Mongolia is in talks with the International Monetary Fund (IMF) over a loan package of $60 million to $70 million that could attract investment in its mining sector, the country’s president said on Thursday.
Mongolia hopes an IMF lending program would give other countries the confidence to lend it up to $3 billion in return for access to its mining sector.
It is negotiating with China, Russia, Japan and several Gulf countries on $300 million to $3 billion in loans that would be linked to large mining projects, Mongolian President Nambaryn Enkhbayar told Reuters.
The government aims for that cash to help it plug a budget deficit that is projected to swell to 6.5 percent of gross domestic product this year as falling commodity prices and demand for resources have hit revenues, Enkhbayar said.
“The (IMF) team is already in Mongolia, and they are now working with the Ministry of Finance and Mongolian National Bank to improve the budget indicators and maybe even to start concluding a program between the Mongolian government and the IMF,” he said in an interview on the sidelines of the annual meeting of the World Economic Forum.
The IMF loan itself would not be a major source of funding, Enkhbayar noted.
“But (it) should be a good, responsible institution which would work with the Mongolian government to have a specific, concrete program of action and based on that, other possible investors will be willing to invest a quite significant amount of money,” he said.
Although the country holds very little external debt, keeping it somewhat insulated from the financial crisis, it is extremely dependent upon exports of commodities such as coal, copper and cashmere, whose prices have plummeted.
The official exchange rate for the tugrug <MNT=> has depreciated by nearly a fifth to 1,395 against the U.S. dollar in the last three months, after a few years of trading steadily around 1,100 per dollar.
The amount the country ultimately borrows from other countries, which could also include Qatar, Kuwait and Abu Dhabi, will depend on the terms it is able to arrange, including what claims to mineral resources they will obtain, Enkhbayar said.
“We have approached them separately. All of these countries have specific investment interests in Mongolia. So depending on the project they are trying to invest in, we are discussing a certain amount of money with each country. That is why the range is so wide,” he said.
The investment projects under discussion include Tavan Tolgoi, often called the world’s biggest untapped coking coal deposit, he said.
Mongolia has also been exploring the possibility of issuing a sovereign bond of potentially $500 million, Enkhbayar said.
He acknowledged it would probably have to pay very high yields, particularly after Fitch Ratings earlier this month cut its sovereign rating by one notch to ‘B’, five levels below investment grade.