Economy of Mongolia

The rapid political changes of 1990–91 marked the beginning of Mongolia's efforts to develop a market economy, but these efforts have been complicated and disrupted by the dissolution and continuing deterioration of the economy of the former Soviet Union. Prior to 1991, 80% of Mongolia's trade was with the former Soviet Union, and 15% was with other Council for Mutual Economic Assistance (CMEA) countries. Mongolia was heavily dependent upon the former Soviet Union for fuel, medicine, and spare parts for its factories and power plants.

The former Soviet Union served as the primary market for Mongolian industry. In the 1980s, Mongolia's industrial sector became increasingly important. By 1989, it accounted for an estimated 34% of material products, compared to 18% from agriculture. However, minerals, animals, and animal-derived products still constitute a large proportion of the country's exports. Principal imports included machinery, petroleum, cloth, and building materials.

In the late 1980s, the government began to improve links with non-communist Asia and the West, and tourism in Mongolia developed. As of 1 January 1991, Mongolia and the former Soviet Union agreed to conduct bilateral trade in hard currency at world prices.

Despite its external trade difficulties, Mongolia has continued to press ahead with reform. Privatization of small shops and enterprises has largely been completed in the 1990s, and most prices have been freed. Privatization of large state enterprises has begun. Tax reforms also have begun, and the barter and official exchange rates were unified in late 1991.

Between 1990 and 1993, Mongolia suffered triple-digit inflation, rising unemployment, shortages of basic goods, and food rationing. During that period, economic output contracted by one-third. As market reforms and private enterprise took hold, economic growth began again in 1994–95. Unfortunately, since this growth was fueled in part by over-allocation of bank credit, especially to the remaining state-owned enterprises, economic growth was accompanied by a severe weakening of the banking sector. GDP grew by about 6% in 1995, thanks to largely to a boom in copper prices. Average real economic growth leveled off to about 3.5% in 1996–99 due to the Asian financial crisis, the 1998 Russian financial crisis, and worsening commodity prices, especially copper and gold.

Mongolia's gross domestic product (GDP) growth fell from 3.2% in 1999 to 1.3% in 2000. The decline can be attributed to the loss of 2.4 million livestock in bad weather and natural disasters in 2000. Prospects for development outside the traditional reliance on nomadic, livestock-based agriculture are constrained by Mongolia's landlocked location and lack of basic infrastructure. Since 1990, more than 1,500 foreign companies from 61 countries have invested a total of $338.3 million in Mongolia. By 2003 private companies made up 70% of Mongolian GDP and 80% of exports.[21]

Until recently, there have been a very few restrictions on foreign investments during most of Mongolia's post-socialist period. Consequently, mining industry's contribution to FDI increased to almost 25% in 1999 from zero in 1990.[22]

Mongolian factory worker with cashmere

Market in Mongolia

Mongolia's reliance on trade with China meant that the worldwide financial crisis hit hard,[23] severely stunting the growth of its economy. With the sharp decrease in metal prices, especially copper (down 65% from July 2008-February 2009),[23] exports of its raw materials withered and by 2009 the stock market MSE Top-20 registered an all-time low since its dramatic spike in mid-2007.[24] Just as the economy started to recover, Mongolia was hit by a Zud over the winter period of 2009–2010, causing many livestock to perish and thus severely affecting cashmere production which accounts for a further 7% of the country's export revenues.[23]

According to the World Bank and International Monetary Fund estimates, real GDP growth reduced from 8% to 2.7% in 2009, and exports shrunk 26% from $2.5Bn to $1.9Bn before a promisingly steady increase up until 2008.[23] Because of this, it was projected that between 20,000 and 40,000 fewer Mongolians (0.7% and 1.4% of the population respectively) will be lifted out of poverty, than would have been the case without the global financial crisis.

In late 2009 and the beginning of 2010, however, the market has begun to recover once again. Having identified and learnt from its previous economic instabilities, legislative reform and a tightened fiscal policy promises to guide the country onwards and upwards. In February 2010, foreign assets were recorded at USD1,569,449 million.[25] New trade agreements are being formed and foreign investors are keeping a close eye on the "Asian Wolf".

Mining is the principal industrial activity in Mongolia, making up 30% of all Mongolian industry.[26] Another important industry is the production of cashmere. Mongolia is the world's second largest producer of cashmere, with the main company, Gobi Cashmere, accounting for 21% of world cashmere production as of 2006.[27]

The term was coined by Ganhuyag Chuluun Hutagt and subsequently popularized by Renaissance Capital in their report "Mongolia: "Blue-sky opportunity".[28] They state that Mongolia is set to become the new Asian tiger, or "Mongolian wolf" as they prefer to call it, and predict "unstoppable" economic growth.[29] With the recent developments in the mining industry and foreign interest increasing at an astonishing rate, it is claimed that the 'Wolf Economy' looks ready to pounce. The term's aggressive title mirrors the country's attitude in the capital markets, and with newfound mineral prospects it has the chance to retain its title as one of the world's fastest growing economies.

The banking sector is highly concentrated, with five banks controlling about 80% of financial assets as of 2015:[30]

As a result of rapid urbanization and industrial growth policies under the communist regime, Mongolia's deteriorating environment has become a major concern. The burning of soft coal coupled with thousands of factories in Ulaanbaatar and a sharp increase in individual motorization has resulted in severe air pollution. Deforestation, overgrazed pastures, and, less recently, efforts to increase grain and hay production by plowing up more virgin land have increased soil erosion from wind and rain.

The following table shows the main economic indicators in 1990–2017.[34]

Household income or consumption by percentage share:

• lowest 10%: 3.5%
• highest 10%: 35% (2005)

Distribution of family income - Gini index: 40 (2000)

Agriculture - products: wheat, barley, vegetables, forage crops, sheep, goats, cattle, camels, horses

Industries: construction and construction materials; mining (coal, copper, molybdenum, fluorspar, and gold); food and beverages; processing of animal products, cashmere and natural fiber manufacturing

Industrial production growth rate: 6% (2010 est.)

Electricity:

• production: 3.43 TWh (2006 est.)
• consumption: 2.94 TWh (2006 est.)
• exports: 15.95 GWh (2006 est.)
• imports: 125 GWh (2006 est.)

Electricity - production by source:

• fossil fuel: 80%
• hydro: 0%
• other: 20% (2011)
• nuclear: 0%

Oil:

• production: 822 barrels per day (130.7 m³/d) (2006 est.)
• consumption: 11,220 barrels per day (1,784 m³/d) (2006 est.)
• exports: 822 barrels per day (130.7 m³/d) (2006 est.)
• imports: 12,280 barrels per day (1,952 m³/d) (2006 est.)

Exports - commodities: copper, apparel, livestock, animal products, cashmere, wool, hides, fluorspar, other nonferrous metals

Imports - commodities: machinery and equipment, fuel, cars, food products, industrial consumer goods, chemicals, building materials, sugar, tea

Exchange rates: tögrögs/tugriks per US dollar: 1890 (2014), 1396 (2012), 1,420 (2009), 1,179.6 (2006), 1,205 (2005), 1,187.17 (2004), 1,171 (2003), 1,110.31 (2002), 1,097.7 (2001), 1,076.67 (2000)

• Mongolia and the International Monetary Fund
• Agriculture in Mongolia
• Mining in Mongolia

• (in English and Mongolian) Official site of the Ministry of Finance
• (in English and Mongolian) Official government site of the Bank of Mongolia - the central bank
• Mongolia CIA World Factbook

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