Mongolia economic recovery rests on shaky foundations

Subject

The outlook for Mongolia's economy.

Significance

Rising commodity prices in 2016 allowed Mongolia to eke out 1% GDP growth. Over-dependence on the mining sector produced a plunge in growth over the past two years, due to a mixture of falling commodity prices (especially coal, copper and iron ore) and populist policies. The IMF in February granted Mongolia a 5.5-billion-dollar bail-out package amid concerns the country would default on its sovereign debt. Foreign investment -- once bountiful and rapidly growing -- almost disappeared, with only a slight uptick this year. The Mongolian currency has plunged over 20% against the dollar over the past year and the government's credit rating is at junk status (below a B rating by all three of the main ratings agencies).

Impacts

• Mining will be the pillar of Mongolia's economy for the foreseeable future.
• It may be possible to reduce the country's exposure to commodity price shocks through diversification.
• Mongolia may be able to turn its location to its advantage as a transport route between China and Russia.