Mongolia’s Growth Slows Down

As it accepts bailout money and conditions, Mongolia seeks to develop a long-term economic plan to reduce its dependence on commodities.

Relatively underdeveloped, it was not so long ago that Mongolia held huge promise.

“Back in 2007, there was a sense that Mongolia was going to be—and it was at that time—the fastest-growing economy in the world,” Andrew Bauer recalls. “It seemed that the economy would explode and the good times would last forever.” Even as late as 2011, Mongolia’s GDP growth was at 17%.


Location: Northern Asia

Neighbors: Russia, China, Kazakhstan

Capital city: Ulaanbaatar

Population (2017): 3,053,002

Official language: Mongolian

GDP per capita (2016): $4,305.31

GDP growth (2016): 1.0%

Inflation (2012): 0.6%

Currency: Tugrik

Investment promotion agency: Invest Mongolia Agency disbanded and replaced by National Development Agency

Investment incentives available? Customary incentives plus tax stabilization certificates under certain circumstances  

Ease of Doing Business rank (2016): 64

Corruption Perceptions Index rank (2016): 87

Political risks: Huge dependence on China

Security risks: Rising street crime and violent crime especially in larger cities; tourist ruses 

But more recently, slowing growth for its major trading partner, China, and a crash in the price of commodities, upon which Mongolia had become heavily dependent, wreaked havoc. Commodities exports financed rapid growth in Mongolia the same way high petroleum revenues spurred spending in some oil-rich countries. And it similarly engendered huge expectations, media hype and unrealistic projections that compounded the fiscal problems, according to Bauer, senior economic analyst at the Natural Resource Governance Institute, who has consulted for the Mongolian government and parliament.

As commodities fell, so did foreign direct investment (FDI), with net inflows plummeting from a high of $4.6 billion in 2011 to $94.3 million in 2015, according to the World Bank. The tugrik, Mongolia’s currency, dropped 25% against the American greenback in 2016 as the country’s budget deficit hit 19.5% of GDP. Foreign exchange reserves dropped through 2016 until June of this year. The problem became so severe that at the start of the year, Reuters reported, citizens were donating their cash, jewelry, gold and horses to help the government.

In June, a long-negotiated bailout package from the International Monetary Fund (IMF), World Bank and Asian Development Bank, along with Korean, Chinese and Japanese banks, finally reached implementation. While sovereign default remains possible, China’s strong interest and potential access to more bailout funds makes this unlikely, according to Natixis. A global upturn in trade, coal production and exports will induce some recovery, but GDP growth will remain subpar at 1%–2% for the year, according to the World Bank.

Mongolia is complying with bailout conditions and working on a long-term plan. It has already moved to increase revenues through taxes on alcohol and tobacco this year, with higher income taxes set for next year. “I don’t think anybody in Mongolia is thrilled with the revenue measure,” Bauer says, “[but] there seems to be recognition that the government has been overspending and that changes need to be put in place.”

The government acknowledges a need for economic diversification but faces several handicaps. The country is landlocked, and the one railway that can transport goods goes only to China. Within those restrictions, FDI opportunities include agriculture, power infrastructure, mining, transportation and tourism. “I’ve gone around the country and it’s stunning,” Bauer says. “There’s still a lot of exploration to do, and there is still a lot of potential in Mongolia.”

For more information on Mongolia, check out our Country Economic Reports here.