1. Macro economic outlook
2016
Ankhbayar Chuluunbat
Senior economist
Mandal General Insurance
Nov 11, 2015

2. Fiscal
policy
External
environment
Monetary
policy
1
Banking
sector
China’s
economy
Commodity
price
Current
balance
Shortfall of
budget income
Fiscal deficit
Currency
required
Foreign currency
reserve
Growth of the
assets and
liabilities
Profitability
NPL
Deficit of
Balance of
payment
Default riskFiscal deficit FX Risk
Тулгамдаж буй асуудал
FDI
Industries
Intervention
Growth sectors
Economic
Growth
Structural
risk
Composition
/ Structure
Key challenges
Money
Supply

3. BALANCE OF PAYMENT
DEFICIT

4. 6.9%
6.1%
6.7%
5.5%
6.5%
7.5%
8.5%
9.5%
10.5%
11.5%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016* 2017*
IMF WB EIU UN
Outlook of the China’s economy
Эх сурвалж: http://knoema.com
China’s economy growth is slowing down for sure.
2

5. Commidity price
Source: Bloomberg
35
55
75
95
115
135
155
175
195
215
Australian Coal Price ($/tn)
5217.3
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000 LME Copper Price ($/tn)
1124.8
350
550
750
950
1150
1350
1550
1750
1950 Gold Price ($/oz)
56.4
50
70
90
110
130
150
170
190
210
Iron Ore price ($/tn)
3

6. Where will this fall stop?
𝑆𝑡 = 𝑆0 + 𝑣 ∙ 𝑡 − 𝐷𝑖𝑠𝑡𝑎𝑛𝑐𝑒
𝑣 =
𝑣 + 𝑣0
2
− Average speed
𝑎 =
𝑣 − 𝑣0
𝑡
− Acceleration
𝑆𝑡 = 𝑆0 + 𝑣 ∙ 𝑡 −
𝑎 ∙ 𝑡2
2
− Distance
Physics formula
4

7. Stabilization of deterministic equation
∆2 𝑆𝑡 = 𝜆 ∙ Δ𝑆𝑡−1
Speed and acceleration
𝑡∗ =
1
𝜆
+
1
𝜆2
−
2𝑣
𝜆𝑎
𝑣 = Δ𝑆𝑡
𝑎 = Δ2 𝑆𝑡
Solution
5

8. Fall of the commodity price and
period
Commodity 𝒗 𝒂 𝝀 𝒕∗ Fall continues until
Coal 1.986 0.025 -0.74 13 2016M10
Copper 125.1 1.474 -0.78 13 2016M10
Gold 22.52 0.200 -1.14 13 2016M10
Iron Ore 11.51 0.122 -0.86 14 2016M11
Oil 1.41 0.015 -0.54 16 2017M01
6
From the calculation based on dynamic method, the fall of the commodity price shall
continue through Oct 2016.

9. Coal export has lost its leading position and copper took over. Coal and copper
combined contributes 61.5% of total export.
7
Эх сурвалж: Үндэсний статистикийн хороо
Export composition
0
500
1,000
1,500
2,000
2,500
0
500
1,000
1,500
2,000
2,500
3,000
Export of mineral commodities
/YTD, in Million USD/
Мөнгөжөөгүй алт
Зэс
Төмрийн хүдэр
Боловсруулаагүй
газрын тос
Нүүрс
Gold
Copper
Iron Ore
Raw oil
Coal
9.02%
49.21%
0.69%
1.27%
5.60%
2.24%
3.73%
0.94%
12.25%
8.08%
Мөнгөжөөгүй алт
Зэс
Молибдений хүдэр ба
баяжмал
Жоншны хүдэр ба
баяжмал
Төмрийн хүдэр
Цайрын хүдэр ба баяжмал
Бохир ноолуур
Самнасан ноолуур
Нүүрс
Боловсруулаагүй газрын
тос
Gold
Copper
Molibdenium
Flour Spar
Iron Ore
Zinc
Cashmere,
Cashmere, washed
Coal
Oil
Source: National Statistical Office

10. Equipment imports has dropped back to its 2010 level, fuel import to 2011 level,
and car import to 2010 level. However they still make the most part (55.7%) of
the imports.8
Source: National Statistical Office
Import Composition
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Нийт импорт /жилийн өссөн дүн, сая ам.доллар/
Машин, механик төхөөрөмж
Түлш, шатахуун
Тээврийн хэрэгсэл, эд анги
Төмөрлөгөөр хийсэн бүтээгдэхүүн
Хүнсний бэлэн бүтээгдэхүүн
Химийн бүтээгдэхүүн
Хуванцар, каучук
Чулуу, гөлтгөнө, цемент, шилэн сав
Ургамлын гаралтай бүтээгдэхүүн
Мал амьтны гаралтай бүтээгдэхүүн
19.5%
26.4%
9.8%
9.5%
8.6%
7.0%
3.9%
2.9%
2.0%
1.1%
Машин, механик
төхөөрөмж
Түлш, шатахуун
Тээврийн хэрэгсэл, эд
анги
Төмөрлөгөөр хийсэн
бүтээгдэхүүн
Хүнсний бэлэн
бүтээгдэхүүн
Химийн бүтээгдэхүүн
Хуванцар, каучук
Чулуу, гөлтгөнө, цемент,
шилэн сав
Ургамлын гаралтай
бүтээгдэхүүн
Мал амьтны гаралтай
бүтээгдэхүүн
Equipments, heavy
Fuel
Cars
Metal products
Food
Chemical goods
Plastic goods
Stone, cement, glass
Natural products
Animal goods
Equipments &
machineries
Fuel
Cars
Metal products
Food
Chemical goods
Plastic goods
Stone, cement,
glass
Natural products
Animal goods

11. Equations of current account prediction
Export equation
Δ𝑒𝑡
𝑥
= 0.1 − 1.82 ∙ 𝑒𝑡−1
𝑥
+ 0.33 ∙ Δ𝑒𝑡−1
𝑥
+ 0.4 ∙ 𝑢 𝑡−12
(3.4) (-13.5) (4.02) (5.03)
𝑛 = 138, 𝑅2
= 0.74
Δ𝑖 𝑡
𝑚
= 0.05 − 1.45 ∙ 𝑖 𝑡−1
𝑚
+ 0.18 ∙ Δ𝑖 𝑡−1
𝑚
+ 0.44 ∙ 𝑢 𝑡−12
(2.0) (-10.8) (2.18) (5.64)
𝑛 = 138, 𝑅2
= 0.67
9
Import equation
Gold export equation
Δ𝑔𝑡
𝑑
= 20.94 − 0.88 ∙ 𝑔𝑡−1
𝑑
+ 0.19 ∙ 𝑢 𝑡−12
(6.38) (-10.31) (2.2)
𝑛 = 140, 𝑅2
= 0.44
Services equation
∆2
𝑠𝑡
𝑒
= −1.43∆𝑠𝑡−1
𝑒
− 0.40 ∙ 𝑠𝑡−6
𝑒
(-9.18) (-2.51)
𝑛 = 37, 𝑅2
= 0.75
Net Income
∆𝑖 𝑡
𝑛
= 39.98 − 0.47𝑖 𝑡−1
𝑛
+ 0.88 ∙ 𝑢 𝑡−12
(3.40) (-3.66) (29.34)
𝑛 = 44, 𝑅2
= 0.75
Equation of Current payment
∆𝑐𝑡
𝑇
= 11.24 − 0.84𝑐𝑡−1
𝑇
− 0.87 ∙ 𝑢 𝑡−12
(5.55) (-5.84) (-36.44)
𝑛 = 44, 𝑅2
= 0.57

12. 10
Month Export Import Gold Services Net income Transfers Current
account
balance
2015M10 3859.4 3165.0 326.6 -624.3 -1051.6 148.4 -519.3
2015M11 4169.4 3450.9 350.1 -658.3 -1134.7 166.2 -570.8
2015M12 4494.8 3754.0 382.5 -690.6 -1245.2 184.2 -640.9
2016M01 325.3 273.0 26.4 -40.2 -79.7 20.4 -26.7
2016M02 609.8 529.6 57.0 -97.3 -167.0 33.3 -105.6
2016M03 911.2 787.0 75.9 -141.6 -274.0 51.0 -177.1
2016M04 1243.4 1076.0 102.9 -196.5 -359.5 61.3 -237.1
2016M05 1598.8 1399.1 123.3 -243.7 -456.0 62.5 -326.8
2016M06 1984.9 1718.6 148.2 -291.5 -568.7 68.2 -390.3
2016M07 2380.8 2031.1 171.2 -336.2 -681.6 84.3 -425.3
2016M08 2768.7 2336.6 204.5 -374.2 -771.4 87.6 -434.0
2016M09 3179.7 2644.7 229.3 -417.2 -851.1 102.6 -414.1
2016M10 3614.8 2953.3 253.3 -456.0 -933.4 116.3 -371.1
2016M11 4067.6 3261.4 277.1 -497.9 -1016.9 129.6 -314.5
2016M12 4549.8 3569.5 301.0 -539.5 -1101.1 143.0 -229.1
Projection of the current account balance
The condition of the Current account balance is improving.
In mln USD

13. Equations of the Foreign Direct Investment
11
Pessimistic case scenario
𝐹𝐷𝐼
𝐺𝐷𝑃 𝑡
= 0.04 − 1.35𝑑1 + 1.56𝑑2 + 0.003 + 0.055𝑑1 − 0.039𝑑2 ∙ 𝑡
(4.4) (-10.5) (24.7) (4.6) (11.82) (-21.8)
𝑛 = 47, 𝑅2
= 0.969
Realistic case scenario
𝐹𝐷𝐼
𝐺𝐷𝑃 𝑡
= 0.04 − 1.35𝑑1 + 1.59𝑑3 + 0.003 + 0.055𝑑1 − 0.04𝑑3 ∙ 𝑡
(4.6) (-10.3) (23.9) (4.3) (11.7) (-20.9)
𝑛 = 47, 𝑅2
= 0.968
Optimistic case scenario
𝐹𝐷𝐼
𝐺𝐷𝑃 𝑡
= 0.05 − 1.36𝑑1 + 1.61𝑑4 + 0.002 + 0.055𝑑1 − 0.04𝑑4 ∙ 𝑡
(4.8) (-9.9) (22.7) (3.87) (11.36) (-19.7)
𝑛 = 47, 𝑅2
= 0.966

14. Projections of the Foreign Direct
Investment
Date
Pessimisti
c
Realistic Optimistic
Pessimistic
/abs/
Realistic
/abs/
Optimistic
/abs/
2015M12 -1.5% 0.8% 2.6% -181.6 99.3 310.9
2016M03 -1.9% 1.2% 3.6% -228.2 138.7 424.4
2016M06 -1.8% 2.1% 4.8% -218.5 244.8 570.8
2016M09 -1.7% 2.7% 5.8% -201.3 319.2 686.6
2016M12 -1.6% 3.7% 7.1% -190.7 441.3 850.5
In million USD
12
Pessimistic case scenario: There is no new investments but the current downward inertia will
continue and FDI will reach -190.7 million USD.
Realistic case scenario: Certain investments, such as Eg River Hydro power plant, will push the
investment up to 441.3 million USD.
Optimistic case scenario: First deployment of OT 2nd phase and Tavan tolgoi investment will
boost the investment to 850.5 million USD.

15. FISCAL DEFICIT

16. Source: Ministry of finance
As of Sep 2015, stabilized budget income fell short by 787.9 billion MNT and therefore budget
was at 865 billion MNT deficit. Major factor influenced was VAT of imported goods – 263.4 billion
MNT, privatization income – 141.5 billion MNT.
Shortfall of Fiscal income
-1,075.7
-886.3 -865.0
-1,200
-1,000
-800
-600
-400
-200
0
200
400 Төсвийн алдагдал, тэрбум төгрөгFiscal deficit, Billion MNT
13

17. Source: Ministry of Finance
14
Total debt reached 216.7% of the country’s GDP. Out of this, state debts accounts for 61.4% and other
debts for 155.3%. Debt per capita is 16 million MNT and debt servicing per head per day is 45’345
MNT.
In 2016 government is to pay some 857 billion MNT for debt repayment.
Government debt /billion MNT/ 2015M03
Government foreign debt
10191.9
- Foreign loan
- Securities
- Guarantees
Domestic debt
3720.6
- Government securities
State debt 13912.5
GDP (Nominal, billion MNT) 22672.4
State debt / GDP 61.4%
Total Debt
Other debts /million USD/ 2015M06
Central bank 1851.3
Banks 2099.8
Other industries 3458.4
Private companies 10521.6
Total 17931.1
GDP (Nominal, Million USD) 11546.6
Other debts / GDP 155.3%
Source: Mongolbank

18. 15
In 2015, we will pay some 233 million USD for interest payment.
Foreign currency stock required for debt servicing
Borrowings Currency Amount
/ in mln USD /
Interest Interest payment
/ in mln USD /
Development
bank bond
USD 580 5.75% 33.35
MMC bond USD 600 8.875% 53.25
TDB 2017 Yuan 115 10% 11.5
TDB 2020 USD 500 9.375 46.875
Chingis 2018 USD 500 4.125% 20.625
Chingis 2022 Usd 1000 5.125% 51.25
Samurai 2023 JPY 290 1.52% 4.408
Mongol 2018 USD 160 7.5% 12

19. 16
Equations of the budget forecasting
Equation of fiscal income projection
∆2
𝑖 𝑡
𝑏
= 10.3 − 3.40∆𝑖 𝑡−1
𝑏
+ 1.68∆2
𝑖 𝑡−1
𝑏
+ 1.03∆2
𝑖 𝑡−2
𝑏
+ 0.55∆2
𝑖 𝑡−3
𝑏
+ 0.16∆2
𝑖 𝑡−4
𝑏
(1.72) (-10.09) (5.76) (4.65) (3.96) (2.60)
−0.38∆2
𝑖 𝑡−11
𝑏
+ 0.24𝑢 𝑡−1
(-10.88) (2.39)
𝑛 = 128, 𝑅2
= 0.926
Equation of fiscal expense projection
∆2
𝑐𝑡
𝑏
= 39.77 − 9.20∆𝑐𝑡−1
𝑏
+ 7.24∆2
𝑐𝑡−1
𝑏
+ 6.39∆2
𝑐𝑡−2
𝑏
+ 5.57∆2
𝑐𝑡−3
𝑏
+ 4.73∆2
𝑐𝑡−4
𝑏
(4.32) (-9.67) (7.83) (7.28) (6.81) (6.38)
+3.96∆2 𝑐𝑡−5
𝑏
+ 3.37∆2 𝑐𝑡−6
𝑏
+ 2.79∆2 𝑐𝑡−7
𝑏
+ 2.14∆2 𝑐𝑡−8
𝑏
+ 1.46∆2 𝑐𝑡−9
𝑏
+ 0.80∆2 𝑐𝑡−10
𝑏
(6.18) (6.51) (7.02) (7.50) (8.21) (9.88)
𝑛 = 128, 𝑅2
= 0.934

20. 17
Projection of budget income and expenditures
Date Income Expenditure Balance
2015M10 4,555.68 5,472.07 -916.39
2015M11 4,989.87 5,996.29 -1,006.42
2015M12 5,781.43 7,125.83 -1,344.40
2016M01 357.02 348.89 8.13
2016M02 769.82 782.64 -12.81
2016M03 1,301.06 1,226.59 74.48
2016M04 1,753.30 1,718.22 35.08
2016M05 2,205.10 2,200.70 4.41
2016M06 2,767.12 2,927.63 -160.51
2016M07 3,251.93 3,477.49 -225.56
2016M08 3,706.48 3,959.45 -252.97
2016M09 4,194.40 4,495.02 -300.62
2016M10 4,792.86 5,080.84 -287.99
2016M11 5,057.47 5,610.72 -553.25
2016M12 5,848.17 6,778.39 -930.23
Billion MNT
Looking at the historical performance, budget deficit is likely to stay around
4 percent of the GDP.

21. FX RISK

22. As of August 2015, total loan has exceeded money supply by 2 billion MNT. An excessive lending has
eroded external net assets.
Source: Mongolbank
Money supply and Loan
18
-3742
14777
-5000
0
5000
10000
15000
20000 Гадаад цэвэр актив /тэрбум. төг/
Дотоод цэвэр зээл /тэрбум. төг/
External net assets /bln MNT/
Domestic net assets /bln MNT/
9938.6
11938.5
200
2200
4200
6200
8200
10200
12200
14200 Мөнгөний нийлүүлэлт /тэрбум төгрөг/
Нийт зээл /тэрбум төг/
Money Supply /bln MNT/
Total Loan /bln MNT/

23. Foreign exchange reserve, as of Sep 2015, is at 1.4 billion USD. Fluctuation of the Reserve money
is remained high.
Source: Mongolbank
Foreign exchange reserve and reserve money
1413
250
750
1250
1750
2250
2750
3250
3750
4250
4750 Foreign exchange reserve
/million USD/
2410
0
500
1000
1500
2000
2500
3000
3500
4000
Reserve money
/Billion MNT/
19

24. 20
Central bank’s intervention
to the local currency market
0
4
8
12
16
20
24
0 20 40 60 80 100 120 140
Series: USD_SUP
Sample 1 56
Observations 56
Mean 15.89018
Median 11.45000
Maximum 140.0000
Minimum 1.000000
Std. Dev. 20.19931
Skewness 4.573324
Kurtosis 27.26309
Jarque-Bera 1568.837
Probability 0.000000
0
1
2
3
4
5
6
7
8
10 20 30 40 50 60 70 80 90 100 110 120
Series: CNY_SUP
Sample 1 56
Observations 55
Mean 50.81582
Median 48.00000
Maximum 123.9000
Minimum 6.000000
Std. Dev. 24.38581
Skewness 0.870978
Kurtosis 3.985178
Jarque-Bera 9.178096
Probability 0.010163
So far this year, central bank has spent 869.4 million USD and 2.5 billion Yuan in intervention.

25. 21
Equations of exchange rate
𝐵𝑂𝑃𝑡 = 𝐶𝐴𝐷𝑡 + 𝐶𝐹𝐴 𝑡 + 𝑁𝐸0
EQUATION OF BALANCE OF THE PAYMENT
EQUATION OF ASSETS AND FINANCE
𝐶𝐹𝐴 𝑡 = 𝐶𝐴0 + 𝐹𝐷𝐼𝑡 + 𝐹𝐴0 + 𝑂𝐼𝑡
EQUATION OF OTHER INVESTMENTS IN THE BALANCE OF PAYMENT
𝑂𝐼𝑡 = 𝑂𝐼0 + 𝜆 ∙ 𝐵𝐷𝑡
EQUATION OF THE SUPPLY AND DEMAND BALANCE OF THE CURRENCY
𝜀𝑡 = 𝛾 ∙
𝐵 𝑑 − 𝐵𝑠
𝐺𝐷𝑃 𝑡
= 𝛾 ∙
𝐵𝑂𝑃𝑡
𝐺𝐷𝑃𝑡
EQUATION OF THE REAL CHANGE OF THE RATE
𝜀𝑡 = 𝜋 − 𝑒 − 𝜋 𝑓

26. 𝑀𝑡 𝑣0 = 𝑃𝑡 𝐺𝐷𝑃𝑡
EQUATION OF MONEY STOCK THEORY
EQUATION TO FORECAST THE EXCHANGE RATE
By combining the above mentioned equation, we can now build an equation of exchange
rate.
𝑒𝑡 = 0.22 + 0.42𝑒𝑡−1 − 0.43
𝑀
𝐺𝐷𝑃 𝑡
+ 0.69𝐸𝑡
𝐵𝐷𝑡+1
𝐺𝐷𝑃𝑡+1
− 0.29
𝐹𝐷𝐼
𝐺𝐷𝑃 𝑡
− 0.81
𝐶𝐴𝐷
𝐺𝐷𝑃 𝑡
− 0.6𝑦𝑡
(2.86) (3.13) (-2.07) (2.34) (-1.8) (-4.13) (-2.24)
𝑛 = 46, 𝑅2
= 0.75
∆2
𝑀
𝐺𝐷𝑃 𝑡
= 0.003 − 0.98
𝑀
𝐺𝐷𝑃 𝑡−1
− 0.72𝑢 𝑡−3
(2.26) (-6.11) (-2.07)
𝑛 = 45, 𝑅2
= 0.61
22

27. FX forecast
Assuming that economic would keep up its current pace of 3%, and Fiscal deficit is managed within 4% of
the GDP, then currency rate is forecasted as follows.
1997 1994
2017
1983
2011
1977
1997
1981
1999
1961
1986
1934
1997
1971
1985
1945
1968
1905
1900
1920
1940
1960
1980
2000
2020
2040
2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4
Гутранги Нейтрал ӨөдрөгPessimistic Neautral Optimistic
US dollar exchange rate us forecasted to be at 1977 if the FDI stays at today’s
level, at 1934 if the FDI increases by 441 million USD, at 1905 of the FDI
increases by 850 million USD annually.
23

28. DEFAULT RISK

29. Growth of assets and liability of banking sector
Growth of the loan portfolio has been decelerated and went below the growth of its
funding. One can observe that correction is done over 6-10 months time period
until its finally ready to grow again.
24
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Банкны салбарын активын өсөлт
Банкны салбарын зээлийн өсөлт
Банкны салбарын харилцах, хадгаламжийн өсөлт
Growth of the total assets of the banking sector
Growth of loan portfolio
Growth of Current account and deposits

30. Margin
Source: Mongolbank
25
Profits of the banking industry fell back to 2013 level.
-143.4
358.9
206.0
-180
-80
20
120
220
320
420
2004M03
2004M07
2004M11
2005M03
2005M07
2005M11
2006M03
2006M07
2006M11
2007M03
2007M07
2007M11
2008M03
2008M07
2008M11
2009M03
2009M07
2009M11
2010M03
2010M07
2010M11
2011M03
2011M07
2011M11
2012M03
2012M07
2012M11
2013M03
2013M07
2013M11
2014M03
2014M07
2014M11
2015M03
2015M07
Банкны салбарын тухайн оны ашиг, алдагдал, тэрбум төгрөгөөрNet profit after tax, in billion MNT

31. Non performing loan(NPL) grew 41.7 percent for the first 9 months, y-o-y. The
NPL ratio is increased to 7% as lending is reduced.
Source: Mongolbank
Non-performing loan
7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
NPL rate of banking sector
87
189
266
353
462
317
453
590
747
837
0
100
200
300
400
500
600
700
800
900
1,000
Amount of the NPLs
/in billion MNts/
26

32. Non-performing loan by industries
Source: Mongolbank, as of 2nd quarter of 2015
Industries Total Loan
Non-Performing
loan
NPL Ratio
Mining 1,113.38 261.6 23.5%
Manufacturing 1,289.46 96.18 7.5%
Construction 1,593.02 86.64 5.4%
Trade 1625.01 200.17 12.3%
Agreculture 355.26 16.44 4.6%
Transportation, Warehouse 154.67 22.1 14.3%
Housing and food 226.58 17.79 7.9%
Mining industry is classified as Toxic, Trade industry as Severe, transportation
and warehouse industry as Severe.
27

33. Equation of the NPL forecasting
𝑁𝑃𝐿 𝑡 = 0.008 + 1.014 ∙ 𝑁𝑃𝐿 𝑡−1 + 0.033 ∙
𝐶𝐴𝐷
𝐺𝐷𝑃 𝑡
− 0.029 ∙ 𝑚 𝑡 + 0.061 ∙ 𝑒𝑡
(1.90) (26.48) (2.93) (-3.13) (3.49)
𝑛 = 46, 𝑅2
= 0.94
7.0%
8.0%
9.0%
9.9%
10.7%
11.5%
6%
7%
8%
9%
10%
11%
12%
2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4
Зээлийн чанаргүйдлийн хувьNPL Ratio
28
NPL is set grow further and hit 11.5% by the end of 2016.

34. STRUCTURAL RISKS
(INDUSTRY)

35. 14.2%
16.8%
6.8%
20.0%
11.2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Хөдөө аж ахуй Уул уурхай
Аж үйлдвэр Тээвэр харилцаа холбоо
Худалдаа Үйлчилгээ
Барилга, үл хөдлөх хөрөнгө
Agreculture
Manufacturing
Trade
Consruction, real estate
Mining
Transportation and telecom
Services
Industrial composition
Our economy is has been closely tied with certain industries, such as Agreculture, Mining
and Services, and those industries were dependent on natural and global market risks.
29

36. Economic growth
Economy growth is not being preserved.
Эх сурвалж: Үндэсний статистикийн газар
-3.2%
-9.3%
-3.2%
2.1%
6.4%
2.2%
3.9% 3.1%
1.1%
3.0%
4.7%
7.0%
10.6%
7.3%
8.6%
10.2%
8.9%
-1.3%
6.4%
17.5%
12.4%
7.8%
3.0%
-15%
-10%
-5%
0%
5%
10%
15%
20% Mongolian economy
30

37. GDP growth projection equation
EQUATION OF GROSS DEMAND
𝐺𝐷𝑃𝑡 = 𝐶𝑡 + 𝐼𝑡 + 𝐺𝑡 + 𝑁𝑋𝑡
EQUATION OF MONEY DEMAND
𝑀
𝑃 𝑡
= 𝑘 ∙ 𝐺𝐷𝑃𝑡 − ℎ ∙ 𝑟𝑡
EQUATION OF CONSUMPTION
𝐶𝑡 = 𝐶0 + 𝑐1 𝐺𝐷𝑃𝑡 − 𝑇𝑡 − 𝑐2 𝑟𝑡
EQUATION OF REAL PRICE CHANGE
𝜀𝑡 = 𝜋 − 𝑒 − 𝜋 𝑓
EQUATION OF DEMAND AND SUPLY
𝜋 𝑡 = 𝛾 𝐺𝐷𝑃𝑡 − 𝐺𝐷𝑃0
31

38. GDP Growth projection
𝑦𝑡 = 0.07 + 0.46 ∙ 𝑦𝑡−1 −0.22 ∙ 𝑟𝑡 −0.14 ∙
𝑁𝑋
𝐺𝐷𝑃 𝑡
+0.06 ∙ 𝑚 𝑡 − 0.12 ∙ 𝑒𝑡
(2.69) (4.58) (-2.28) (-2.67) (2.12) (-2.22)
𝑛 = 46, 𝑅2
= 0.75
3.4%
3.6%
3.8%
3.6% 3.6%
3.8%
4.0%
4.3%
4.1% 4.1%
4.0%
4.3%
4.6%
4.4% 4.4%
3.3%
3.5%
3.7%
3.9%
4.1%
4.3%
4.5%
4.7%
2015Q4 2016Q1 2016Q2 2016Q3 2016Q4
Гутранги Нейтрал Өөдрөг
32

39. There are many challenges to our economy. Most of them were caused by decreased FDI, acute
budget deficit, dollarization, rise of non-performing loan, and slowdown of economy overall.
China’s economy is showing no sign of acceleration, therefore the mining commodity prices have a
very thin hope for recovery. Mathematical calculation shows that the downward trend of their price
will continue for another 10 months.
On the other hand, current account is projected positively, and surplus of the trade balance shall
stay around 6.5% of the GDP. Other corrections of twin deficit crisis should continue as well.
In the likely environment of the budget deficit under 4% of the GDP and GDP growth of no less than
3%, the inflow of foreign direct investment equal to 3.7% (or 7.1%) will push the currency rate down
by 20-40 tugriks (or by 60-90 tugriks).
If the non-performing loan problem gets out of the hand, 11.5 percent of all loan might be at risk. If
NPL ratios goes beyond 14.2%, the capital of the entire banking sector will become inadequate.
Structural risks, improper industrial composition and vulnerability due to over dependence is making
our economy unstable and exposed to short-term shocks.
Economic growth for the next year is predicted to be around 3.6% to 4.4%.
Conclusion
33

40. THANK YOU FOR YOUR ATTENTION
34