Continuing economic trends in Mongolia feature high growth and inflation, procyclical fiscal policy, and large current account deficits. Growth in gross domestic product (GDP) decelerated to 12.3% in 2012 from 17.5% in 2011, and inflation accelerated. Overly expansionary policies, including substantial off-budget spending, have caused internal and external macroeconomic imbalances. Over the longer term, sound public resource management and effective cooperation with private investors are needed to develop Mongolia’s energy sector in a sustainable and environmentally friendly way.

Economic performance

Economic growth slowed to 12.3% in 2012, falling from 20.2% year on year in the fourth quarter of 2011 to 10.5% in the third quarter of 2012, after a slowdown in growth in the PRC curbed demand for coal, Mongolia’s biggest export. A driver of growth was infrastructure spending related to the mining boom, albeit to a lesser extent than in 2011, as the first phase of the Oyu Tolgoi copper and gold mine - among the five largest in the world - neared completion. As a result, gross capital formation, including equipment, buildings, and intermediate goods, increased by 24.0%, markedly down from the 69.9% of 2011 but still the largest contributor to GDP growth, followed by consumption.

Source: ADB estimates.

Economic prospects

Mongolia’s medium-term economic prospects are favorable. The mining sector is expected to continue to be the main engine of growth in 2013 and 2014, with commercial production at the Oyu Tolgoi copper and gold mine starting in mid-2013. Growth is expected to accelerate to 16.5% in 2013, before being trimmed to 14% in 2014 by capacity constraints in public investment planning and project management, a tight labor market and skill shortages, and some tightening of monetary and fiscal policies including lower off-budget spending financed by the Development Bank of Mongolia (DBM).

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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