OFFICIAL DOCUMENTS =＝ニニニニニニニニニにニニニニニニニニニニニニニ LOAN NUMBER 9003-MN Loan Agreement (Economic Management Support operation Second Development Policy Loan) between MONGOLIA and 1NTERNAT10NALBANKF0RREC0NSTRUCTI0N ANDDEVELOPMENT ■国■■■■■■■■■■■■■■■■■■■■■■■園■■■■□■■■■■■■■■ 園■ー…■―国…園国■国■■■■■ー■■■国■■■■■■■■■国国■国国国■■■■■―園園国■■■ー■ー― … LOAN NUMBER 9003-MN LOAN AGREEMENT AGREEMENT dated as of the Signature Date between MONGOLIA ("Borrower") and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank7) for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). WHEREAS (A) the Borrower has requested the Association to assist in financing of the Program in the amount of fifty-eight million one hundred thousand Special Drawing Rights (SDR 58,100,000), pursuant to a financing agreement of even date herewith between the Borrower and the Association ("Financing Agreement"); and (B) the Bank has decided to provide the financing provided under this Agreement and the Financing Agreement, on the basis, inter alia, of- (i) the actions which the Borrower has already taken under the Program and which are described in Section I of Schedule I to this Agreement; and (ii) the Borrower's maintenance of an adequate macroeconomic policy framework. NOW THEREFORE, the Borrower and the Bank hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings 'ascribed to them in the General Conditions or in this Agreement (including the Preamble and Appendix hereto). ARTICLE 11 - LOAN 2.01. The Bank agrees to lend to the Borrower the amount of twenty million Dollars ($20,000,000), as such amount may be converted from time to time through a Currency Conversion ("Loan"). 2.02. The Front-end Fee is one quarter of one percent (0.25%) of the Loan amount. 2.03 The Commitment Charge is one quarter of one percent (0.25%) per annum on the Unwithdrawn Loan Balance. -2- 2.04. The interest rate is the Reference Rate plus the Variable Spread or such rate as may apply following a Conversion; subject to Section 3.02(e) of the General Conditions. 2.05. The Payment Dates are April 15 and October 15 in each year. 2.06. The principal amount of the Loan shall be repaid in accordance with Schedule 2 to this Agreement. 2.07. Without limitation upon the provisions of Section 5.05 of the General Conditions, the Borrower shall promptly furnish to the Bank such information relating to the provisions of this Article II as the Bank may, from time to time, reasonably request. ARTICLE III - PROGRAM 3.01. The Borrower declares its commitment to the Program and its implementation. To this end, and further to Section 5.05 of the General Conditions: (a) the Borrower and the Bank shall from time to time, at the request of either party, exchange views on the Borrower's macroeconomic policy framework and the progress achieved in carrying out the Program; (b) without limitation upon paragraph (a) of this Section, the Borrower shall promptly inform the Bank of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program including any action specified in Section I of Schedule 1 to this Agreement. ARTICLE IV - REMEDIES OF THE BANK 4.01. The Additional Event of Suspension is that a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Conditions of Effectiveness consist of the following: (a) the Bank is satisfied with the progress achieved by the Borrower in carrying out the Program and with the adequacy of the Borrower's macroeconomic policy framework; (b) the Bank has received a copy of a duly executed contract between BOM and an independent and external auditor under terms of reference and with qualifications acceptable to the Bank for carrying out forensic audit of the recapitalization process of selected commercial banks operating in the territory of the Borrower; and -3- (c) the Financing Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Borrower to make withdrawals under it (other than the effectiveness of this Agreement) have been fulfilled. 5.02. The Effectiveness Deadline is the date one hundred twenty (120) days after the Signature Date. 5.03. For purposes of Section 9.05 (b) of the General Conditions, the date on which the obligations of the Borrower under this Agreement (other than those providing for payment obligations) shall terminate is twenty (20) years after the Signature Date. ARTICLE VI - REPRESENTATIVE; ADDRESSES 6.01. The Borrower's Representative is its Minister at the time responsible for finance. 6.02. For purposes of Section 11.01 of the General Conditions: (a) the Borrower's address is: Ministry of Finance Government Building II S. Danzan Street 5/1 D Ulaanbaatar 15160 Mongolia and (b) the Borrower's Electronic Address is: Facsimile: 976-11-320247 6.03. For purposes of Section 10.01 of the General Conditions: (a) the Bank's address is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America; and (b) the Bank's Electronic Address is: Telex: Facsimile: 248423(MCI) or 1-202-477-6391 64145(MCI) -4- AGREED as of the Signature Date. MONGOLIA By Auth ed Reprefntative Name: Alf ,e/acike ex-Ime/ Title: A /4ijC-le-( ' Xaa &ee- Date: PP0 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By AuthoN9 Representative Name: n ffai NKA LV Title: r41/ of Date:~V~ -5- SCHEDULE 1 Program Actions; Availability of Loan Proceeds Section I. Actions under the Pro2ram The actions taken by the Borrower under the Program include the following: A. Restoring Debt Sustainability 1. The Borrower has publicly disclosed the comprehensive external special review on DBM's operations from 2012 to 2017, as evidenced through the Financial Diagnostic of the DBM dated December 4, 2018, accessible at the official website of DBM visited on June 17, 2019. 2. The Borrower has restructured the Housing Mortgage Program to support affordable housing in a more cost-effective way, and with a time-bound plan for BOM to fully exit the Housing Mortgage Program, as evidenced through the Joint Order Number 285/A-334 issued by Governor of BOM and its Minister of Finance on December 20, 2018. 3. The Borrower has publicly disclosed the independent special external review of BOM's quasi-fiscal operations, including the Housing Mortgage Program, Price Stabilization Program, and financial support to companies, as evidenced through the special review of quasi-fiscal operations of the BOM on November 15, 2018 accessible at the official website of BOM visited on June 17, 2019. 4. The Borrower has established a framework to evaluate the tax expenditure system in terms of costs and benefits to reduce ineffective tax incentives and exemptions, starting with the 2020 budget, as evidenced through the Ministerial Order Number 99 issued by its Minister of Finance on May 1, 2019. 5. The Borrower has initiated the reduction of costs for on-going and new investment projects in the state budget, as evidenced through the Ministerial Order Number 295 issued by its Minister of Finance dated December 25, 2018, approving regulations and methodologies for appraisal, prioritization, and selection of projects and activities financed from the state budget. 6. The Borrower has improved the legal, governance, and monitoring frameworks of the Government Special Funds, as evidenced through the adoption of the Cabinet Resolution Number 87 issued by the Cabinet on February 27, 2019. -6- B. Strengthening the Social Protection System 7. The Borrower has increased the 2019 budget allocation for the Food Stamp Program and other poverty targeted programs, as evidenced through the Ministerial Order Number 309 on the 2019 budget monthly plan issued by its Minister of Finance on December 28, 2018. C. Supporting Economic Competitiveness through Structural Reforms 8. The Borrower has submitted a revised Permit Law to the Parliament, listing all licenses and permits granted by public administration and proposing a reduction of selected licenses and permits to be granted, as evidenced through the summary report dated April 30, 2019 accompanying with the draft Permit Law jointly signed by its Cabinet Secretariat Minister and its Minister of Justice. 9. The Borrower has approved a package of regulations, ordinances, and guidelines to operationalize the Livestock and Animal Health Law by providing the modalities for: the animal disease free zone; international quarantine procedures; major trans-boundary animal diseases control strategic plans; and herders' obligations, as evidenced through: (a) the Ministerial Order A-40 issued by its Minister of Food, Agriculture and Light Industry dated February 20, 2019 enclosed with an Appendix on determination and declaration of disease free status; (b) Government Resolution Number 266 issued by the Government dated August 22, 2018 enclosed with Attachment 2 on the activities to be implemented during the quarantine and restriction regime; and (c) the Order A/17 issued by its Director of General Authority for Veterinary Services on April 24, 2018 enclosed with an Appendix 1 providing guidelines on veterinary and quarantine for transboundary animal disease free compartment. 10. The Borrower has established an institutional framework for implementation of Trade Facilitation Agreement ("TFA"), including: a time-bound action plan for TFA implementation; an inter-agency coordination mechanism for the TFA; and a trade information portal consisting of all regulations required for trade activities, as evidenced through: (a) the Strategic Action Plan for the period of 2018-2022 adopted by the National Committee on Trade Facilitation on October 4, 2018; (b) the decision made by the National Committee on Trade Facilitation at the fourth meeting session on January 10, 2019; and (c) the Joint Order Number A/27/28 issued by its Minister of Foreign Affairs and Minister of Finance on March 29, 2019. Section II. Availability of Loan Proceeds A. General. The Borrower may withdraw the proceeds of the Loan in accordance with the provisions of this Section and such additional instructions as the Bank may specify by notice to the Borrower. -7- B. Allocation of Loan Amounts. The Loan (except for amounts required to pay the Front-end Fee) is allocated in a single withdrawal tranche, from which the Borrower may make withdrawals of the Loan proceeds. The allocation of the amounts of the Loan to this end is set out in the table below: Amount of the Loan Allocated Allocations (expressed in USD) (1) Single Withdrawal Tranche 19,950,000 (2) Front-end Fee 50,000 (3) Amount due pursuant to Section 4.05 (c) 0 of the General Conditions TOTAL AMOUNT 20,000,000 C. Withdrawal Tranche Release Conditions. 1. No withdrawal shall be made of the Single Withdrawal Tranche unless the Bank is satisfied: (a) with the Program being carried out by the Borrower; and (b) with the adequacy of the Borrower's macroeconomic policy framework. D. Deposit of Loan Amounts. 1. The Borrower, within thirty (30) days after the withdrawal of the Loan from the Loan Account, shall report to the Bank: (a) the exact sum received into the account referred to in Section 2.03 (a) of the General Conditions; (b) the details of the account to which the Mongolian Tugrik equivalent of the Loan proceeds will be credited; (c) the record that an equivalent amount has been accounted for in the Borrower's budget management systems; and (d) the statement of receipts and disbursement of the account referred to in Section 2.03 (a) of the General Conditions. E. Closing Date. The Closing Date is July 23, 2020. -8- SCHEDULE 2 Commitment-Linked Amortization Repayment Schedule The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date ("Installment Share"). Level Principal Repayments Principal Payment Date Installment Share On each April 15 and October 15 Beginning October 15, 2024 2% through April 15, 2049 -9- APPENDIX Section I. Definitions 1. "BOM" means the Borrower's Bank of Mongolia; established and operating pursuant to the Borrower's Law on Central Bank dated September 3, 1996, or any successor thereto. 2. "Cabinet Resolution" means a resolution of the Borrower's cabinet of ministers. 3. "Cabinet Secretariat" means the secretariat of the Borrower's cabinet of ministers, or any successor thereto. 4. "DBM" means the Borrower's development bank established and operating pursuant to the Law on Development Bank dated February 10, 2011, or any successor thereto. 5. "Food Stamp Program" means the Borrower's food stamp program established and operating pursuant to the Social Welfare Law, which aims to provide nutrition assistance to the poorest households. 6. "General Conditions" means the "International Bank for Reconstruction and Development General Conditions for IBRD Financing, Development Policy Financing", dated December 14, 2018. 7. "Government Special Funds" means the Borrower's state budget financed special funds established and operating with the purpose of implementing particular functions and objectives of the Government pursuant to the Law on Government Special Funds. 8. "Housing Mortgage Program" means the Borrower's program of such name established and operating pursuant to Joint Decree No. A-2/06, dated January 9, 2013 issued by the Governor of the BOM and the Borrower's Minister of Construction and Urban Development, which aims to provide subsidized loans to mortgage borrowers. 9. "Law on Government Special Funds" means the Borrower's law of such name issued by the Borrower's Parliament on June 29, 2006, as amended from time to time. 10. "Livestock and Animal Health Law" means the Borrower's law of such name issued by the Borrower's Parliament on December 8, 2017, as amended from time to time. 11. "Mongolian Tugrik" means the lawful currency of the Borrower. -10- 12. "Parliament" means the Borrower's legislative branch of government, or any successor thereto. 13. "Program" means: the program of objectives, policies, and actions set forth or referred to in the letter dated June 17, 2019 from the Borrower to the Bank declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in support of the Program during its execution and comprising actions taken, including those set forth in Section I of Schedule 1 to this Agreement, and actions to be taken consistent with the program's objectives. 14. "Price Stabilization Program" means the Borrower's program of such name established and operating pursuant to a memorandum of understanding on joint implementation of medium-term program to stabilize prices of key commodities and products jointly signed by the Government of Mongolia and BOM in October 2012, which aims to provides low-cost funding to corporations whose price-setting behavior has a significant impact on the consumer price index. 15. "Signature Date" means the later of the two dates on which the Borrower and the Bank signed this Agreement and such definition applies to all references to "the date of the Loan Agreement" in the General Conditions. 16. "Single Withdrawal Tranche" means the amount of the Loan allocated to the category entitled "Single Withdrawal Tranche" in the table set forth in Part B of Section II of Schedule 1 to this Agreement. 17. "Social Welfare Law" means the Borrower's law of such name dated January 19, 2012, as amended from time to time. 18. "Trade Facilitation Agreement" or "TFA" means the trade facilitation agreement concluded at the World Trade Organization by all of its members, including the Borrower which entered into force on February 22, 2017.