ADB: Mongolia’s economic recovery to continue
Asian Development Bank releases Mongolia Economic Outlook 2018
1 долоо хоног өмнө
Asian Development Bank (ADB) disclosed the Asian Development Outlook 2018 yesterday and highlighted that Mongolia’s economic growth will remain solid in 2018 and 2019, albeit with slight moderation, following a strong performance in 2017 as coal exports and mining investments strengthened. ADB projects Mongolia’s gross domestic product (GDP) growth to moderate to 3.8 percent in 2018 from the 5.1 percent growth in 2017 before rising again to 4.3 percent in 2019. This is following the 1.2 percent growth in 2016. Continued investment in mining, particularly in the development of the Oyu Tolgoi underground mine, will continue to drive growth. Transportation bottlenecks, however, will prevent coal exports from matching 2017 performance, although these will ease somewhat in 2019, according to ADB report. “Sustained investment into the mining sector will form a basis for continued growth. The strong performance against the International Monetary Fund program is helping to restore investor confidence and improve macroeconomic stability. Continued government commitment to this program will be key in ensuring that macroeconomic buffers are built up, reducing Mongolia’s vulnerability boom-bust cycles in the future,” remarked Yolanda Fernandez Lommen, ADB Country Director for Mongolia. Furthermore, ADB expects the inflation to accelerate to 8 percent in 2018 and ease to 7 percent in 2019, from the 4.3 percent recorded in 2017 following the 24.7 percent depreciation of MNT in 2016, which affected import prices on top of higher commodity prices due to drought and higher excise taxes.
Rising domestic demand and international oil and food prices, coupled with the effects of looser monetary policy in 2017, will continue to drive inflation higher in 2018. These effects will be less pronounced in 2019 as oil prices and domestic demand subside. Mongolia’s budget deficit is projected to equal 6.4 percent of GDP in 2018 and 5.1 percent in 2019, from 3.9 percent of GDP in 2017, as expenditure on social insurance, welfare, and equipment increases, coupled with a likely reduction in budget revenue as reforms to ease reporting requirements and the tax burden for SMEs take place. A sharp recovery in FDI, financial support from multilateral development partners, and better terms of trade allowed the country to refinance a major part of its external debt. Gross reserves more than doubled, reaching 5.5 months of imports. These developments pushed the value of MNT up by 2.5 percent against the USD. The current account deficit will narrow to 6.3 percent in 2018 before widening to 7 percent in 2019. Downside risk to the outlook include lower coal and copper prices, disruptions to the successful implementation of the extended fund facility, higher meat prices, interruption to Oyu Tolgoi production or investment, and worsening financial instability arising from the bank restructuring program. Upside risk to growth include higher commodity prices and a possible deal on large infrastructure projects tied to existing mining production.