On July 2, Mongolbank reported on its website that as of May, Mongolian foreign exchange reserves reached 1.6 billion USD, which is a decrease of 52.6 percent from the previous year. As of May 2013, the Mongolian Treasury Fund had reserves of 3.38 billion USD. International analysts have warned that the Mongolian foreign exchange reserves have been declining to worrying levels. Last month, two analysts from Morgan Stanley financial services cooperation, Desmond Lee and Gaurav Singhal, cautioned that if foreign reserves continue to decline for a few more months, Mongolia will approach a point at which only two months’ imports are covered. Foreign exchange reserves are vitally important, for they provide confidence in the domestic currency and they finance the balance of payments of deficits and foreign loans.
The Chief Investment Officer of Mandal Asset Management LLC, G.Otgonjargal, noted that the Mongolian foreign exchange reserves currently cover sixteen months’ imports, and therefore are at a level to pay attention to. He said, “Due to the decline in foreign exchange reserves, the Central Bank will have difficulty stabilizing exchange rate fluctuations. Hence, it will become more difficult for businesspeople to predict exchange rates and plan their business decisions in coming months. In these circumstances when tools for preventing exchange rate fluctuations are scarce, Mongolian businesspeople are likely to undergo financial risk.” He also noted that, “Since gold exploitation is increasing, the Central Bank could increase its foreign exchange reserves in the short term by buying gold from the domestic market and increasing its gold reserves. Foreign exchange reserves can also be increased in the long term if foreign investment, debt flow or the balance of payments increases.”