Over the past 30 years, Mongolia has transformed into a vibrant democracy, tripling its GDP per capita since 1991. Primary school enrollments are at 97%, coupled with impressive declines in maternal and child mortality (45 per 100,000 live births in 2017 and 15.6 per 1,000 live births in 2019 respectively). With vast agricultural, livestock and mineral resources, and an educated population, Mongolia’s development prospects look promising in the long-term assuming the continuation of structural reforms.
Mongolia’s economic growth rebounded in the first half of 2021 on the back of robust exports and a surge in private investment, mainly in the mining sector. In addition to a temporary improvement in the ore grade of a major mine, stronger Chinese demand for commodities and higher commodity prices were among the main factors supporting the mining-driven growth, especially during Q1 2021. The government’s relief and stimulus measures during the pandemic translated into higher credit growth, leading to increased investment, and supporting domestic demand. However, the strong rebound observed in Q1 largely dissipated in Q2 due to the mobility restrictions in May 2021, and disruptions in the supply of imported inputs and commodity exports. Despite government support, the employment rate dropped markedly in Q1 and private consumption contracted for the first time since 2016. This is mainly explained by the stagnation of household labor income amid the widespread impact of the pandemic on the labor market and elevated food prices, mainly due to sluggish agriculture output and disruption of food imports exacerbated by rising fuel prices.
The economy is projected to grow by 4.5% in 2021, supported by a rebound in exports, private sector investments on the back of improved foreign direct investment (FDI), the government’s continued income support, and effective vaccine rollout. While the extension of the government income support would offset income loss among poor households, weaker economic recovery amid rising food prices would raise concerns of increased household indebtedness and long-term consequences on child nutrition and family health. Therefore, the immediate challenge for Mongolia is to contain the pandemic and secure the economic rebound under a limited fiscal space, while decelerating quasi-fiscal support that could contribute to a further build-up of contingent liabilities and renewed external imbalances.
Mongolia’s official national poverty rate has fluctuated since 2010. The poverty headcount rate declined sharply from 38.8% to 21.6% during the economic boom in 2010-2014. However, between 2016 and 2018, poverty reduction was uneven, declining in rural but not in urban areas. Growth in rural areas was faster and favorable to the poor, contributing to reducing rural poverty from 34.9% in 2016 to 30.8% in 2018, supported by rising livestock prices and expansion of poverty-targeted social protection programs.
By contrast, the urban poverty rate remained unchanged at 27% from 2016 to 2018, mainly driven by stagnant wage growth in the poorest population group. Consequently, poverty is increasingly concentrated in urban areas. In the coming years, fiscally sustainable labor and poverty-targeted social protection policies coupled with a positive economic outlook will be key to reducing poverty.
To ensure sustainable and inclusive growth and to reduce poverty, Mongolia will also need to strengthen governance; build institutional capacity to manage public revenues efficiently; allocate its resources effectively among spending, investing, and saving; and ensure equal opportunities to all its citizens in urban and rural areas.
Last Updated: Nov 24, 2021
