Mongolia adjusting to lower economic growth

By: | Issue #639 | at 10:34 AM | Channel(s): International Trade  

Mongolia adjusting to lower economic growth

Mongolia’s economic prospects are brightening despite the difficult conditions in global markets.

Mongolia’s economic growth prospects are brightening by the recent Oyu Tolgoi $5.3 billion underground copper mine investment and from more diversification to the agriculture sector. Despite the grim macroeconomic environment, numerous infrastructure projects in transportation and cross-border trade logistics will spur future investments. These projects include a new international airport, a northern rail connecting China to Europe and a cross-border economic zone with China.

In 2011, Mongolia was on top of the world benefiting from its abundant natural resources. Higher prices of copper, gold and iron ore along with bond investor enthusiasm helped boost its gross domestic product (GDP) to 17%.  Since the drop in commodity prices worldwide and slower China demand, Mongolia is paying for the debt incurred during the boom years by a severe drop in foreign exchange reserves and a depreciating Mongolian Tugrik by 17% to 2,452 to the United States dollar.  There is also investor abandonment of this once high flying frontier economy. As a result, government leaders are inviting the International Monetary Fund (IMF) for debt relief plans and to repay over $1 billion by January 2018 and securing currency swap programs from its southern border neighbor, the Peoples Republic of China (PRC). According to reports, Mongolia’s debt is 78% of GDP and total debt owed to foreign creditors at $22.6 billion is nearly twice the size of the economy itself ($11.8 billion). 

Even though Mongolia trades with 155 countries, this massive, fiercely independent central Asian country with a sparse population of 3 million depends on China and to a lesser extent Russia on the northern border for a vast majority of its trade and investment. Through September 2016, Mongolia’s total trade turnover was $5.78 billion which shows a drop of 9.6% or $616.9 million overall, or a 5.9% drop in exports by $208 million of which copper concentrates are a large factor and a drop in imports by 14.3% by $408.8 million from 2015, according to Mongolia news reports. “Economic fundamentals remain weak and unlikely to improve this year. I am not expecting any real upturn until 2017,” commented S.J. Potter, Managing Director, Wagner Asia Equipment LLC, a Caterpillar (CAT) mining equipment distributor in Ulaanbaatar, Mongolia in a recent e-mail to this reporter.  ...

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American Journal of Transportation