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http://zgm.mn/post/3262/

BoM: Rise in exchange rate will be tempered

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http://zgm.mn/post/3262/


MNT/USD rate hiked to USD 2,679

Following Mongolia’s inclusion on Financial Action Task Force FATF)’s grey list, the foreign exchange rate appeared to rise in the domestic market. In the last week, Mongolian tugrik (MNT)’s exchange rate against the US dollar (USd) weakened by USd 20, reaching USD 2,679. Accordingly, the Bank of Mongolia (BoM) organized an auction and supplied more than uSd 70 million to the market to reduce the exchange rate movements. Chairman of the Financial Regulatory Commission (FRC), Davaaasuren Sodnomdarjaa said, “Over 50 NBFIs are operating at Naiman Sharga exchange. The exchange rate fluctuated last weekend, and we are investigating the causes. However, the exchange rate is likely to be stabilized. We will work to warn those people who attempted to make a profit taking advantage of the greylisting.” After the pending assessment program of IMF completes, Mongolia will accept investment worth at least USD 700 million. Under such circumstances, the USD exchange rate is expected to lower, according to economists. The foreign currency flow may depend on whether the Oyu Tolgoi (OT) project’s second phase of construction will continue in the coming year. Last year, the project accounted for more than 70 percent of foreign direct investment in Mongolia.In other words, the majority of economists believe that Mongolia may not lack foreign currency as long as the OT project progresses. As of August, BoM’s foreign exchange reserves amounted to USD 3.6 billion, which is the highest level since 2016. BoM also explained the MNT depreciation is temporary and will be tempered.





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ACM annuls former PM decree on Dubai agreement

Oyu Tolgoi, a copper-gold mine in the South Gobi region of Mongolia, holds one of the largest undeveloped high-grade copper deposits in the world.

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Administrative Court of Mongolia (ACM) annulled Former Prime Minister Saikhanbileg Chimed’s order No.27, 99 and 123 on the 2015 Dubai Agreement. The document covers the costly and several times delayed underground expansion of Oyu Tolgoi (OT). Darkhan Mongol Nogoon Negdel NGO had requested ACM to invalidate Saikhanbileg’s order, considering it violated the law. The court decision confirms that the deal was signed illegally and the Dubai agreement has become invalid. However, the Government of Mongolia has the right to appeal to the ACM decision. Erdenes Oyu Tolgoi LLC, the 34 percent shareholder of OT declined to give specific information on the matter. Amongst Mongolians, the Dubai deal refers to an agreement on the pathway forward for starting development of the underground mine, which was signed by representatives of the government of Mongolia, Rio Tinto and Turquoise Hill Resources at a meeting held in Dubai in May 2015. Oyu Tolgoi was launched in 2009 after an investment agreement granted Mongolia its share and the rest to Canada’s Ivanhoe Mines, now the Rio Tinto-controlled Turquoise Hill Resources. Oyu Tolgoi, a copper-gold mine in the South Gobi region of Mongolia, approximately 550 km south of the capital Ulaanbaatar, holds one of the largest undeveloped high-grade copper deposits in the world. Between 2010 and the third quarter of 2019, OT spent over USD three billion on national procurement, of which USD 523 million was spent on procurement from Umnugovi province. The company signed MNT 2.7 billion contract to purchase 5,000 locally made standard leather safety boots from Khos Az LLC for the next three years. Following the opening of the two new factories in Manlai soum, 64 new jobs were created.







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Economy grows 6.3 percent as service sector increases

Service sector accounted for 2.9 percentage points or 40 percent of the growth, while mining sector growth made about 1.5 percentage points or 24 percent of the GDP rise.

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THE MINING SECTOR GROWTH MADE ABOUT 1.5 PERCENTAGE POINTS OR 24 PERCENT OF THE GDP RISE. SERVICE SECTOR INCLUDES TRADE, TRANSPORTATION, AND COMMUNICATION SECTORS, WHICH DEPEND ON THE MINING SECTOR, SHOWING THAT MONGOLIA’S ECONOMY IS STILL ENCOURAGED BY THE GROWTH IN MINING.

As of first nine months of 2019, Mongolia’s GDP at 2010 constant price increased 6.5 percent, to MNT 13.7 trillion, according to the National Statistical Office (NSO). This was mainly due to increases in the service sector which accounted for 2.9 percentage points or 40 percent of the growth.

The mining sector growth made about 1.5 percentage points or 24 percent of the GDP rise. Service sector includes trade, transportation, and communication sectors, which depend on the mining sector, showing that Mongolia’s economy is still encouraged by the growth in mining. In terms of the largest mining companies’ performance, Erdenes Tavan Tolgoi JSC exported 12.6 million tons of coal in the first 10 months and Energy Resource LLC 4.2 million tons of coal. Coal exports have reached 32.3 million tons, a 5 percent increase from the same period of last year.Thus, 524 national companies have supplied their products and services to Oyu Tolgoi (OT) LLC during the reporting period. OT spent USD 329 million on national procurement and the construction of Shaft 2 at the Oyu Tolgoi mine has been declared complete.The World Bank highlighted in its report in October, “In Mongolia, growth momentum has continued in the first half of 2019, as GDP rose to 7.3 percent from 6.8 percent in 2018. This robust performance has largely been supported by a strong coal sector and increased private investment. However, the report cautions of the risks including political uncertainty, commodity price shocks, cross border bottlenecks, implementation delay mega projects and slower implementation of banking sector reforms.”In addition to the main economic indicators, inflation has also declined. Consumer price index (CPI) at the national level, which increased 9 percent in September, rose 7.6 percent in October. In October 2019, a 5.1 percent increase in CPI from the end of the previous year was mainly due to increases in prices for meat and meat products by 27.4 percent and clothing, cloth and footwear for each group by 5.4 percent and alcoholic beverages, tobacco group by 2.7 percent, respectively.Meat prices have risen by 30 percent year on year, but have dropped by about 4 percent in October, compared to the previous month. However, the inflation rate in Ulaanbaatar is 8.5 percent, which exceeds the Bank of Mongolia (BoM)’s target.

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Coal export reaches 76 percent of target

Mongolia exported a total of 32.3 million tons of coal earning USD 2.75 billion in the first ten months of 2019

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Mongolia exported a total of 32.3 million tons of coal earning USD 2.75 billion in the first ten months of 2019, which is only equal to 76 percent of the 2019 export target of 42 million tons, according to the General Customs Administration of Mongolia. The coal export in the third quarter rose 1.4 tons or USD 309.2 million compared to the same period of the previous year. Mongolia exported 98.2 percent of the total coal to its southern neighbor. The country’s coal export remained less than 80 percent behind plan. In other words, Mongolia needs to export 9.7 tons of coal to meet the target plan. According to the Bloomberg report, China’s coal import is expected to stand between 200-300 million tons, posing risk to the coal export of its neighbor.In the same period of 2018, the average border price of coal stood at USD 78.8 per ton and increased to USD 85.0 this year.

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Job availability expectationdecreases among consumers

Consumers’ expectation of Mongolia’s economic situation in the next six months has deteriorated

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Current Situation Index (CSI) was the main driver of this growth. In particular, the CSI has increased by 7.3 percentage points to 60.7. However, the Expectation Index has decreased slightly by 1.8 percentage points and reached 98.7.

Consumers’ expectation of Mon­golia’s economic situation in the next six months has deteriorated, even though the current situation index has improved significantly. Consumers are less optimistic about job availability and income from a year earlier, decreasing the expectation index. In the third quarter of 2019, the Consumer Confidence Index (CCI) in Mongolia is 83.5 at a similar level compared to the same period in the previous year. It has increased only by 1.8 percentage points. A significant increase in the Current Situation Index (CSI) was the main driver of this growth. In particular, the CSI has increased by 7.3 percentage points to 60.7. However, the Expectation Index has decreased slightly by 1.8 per­centage points and reached 98.7.CCI in Ulaanbaatar was 94.1 in the reporting period while CSI reached 68.1, and Expectation In­dex stood at 111.5. Consumers in rural areas are less optimistic than in Ulaanbaatar with average CCI of 77.1. CCI survey collects data on con­sumers’ expectation price levels. In the third quarter of 2019, 61 per­cent of individuals have the ex­pectation of an “increase in price level” in the next six months and this response is lower by 11 per­cent compared to 2018. A quarter of consumers expects “no change in price level” in half a year. In the next year, consumers are expecting the annual inflation rate to be around 6 percent and the exchange rate of USD to be around MNT 2,706.