ULAANBAATAR, February 14, 2020—While Mongolia’s economy is starting to slow from its brisk pace of recent years, the medium-term growth outlook remains positive, according to the World Bank’s February 2020 Mongolia Economic Update.
Economic growth strengthened to 7.2 percent in 2018 from 5.3 percent in 2017 amid impressive fiscal outcomes, better coordination of macroeconomic policy, favorable global commodity prices, and a strong recovery in private investment. However, growth for 2019 is estimated to be around 5.8 percent following the gradual decline in commodity prices and reflecting lower gold and copper grades.
In 2020–21, growth is projected to average 5.6 percent, largely supported by robust growth in private consumption and continued steady investment in mining and manufacturing. The government is expected to remain committed to fiscal consolidation to contain public debt in the medium term by improving revenue mobilization and rationalizing public expenditure.
However, there are significant downside risks to the growth outlook due to heightened uncertainties in the global and domestic environments. The major risks include political uncertainty due to the 2020 election, uncertainty about the recent U.S.-China trade deal and its potential impact on commodity prices, and limited progress on recapitalization of the banking sector and anti-money laundering issues.
In addition, given strong trade and investment links with China, the growth outlook is likely to be adversely affected by the impact of novel coronavirus on the Chinese economy.
“Despite the positive medium-term outlook, strengthening fiscal buffers through continued fiscal consolidation and building up reserves by limiting excessive foreign exchange interventions should remain two important policy priorities of the government” – said World Bank Country Manager for Mongolia Andrei Mikhnev. “The government’s commitment to reforms in 2020 will be crucial to maintain promising market sentiment and the flow of foreign direct investment.”
A special section of the report looks at credit development in Mongolia’s banking sector, including updates on recent developments, an evaluation of the government response to key issues, and policy recommendations.
“Strengthening financial sector stability, especially with regard to credit policy and the soundness of the banking sector, will contribute to greater macroeconomic stability, job creation, and poverty reduction.” said World Bank Senior Economist for Mongolia Jean Pascal Nganou. “While monetary policy tightening since late 2018 has helped contain credit growth, further macroprudential measures will help preempt emerging risks. Mongolia should continue its ongoing efforts to strengthen financial supervision and its macroprudential framework, and bolster its crisis management and resolution frameworks.”