The World Bank: Mongolia Economic Update April 2013

Apr 30 • Economy, Infrastructure, News, Real Estate, State Affairs, transport • 2321 Views • No Comments on The World Bank: Mongolia Economic Update April 2013

1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 2.00 out of 5)
Loading...

In 2012, Mongolia’s economy continued to experience a high growth rate of 12.3 percent. This growth rate was however lower than anticipated as Mongolia saw its coal exports drop significantly due to China’s economic slowdown.

Most noticeably, Mongolia had to finance a large fiscal deficit of 8.4% of GDP, a record in the last 13 years. It is concerning that similar fiscal trends might continue in 2013 with the economy growing at a double-digit rate but also accumulating another large fiscal deficit.

As Mongolia embarks on its largest infrastructure investments ever — which can be in part financed through a first successful sovereign Chinggis bonds issuance — greater attention has to be paid: (i) to preparing those investments rigorously to ensure maximum socioeconomic return and avoid potential wastage of public resources and (ii) to reflecting their financing transparently in the national budget.

Real Sector Development and Prospects

  • Mongolian economy grew at a slower pace in 2012 but still maintained double-digit growth. Annual economic growth rate of 2012 decelerated to 12.3 percent from 17.5 percent in 2011.
  • The World Bank is revising its baseline growth forecast for 2013 to 13 percent, still one of the highest in the global economy; however significant uncertainty over key growth factors makes the economic outlook highly volatile.
  • Inflation has slowed down to 9.8 percent in March 2013, from double-digit inflations in 2012 and early 2013.

Fiscal Sector Development and Outlook

  • Fiscal balance significantly deteriorated in 2012 with the fiscal deficit climbing to 8.4 percent of GDP, a thirteen-year record level.
  • In 2013, the fiscal outlook is likely to follow a similar path; the structural fiscal deficit is likely to reach over 7% of GDP, although the approved budget keeps it at the 2 percent ceiling of the Fiscal Stability Law.
  • The fragile fiscal outlook is yet to include two off-budget financing operations —i.e., the Price Stabilization Program and the lending from the Development Bank of Mongolia to socially-motivated projects— and the use of Chinggis bond proceeds. If they were to be accounted for in the budget, it could bring the total fiscal deficit to around 13 percent of GDP.

External Sector

  • The trade balance is likely to remain weak in early 2013 but is expected to improve in the latter half of the year due to strengthened mineral export.
  • The rapid slowdown of the FDI inflow is becoming a significant downside risk to the economy.

Monetary and Banking Sector

  • Monetary policy has turned accommodative in early 2013 in the wake of slowdown of economic growth in 2012 and slower credit growth.
  • Key financial indicators indicate no imminent signs of financial instability.

Challenges Ahead: Toward Sustainable Mineral Revenue Management

  • Continuous expansionary and pro-cyclical fiscal policy remains a potential risk to the stable and sustainable growth of the economy.
  • The rapid increases in capital expenditures — a thirty-five fold increase over the past decade — also risk undermining the quality of new projects as the public investment management system and the construction sector’s capability to absorb extensive new projects cannot be scaled up quickly.
  • A significant challenge at this stage is to build strong consensus to shift the fiscal management paradigm currently focused on “spending fast” toward one on “spending well”.
  • “Spending well” implies that mineral resources are spent effectively for the welfare of current and future generations of Mongolia and that some resources are saved as precautionary saving.

Source: The World Bank

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

« »