Expanding export options and increasing boom-time savings can help Mongolia safeguard its economy so that the country’s rich resource wealth, properly managed, will benefit current and future generations.
ULAANBAATAR, October 28, 2008 –World Bank Group chief economist Justin Lin urged Mongolia’s newly formed government to develop a solid institutional base so its economy can avoid falling victim to the ‘resource curse’ and adapt to mineral price downturns.
Mongolia’s economy is based around the mining sector and is vulnerable to commodity price fluctuations. The global financial context is rapidly changing and Mongolia’s own economy is preparing for vast structural change.
Battling declining mineral prices on the international market, high inflation and the global financial crisis this is an opportune time for Mongolia’s economy to be come under the microscope.
Opening the first joint economic policy conference organized by the Government of Mongolia and the World Bank Group, H.E Mr N. Enkhbayar, President of Mongolia, noted that Mongolia’s inflation woes underscore the urgency of “facing the unavoidable need to identify the long-term development priorities” so that Mongolia can meet its long term goal of developing an economic structure similar to that of a middle income country by 2021.
“It is a very timely event in the context of on-going discussion by Parliament of Mongolia’s 2009 monetary and fiscal policies,” Mr Enkhbayar said.
The forum is an open discussion about the economic policies of this newly elected government where the world’s best economic minds join Mongolian policy makers and lead economists. Mr Lin, Yegor Gaidar, former Prime Minister of Russia and international economics expert Prof. Richard Pomfret deliver insight into the economic practices of mineral rich countries.
MPs S.Oyun, Ch. Khurelbaatar, O.Chuluunbaatar, Z.Enkhbold and, Governor of the Bank of Mongolia A. Batsukh, Prof. Khashchuluun (National University of Mongolia) and political observer B. Batbayar (Baabar) will comment on the key note presentations. David Dollar, World Bank Group Director for Mongolia, Byung Jang, Resident Representative, International Monetary Fund in Mongolia and Mandar Jayawant, Deputy Director of Asian Development Bank are lead discussants from international financial institutions. Messers S.Bayartsogt and Jim Adams World Bank Group Vice President will chair the event.
Mr. S. Bayartsogt, Minister of Finance said, “Mongolia has experienced good economic growth for the last 4 years during which average economic growth was nine percent. But the country is facing economic challenges.”
Copper prices have halved in just three months and now trade at around $3900 per ton. Because 40 percent of the Mongolian government’s revenues come from minerals, copper price reductions mean less revenue and therefore less to spend.
When the copper price drops from $6,700 (which the current budget estimates) to $5,000 per ton, government revenues drop by around Tg 230 billion.
Adding to this international investors face tightened financial conditions which are likely to lead to less investments, particularly for large projects which could potentially set-back development of Mongolia’s mining industry.
But there is light at the end of the tunnel. Mongolia appears to have had limited direct exposure to foreign financial markets, lessening direct impact on its economy. And it’s significant mineral deposits are real assets.
But it now faces the challenge of making sure its mining program is internationally competitive so it can attract investment from the best global companies and to ensure continued investment and growth.
Mr Lin, speaking to an audience of more than 800 at the Great Hall of Mongolia’s government building, said resource rich countries face challenges that arise from the nature of the extractive industry: boom bust cycles, environmental degradation, and overconcentration of growth in these sectors.
Using examples like Chile, Finland and Norway Mr Lin said successful nations save during good times, ensure good environmental planning and safeguards, and diversify growth through nurturing areas of advantage like education
Prof. Pomfret emphasized the importance of well managed, transparent and democratic institutions to ensure future macroeconomic stability of mineral rich countries like Mongolia.
“A development strategy based on raw materials can form a solid base for sustainable development,” Mr Lin said.
“But countries which concentrate on a narrow commodity sector and do not diversify at all are liable to get locked into a slow growth development trap
“Studies show a high level of labor force education, or human capital, is not only an extremely important complementary factor to natural resource abundance, it also provides the basis for a country to expand their comparative advantages to other sectors.”
Only windfall gains contribute to Mongolia’s Development Fund of which just a third are saved. Mr Lin called on the policy makers to practice due diligence when it came to
Mongolia’s development fund particularly with inflation at 31.7 per cent (in September).
Inflation exposes Mongolia’s poor and containing consumption at all levels is the only solution.
At the end of the conference followed after round table discussion on inflation and growth, N. Altankhuyag, First Deputy Prime Minister made closing remark and delivered key priorities of the Government action plan for 2008-2012.
Tomorrow October 29, the Government of Mongolia and external partners will discuss the Government Action Plan draft. Civil society organizations and private sector representatives will attend.