ULAANBAATAR, MONGOLIA (28 April 2021) — Driven by favorable terms of trade and higher export demand, Mongolia’s economic growth is expected to recover gradually in 2021 and accelerate in 2022 as pandemic risks fade and the global recovery strengthens, says a new report by the Asian Development Bank (ADB) released today.
In its flagship economic report, Asian Development Outlook 2021 (ADO), ADB projects Mongolia’s economic growth to recover to 4.8% in 2021 compared to the 5.3% contraction seen in 2020 before climbing to 5.7% in 2022, boosted by domestic demand, investment, increased private credit, and a full recovery across economic sectors.
“After 3 years of robust growth prior to COVID-19, the economy plunged into a deep contraction for the first time in 11 years as the pandemic caused industrial output and investment to slump—creating urgent needs in public health, social protection, employment support, and financial stability,” said ADB Country Director for Mongolia Pavit Ramachandran. “As Mongolia faces elevated health risks for the population, it needs to ensure a proactive management of the pandemic to mitigate threats to public health and secure access to vaccines. Moving beyond the pandemic, Mongolia should focus on accelerating structural reforms, promoting investment, rebalancing fiscal and debt metrics, and strengthening financial stability to sustain growth.”
Growth prospects in 2021—2022 will largely depend on the course of the COVID-19 pandemic, the pace of economic recovery in the neighboring People’s Republic of China, the rebounding of commodity exports, the overall investment climate and private sector credit growth. Until the vaccination target of 60% of the population is achieved, concerns over public health will continue to dampen domestic demand and business confidence, which result in an uneven recovery outside of the mining sector, the report says. However, business sentiment and economic prospects will be better in 2022 as COVID-19 concerns ease.
Average inflation will accelerate to 6.9% in 2021 and 8.5% in 2022, rising above the 6.0% medium-term inflation target as the economy and demand recover, fuel prices increase, and exchange rate effects pass through to prices for imported goods.
The current account deficit is projected to widen to equal 8.3% of gross domestic product (GDP) in 2021 and 10.7% of GDP in 2022, mainly on an expected increase in imports of goods and services in conjunction with rising domestic demand, higher imports of machinery and equipment as mining recovers, and higher international oil prices.
Downside risks to the outlook would be prolonged impacts from COVID-19 on economic activity, and/or slow implementation of the vaccination program, and deterioration in the investment climate. Possible problems in designing and implementing the economic stimulus program and its financing schemes could have adverse implications for recovery.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.