Over the past 25 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 16 per 1,000 live births in 2018 respectively). With vast agricultural, livestock and mineral resources and an increasingly educated population, Mongolia’s development prospects look promising in the long-term assuming the continuation of structural reforms.
However, in 2020 Mongolia's economy is likely to slow mainly due to the adverse impacts of the COVID-19 global pandemic. Economic growth weakened to 5.1% in 2019 from 7.2% in 2018 and 5.4% in 2017 mainly driven by a sluggish performance of the mining sector following declining commodity prices and lower quality of mineral exports. On the demand side, robust private consumption, strong foreign direct investment (FDI) inflows, and higher government investment were partially offset by the negative growth contribution of net exports. Mongolia’s fiscal balance in 2019 was in surplus for the second consecutive year amid revenue overperformance. The country’s fiscal stance has improved significantly to a surplus of 1.4% in 2019 and 2.6% in 2018 from a deficit of 15.3% of GDP in 2016. This performance contributed to the sharp reduction in government debt in 2017-19.
Economic growth is expected to decline further in 2020 as measures taken in Mongolia and globally to contain the spread of COVID-19 are weighing on the supply and demand sides of the economy. Mining and services sectors have already taken a hit. However, unless the impact of COVID-19 is prolonged locally and globally, growth is expected to accelerate in the medium term, supported by stronger impetus in the mining sector, private consumption, and private investment.
Other risks to the outlook include political uncertainty with the 2020 election, climate shocks (drought/flooding, harsh winter), and limited progress on banking sector reforms and on addressing anti-money laundering issues.
The Bank is working with government to address the challenges emerging due to the COVID-19 pandemic. On April 2, the Board of Directors approved $26.9 million for the Mongolia COVID-19 Emergency Response and Health System Preparedness Project to meet emergency needs in the face of the pandemic and to better prepare for future health crises. In addition, $2.2 million has been mobilized under the ongoing E-Health project to purchase the most needed medical diagnostic equipment.
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: Apr 08, 2020