The landlocked nation saw a double-digit annual growth rate over 2011-2013 as foreign investors rushed in to take advantage of its vast untapped mineral deposits, but it has been roiled by an economic crisis since 2016 due to government overspending and declining revenues from commodity exports.
To bailout the country, which is now scrambling to avoid missing a $580 million sovereign-guaranteed debt repayment due in March, the Asian Development Bank, World Bank and bilateral partners, including Japan and South Korea, will provide up to $3 billion in aid, the IMF said in its statement.
People's Bank of China will expand a swap line worth 15 billion yuan ($2.19 billion), while the IMF will offer three-year loans worth about $440 million, the latter added.
The bailout plan is pending formal approvals from the IMF board in March, according to the statement.
"Fiscal consolidation is a key priority, as loose fiscal policy in the past was a major driver for Mongolia's current economic difficulties and high debt," said Koshy Mathai, IMF's team leader for the package.
Mongolia has pledged to implement fiscal reforms for greater budget discipline, but its social spending will be protected.
It plans to subsidise some drug costs, while a universal allowance for children will be given to those in need, Finance Minister Battogtokh Choijilsuren told reporters on Sunday.
Mongolian economy grew at 1 per cent last year, its slowest pace in seven years, and may slip into recession when austerity measures imposed on the country for a debt bailout are rolled out.
($1 = 6.8640 Chinese yuan renminbi)