Economic Overview of Mongolia
Mongolia’s economy is, for a large part, centered on mining as well as agriculture and herding. Mining is becoming more important to Mongolia’s economy year by year. Mongolia is blessed with many natural resources such as Copper, Gold, Iron Ore, Coal and Uranium, just to name a few. Because of Mongolia’s dependence on these resources, the economy is susceptible to fluctuations in commodity prices. Mongolia experienced substantial economic growth between 2005 and 2008. However, things came to a halt in the last quarter of 2008 due do the fall in copper prices and the financial crisis. In 2009 things have stayed flat so far, but we expect the economy to pick up in the near future. For more recent and detailed economic information please refer to our reports. To download our reports click on the links found at the bottom of this page or go to our top page.
GDP
GDP and GDP per capita more than doubled between 2005 and 2008. Growth in 2009 has been sluggish, but GDP is still growing. We have seen some positive signs recently such as a positive movement in the stock market, steady drop in inflation, lowering of the policy rate, stabilization of the exchange rate and a recovery of the international reserves. On top of that, we are seeing an increased focus on Mongolia, particularly thanks to the Oyu Tolgoi agreement. We feel that Mongolia will experience high growth again in 2010 with a substantial increase in FDI and GDP.
Foreign Trade
Due to the economic crisis and the following shock that Mongolia experienced, foreign trade is to date lower this year when compared to the previous year. However, trade has been steadily increasing since March. As expected, Mongolia’s two neighbors China and Russia, account for more than half of foreign trade. China is Mongolia’s biggest market for exports and Russia accounts for the largest percentage of imports. Other major trading partners include the UK, South Korea, Canada, and the USA.
Mineral products account for more than half of exports. Coal, copper and gold account for the largest portion in terms of value. Cashmere is also a major export. Mongolian cashmere is considered to be the best cashmere in world in terms of quality. Petrol is one of the main imports. Mongolia is almost entirely dependant on Russia for its fuel supply.
Monetary Policy
The Bank of Mongolia is committed to keeping the economy of Mongolia stable and growing. In March of this year the Bank of Mongolia raised the policy rate to 14% from 9.75%, a dramatic jump, to combat a rapid devaluation in the local currency. Such policies have worked, the exchange rate has been fairly stable since April and inflation came down to almost 0% by the end of the summer.
When Mongolia received aid from the IMF the Bank of Mongolia agreed not to change the rate during the period they are receiving aid. The agreement with the IMF lasts until October of 2010. Such stipulations from the IMF are subject to change depending on the economic conditions. As we have seen this year, the Bank of Mongolia has lowered its rate several times. The rate was lowered in May to 12.75%, then again in June to 11.5%, and finally in September to 10%. Such changes have come about due to fact that the exchange rate is stable and international reserves continue to rise. Economic conditions are slowly turning favorable; the money supply has continued to rise since April.
Foreign Reserves
Foreign reserves were being exasperated by intervention in the exchange market. Since March, they have been rising steadily after changes in policy regarding the reserves. With changes in monetary policy and guidance from the IMF, foreign reserves recovered to their pre-economic crisis levels by August. Rising copper prices and stable gold prices were also a factor in recovering foreign reserves. Foreign reserves are expected to continue to rise.
Trade Balance
The trade balance has been negative for most of the past year. Export values, not necessarily volume, rose during the first half of the year due to the rising commodity prices. We expect exports to rise in 2010 in tandem with the expected economic recovery. However we expect the trade balance to stay negative because of increased investment from abroad in mining operations and related sectors.
Demographics
Mongolia is a very young country with about half of the population 25 years of age or younger. A good portion of population, again about half, live in the capital city of Ulaanbaatar. Life expectancy is 68 years old. The literacy rate is very high in Mongolia, with over 97% of people above the age of 15 able to read sufficiently.
The population has been fast adapters to new technology with the number of internet users and cell phone users rising rapidly. While there is still a gap between Mongolia and developed countries, Mongolia is generally considered a successful case in terms of ICT (Information and Communication Technology) development in emerging markets.
English is recognized as the official second language of the state. Other languages are also popular and widely spoken such as Russian, Japanese, Korean, Chinese, and German. Many people can speak two or more language, Russian is more popular among the older generation and much of the younger generation can speak English.
Infrastructure
Infrastructure is commonly seen as the biggest obstacle in the rapid development of the country. Transportation infrastructure in Mongolia is seen as unique and challenging because of the large sparsely populated land area. Mongolia has over 11,000 km of roads, however only about 1,300 km are paved. Mongolia has 1815 km of railway. The main railway that connects Russia and China runs through Mongolia and most of Mongolia’s rail network is this main railway or branches from the main railway. Energy is also a concern. There are only a handful of coal-fired power plants in the country. About 1/3 of the population lives off the electric grid and either have no electricity or rely on renewable energy, such as solar or wind, for power. Rural areas also rely on Diesel generators for power is some cases. Most drinking water is well water from deep underground. Water tankers serve rural areas in some cases. Communication development has been pretty rapid and is fairly reliable in the capital city of Ulaanbaatar and in other cities across the country.
For in depth reports view the reports below: Comprehensive Policy on the Development of Manufacturing in Mongolia and SMEs, Ministry of Industrial and Trade, October, 2007 Mongolian Economic Report: "H-OT Emerging New Star", October 1st, 2009 International Financial Reporting System World Bank Mongolia Monthly Economic Update, October, 2009