Mongolia

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March 2017

The slowdown in global commodity prices over the last three years, close links to slowing Chinese economy and economic mismanagement have weighed heavily on Mongolia’s annual growth rate. Mongolia also lags the region in creditworthiness and per capita income. But business conditions are more favourable relative to the peer average. Mongolia is currently negotiating with the IMF for assistance as the lack of foreign exchange and bloated sovereign balance sheet is causing financing issues. 

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Economic outlook

The economy barely registered growth in 2016 after registering 11% p.a. between 2010 to 2014. Sharp decline in commodity prices, strong links to a slowing Chinese economy and economic mismanagement have dragged on growth. The budget deficit hit close to 20% in 2016.

But the new government is committed to repairing public finances and is trying to improve investment conditions to attract greater foreign investment in Mongolia. Ulaanbaatar is also trying to negotiate a loan from the IMF to meet its external obligations.  IMF projections expect growth will remain stuck below 5% over the next few years.

Long term, Mongolia’s favourable demographic profile and mineral wealth will support growth. Yet the economy must widen its production base if it is to ensure sustainable and inclusive growth.

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Mongolia is a lower-middle-income economy, with incomes per capita forecast to remain below US$4500─equivalent to Samoa and Iraq. The number of people living in poverty remains high at 27%, but this is down from 39% in 2010.

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Business climate

Mongolia has an OECD country credit grade of 6 and speculative grade sovereign debt ratings from all three major ratings agencies. These ratings underline Mongolia’s vulnerability to business, financial and economic setbacks.

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Mongolia’s business climate generally outperforms the regional average, ranking 64 out of 190 economies on the World Bank’s ease of doing business gauge — which measures regulation and red tape relevant to a domestic small to mid-sized firm.  It scores well on issuing construction permits. But getting electricity connected is difficult.

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Mongolia scores in the bottom half on most of the World Bank’s governance gauges.  But it outperforms on measures of voice and accountability and political stability.

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Bilateral relations

Australia’s Rio Tinto is the majority shareholder in the Oyu Tolgoi project. This has presented opportunities for Australian companies involved in both the construction and mining procurement stages of the project.

Mongolia was Australia’s 100th largest trading partner in 2015-2016. Export of goods and services to Mongolia totalled A$71m in 2015-2016, up 23% from the year prior but well short of the A$101m recorded during the height of the global mining boom. Exports to Mongolia were predominantly engineering equipment and parts, and construction-related materials. Imports were worth A$20m, with A$9m from services and A$11m from goods made up mostly of civil engineering equipment and ores.

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Australian service exports to Mongolia were worth A$60m and have been on a strong upward trend over the last five years. Data on what is driving this trend isn’t readily available but mining related services and education are probably behind the rise.  Mongolian students studying at an Australian institute have risen 30% p.a. over the last five years.

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Useful links

Department of Foreign Affairs
Mongolia country brief

Austrade
Mongolia Market Profile