Challenges in Fiscal and Monetary Policies in Mongolia

Description

This book provides quantitative evidence on the issues in fiscal and monetary policies in Mongolia and presents necessary policy recommendations for policymakers and academic circles. Mongolia belongs to a natural resource-based, transition economy and thus has faced the risk of the so-called resource curse―including the “Dutch Disease” and immaturity in market-based systems, particularly in financial markets. Consequently, reformations of resource allocation and policy governance in fiscal and monetary fields have been required. So far, however, there have been only a very limited number of quantitative studies in the Mongolian economy among the vast literature of Asian studies.  This book applies scientific approaches to address fiscal and monetary issues, such as data-oriented and econometric methods (a structural vector auto-regression model, a spatial econometric model, and panel estimation with fixed effects, among others). In this manner, the book enriches empirical evidence in academic literature and also contributes to evidence-based policymaking. All the authors are young leaders of government officials in the Ministry of Finance, Financial Regulatory Commission, and National Statistics Office in Mongolia, who have been trained in academic research methodologies at Saitama University, Japan, on JICA-JDS scholarships. Thus, academic researchers and policymakers will be prominent members of the target audience for this work.  Preface Contents Chapter 1: Analysis of the ``Dutch Disease´´ Effect and Public Financial Management of the Mongolian Economy 1.1 Introduction 1.2 Literature Review 1.2.1 Literature on the ``Dutch Disease´´ 1.2.2 Literature on Public Financial Management for Resource-Rich Countries 1.2.3 Mongolian Studies and Contributions 1.3 Theoretical Framework 1.3.1 Pre-Boom Equilibrium 1.3.2 Effects of a Boom: Resource Movement Effect 1.3.3 Effects of a Boom: Spending Effect 1.3.4 Intertemporal Effect: Capital Accumulation Effect 1.4 Empirical Analysis 1.4.1 Key Variables and their Data 1.4.2 Methodology for a VAR Model Estimation 1.4.3 Estimation Outcomes and Interpretation 1.5 Policy Implications: Strengthening Public Financial Management 1.6 Conclusions References Chapter 2: Enhancement in Governance Capacity of the Sovereign Wealth Funds of Mongolia 2.1 Introduction 2.2 International Benchmarks: Norway and Chilean SWFs 2.2.1 General Understanding of SWF 2.2.2 Sound Portfolio Management with Hybrid Political Structure and Ethical Manner in Norwegian SWFs Governance GPFG Ethical Guidelines Responsibility Transparency 2.2.3 Calling Santiago Principles of SWF Legislation, Objectives, and Association with Macroeconomic Policies (GAP Principles 1-6) SWFs Support Sound Macroeconomic Policy Institutional Capacity Building in Governance (GAP Principles 6-17, Table 2.3) Investment Management and Risk Assessment GAP Principles 18-24 2.2.4 Coordination of Macroeconomic Policy Objectives in the Case of Chilean SWFs Governance Transparency 2.3 SWFs of Mongolia 2.3.1 Outline of SWFs of Mongolia 2.3.2 Overview of Government Policy on SWFs of Mongolia Mongolian Development Fund HDF Governance Transparency and Reporting Stabilization Fund FHF Institutional Framework of FHF Transparency and Reporting 2.3.3 Current Challenges of SWFs of Mongolia 2.4 Comparative and Qualitative Analyses 2.4.1 Literature Review Transparency Is Vital for Governance SWFs Contribute to Corporate Governance SWF Design and Development Are a Long-Term Process Institutional Capacity Is Core to Winners Governance Is the Key to Success 2.4.2 Methodology 2.4.3 Result of Comparative and Qualitative Analysis Comparative Analysis of Legislation Comparative Analysis of Contribution and Withdrawal Rule Comparative Analysis of Institutional Framework Comparative Analysis of Transparency and Accountability Findings of Qualitative Analysis for Mongolia 2.5 Importance of Governance in SWFs Using Panel Data Regression Analysis 2.5.1 Literature Review 2.5.2 Methodology 2.5.3 Theoretical Background 2.5.4 Data Governance Indicator and SWF´s Volume SWF´s Volume in Fiscal Activities 2.5.5 Result of Regression 2.6 Concluding Remarks and Recommendations 2.6.1 Conclusion 2.6.2 Recommendation for the Government of Mongolia References Chapter 3: Government Financial Support for Small- and Medium-Sized Enterprises (SMEs) in Mongolia 3.1 Introduction 3.2 Characteristics of Government Support for SMEs in Japan 3.2.1 Definition of SMEs in Japan 3.2.2 Importance of SMEs in Socioeconomic Development 3.2.3 Japanese Government Policy on SMEs from Post-war Period Through High-Growth Period Pre-war and Wartime Periods Post-war Reconstruction Period The High-Growth Period The Stable Growth Period (1973-1984) Transition Period, the First Stage (1985-1999) Development of Measures to Support Business Innovation Transition Period, the Second Stage (2000-Present) 3.2.4 Fiscal Investment and Loan Program Resource Allocation of the Fund Target Fields FILP and National Budget 3.2.5 Government Financial Institutions for SMEs People´s Finance Corporation Environmental Sanitation Business Finance Corporation National Life Finance Corporation Agriculture, Forestry, Fisheries Finance Corporation Japan Finance Corporation for Small Business Small Business Credit Insurance Corporation Japan Finance Corporation 3.3 Characteristics and Development State of the SMEs in Mongolia 3.3.1 Definition of SMEs 3.3.2 Outline of the SME Sector in Mongolia 3.3.3 Overview of Governmental Policy for SMEs in Mongolia State Industrial Policy Taxation International Support 3.3.4 Current Basic Challenges for SMEs Access to Finance as a General Issue for SMEs Cumbersome Loan Application Process 3.3.5 Lack of Data Access Instability in Government Actions and Bureaucracy 3.4 Identifying SME Density and Performance Distribution in Mongolia Using Spatial Data Analysis 3.4.1 Methodology 3.4.2 Theoretical Background Spatial Statistics (Moran´s I) Spatial Econometrics 3.4.3 Data 3.4.4 Spatial Statistical Analysis Result (LISA) 3.4.5 Regression Result 3.5 Concluding Remarks and Recommendations 3.5.1 Concluding Remarks 3.5.2 Recommendations and Policy Implications for the Government of Mongolia References Chapter 4: Macroprudential Policy to Manage Systemic Risk Deriving from Financial Institutions in Mongolia 4.1 Introduction 4.2 The Concept of Financial Stability and Systemic Risk 4.2.1 Financial Stability 4.2.2 Systemic Risk 4.2.3 Financial Instability 4.2.4 Macroprudential Policy 4.3 Literature Review 4.4 Methodology 4.4.1 Basics of Systemic Contribution Model 4.4.2 Financial Institutions´ Incentives 4.5 Empirical Analysis 4.5.1 Background 4.5.2 Analysis Time Dimension of Systemic Risk Cross-Sectional Analysis Systemic Expected Shortfall in 2009 Systemic Expected Shortfall in 2013 Systemic Expected Shortfall in 2017 4.5.3 Main Findings 4.6 Conclusion References Chapter 5: Inflation Targeting and Pass-Through Effect in Mongolia 5.1 Introduction 5.2 Overview of Trends in Inflation and Exchange Rate in Mongolia 5.2.1 Trends in Inflation 5.2.2 Trends in Exchange Rate 5.3 Literature Review and Contributions 5.4 Empirical Analysis 5.4.1 Key Variables and Data 5.4.2 Methodology 5.4.3 Estimation Outcomes and Interpretation 5.5 Concluding Remarks References Chapter 6: Stock Market Development and Macroeconomic Policies in Mongolia 6.1 Introduction 6.1.1 Capital Market Development in Mongolia 6.1.2 Current Macroeconomic Condition and Stock Market 6.2 Theoretical Framework 6.3 Literature Review 6.4 Empirical Analysis 6.4.1 Data and Methodology 6.4.2 Estimation Results and Discussion 6.5 Concluding Remarks References Chapter 7: Development Stage of the Bond Market in Mongolia Among Asian Countries 7.1 Introduction 7.2 Bond Market of Mongolia 7.2.1 Government Bonds 7.2.2 Corporate Bonds 7.3 Financial Development Index 7.4 Literature Review and Contribution 7.5 Empirical Analysis 7.5.1 Key Variables and Data Bond Market Development Structural Characteristic Developmental Stage Governance and Regulation of the Financial Sector Macroeconomic Policies 7.5.2 Methodology 7.5.3 Estimation Outcomes 7.5.4 Mongolia-Specific Factors 7.6 Concluding Remarks References