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Mongolia's economy grew in the first half of 2013 by 11.3% year on year, down from a revised 12.4% in 2012, because of a slowdown in the People's Republic of China (PRC) and falling commodity prices. Agriculture was a main driver of growth, increasing by 20.6%, while mining output fell by 18.5%. Growth slowed in the first quarter but recovered in the second, largely on higher public expenditure, including substantial outlays by the Development Bank of Mongolia.
|Selected Economic Indicators (%) - Mongolia||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-22.0||-25.0||-15.0||-18.0|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
Exports fell by 7.3% and imports by 10.2%. Exports of copper concentrate held up, but those of coal plunged by 48.6% as demand in the PRC waned. The current account deficit (32.6% of gross domestic product in 2012) increased by 21.9% to $1.8 billion. With the narrowing of the surplus in the capital account, the balance of payments recorded a deficit.
Foreign currency reserves fell by $1.4 billion to $2.7 billion (30% of 2012 GDP) as foreign direct investment plunged by 41.9% because of uncertainties arising from changes to legislation governing it, slower growth in the PRC, and the completion of the first phase of the Oyu Tolgoi copper and gold mine. Reflecting these developments, the local currency slid by 8% against the US dollar from early July to mid-August and by 11% since the beginning of the year.
Government revenue increased by 11% during the first 7 months year on year but by less than the budgeted amount, mainly because lower mining prices and output reduced royalty and tax receipts. Revenue shortages and implementation challenges tamped down public investment, reducing government expenditure by 5%. The budget deficit was thus smaller than planned and, at $72 million, a fraction of the $366 million shortfall in 2012, but it excludes off-budget expenditure of $640 million (7.2% of 2012 GDP) financed by the Development Bank of Mongolia.
Falling food prices slowed consumer inflation to 10.2% year on year in the first 7 months of 2013 from 14.1% a year earlier. These prices were influenced by the phaseout of a cash grant program and falling government expenditure, and, at least temporarily, by the price stabilization program. The inflation projection is revised down to 9.5% for 2013 but maintained at 10.0% for 2014.
Savings Bank became in July 2013 the first commercial bank in Mongolia nationalized since 2009, when the government established State Bank to take over two commercial banks declared bankrupt that year. Holding 8% of banking assets in the country, Savings Bank was declared insolvent after affiliated companies defaulted on loans.
Modest recovery in the global economy and the start of commercial mining at Oyu Tolgoi in July 2013, may accelerate economic growth in the coming months, but growth is now forecast to slow to 12% in 2013 and 13% in 2014. The short- to medium-term prospects for the Mongolian economy are subject to trends in the PRC and the global economy, and expansive fiscal policies historically make it vulnerable to external shocks.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.