Mongolia
Date: 5 May 2011
The event will be held in Ulaan Baatar, Mongolia, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Gerelt-Od
Senior Vice Chairman
National Statistical Office of Mongolia
Sezin Sinanoglu
United Nations Resident Coordinator and
United Nations Development Programme Resident representative
Country briefing note <download pdf file>
Strong economic recovery helped by rapid growth of exports
• Mongolia was one of the hardest hit by the economic crisis with the economy contracting by 1.6% in 2009. Collapsing mineral prices, contraction in the construction sector and a drop in external demand for major export products such as cashmere all contributed to the severe downturn. The crisis also unraveled some of the underlying weaknesses in Mongolia 's economic structure, as demonstrated by the sudden deterioration of fiscal and external balances and in the quality of bank balance sheets. However, the strong policy response by the government, helped by improved external conditions, particularly the rise in copper and gold prices, led to a rapid turnaround in 2010 with GDP growth reaching 6.1%.
• Exports increased by 52% year-on-year in line with rising commodity prices. Copper prices returned to pre-crisis levels by early 2010. The export of cashmere was constrained by severe winter conditions, the dzud, which led to massive reductions in the number of livestock. Despite the strong rebound in exports, the current account deficit widened due to an even faster rise in imports, in part reflecting the need for machinery and equipment for the Oyu Tologi Project, as well as the rise in food and fuel prices.
• Significant progress has been made in mining sector reform and development. In the process of signing the Oyu Tolgoi investment agreement, which took many years of negotiations, a number of policy issues have been clarified and some of the key disincentives to mining investment have been removed to make the mining sector more transparent and sustainable, paving the way for additional development projects to follow.
• Mongolia's economic growth is expected to accelerate in 2011 to 9% benefitting from stronger mining sector related activities, higher government expenditure and recovery from the impact of the dzud.
Rising inflation a major concern
• After experiencing relatively low inflation in 2009 due to the global economic crisis, consumer prices have risen rapidly again in 2010. Inflation was heavily influenced by the global rise in food and fuel prices, of which Mongolia almost entirely imports. In 2010 inflation rose to 10.1% from 6.3% in 2009.
• Inflation in 2011 is forecast to increase to around 16%. While the easing of the impact of the dzud and appreciating currency will have a tempering effect on imported inflation, the government's plan to expand fiscal spending, together with the increasing trend of global food and fuel prices will put greater upward pressure on prices.
• In response to rapidly rising inflationary pressure, the government tightened monetary policy by 100 basis points already in May 2010 with further hikes expected in 2011 to combat double digit inflation.
• The Torog appreciated against the dollar in 2010 on the back of rising export values of gold and copper and increased foreign investment in mining activities.
Fiscal situation improves
• Fiscal balances improved dramatically in 2010, aided by strong recovery in mining-related revenues. The fiscal deficit fell from 10.6% of GDP in August 2009 to near 0% by the end of 2010. The government's fiscal position was helped by new measures such as the Fiscal Responsibility Bill which aims at a gradual reduction of budget deficits and increased saving during periods of high commodity price.
• In 2011, government spending is expected to increase rapidly again due to a number of large scale projects including the new rail line and a large boost in cash transfer payments to citizen.
Emerging socioeconomic challenges
• While labour market conditions improved in line with economic recovery, unemployment remained high at around 9% for 2010 with youth unemployment being of particular concern given Mongolia 's large youth population. Migration from rural areas to urban areas, especially during winter, also leads to high seasonal unemployment and other social issues including the growth of temporary informal settlements around the urban centers.
• A medium- to long-term challenge for Mongolia is diversifying its productive capacity. Reliance on the export of a few primary products as a major source of income continues to expose the Mongolian economy to the boom-bust cycle of commodity prices. In order to address this pressing challenge, the Mongolian government has stepped-up measures to reduce Mongolia 's dependence on raw-material exports, which requires long-term strategic planning as well as heavy investment in the development of human resources.