IMF approves $39.4 mln disbursement to Mongolia

WASHINGTON, June 24 (Reuters) - The International Monetary Fund on Wednesday approved a $39.4 million disbursement to Mongolia and said implementation of the IMF-backed economic program had helped stabilize the economy.

The IMF has so far disbursed $118 million of its $236 million financing package with Mongolia to help the country cope with the fallout from the global financial crisis and a sharp fall in commodity prices.

"The introduction of foreign exchange auctions, the continued commitment to a flexible exchange rate, and the skilled calibration of monetary policy have been instrumental in stabilizing market conditions," said Takatoshi Kato, IMF deputy managing director.

"As inflation has come down and international reserve buffers have been built, the authorities' recent monetary easing is appropriate," he added.

But he said government spending restraint will be needed to reach this year's fiscal deficit target of 6 percent of gross domestic product.

In addition, loans to gold mining operations will need to be repaid during the course of this year to reach the fiscal goal.

Strengthening the banking system in Mongolia should be a key priority, including pressing ahead with reform measures to bolster oversight and institutional frameworks, Kato said.

The government should also refrain from guaranteeing external loans to avoid fiscal risks, he said. (Reporting by Lesley Wroughton; Editing by Leslie Adler)