Coordination of fiscal and monetary policies in Mongolia in anticipation of large-scale capital inflow

Upcoming large-scale mining and infrastructure development projects are expected to produce a major capital inflow which is going to have profound implications for the national economy. Monetary and fiscal policies need to be properly selected and coordinated with each other to enable the country to properly absorb the incoming resources without causing financial instability and structural imbalances typical for the “Dutch disease”. So far monetary and fiscal responses accommodating the capital inflow (such as the Fiscal Stability Law and Human Development Fund) have been prepared without necessary coordination with each other. The solicited study should incorporate various fiscal and monetary aspects of the capital inflow in a coherent analytical framework to provide an overall assessment of the current policy environment and its effectiveness in stabilizing the economy. Pros and cons of the policies currently in effect and those contemplated for the future should be assessed and whenever possible quantified, and appropriate policy conclusions and recommendations drawn.

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