- Mongolia has experienced rapid economic growth over the past decade, with average growth of 6.3% and GDP per capita increasing sixfold between 1997-2011, driven largely by growth in the mining sector. - However, the economy remains volatile and vulnerable to external shocks. Issues like Dutch Disease, weak institutions, corruption, and procyclical fiscal and monetary policies threaten to undermine long-term sustainable growth. - Major projects like Oyu Tolgoi and Tavan Tolgoi will further increase mining's dominance of the economy, but without improvements in governance, infrastructure, and macroeconomic management, this will exacerbate inequality and volatility rather than promoting broad-based development.

1. Mongolian Economic Outlook
TUVSHINTUGS Batdelger
Economic Research Institute, November 2012

2. Economic Overview: Growing, but volatile
• Average Growth Rate between 1997-2011 of 6.3%
• Nominal GDP per capita has increased 6 fold between 1997-2011
503
3056
17.3
-5
0
5
10
15
20
0
1000
2000
3000
GDP per capita and growth (1997-2011)
GDP per capita (current US$) GDP growth (annual %)
Source: World Development Indicators,World Bank
MONGOLIA: country profile
Population: 2 811 600
Labor force: 1 124 700
Area (km2): 1 564 115
Neighbor
countries:
China and
Russia
HDI 0.653 (110th)
Source:Yearbook 2011. NSO, Mongolia
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3. Economic Overview: Growing, but volatile
Economy almost quadruples by 2020 with average growth of 14.8%.
Mongolia will be the fastest growing economy in the world between 2010-
2030 with average growth rate 9.7% (Citigroup Global Markets, 2011)
Source: SES, NUM and BAEconomics Pty, 2011
8.6
1.1
2.5
0.0
2.0
4.0
6.0
8.0
Nominal and real GDP (bln US$, 1997-2011)
GDP (current US$) GDP (constant 2000 US$)
Source: World Development Indicators,World Bank
16.4
31.8
35.2
0
10000
20000
30000
40000
GDP with 7.2% growth GDP BASE PRICES
GDP OPTIMISTIC PRICES
3

4. Contributors to GDP: mining as a main driver
Economy is highly reliant on the mining sector
In the Future (copper $5,300; gold $965/oz; coking coal $ 54): Mining
sector will be even more dominant (29% as of 2040) and Agriculture
not so much (16% as of 2040)
Policies remain the same
Source: SES, NUM and BAEconomics Pty, 2011
25%
12%
3%
7% 8%
9%
22%
2%
29%
15%
2%
4%
7%
13%
18%
1%
Mining Livestock and
other agri
Manufacturing Transportation Construction Health, educ. and
defence
Other service Oil, gas and
electricity
2011 base 2020 base 2030 base 2040 base
4

5. Future major developments in the mining sector
Oyu Tolgoi: reaches 800,000 tonnes of copper
concentrate by 2020 and 28 tonnes of gold. Estimates
suggest, 25% of GDP in 2020 (price $5,300)
Tavan Tolgoi: reaches 10 mln tonnes of coking coal by
2020 and 40 mln tonnes of thermal coal (~40 mln
tonnes, yesterday)
5

6. However, there are challenges:
Dutch Disease and Resource Curse
Many experiences of Dutch Disease and Resource Curse in
resource rich countries
Dutch Disease: RER appreciation combined with high labor cost
=> dominant Non-tradable and mining sectors; lower economic
growth potential; susceptible to high economic fluctuations
Resource Curse: Low quality of institutions and governance =>
Rising inequality, low economic growth, rampant corruption
These challenges are real for Mongolia!
Why?
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7. Challenges for Mongolia : Institutional and
Governance Quality
Review of various surveys point to following major difficulties
in conducting business, negatively affecting country’s
competitiveness in general:
Corruption: ranked 120 out of 183 (Transparency International,
2011)
Index of Economic Freedom: ranked at 81 out of 179 (Heritage
foundation, 2012)
Doing Business: ranked 86 out of 183 (World Bank, 2012)
World Competitiveness Index: ranked 93 out of 144 (World
Economic Forum, 2012-2013)
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8. Challenges for Mongolia : Institutional
Quality and Infrastructure
Major hurdles to conducting business in Mongolia:
-Inefficient government bureaucracy: Taxes, supervision
and regulations
-Access to financing
-Government policy instability
-Law and contract enforcement
-Corruption
Infrastructure is another major hurdle for businesses:
Bottlenecks at border
Quality of roads and air transport infrastructure

9. Challenges for Mongolia :
Macroeconomic policies
Main purpose of macroeconomic policies: Stable and
sustainable growth
However, past Fiscal and Monetary policies have been pro-
cyclical:
— Exacerbates economic volatility and uncertainty
— Dutch disease effects are more prominent
— Increasing vulnerability from volatile commodity prices
— Limited policy room when needed: 2008/2009 crisis
9

10. Strongly Pro-cyclical Fiscal Policy
Average growth rate of nominal GDP is 22% while government revenue
growth is 26% and expenditure growth is 25%
Fiscal Stability Law was ratified in 2010. Fully operational from 2013
There are risks: Development bank was established to finance big
infrastructure and industrial projects – $1.5 bln. government bonds for 2013
being discussed. Off-budget?
Source:Yearbook 1998-2011, NSO Mongolia
-20%
0%
20%
40%
60%
80%
1997 1999 2001 2003 2005 2007 2009 2011
GDP and Fiscal nominal change (%)
GDP nominal growth Government revenue growth Government expenditure growth
10

11. Economic vulnerability
11
08/09 crisis clearly showed the country is extremely
vulnerable to TOT shocks (25% decrease)
Transmission: Export prices decrease => Drop in currency
inflow into the economy => Pressure on Togrog to
devaluate and Stagnant government revenue
TOT shocks exacerbated by Pro-cyclical monetary and fiscal
policies: i.e. when gov’t revenue is tight, expenditure is even
tighter, leads to worsening economic downturn

12. What is Economic Outlook ?
Unless Institutional and economic policy challenges are
addressed:
High Economic growth
Rising Inequality
Dominant Non-tradable and Mining sectors
Volatile economy with many uncertainties
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13. Thank you for your attention!