🚩 IMF TO MONGOLIA | STOCK MARKET | TRADING VOLUME

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Phew! Last week was quite busy in Mongolia with two IPOs launching very close to each other. Anyway, we hope that you managed to take part at least in one of them.

🤔 DID YOU KNOW?

🏛️ IMF ADVICE ON MONGOLIA'S ECONOMY

A working group of the International Monetary Fund (IMF) has recently visited Ulaanbaatar to hold discussions on the 2023 budget and the challenges the country’s economy is facing. Here’s what the IMF’s mission chief for Mongolia, Angana Banerji, highlighted during the press conference at the end of the visit.

The good news

Mongolia has significantly recovered from the pandemic and is doing much better than before. COVID-19 has been successfully contained thanks to the government’s efforts, and economic activity has normalized - especially cross-border transactions and activity on the domestic level. Export issues at the Chinese border have also been ameliorated thanks to the government’s work.

The bad news

More persistent inflation: The high inflation rate in Mongolia is partly explained by the surge in global prices for oil and food, which Mongolia imports, but is worsened by the economic recovery itself. Even though the pandemic is over, the government is still providing a lot of support, which is leading to more money in people's pockets and, consequently, more spending. This is fueling inflation by adding to the demand pressures within the economy.

Pressure on the Tugrik and international reserves: Exports are increasing, but so are imports - partly because people are now spending the support that they’ve accumulated during the pandemic. A number of state-owned enterprises have signed large investment contracts with Chinese companies within the last three years, which is resulting in large infrastructure imports required to build some of the related major projects as well.

• The central bank dilemma: The Central Bank of Mongolia (BOM) is trying to react by letting the exchange rate weaken and raising the key policy rate, but it has little influence over the demand for infrastructure imports. That’s why it’s important that the government and parliament take strong actions in support of the BOM.

The advice: highlights

• The subsidized mortgage program, which is increasing the import of construction materials, has to stop by the end of the year.

• The IMF is glad that a progressing income tax system is being considered for the 2023 budget - people who can afford a comfortable living should start paying more taxes, allowing the state to save more.

• The government should find ways to make the child money program more equitable and eliminate the existing gaps in it. The situation where the rich receive child money they don’t need and actually poor children don’t receive it at all must be addressed.

• The public investment of the government and state-owned enterprises have to be prioritized by the parliament and transparently discussed. Unnecessary projects will have to be delayed or cut altogether. The terms of the related investment contracts must be transparent, because the problems they create affect all Mongolians.

In conclusion, it was stated that without strong efforts and transparency from the parliament and government, the economic situation in Mongolia will go from bad to worse. The efforts of the BOM should also be supported by tightening public investment and investment of state-owned enterprises. Otherwise, the BOM will have to raise the key policy rate by so much that it will be very difficult for average Mongolians to repay their debt.

📈 DATA STORY

Activity on the secondary market has rebounded after 6 months’ decline, with a significant MoM trading volume increase of 63.9% in August. This can be explained by the “July Effect” where trading activity on the Mongolian stock market has been particularly low in July for the past few years - mostly due to people’s increased spending on Naadam celebrations and summer vacations.

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📰 LATEST STOCK MARKET NEWS

Mongolia as Frontier market

FTSE Russell reclassified Mongolia from Unclassified to Frontier market status effective from September 2023, confirming that the country meets all of the Quality of Market criteria within the FTSE Equity Country Classification scheme for attaining such status. Essentially, it means that FTSE has recognized the significant development of Mongolia’s equity market, and foreign investors will now have more confidence in investing here.

Government support in 2023

Another good news is that, in an effort to increase investment inflows and create favorable conditions for the country’s financial market, Minister of Finance B. Javkhlan has included the following measures to the 2023 budget draft:

• Favorable tax conditions for investors: The dividend withholding tax of an entity who invests in publicly traded shares of an enterprise registered in Mongolia that doesn't hold a mineral exploration and mining license will be reduced to 5%. Currently, the dividend withholding tax is 20% for foreign investors and 10% for domestic ones. The measure is expected to increase foreign and domestic investment, as well as create a favorable securities market environment.

• Less taxes for investment funds: The operating income of investment funds will be exempted from corporate income tax.

• IPO support: The cap for IPO related expenses will be increased by 20% and deducted from the corporate income tax. This will encourage more Mongolian companies to IPO and become publicly traded joint-stock companies.

Final note: stock market’s perseverance

Despite all the apparent difficulties, including high inflation, falling Tugrik and the overall tentative economic conditions, Mongolia’s equity market is still on the rise. With the banking sector IPOs commencing, the first open-end funds and the OTC market being established, the last two years have been one hell of a ride for the country’s stock market.

In the end, it’s clear that there are now much more investment opportunities in Mongolia than ever before - the equity market has passed its nascent stage and already entered the rapid development period.

🏃‍♀️ QUICK STORIES

📌 Prime Minister L.Oyun-Erdene meets Japanese counterpart. The parties stressed the importance of building strong political relations, advancing cooperation in the economic, trade and investment fields to a new level and intensifying public-private partnership. Issues related to bilateral tourism, including visa regulations and the frequency of flights, were also discussed.

📌 Minister of Labor and Social Protection removed from office. The Chief of Cabinet Secretary announced the decision on September 27, apologizing to the public for the ex-minister’s inappropriate terminology that discriminated against the less privileged groups of society. D.Sarangerel was previously appointed as minister on August 30, 2022.

📌 South Korean company to build waste-to-energy plant in Mongolia. KM Infrastructure Corporation has recently signed an agreement with the National Dispatching Center of Mongolia to build a waste incineration plant in Ulaanbaatar. The prospective plant with an installed capacity of 15.4 MW will be the first of its kind in the country.

📌 Mongolian company to export cloud services to Kazakhstan. Fibo Cloud has recently signed an agreement with Kazakhstan’s largest telecommunications operator Transtelecom to provide cloud services to ten of its centers. This is the first time a Mongolian company exports technology to Central Asia.

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