Mongolia's economy has been developing rapidly in recent decades and demonstrates consistently high real GDP growth. In 2000-2009, the indicator averaged 5.7% per year, in 2010-2019 — 7.9%. Thanks to the income from the export of mineral resources (primarily coal) and the active attraction of foreign investment in the XXI century, the country has managed to significantly improve the standard of living of citizens, as evidenced by a threefold increase in GDP in PPP per capita in just 20 years (up to 15.3 thousand dollars in 2023), Mongolia's transition to the category of income countries above the average level in 2023, as well as a decrease in the proportion of citizens living below the national poverty line to 27.1% in 2022 (in 1995, the figure was 36.3%, in 2010 — 38.8%).
In 2023, Mongolia's real GDP grew by 7.0%, primarily due to a sharp increase in coal production and exports to 66.7 million tons worth 8.8 billion US dollars (for comparison, in 2022 the country supplied 31.7 million tons of coal worth 6.5 billion US dollars to the world market, in 2021 - 15.7 million tons worth 2.8 billion US dollars) against the background of high demand for these products from China. Mining of mineral resources as a whole is the basis of the country's economy, in 2023 the mining industry accounted for about 28.8% of GDP.
In addition to coal, Mongolia has large deposits of non-ferrous metals (copper, gold and silver), iron ore and other minerals, which are the country's main exports. Agriculture, which accounted for 10.2% of the national GDP in 2023, also plays an important role in Mongolia's economy. Moreover, in recent years, the share of agriculture in the country's GDP structure has gradually increased due to increased productivity, but in 2023 it significantly decreased compared to 2022 (then the figure was 13.0%) due to adverse weather conditions that negatively affected the agricultural sector.
Thanks to the increase in coal exports in 2023, Mongolia managed to ensure a surplus of the state budget and current account, as well as to reduce the volume of external debt. However, this circumstance, among other things, indicates a high degree of dependence of the country's economy on external factors and conditions, primarily on the conjuncture in the global coal market and the dynamics of China's economic development. Thus, in 2023, more than half of Mongolia's exports in value terms were coal, and more than 99% of Mongolian coal was supplied to China, where demand for raw materials for the steel industry increased.
In general, the share of Chinese consumers in the total structure of Mongolia's exports exceeds 90%. Moreover, the low level of export diversification, along with a reduction in income from agriculture, leads to an increased role of non-ecological production in Mongolia, which contradicts the goals of sustainable development and is a threat to the country's macroeconomic stability in the long term. Thus, Mongolia currently urgently needs to implement structural reforms and economic diversification, one of the most important components of which is to increase the production of agricultural products.
According to the most current IMF forecasts, Mongolia's real GDP growth in 2024 will be 6.5%, but a number of other organizations expect more moderate growth rates (the World Bank — 4.8%, the Asian Development Bank — 4.1%). The projected slowdown in Mongolia's economic growth is primarily due to a reduction in production in the livestock sector, while additional risks are also associated with a potential decrease in coal exports. Nevertheless, the projected growth rates of real GDP indicate that the country has significant economic potential, supported by an increase in household incomes, a stable level of domestic consumption, as well as the implementation of a stimulating fiscal policy, expressed in an increase in government spending on the social sector. Against this background, the World Bank and the Asian Development Bank forecast real GDP growth in Mongolia in 2025 by 6.6% and 6.0%, respectively (including taking into account the planned increase in copper production at the Oyu Tolgoi deposit).
Thus, Mongolia has broad prospects for development in the medium term, but the long—term stability of the country and the further growth of its economy depend on the success of structural reforms, including the expansion of the private sector (especially in non-primary industries) and diversification in order to reduce the country's vulnerability to external challenges. A balanced environmental policy and increasing Mongolia's resilience to climate change, which leads to more frequent natural disasters and instability of agricultural production, will also contribute to the country's economic development in the long term.
In recent years, Mongolia has experienced a high level of inflation, which peaked in 2022, when the indicator reached 15.2% against the background of global economic instability, as well as China's "zero tolerance" policy towards COVID-19. With the lifting of restrictive measures and the opening of Chinese borders, as well as the relative stabilization of the global economy in 2023, the rate of price growth in Mongolia, according to the IMF, decreased to a more moderate, but still high 10.3% (according to World Bank estimates — 10.6%, Asian Development Bank — 10.4%). It is expected that in the next two years, inflation in the country will decrease, while remaining noticeably higher or at the upper limit of the target range set by the Central Bank of Mongolia (4-8%). Thus, the IMF predicts that price growth in the republic will amount to 9.7% in 2024 and 10.0% in 2025, the World Bank expects inflation to decrease to 8.5% in 2024 and to 8.3% in 2025 (the Asian Development Bank — to 7.0% and 6.8%, respectively). Today, the main pro-inflationary factors in Mongolia include the consequences of adverse weather conditions, which have most seriously affected agriculture and increased food inflation, as well as an increase in the fiscal burden due to increased budget expenditures, which, on the one hand, support economic growth, on the other— lead to higher prices.
In the context of high inflation, the Central Bank of Mongolia has been pursuing a tight monetary policy in recent years. In February 2022, the level of the key rate was increased by 50 bps to 6.5%, by December 2022, the total increase in the indicator was 700 bps. The key rate remained at 13.0% until March 2024, after which, due to a reduction in the rate of price growth, the Mongolian Central Bank began to gradually ease monetary policy. In July 2024, the Mongolian regulator lowered the key rate by 200 bps to 11.0% against the background of relative price stabilization both in Mongolia itself and in the countries that are its trading partners, as well as a concomitant slowdown in the growth of prices for imported products. As an additional argument in favor of lowering the rate, the Mongolian central bank highlighted the high growth rates of the country's economy in the first quarter of 2024, largely due to the significant volume of coal exports. However, inflation risks in Mongolia still persist, and therefore the regulator is expected to continue its tight monetary policy in the short and medium term (while a gradual reduction in the key rate is possible in case of further stabilization of prices).
