‘The only way to successfully implement monetary policy is to trim the budget’
- By Misheel Lkhasuren -
- Oct 28,2022
On Thursday, Parliament reviewed the draft basic guidelines for 2023 state monetary policy submitted by Mongol Bank on September 27.
The draft document provides for improving external solvency, preventing potential risks and directing macroeconomic policies to ensure the internal and external balance of the economy in 2023. In this context, by solving the problems of transportation and logistics and eliminating border bottlenecks, Mongol Bank believes it is possible to heighten export income, improve trade turnover, reduce transportation costs and solve pressure on prices and exchange rates.
Governor of Mongol Bank B.Lkhagvasuren informed that in the medium term, the bank has proposed to continue to support the development of foreign trade financial products and services in support of non-mining exports, which have become an essential factor for sustainable development, and create a sustainable green financing system.
Moreover, effective implementation of programs to combat money laundering and financing of terrorism at the national level, raising public awareness, protect the interests of financial consumers are included in the draft guideline.
Policy activities targeted at maintaining financial stability are also reflected. According to Mongol Bank, the following five measures will be implemented within the scope of measures to solve the problems arising in foreign trade, transportation and logistics, and increase the export of raw materials, goods and products:
• To improve the capacity and infrastructure of ports to meet international standards
• To increase the flow of exports and imports and make effective arrangements to avoid amassing containers on one side
• To study possible channels to increase transport routes and use them when necessary
• To investigate the risks of supply delays and develop the necessary plans
• To develop a transport and logistics policy and create a legal environment that is consistent with Mongolia’s foreign trade policy
During the plenary session, Governor B.Lkhagvasuren also provided information on foreign exchange reserves. He emphasized the need to create more reserves as the foreign currency reserves are currently at 2.6 billion USD, which can meet the needs of three to four months of imports.
“Mongolia will settle several foreign bond payments in the next two years. In 2023, a total of 1.3 billion USD will be spent on bond repayments, so there is a need to build foreign exchange reserves. In connection with the international economic situation and the situation of our country, it is estimated impossible for Mongolia to raise bonds with an interest rate of less than 10 percent on the international market,” he said.
“If the export of coal continues normally, it will be possible to pay off foreign debts with less pressure. The exchange rate of the tugrug against the US dollar has weakened by 18 percent compared to the same period last year. At this time, the interest rate of the US Federal Bank is increasing at the fastest rate in its history. As a result, the national currencies of countries such as Japan, South Korea and the EU are depreciating against the US dollar. Therefore, fluctuations in the exchange rate of the tugrug are inevitable but compared to the exchange rates of other countries, it is depreciating moderately.”
Deputy Prime Minister S.Amarsaikhan commented. “When it comes to the issue of Mongolia’s inflation, we should stop talking about the US inflation rate. Don’t compare a country with an average salary of 5,000 USD to the life of the people of Mongolia.”
Parliamentarian T.Dorjkhand expressed that the most difficult problem in 2023 will be the balance of payments. “If we can’t repay our bonds, we will go into default. The only way to successfully implement the monetary policy is to trim the budget. There is no way to keep inflation at a single digit. If we do not have a firm position on the state budget, the country will go bankrupt. If Mongol Bank raises the interest rate again, there will be no loans and no economic growth. International investors have left Mongolia. We need to support our monetary policy.”
Lawmaker O.Tsogtgerel noted that due to the expansion of the state budget, Mongol Bank had no choice but to hike the policy rate. Increasing policy interest is a “signal” that no money will go to businesses, he said. The lawmaker added that the country needs a system where monetary policy is implemented and businesses build the economy.
Legislator Ts.Munkh-Orgil highlighted the need to attract foreign banks and improve the conditions of the banking sector.