Financial Environment of Mongolia

As a result of prudent monetary policy implemented by the Bank of Mongolia, inflation, the clearest indicator on which Central Bank activity can be judged, has been held at a low and stable level over recent years. That is confirmed by the fact that inflation has averaged at around 6 percent during the last few years and will be contained within a comfortable annual 5 percent range for this year. Moreover, foreign currency reserves have been increasing over the same period and the tugrik, the national currency of Mongolia, has maintained a relatively stable exchange rate.
The following figures are sufficient to show the expansion of the financial sector and the improving role of financial intermediaries. In 2005, M2 to GDP ratio increased to 51.6 percent from 46.8 percent in the previous year, total assets of the banking sector to GDP ratio increased to 69.9 percent from 59.5 percent and loans to GDP ratio grew to 38.2 percent from 35.6 percent in 2004. The lending rate decreased 3.7 percentage points from the previous year; however, current levels are still high. Although we could explain the high lending rates as a result of the demand for loans, we are nevertheless taking measures to reduce the cost of investment into the country.
The privatization of fully and partially state-owned banks to foreign investors has been a notable success. The new owners have brought in modern management and technical skills which are spreading throughout the financial sector.
Finally, in addition to cementing our achievements, accomplished during a time of stable prices with a developing financial sector and growing economic sectors, we still face such challenges as how to accelerate economic growth, to improve real income of households and to attract more foreign investment to sectors other than mining such as manufacturing, tourism and infrastructure.