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.
Due to the severe and widespread economic impact of the COVID-19 pandemic, the Mongolian economy contracted by 5.3 percent in 2020, its worst contraction since the early 1990s. A sharp decline in global demand for key commodities and border closures with China were among the key external factors that crippled the mining-led economy. Domestically, the services sector was hit hard by containment measures, which helped Mongolia avoid the worst possible health effects of the pandemic. While a series of generous government relief and stimulus packages in the form of tax relief and income support helped mitigate the impact of COVID-19 on households and businesses, it took a significant toll on the budget. The fiscal gains of the past three years have rapidly eroded with the overall budget deficit rising sharply to 9.5 percent of GDP. Consequently, government debt as a share of GDP has increased again in 2020, reversing the downward trend of recent years. Inflationary pressures remained subdued in 2020, mostly driven by weak domestic demand and lower oil prices.
The economy is projected to recover in 2021 as the authorities continue efforts to control the pandemic, stimulus measures prop up domestic demand, the adverse impact of the global economy recedes, and businesses and consumers adjust to the new norm of living with the pandemic as vaccines are rolled out. However, the recovery is subject to risks, including further waves of COVID-19 cases domestically and globally, possible financial instability, and weather-related shocks.
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 06, 2021