During the Asian Development Bank’s (ADB) conference on the economic outlook of Asia’s developing countries, it was announced that the ADB predicts that Mongolia’s GDP growth rate will rise to 1.4 percent in 2017.
ADB Country Director Yolanda Fernandez Lommen presented the opening remarks of the conference, giving a general overview of the Asian economy and the outlook of growth worldwide. The Asian Development Outlook published by the ADB was also presented at the conference.
She said, “Despite a difficult external environment, growth has held up in developing Asia, aided by resilience in the region’s two largest economies – the People’s Republic of China and India. The region is expected to grow at 5.7 percent in 2016 and 2017. While global commodity prices have begun to rebound, inflation remains moderate in the region. Consumer prices will likely rise by 2.6 percent in 2016 and 2.9 percent in 2017.”
In the ADB’s outlook report, Senior Economist Norio Usui states that Mongolia’s GDP will increase in 2017, and with it the inflation rate will rise from 3.2 percent to 5.4 percent in 2017.
He also spoke in depth about the economic outlook of Mongolia. In his presentation, he emphasized, “The country has encountered challenges arising from faltering foreign investments, dampening commodity prices, weaker external demand, and past excessive spending.” He highlighted that the near-term growth prospects remain weak, although a mild recovery is expected in 2017 as investments rise with the second phase of the Oyu Tolgoi mine’s development. The pressing challenges are to maintain prudent macroeconomic policies, manage external debt repayments, attract foreign investments, and protecting the poor.
During his presentation, Usui brought up the fiscal balance of Mongolia. The total budget revenue in 2015 was 3.14 trillion MNT and 3.04 trillion MNT in 2016. The total expenditure in 2015 was 3.78 trillion MNT with a deficit of 636 billion MNT. In 2016, the total expenditure was 5.01 trillion MNT with a deficit of 1.97 trillion MNT. This increase is in part because of improved transparency and the inclusion of offbudget expenditures in this year’s balance report, according to the ADB senior economist.
At the end of his report presentation, he spoke about short-term and medium to long-term policy priorities. In the short term, he said Mongolia needs to continue fiscal consolidation, tighten monetary policies, and manage debt repayments in the near future, while still working to attract foreign investments and protecting the poor and vulnerable. He also underlined that not delaying OT any further would help the prospects of the economy in both the short and long term.
Regarding medium to long-term policy priorities, managing mining revenues and finding the right balance between spending, sterilizing, and saving was highlighted. The recommendation of creating fiscal and external buffers, such as a sovereign wealth fund, was brought up. This would help Mongolia better manage future boom and bust cycles, according to Usui. Establishing targeted social protections and an indexed revenue system was endorsed, as it would help target welfare to specific portions of the population most in need, and the indexed revenue sharing would help distribute the wealth of mining. Outside of these mostly mining related priorities, Usui advocated for economic diversification.
During the Q&A session of the conference, when asked which sectors showed the most promise in the effort for economic diversification, ADB Country Director Yolanda Fernandez Lommen said that agriculture, especially the meat industry of Mongolia, has the most potential in helping to offset mining dependence. She also mentioned that Mongolia could penetrate niche manufacturing, such as cashmere, in order to further diversify the economy.