Mongolia was ranked as mostly unfree in economic freedom with a score of 55.7, making its economy the 125th freest in the 2018 Economic Freedom Index published by the Heritage Foundation. Mongolia is ranked 27th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.

Mongolia’s overall score has increased by 0.9 point compared to 2016, with improvements in monetary freedom, fiscal health, and judicial effectiveness outweighing declines in the government integrity, labor freedom, and government spending indicators.

“The current government has tried to restore investor confidence but has failed to invigorate the economy in the face of the large drop-off in FDI, mounting external debt, and a sizeable budget deficit. Weak rule of law and lingering corruption are additional drags on the economy,” said the report.

Launched in 1995, the index evaluates countries in four broad policy areas that affect economic freedom: rule of law; government size; regulatory efficiency; and open markets

In regards to the rule of law, the report indicated that contractual rights are recognized, and Mongolia generally respects property rights, including intellectual property rights, but noted that enforcement is weak. In addition, the judiciary system was classified as independent but inefficient and vulnerable to political interference.

“Pervasive corruption stems partly from a political culture that places a high value on personal relationships. Graft is endemic, and weak institutions do not enforce anticorruption measures effectively,” the report stated.

In terms of regulatory efficiency, the Heritage Foundation said that Mongolia was able to strengthen access to credit by setting up a new collateral registry.

Labor laws are not particularly restrictive. Due to Mongolia’s long, harsh winters, employers with large outdoor operations tend to use significant numbers of temporary contract workers. Fiscal budget deficits generated by lower commodity prices have forced drastic cuts in some subsidies and put downward pressure on fuel subsidies used to offset the high cost of energy.

The report also highlighted the importance of trade for Mongolia’s economy, with the combined value of exports and imports accounting for 98 percent of GDP.

The average applied tariff rate is 4.6 percent. The report emphasized that mainly nontariff barriers impede trade and ranked the government openness to foreign investment as below average.

“The financial system has undergone modernization, and the banking sector has become largely stable,” added the Heritage Foundation.

Overall, the world economy was classified as “moderately free,” with another rise in economic liberty leading to a sixth annual global increase. The world average score of 61.1 is the highest recorded in the 24-year history of the Index. The world average is more than three points higher than that recorded in the first edition of the index in 1995.

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