Washington, DC: An International Monetary Fund (IMF) staff mission, led by Mr. Tahsin Saadi Sedik, held discussions as part of the 2026 Article IV consultation with the Mongolian authorities in Ulaanbaatar during June 10–23, 2026. At the end of the visit, the mission issued the following statement.
- Growth remained strong in 2025, underpinned by a rebound in agriculture and robust mining activity. Strong growth continued in early 2026, mainly driven by buoyant mining activity, while non-mining growth was subdued. Inflation rose for a third month in a row, driven by surging food and energy prices, breaking the downward trend since November 2025. Despite the favorable mining outlook, vulnerabilities remain elevated.
- Maintaining fiscal discipline is critical. The main priorities include passing a supplementary budget that incorporates the agreed wage increases and refraining from cutting non-mining taxes and further expanding current spending. Reforms should focus on strengthening non-mining revenues, rationalizing spending, and rebuilding fiscal buffers, while complying with fiscal rules.
- The Bank of Mongolia (BOM) should stand ready to tighten if current food and fuel price shocks elevate risks of unanchored inflation expectations and second-round effects. Amendments to the BOM Law are critical to strengthen its effectiveness. Allowing greater exchange rate flexibility and further building FX reserves will strengthen resilience against shocks. The macroprudential framework should be further strengthened.
Recent economic developments, outlook, and risks
Despite multiple shocks, Mongolia’s economy has remained resilient. In 2025, growth was supported by a strong rebound in agriculture and robust mining growth, notably copper, even though coal prices declined sharply. In early 2026, buoyant mining activities also supported strong exports and growth. Reflecting policy tightening, credit growth moderated to about 17 percent in May 2026. Inflation rebounded, reaching 11.2 percent in May, driven by higher food and fuel prices. The exchange rate remained broadly stable since April 2025, and gross international reserves increased to $7.4 billion in early June, though remaining below the IMF’s Assessing Reserve Adequacy metric. Rating agencies have upgraded Mongolia’s sovereign credit rating and spreads have declined.
Lower coal prices in 2025 contributed to fiscal pressures. The authorities responded to mining revenue shortfalls in 2025 by tightening spending execution, resorting to tax prepayments, collecting tax arrears, postponing expenditure payments, and using the Fiscal Stability Fund. Some of these measures, together with the large wage increases, contributed to continued fiscal pressures in early 2026, which were partially eased due to robust mining revenue by May.
Growth is projected to remain robust in 2026, despite headwinds from higher energy prices and global uncertainty. GDP growth is projected to reach 5.8 percent, with strong mining activities expected to help offset weaker non-mining growth and reduce the current account deficit. Inflation is projected at 10 percent, driven by high food and fuel prices.
The fiscal balance is expected to deteriorate in 2026. This mostly reflects the increases in wages and the front-loaded and expedited execution of the two mega projects that have now been excluded from fiscal rules. Under the staff’s baseline scenario, the Sovereign Risk and Debt Sustainability Framework is expected to assess Mongolia’s sovereign risk as moderate, in line with the 2025 assessment.
Vulnerabilities remain elevated, with risks tilted to the downside. Key downside risks stem from political pressures to further reduce non-mining taxation, increase current spending, mostly through demands for higher wages across other public sectors and higher pensions, and draw down fiscal buffers. External risks include heightened geopolitical tensions, including spillovers from the Middle East conflict and Russia’s war in Ukraine, as well as uncertainty surrounding Chinese coal demand and commodity prices.
Policies to Safeguard Macroeconomic Stability
The overriding policy priority is to safeguard fiscal sustainability and reduce vulnerabilities amid costly new policy proposals.
A key priority is to submit a supplementary budget to Parliament. It should include the full impact of the salary increases for teachers and healthcare workers and expand the borrowing ceilings needed to finance the expected deficit. The goal would be to avoid cash shortages similar to those experienced in 2025 that would trigger the use of unconventional, one-off revenue measures.
The government should reconsider plans to lower non-mining taxes. The decision to reverse the expansion of VAT rebates from 2 to 5 percent is welcome. However, instead of tax cuts, efforts should focus on streamlining tax incentives, collecting tax arrears, and implementing tax and customs administration reforms. These should be accompanied by reforms aimed at streamlining and targeting social spending. These measures would reduce the budget’s vulnerability to commodity price shocks, create space for much-needed development spending and essential public services, support adherence to fiscal rules, and help rebuild fiscal buffers. Fiscal measures in response to higher fuel prices should be temporary and well targeted, while preserving price signals.
Pension reforms should not jeopardize fiscal sustainability. The proposed pension reform package includes some positive elements, such as parametric adjustments, while other components would be costly to the budget (estimated at about 1.3 percent of GDP annually).
Strengthening public financial management and fiscal transparency is critical. The exclusion of the two mega projects from the fiscal rules poses new challenges and requires measures to ensure reporting that follows good international practices. Further reforms include strengthening the Medium-Term Fiscal Framework, by including greater granularity and enhancing its realism, improving the governance of mining funds, and reviving the domestic government securities market. A strategy to monitor and reduce fiscal risks is needed to upgrade state-owned enterprises governance and oversight, mitigate contingent liabilities from public-private partnerships, enhance coordination with subnational entities, and address the Development Bank of Mongolia’s balance sheet and governance issues.
Monetary policy should remain tight. The BOM should stand ready to tighten further if current food and fuel price shocks elevate risks of unanchored inflation expectations and second-round effects. Pursuing greater exchange rate flexibility by phasing out the BOM’s role as the main provider of FX and hedging instruments, and accumulating reserves when conditions permit, would help enhance the economy’s capacity to absorb external shocks.
Reforms to strengthen the BOM’s credibility and effectiveness should be accelerated. As a priority, the BOM should be relieved from conducting quasi-fiscal operations, and the government should proceed with the stalled takeover of the BOM’s subsidized mortgage program, with subsidies transparently reflected in the budget. The amendments to the BOM Law, intended to enhance its mandate, autonomy, governance, and capital position, should be finalized and submitted to Parliament. Additionally, the establishment of a mortgage bank should be carefully considered and guided by good international practices.
The macroprudential framework needs further improvement. Welcome steps include the BOM’s decision to convene dedicated Monetary Policy Committee meetings focused on financial stability and macroprudential issues, along with the establishment of a new Financial Stability Department. Further actions are needed by the BOM, including the expansion of its macroprudential toolkit and enhancing coordination with the Financial Regulatory Commission. Continued progress in risk-based supervision, together with reforms to credit information, insolvency, and resolution frameworks, is needed to enhance financial sector resilience.
Structural reforms remain essential to achieving sustainable and inclusive growth. Priorities include improving the business environment to support investment and attract FDI, strengthening governance and anti-corruption frameworks, as well as the rule of law, and moving toward a more diversified and private sector-led growth model. In line with these objectives, key legislative reforms are needed, including the revised Foreign Investment Law, Insolvency Law, amendments to the SOE Law and the Minerals Law, and the draft Whistleblower Law.
The staff team expresses its sincere gratitude to the authorities and to a broad range of public and private sector counterparts for their warm hospitality and for the candid, constructive discussions.
read more: https://www.imf.org/en/news/articles/2026/06/26/mcs062626-mongolia-staff-concluding-statement-of-the-2026-article-iv-mission
