The World bank introduced Mongolia’s economic prospects of 2023. It was reported that Mongolia’s economy will grow by 5.2 percent in 2023 thanks to factors such as the smooth operation of border ports, the recovery of Oyu Tolgoi underground mining, and the post-pandemic recovery of the service industry.
Chief Economist of the World Bank Jose Luis Diaz Sanchez gave information on ensuring economic growth and stability and commented, “The report does not cover any specific region and everyone is open to information. It should not be understood that Mongolia’s economy has completely recovered. Because we have come out of the situation during the pandemic and only reached back to 2019’s situation. Although economic growth was increased by 1.6 percent in 2021 and 4.7 percent in 2022, the GDP remains below pre-pandemic expectations.”
He then continued, “Exports played a major role in the 2022 growth. However, growth in private consumption has had an impact. Personal consumption was supported by the recovery of household incomes associated with the recovery of the economy and the use of savings created during the pandemic. Despite the increase in the price of imported goods and in transportation costs, the demand for imports was high due to the recovery of the economy and the implementation of major investment projects in the public sector.”
“The increase in budget revenue in 2022 is due to the increase in export goods. However, it cannot be explained only by the increase in exports. A recovery in the labor market supported fiscal revenues. Fiscal expenditure as a percentage of GDP decreased in 2022 from 2021, but it was higher than in 2019. High budget expenditure leads to an increase in public debt. Therefore, there may be a risk to the stability of the budget. Fiscal expenditures will remain high, but mining revenues will be high enough that fiscal deficits will not widen in 2023. With the economic recovery, the demand for imported goods has increased, so the cost has increased. Therefore, there was a large deficit due to the large pressure of imported goods in the balance of payments.” said the World Bank’s Chief Economist.
From the demand side, the economy will be supported by export growth, stable household consumption, and large investments in the public sector. Balance of payments pressures remain high as imports continue to grow steadily and foreign bond repayments are expected.
The Oyu Tolgoi project, which is expected to double production in 2023 to 2025, will gradually increase state budget revenues, reduce balance of payments pressure, and increase foreign exchange reserves.
Focusing only on the mining sector is undermining the competitiveness of other sectors that generate foreign exchange earnings and increase productivity, and strengthens over-dependence of raw material prices at the border. The report also emphasized that the macroeconomic instability caused by price swings in mining commodities is limiting opportunities for sustainable investment, which is vital in supporting productivity. There are risks that may affect economic growth and these are:
• If the war between Russia and Ukraine prolongs, monetary policies of developed countries tighten more than forecasted
• Major debts of the government (including payment of bonds of the Development Bank)
• Exacerbation of external and fiscal imbalances due to uncertainty surrounding major coal export offtake contracts.
These may cause an increase in inflationary pressure. Given the economic situation and risk conditions, it was emphasized that governance changes aimed at improving fiscal discipline, macroeconomics, and fiscal stability are important.
The Chief Economist reminded that the structural changes to be implemented by the government around economic diversification will play a decisive role in ensuring economic stability in the medium term and creating the ability to counter acute internal, external and climatic impacts.
