 1.8 percent compared to the previous month. Though this prevented dramatic depreciation of the tugrug, NSO recommends the government to boost exports and improve foreign exchange inflows as foreign reserves are limited.

“The public confidence in the tugrug has a direct impact on the stability of the tugrug. Savings held in foreign currencies accounted for 21.3 percent of total deposits in August 2019 but increased by 8.1 percentage points to 29.4 percent by the end of August 2020. The increase in the share of foreign currency deposits in total deposits indicates that the confidence of individuals and businesses in the tugrug is weakening. This increase in dollarization is a pressure on the exchange rate and an increase in interest rates,” the report cautioned.

As a countermeasure for dollarization, Parliament approved the strategy to reduce interest rates earlier this year, which stopped insuring US dollar savings and impose a tax on them.

In August this year, the average tugrug to dollar exchange rate became 2,849.11 MNT for a US dollar, showing 6.7 percent depreciation of the tugrug year-on-year and 0.4 percent depreciation month-on-month.

The new report emphasizes that the declining demand for mineral resources due to the COVID-19 pandemic and the economic slowdown in China have led to a decline in Mongolia's exports of coal, copper concentrate, iron ore, zinc concentrate, and oil.

As of August 2020, the total industrial production in Mongolia fell by 18.4 percent year-on-year with mining production declining 25.5 percent, while both export and import plunged by 16.9 percent and 15.6 percent respectively. The report also indicates 20.9 percent decline in fiscal revenue and grants in the last eight months. Meanwhile, the consumer price index rose by 2.1 percent, fiscal expenditure and loans by 32.1 percent, and the total balance of overdue loans increased by 15.6 percent. Nonperforming loans now accounted for 11.3 percent of total loans, while overdue loans account for 6.5 percent.

Corporate income tax and VAT revenues, which are paid to the state budget, have been declining in the refernce period This indicates that domestic producers, traders and service providers are facing challenges due to the pandemic, according to the “Coronavirus and Economy” report. Most of the active businesses were engaged in trade and services.

The report shows that income from excise tax decreased due to measures undertaken to prevent the spread of COVID-19, including reducing working hours of entertainment venues and bars. Revenue from excise tax on alcoholic beverages dropped by 24.3 billion MNT (22.1 percent) in the first half of 2020.

As of August 2020, fiscal deficit reached 2.6 trillion MNT. This was affected by the slowdown in the Chinese economy, declining demand for mining raw materials, declining fiscal revenues, and increasing public spending due to measures designed to prevent the outbreak of COVID-19.