According to the February update recently relased by the World Bank, Mongolia’s economy continues to show signs of recovery, supported by a favourable external environment and the government effective policy actions over the past year.

The report reveals that Mongolia has known a strong rebound in exports and imports, due to high copper prices, robust demand from China, and the improvement of its domestic economy, respectively. Meanwhile, the fiscal deficit continues to improve, reflecting a combination of stabilizing government revenues and continued expenditure restraint.

Moreover, this trend should be consolidated by the country’s Parliament if this one enact a series of measures such as a comprehensive social welfare reform legislation to consolidate and improve the targeting of existing social transfers in a fiscally sustainable manner, a Fiscal Stability Law, and an Integrated Budget Law to set in place a fiscal framework for managing mining revenues as well as a commitment to prudent fiscal policy, the report says.

With regard to the banking sector, a restructuring strategy laying out a framework for banking sector resolution techniques is expected to be finalized soon. The World Bank has arranged the visit of 3 world class banking and financial sector restructuring and reform experts to assist Mongolia to surmount the difficulties in the country’s financial and banking sectors, as requested by MongolBank. These reforms will play a crucial role, says the report, in ensuring that Mongolia minimizes the risk of Dutch Disease and that its budget is protected from future mining boom-and-busts in a fiscally affordable manner. However, February’s data also show an inflation rise of 8.7% year-on-year, roughly doubling January’s level. The rise erodes citizens’ real incomes and purchasing power, especially for low-income households who already suffered most from the sharp economic downturn. The increase has been mainly driven by a rise in food prices, mainly meat, resulting from large livestock losses during the recent zud, and ironically, the distribution of MNT 70 thousand to every citizen.

The loss of many goats during the zud - 50% of the livestock losses – announces a future shortage of supply for the cashmere sector, which will inevitably strain upon rural livelihoods and incomes. In the banking sector, the report also stated that loans with principals in arrears were continuing to mount.

World Bank releases February Economic Update

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