ULAANBAATAR, Feb 6 (Reuters) - Mongolia is on course to receive another tranche of a bailout package agreed last year after progress in its economic recovery was praised by the International Monetary Fund (IMF) on Tuesday.
The IMF said in a notice that it has completed its third assessment of Mongolia's $434 million three-year Extended Fund Facility, part of a quarterly review process agreed last year and designed to ensure Mongolia's reforms remain on track.
Mongolia agreed in 2017 to cut spending and undertake structural reforms as part of a $5.5 billion IMF-led bailout package aimed at relieving debt pressure and bolstering the tugrik currency, which went into freefall in 2016.
But the agreement faced "significant risks" and would therefore be subject to a quarterly review, the IMF said.
The IMF said on Tuesday that Mongolia had met key fiscal deficit targets while strong international commodity demand had aided the country's recovery.
Mongolia's economic growth was now projected at 5 percent in 2018 and 6.3 percent next year, compared with an estimated 3.3 percent in 2017, it added.
"The economy is doing better than expected led by commodity exports and a pick-up in domestic demand," IMF staff team leader Geoff Gottlieb was quoted as saying.
Government revenues also benefited from the pick-up in commodities demand, with coal exports more than doubling on the year in 2017 thanks to stronger sales to China.
"These developments have resulted in a largely stable exchange rate, a fall in interest rates, and have greatly improved the government's debt service schedule," Gottlieb said.
"Nevertheless, the growth outlook is subject to risks including a fall in external demand for commodities and higher fuel prices," he added. "In light of these risks and still limited buffers, fiscal and monetary policies should remain prudent."
Neil Saker, the IMF's representative in Mongolia, told Reuters the next disbursement of funds will be made after the assessment is approved by the IMF's executive board meeting in March.
In December, Mongolia made a scheduled repayment of $500 million to investors in its $1.5 billion 2012 debt offering, named the Chinggis bond after the 13th century Mongolian conqueror known in the West as Genghis Khan.
Mongolia's stronger-than-expected recovery also enabled the government this month to abandon a 10-25 percent progressive income tax, which led to protests. The levy will instead revert to a flat rate of 10 percent. (Reporting by Terrence Edwards; Editing by David Stanway and Eric Meijer)