Mongolia’s economic growth will remain solid in 2018 and 2019, albeit with slight moderation, following a strong performance in 2017 as coal exports and mining investments strengthened, according to a new Asian Development Bank (ADB) report. 

ADB projects Mongolia’s gross domestic product (GDP) growth to moderate to 3.8% in 2018 before rising again to 4.3% in 2019 from the 5.1% growth in 2017. This is following the 1.2% growth in 2016. Continued investment in mining, particularly in the development of the Oyu Tolgoi underground mine, will continue to drive growth. Transportation bottlenecks, however, will prevent coal exports from matching 2017 performance, although these will ease somewhat in 2019.

Inflation will accelerate to 8% in 2018 and ease to 7% in 2019, from the 4.3% recorded in 2017 following the 24.7% depreciation of the Mongolian togrog in 2016, which affected import prices on top of higher commodity prices due to drought and higher excise taxes. Rising domestic demand and international oil and food prices, coupled with the effects of looser monetary policy in 2017, will continue to drive inflation higher in 2018. These effects will be less pronounced in 2019 as oil prices and domestic demand subside.

Mongolia’s budget deficit is projected to equal 6.4% of GDP in 2018 and 5.1% in 2019, from 3.9% of GDP in 2017, as expenditure on social insurance, welfare, and equipment increases, coupled with a likely reduction in budget revenue as reforms to ease reporting requirements and the tax burden for small and medium-sized enterprises take place.

A sharp recovery in foreign direct investment, financial support from multilateral development partners, and better terms of trade allowed the country to refinance a major part of its external debt. Gross reserves more than doubled, reaching 5.5 months of imports. These developments pushed the value of the togrog up by 2.5% against the US dollar. The current account deficit will narrow to 6.3% in 2018 before widening to 7% in 2019.

Source: ADB.org