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1. Economy of Mongolia
Mongolia is a landlocked country with a population of approximately three million
people. Most economic activity in Mongolia is based on livestock and agriculture, but the
country also has extensive mineral deposits.
Soviet assistance, at its height accounted for one-third of gross domestic product
(GDP), but disappeared almost overnight in 1990 and 1991 at the time of the dismantlement
of the USSR. The following decade saw Mongolia endure both deep recession due to
political inaction and natural disasters, as well as some economic growth because of a
reform embracing the market economy and the privatization of most of the state-run bodies.
Severe winters and summer droughts in 2000-2002 resulted in massive livestock die-
off and negative GDP growth. This was compounded by falling prices for Mongolia’s
primary sector exports and widespread opposition to privatization. The average growth of
close to 9% per year between 2004 and 2008 was largely due to high copper prices and new
gold production. Until late 2008 Mongolia experienced galloping inflation, which went up
to nearly 40%.
With the aid of international financial institutions and the community of donors,
Mongolia has made considerable progress in terms of the democratization process,
establishing sustainable macro-economic foundations. The country adopted a new
constitution in 1992 which includes the principles of democracy and private property. The
country has also become one of the most open economies in the region, in order to facilitate
private initiatives.
It was in late 2008 that the country began to feel the effects of the global financial
crisis. Falling commodity prices helped to lower inflation, but also reduced government
revenues and led to cuts in spending. In early 2009, the International Monetary Fund
granted 236 million USD in a stand-by arrangement to Mongolia and the country started to
move out of the crisis.
The economy has grown more than 10% per year since 2010, largely on the strength
of exports to neighboring countries. Mongolia’s economy continues to be heavily
influenced by its neighbors. It purchases 95% of its petroleum products and a substantial
amount of electric power from Russia, leaving it very vulnerable to price increases. Trade
with China represents more than half of Mongolia’s total external trade. In exchange, China
receives over three-quarters of Mongolia’s exports. Remittances from Mongolians working
abroad are sizeable, but have fallen due to the economic crisis.