A possible solution to Mongolia’s government debt?


Since its inception in 2011, the Development Bank of Mongolia (DBM) has financed energy, transportation, affordable housing, agriculture, processing factories and mining projects in the country. That is why, this institution serves a unique role in the local economy by filling the gap created by the emerging domestic banking sector, which remains unable to finance large development projects. Also, The Development Bank of Mongolia is the only policy financial institution who has a specific mandate to support projects in important sectors to further develop the economy, as stipulated in the Development Bank of Mongolia Act.

Even though, policy support and economic policies in Mongolia have been a priority of the current government, economic growth has been dragged down. By March of 2022 inflation rose steeply by 14.4%, causing a huge dent in real incomes and household consumption. However, this issue is not just a consequence of the current year, it has been building over the past. Therefore, in 2013, the Bank issued Mongolia’s first ever Samurai bond in the amount JPY30 billion with a 10-year maturity and coupon rate of 1.52%. The guarantee from the Government of Mongolia and Japan Bank for International Cooperation (JBIC) made it possible to secure the long-term funding with a lower interest rate at the time. The proceeds from the bond have been used to finance affordable housing, processing factories, and agricultural projects in Mongolia. 

Consequently, Mongolian Prime Minister Oyunerdene Luvsannamsrai has instructed the Development Bank of Mongolia to explore potential options, including an early payment, to settle its outstanding Samurai Bond obligations. Following this, the Bank will be able to further manage its future obligations and improve its overall debt profile. The move will reduce Mongolia’s general government debt as the sovereign guarantee on the bond will concurrently mature.  According to Mr. Manduul Nyamdeleg, CEO of DBM, the Bank is waiting on potential options to make an early payment on its first ever Samurai bond of JPY 30billion (US$231 million) before its maturity date of December 2023. DBM is the only policy-oriented financial institution in the country with a mandate to finance large-scale, strategically important development projects in Mongolia.