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http://zgm.mn/post/3052/

Mattia Romani: Mongolia’s been excellent partner for EBRD

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http://zgm.mn/post/3052/


The Official Gazette sat down with Mr. Mattia Romani, Managing Director of Economy, Policy, and Governance at the European Bank for Reconstruction and Development (EBRD). He talked about EBRD’s projects in Mongolia and possibilities to change the policy in a particular sector.

-The European Bank for Reconstruction and Development is one of the major investors of Mongolia. What further projects EBRD is planning to implement in the country?

-I am happy to say that we have projects across all sectors in Mongolia. We started working with SME’s but now expanded to infrastructure, especially renewable energy sector. And of course, we invest quite a lot in financial institutions as well. Across the board, we have now quite a balanced project activities in the country.

-Could you mention a few successful projects in specific?

-I would like to focus on something that we have done now in Mongolia for a while, which is not strictly focused on only investments. We invested over EUR 1.6 billion in the economy of Mongolia. What we also do a lot is to combine our investments with policy engagement, so that we can cooperate with a number of sectors, government agencies, and institutions. It’s interesting that we can reach a client and make a real difference with that client. For example, Gobi JSC, one of our clients who are demonstrating other investors to invest in the cashmere sector. What we are doing now with policy engagements is important. If we take the learnings from the projects, we talk to the government about changing regulations and laws, so that the changes and experience of that project can become law across the sector. In other words, the impact of our projects is really systemic.

-EBRD has been a long term partner of Mongolia since its transition to democracy. Is Mongolia a good partner, including both the SME’s and the government?

-Well, Mongolia has been an excellent partner for EBRD. There are three reasons to assume so. Firstly, SME’s have the growth aspiration. There are companies that want to grow and improve their standards. Secondly, Mongolia has the freedom of democracy, where people can say what they want  freely. And the third reason is that state entities always try to solve the problems and cooperate with us, even though there are some obvious difficulties.

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Petro Matad’s exploration of Red Deer 1 well fails

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Petro Matad Ltd., listed on the London Stock Exchange (LME) reported that Red Deer 1 exploration well has failed to find hydrocarbons. The company’s share price fell about 30 percent after the announcement.

The well was drilled down to 2,000 meters and no hydrocarbon bearing zones were identified. Red Deer 1 will now be plugged and abandoned. The drilling costed less than USD 4 million, the company said in a statement.

It did encounter the primary reservoir target, the Lower Tsagaantsav, slightly shallower than anticipated but no oil shows were present. Similarly, it observed indicators of potential source rocks but it was concluded that they were not mature in the vicinity of Red Deer.

“While the results of the Red Deer-1 well are disappointing, it was the first well to be drilled in any of the basins located in the south of Block XX and it, therefore, carried a lower chance of success than the wells in the north,” said Mike Buck, the Chief Executive of Petro Matad.



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Enkhbold: Revoking numerous licenses may scare off investors

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There has been a lot of changes in the mining sector, which accounts for nearly 90 percent of the exports, 75 percent of the Foreign Direct Investments, and 24 percent of the GDP. Mineral Resources and Petroleum Authority of Mongolia (MRPAM) has revoked 50 licenses since 2019. The Executive Director of the Mongolian National Mining Association, Mr. Enkhbold talked about the concerns and further challenges of the mining sector.

-The Government has withdrawn several mining licenses in the last month. How does it affect the mining sector of Mongolia?

-Even though the Government of Mongolia is prioritizing the environmental issues over mineral operations, it might be unfair for some entities in the sector. Mongolian National Mining Association aims to decrease irresponsible mining activities and it will not support the companies which offer indecent mining projects in Mongolia. However, the Government’s decision to revoke numerous licenses simultaneously is inappropriate. It will affect negatively to the external environment and investors. The government should reconsider the decision since it’s posing risk for the mining sector development.

-What are the best options in this case?

-The relevant authorities should make their conclusions and assessments on time so that it will not be necessary to stop the operation of many companies at the same time.

-Mongolia’s coal exports increased compared to the previous year. However, it might be reduced due to the decreasing coal imports of China. What is your view on this situation?

-It is too early to predict the results in advance. Mongolia nearly reached 60 percent of its target to export 42 million tons of coal to China. And the Chinese government has imposed quotas on its imports, but it can be increased or decreased depending on the economic and political situation in the global market. Currently, the main triggering factor of Mongolia’s coal exports is the trade dispute between the U.S and China. The two countries may settle their trade conflict this month.

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Mongolia’s mineral exports dependence may curtail economic growth

Decline of dropping commodity prices will directly affect exports

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The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mongolia, highlighting the country’s vulnerability to external shocks given its high debt levels and the economy’s dependence on mineral exports. Collapses to mineral demand can lead to a sharp fall in exports, weakening growth outlook and fiscal accounts, said the IMF in the report.

Mongolia’s economy has recovered vigorously from the recent downturn. Economic growth accelerated to 8.6 percent in the first quarter of 2019, after recording its first fiscal surplus in 2018, and gross international reserves increasing by USD 2.5 billion since 2016. The recovery stems from a stronger policy framework, significant official financing and a rebound in external demand.

Directors of the IMF encouraged the Bank of Mongolia (BoM) to continue to build reserves and do so through direct purchases and limit sales of foreign exchange to address disorderly market conditions. They also highlighted that financial sector reforms, including enhancing risk-based supervision and increasing bank capital are key to ensuring macroeconomic stability.

According to the IMF assessment, structural reforms should focus on strengthening governance and diversifying the economy. Furthermore, the authorities should improve infrastructure, enhance the legal framework and the investment environment, reduce environmental degradation, and make the agriculture sector more resilient to climate change.

Foreign direct investment (FDI) is expected to be strong, and improving current accounts spur reserves accumulation, said the IMF report. However, the trend is likely to slow down from 2021 due to domestic policy.

The IMF expected Mongolia’s economic growth to remain above 6.5 percent in 2019 and moderate to around 5 percent over the medium term. The primary headwinds are weaker export and growth. Partially balancing these headwinds, fiscal policy is expected to loosen in 2019 and 2020 relative to the 6 percent primary surplus seen in 2018.




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BoM keeps interest rate unchanged in line with analyst estimates

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The Monetary Policy Committee of the Bank of Mongolia (BoM) has decided to keep the policy interest rate unchanged yesterday. In other words, the policy rate remained 11 percent considering the current state of affairs, prospects, factors affecting the economy, the uncertainty of the external and internal environment, and risk.

As of August 2019, annual inflation is 8.9 percent nationwide. Inflation has increased, due to prices for meat, vegetables, universities fee, and other state-controlled products have risen in recent months. Inflation has stabilized around the target level, taking into account factors and economic stimuli of inflation.

In the first half of this year, economic growth has surged as a result of exceeded mining volumes and increased business lending, household consumption, investment, and budget expenditures.