Source: The World Bank    Date: May 8, 2010

Noting how the positive trend of improvement in the fiscal deficit stalled in the first quarter of 2010, the World Bank has warned, in its latest monthly economic update, that Mongolia risks returning to the boom-and-bust cycle of the pre-crisis years if expenditures were to continue to rise in step with mining-related revenues. Fiscal consolidation is necessary, given the difficult financing conditions projected for the next few years, and especially because 2011 will be a difficult year for the budget as the Windfall Profits Tax will have been abolished.

Mongolia’s trade deficit has stabilized in recent months, and the exchange rate against the U.S. dollar has been stable, while foreign exchange reserves are close to record levels. The economic recovery and the prospects of strong growth in 2010 have contributed to recent consumer prices rises. In the banking sector, total lending growth remains muted as nominal lending and deposit rates remain high. On an aggregate level the commercial banks realized a profit of MNT 2.8 billion in March after reaching a loss of MNT 143.4 billion through 2009. The ratio of non-performing loans to total loans stabilized in March, but is still at 22 percent while principal in arrears is increasing.