World Bank Approves 120 Million Usd in Financing to Support Mongolia's Economy

The World Bank approved a 120 million USD financial package for Mongolia to help support efforts to restore debt sustainability, strengthen the social protection system, and enhance the competitiveness of the economy.The funding is part of the Mongolia Economic Management Support Operation First Development Policy Financing (DPF), which the World Bank says comes at a critical juncture and aligns with the country's moves towards strong policy adjustment.

"This program endorses many of the measures that the government has taken to put Mongolia's economy on a healthier path. Policy reforms in priority areas will help fiscal adjustment, strengthen the social protection system, and improve the competitiveness of the economy.

Together with the long-term and affordable financing from the program, the reforms will help stabilize government debt, while strengthening the social safety net," said James Anderson, the World Bank Country Manager for Mongolia."A sharp drop in commodity prices and foreign investment, compounded by expansionary policies, created severe economic challenges for Mongolia.

The budget deficit grew rapidly and borrowing on the international markets both contributed to a four-fold increase in government debt, while expansionary policies contributed to a sharp currency depreciation and a significant loss of international reserves since 2013," stated the World Bank.Although Mongolia's legal system includes controls over fiscal deficits, these controls were largely circumvented in the past several years through off-budget expenditures.

By consolidating off-budget and quasi-fiscal expenditures, spending priorities will be debated during budget negotiations. Reducing capital expenditure the largest source of spending increase in 2016 is also a priority target.

Measures to boost revenues include a more progressive personal income tax system that will reduce taxes for lower income groups, as well as increases in excise taxes on alcohol and tobacco, supporting both health and revenue objectives. Other reforms to expand the tax base will follow in the coming years.

The DPF is closely intertwined with Mongolia's extended fund facility...