Stand-By Arrangement and Mongolia

Kh.Kugershin

2017-02-14 11:18 GMT+8

Government of Mongolia is negotiating with International Monetary Fund (IMF) on Stand-By Arrangement (SBA). Minister of Finance B.Choijilsuren paid visit to the United States last week to meet with IMF representatives. Minister of Finance stated that final decision and the amount of loan will be finalized this week. 

IMF have submitted 13 proposals on operation of Development Bank. In regards, amendments to draft law on Mongolian State Development Bank was approved by the Parliament session last week.

WHAT IS STAND-BY?

The IMF SBA is an economic program of the IMF involving financial aid to a member state in need of financial assistance, normally arising from a financial crisis. In return for aid, the economic program stipulates needed reforms in the recipient country aimed at bringing it back on a path of financial stability and economic sustainability. The SBA is a sub-set of IMF and World Bank programs aimed at Structural adjustment

IMF’s SBA was created in June 1952 to provide financing to countries requiring help with balance of payments problems. The SBA has often been used by member countries and is the dominant lending instrument of the IMF, especially for emerging market countries. After a significant pause in such aid, the financial crisis that erupted in 2008 resulted in a large number of countries requiring such financial assistance from the IMF. The financing terms are normally more advantageous than private markets offer. In 2009, the IMF upgraded the SBA "to be more flexible and responsive to members countries’ needs." At the same time, the borrowing limits were doubled and more funds were made available up front. Generally, the "conditions were streamlined and simplified.

HOW MANY TIMES MONGOLIA REQUESTED SBA? 

IMF provided SBA to Mongolia twice and granted total of US$ 195.7 million loan, of which US$ 136.6 million was granted as an ordinary loan without adjustment. 

Government of Mongolia received the first SBA in 1991, the early stages of transition to a market economy. The main goal of the IMF supported SBA was to support balance of payments, promote economic stability and reduce unemployment. The SBA was approved for an amount equivalent to SDR 13.75 million.

Affected by the global financial crisis, price of Mongolia’s main mineral exports such as copper and zinc have fallen sharply in the world market  in mid-2009, causing declines in state revenues. Thus the Government of Mongolia requested an SBA with the IMF in support of its efforts to overcome the economic and financial crisis in Mongolia in March 2009. The Executive Board of the IMF approved a 18-month SBA for Mongolia in an amount equivalent to SDR 153.3 million (about US$229.2 million) with an annual interest rate of 5 percent to support the country's economic stabilization program. As a result, economic growth reached -1.6 percent in 2009.

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