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Hans HolzhackerDecember 2016
TEE
Currency trend in 2017
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Mongolia has not done too badly – more to come or sufficient?
Mongolia
Azerbaijan
Brazil
China
Euro
Indonesia
Kazakhstan
NigeriaRussia
40
50
60
70
80
90
100
110
120
Currencies against the USDJan 2014 = 100
Source: IMF, Golomt Bank Research
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Fundamentally the exchange rate is not too far from where it should be.
100105110115120125130135140145150155160165170175180185190195200
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/12
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/06
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/12
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/06
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/12
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/06
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/12
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/06
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/12
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/06
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/12
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/12
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/12
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/12
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2015
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/12
Real effective (trade weighted, inflation adjusted) exchangerateDec 2000 = 100
Source: Mongolbank, Golomt Bank Research
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MNT does not look heavily overvalued also by GDP comparison (current USD, Purchasing Power Parity); MNT roughly in line with GDP per capita
MongoliaRussia
China
United States79,508 Brunei Darussalam
132,870 Qatar
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
GDP at current exchange rate / GDP at PPPIMF 2016 estimates
Current/PPP fx-rate GDP per capita (PPP), USD, r.h.s.
Poly. (Current/PPP fx-rate) Poly. (GDP per capita (PPP), USD, r.h.s.)Source: IMF, Golomt Bank Research
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Until mid-2016, the MNT had moved broadly in line with the copper price.
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7000
80001,700
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1,900
2,000
2,100
2,200
2,300
2,400
MNT and copper price
MNT/USD Copper price (LME USD/ton), r.h.s.Source: Bloomberg, Mongolbank, Golomt Bank Research
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However, foreign exchange reserves are very low. Mongolia desperately needs foreign capital inflows.
0
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4000
4500
2006
/01
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/05
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/09
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/05
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/01
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/05
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/09
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/01
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/05
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/01
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/05
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/09
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/01
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/05
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/09
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/01
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/05
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/09
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/01
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/05
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/09
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/01
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/05
2014
/09
2015
/01
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2016
/01
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/05
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/09
Foreign exchange reserves, USDmn
Repayments Loan Repayment dateDevelopment bank bond USD 550 million 2017.03.21
USD 500 million 2018.01.05USD 1 billion 2022.12.05
Samurai bond /DBM/ JPY 30 billion 2023.12.25MMC bond USD 600 million 2017.03.29TDB Dim Sum bond CNY 700 million 2017.01.21Mongolia 2018 - Dim Sum Bond CNY 1 billion 2018.01.30TDB 2020 bond USD 500 million 2020.05.19Mongolia 2021 USD 500 million 2021.04.06
Government bond
Repayments due total about USD 1350mn in 2017-18, ex the restructured MMC bond.
Source: Bloomberg, Mongolbank, Golomt Bank Research
-20
-10
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1/3/
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11/3
/201
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1/3/
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Mongolbank's spot USD-selling, USDmn
USDmn
30 per. Mov. Avg. (USDmn)
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The current state of the economy: technically in recession
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2500
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4500
Mar
-11
Jun-
11
Sep-
11
Dec-
11
Mar
-12
Jun-
12
Sep-
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Dec-
12
Mar
-13
Jun-
13
Sep-
13
Dec-
13
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
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GDP at constant 2010 prices
Original series Final seasonally adjusted series
Nominal household income, % yoy 2015 1/4 2015 2/4 2015 3/4 2015 4/4 2016 1/4 2016 2/4 2016 3/4Total income 7.0 5.3 -2.1 -13.1 -10.9 -9.1 -10.8 Monetary income-Total 6.4 5.6 -2.6 -12.7 -9.8 -10.4 -9.0 Wages and salaries 8.1 6.3 -2.0 -10.7 -2.8 -6.3 -5.5 Pensions and allowances 8.9 14.2 13.5 8.3 1.3 -0.9 -1.6
Source: Mongolian statistical information service, Golomt Bank Research
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Mostly affected: mining, construction, trade
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-5
0
5
10
15
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25
3020
11 1
/420
11 2
/420
11 3
/420
11 4
/420
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/420
12 2
/420
12 3
/420
12 4
/420
13 1
/420
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/420
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/420
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/420
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/420
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/420
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/420
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/420
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/420
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/420
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/420
16 2
/420
16 3
/4
Real GDP growth by components, % yoy Net taxes on products
Services
Information andcommunication
Transportation andstorage
Wholesale and retailtrade; repair of motorvehicles Construction
Electricity, gas, steamand air conditioningsupply Industry
Mining and quarrying
Agriculture
Source: Mongolian statistical information service, Golomt Bank Research
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Main reason: low fixed investment
7.4
18.1
39.4
28.1
15.8
4.1 3.9
25.2
21.4
24.2
28.2
18.5
23.116.6
0
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30
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2009 2010 2011 2012 2013 2014 2015
Fixed investment in % of GDP
Mining and quarrying Non-mining investment
Source: Mongolian statistical information service, Golomt Bank Research
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Mongolbank funding needs to continue to some extent, also to finance (indirectly) the budget deficit. More liquidity poses some threat to the fx-rate, however.
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2005
M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
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M07
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M01
2016
M07
Central bank fundingin % of M2
Private sector
General Government
Non-Bank financial institutions
Banks
Central bank claims on:
Source: Mongolbank, Golomt Bank Research
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Hope is on:
• For kick-starting fixed investment and for foreign direct investment:OT2, ТT mining, Gatsuurt mining, Railway between TT – Gashuunsuhait, the TT-power plant, some other
• For foreign loans: IMF-stand-by, Swap-rollover, bilateral government loans (together with FDI sufficient to avoid a default)
• For commodity prices and Chinese imports:China faster downsizing resources than metal production
FDI inflows of USD 1-1.3bn annually plus USD 1bn in loans should be sufficient to stabilize the exchange rate. Mongolbank interventions are likely to be moderate and focus on smoothing volatility. There is substantial foreign exchange risk, but also a good chance, that the MNT will not substantially weaken further.
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China cuts investment in mining much more than in metal production – Chance for Mongolia?
Investment in Fixed Assets for the First Ten Months of 2016
Jan-Oct Increase from a year earlier, (%)
China’s investment in Fixed Assets 8.3 -Mining, of which -20.9 - -Mining and Washing of Coal -23.6 - -Extraction of Petroleum and Natural Gas -34.7 - -Ore Mining, Smelting and Pressing of Ferrous Metals -28.7 - -Ore Mining, Smelting and Pressing of Non-Ferrous Metal -8.7 - -Ore Mining, Processing of Non-Metallic Minerals -1.3 -Manufacturing, of which 3.1 Smelting and Pressing of Ferrous Metals -0.2 Smelting and Pressing of Non-Ferrous Metal -7.1
Source: National Bureau of Statistics of China
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Macro Variables Realistic Good BadProbability* 60% 10% 20%Foreign Direct Investment, USDbn
-4.1(adj. 0.1)/1.4/1.4
-4.1(adj. 0.1)/1.8/2.0
-4.1(adj. 0.1)/0.2/0.2
Growth in export prices, ann. average, % 3.0/3.0/3.1 3.0/10.0/8.0 3.0/-7.3/-7.2Fixed investment 2010 prices, % -9.7/13.4/16.6 -9.7/16.1/23.8 -9.7/-3.6/-2.2GDP growth, 2010 prices, % -2.9/1.3/3.4 -2.9/3.1/6.6 -2.9/-1.9/-2.5Inflation, annual average, % 1.2/3.2/7.4 1.2/4.7/8.6 1.2/4.9/7.9MNT/USD, eop 2500/2475/2410 2500/2450/2380 2500/2814/3075
* There is a 10% chance for a dramatic scenario (sovereign default)
Macro Scenarios 2016/17/18
