By Professor Paul Sullivan (Georgetown University)

It has been a while since I wrote for this newspaper. As a little background for those who do not know me: I am an economics professor and adviser to many in leadership positions of many decades, with a Ph.D. from Yale and considerable experience in developing countries issues, as well as strategic issues related to economics. I also happen to be an American, one of Mongolia’s “Third Neighbors”, and I take being a neighbor seriously.

I have a great feeling for Mongolia and its economic and human development issues. There is no agenda in my articles on Mongolia other than to educate my readers and to possibly get some recovery, development, and other ideas to some in leadership.

Some may disagree with my ideas. That is OK. Having a serious discussion about serious issues in a country that needs to get back on its fiscal, financial, trade, economic, and human development feet is too important for one person to stand in arrogance and think he has all the answers. I will never claim to have all the answers. As Americans sometimes like to say: “this stuff is complicated”. I think we can all agree that Mongolia is having a hard time of it economically. Debt is very high. Servicing that debt is a considerable burden on the country. Major exports have slowed down. Unemployment is up. The Mongolian tugrug has collapsed in recent months. Costs for imports are going way up in tugrug terms. Interest rates are much higher than they were for many loans than even what they were at the beginning of the summer. That massive 450 basis point rise by the Central Bank of Mongolia of the benchmark interest rate to about 15 percent was yet another indication that things are not going well. Mongolia is asking the IMF for a significant loan to help them deal with many economic and financial issues, but primarily with its debt burden and the cost of government.

The Government of Mongolia is under financial stress. Most of the people of Mongolia are having a very hard time of it. Poverty is up. Real wages are down. Standards of living are falling. The hopes that many people had even just a few years ago of Mongolia possibly being the next Qatar or UAE seem dashed. But it is not too late.

In this article I am going to give a broad brush view of some of the things that could be done. In future articles, I plan to go into more depth about how such things may be accomplished. However, expectations need to be managed.

Just looking to a rise in commodity prices to economically rise up again is not a sustainable policy. (It also will not solve the structural and other issues Mongolia faces.) Those countries that rely too much on commodities that have waves of high and low prices will see their economies and their people also go down in those waves. This is a solid fact, and it is seen worldwide and across many commodities.

Diversified economies do not have those issues. If the price of one commodity drops heavily in a country that relies on thousands of other products, services, and industries, then that country is a lot better off than if it relied on just a few commodities. I have written some articles lately about Saudi Arabia’s 2030 vision to move away from oil. Maybe some in Mongolia could look at the Saudi plan and the McKinsey report associated with it to get some ideas. Clearly, the economies and societies of Mongolia and Saudi Arabia are different, but economic principles and the mathematics of diversification cut across all economies.

In the short run, Mongolia needs to get its budget deficits and debt under control. Monetary policies in the country seem very tight, as exhibited by that 450 basis point increase. Increasing interest rates this rapidly and keeping them high could be a serious break on the economy. This is obviously done to stop the run on the tugrug, but one of the results will be slowdowns in consumption and investment in the country. Dropping the value of the tugrug also increased the tugrug costs of servicing the foreign debt of the country.

Maybe a better set of monetary and fiscal policies configured and synchronized to not just get the budget in order, but also to get the economy moving forward could be helpful. But such policies are not easy to develop and may be even more difficult to ad-
minister. The government also needs to consolidate its budget under one balance sheet to see the whole picture. Many of the countries I have looked at have many budgets that are often not coordinated – and that can lead to real budgetary troubles. Government deficits cause government debt.

One thing is very clear: massive debt is a drag on an economy. Also, government sales of bonds can also cause financial crowding out by sopping up whatever savings there is into more short and longer term bonds, rather than into productive investments by those savers – who also may be the investors who bring the economy back.

Setting up tax and other incentives to get Mongolians and others to invest in Mongolia is a key to a better economic future. What those will be will have to be figured out by Mongolians for Mongolia, but some respectful advice might just help.

Strengthening the rule of law, especially contract law, might also help. But that will need a longer term to accomplish and should really be part of the long run solutions to the economic problems of Mongolia.

In the long run, Mongolia could and should be a wealthy, healthy, and secure country. The potential is there. Mongolia could focus on building its transportation, communications, IT, educational, energy, water, and logistics infrastructures. These infrastructure improvements could make industrial, agricultural, and other developments not only more likely, but less expensive (and more competitive) in the long run.

Education is going to be one of the most important keys to the future. This would be education at all levels. A focus on engineering, science, business, economics, and government administration could go a very long way. The more educated Mongolians are for the future potential economy of Mongolia, the more likely that economy will actually develop.

There is no reason why Mongolia should not be at the top of the education charts in the world sometime in the not too distant future. Mongolia could also be an inventive country, not just a follower of other countries inventions. Mongolians could someday be seen as some of the more educated and better trained people in Asia and beyond. Why not?

And with education and better training of the people and their government officials, the sky is the limit.

Mongolia could also work to diversify its trading networks by focusing less on raw materials and more on value-added exports. Instead of just exporting raw materials, process and develop them at home – and then export the final or intermediate products.

Mongolia is an amazing country with astonishing beauty and a deep history and culture. Tourism, if done properly, could give a big boost to many areas of Mongolia and its economy.

These are a few of the many more ideas that are possible. None of this will be easy. There will be tough times and there will be very good times. Expectation management is also a key. With a reasonable and long term perspective on fiscal issues, debts, and development there is no reason why Mongolia could not then focus on moving its country and people forward in both the short and the long run. The long run is what really counts, but getting to the long run requires short run efforts to be in order and focused on the bigger and longer run goals.


  1. Happy to see Professor Sullivan’s commentary on Mongolian democratic process progress.
    Excellent inclusion and thoughtful point on setting the appropriate level of expectation during the process—not to let expectations get past the appropriate level lest folks get frustrated for not having achieved goals faster than proper time and development allows. This was problem when Mongolia grew faster than their progress allowed.
    Interesting to see further comments on progressive development steps pertinent to the new MPP parliament, cabinet, local elections regarding oyu tolgoi, Erdenet, FDI, IMF, corruption, presidential election, etc.
    Good move by UBPost. Thx.

  2. Mongolia’s Investment Fund Law and Securities Market Law of 2003 are generally lacking in terms of what can be securitized outside the government mandate. The stock market has very little trading activity = low liquidity which drives away investors (Institutional investors most importantly). The fiasco that the government took in 2012 Rio Tinto project and general slow pace of policymaking resulted in drastic drop in Foreign Direct Investment which was fueling the economic expansion.
    With drop in FDI, low liquidity and no government guarantee to uphold contracts, Institutional Investors (Investment Banks) shy away from Mongolia. While the Mongolian Banking system (Custodian Service more imporrtantly) remains largely unused.

    -Adding a little bit insight to the financial environment of Mongolia