This month the World Bank released its 2016 East Asia and Pacific Economic Update, with the subtitle Growing Challenges (The full report is available here). According to the report, Mongolia’s economy grew by 2.3 percent in 2015. Growth is good, but significantly lower than the 7.9 percent seen in 2014. The decline appears to be connected to decreasing government spending and exports as a result of slowing Foreign Direct Investment.
The broader causes are well known and include reduced demand from Mongolia’s southern neighbor and greatest trading partner, China, and a widespread decline in global commodity prices. The decreased demand hurts Mongolia’s mining exports. According to the World Bank, declining commodity demand exposes the need to increase development of institutions and human capital, which will help the country better adapt to changes external demand for Mongolia’s exports.
The World Bank flags Mongolia’s growth in recent years, driven my mining exports as being linked to a “decline in economic complexity.” To remedy this, the report recommends “removing barriers to economic diversification.”
These barriers may include formal restrictions on or policies which are not welcoming toward foreign investment. They may also include limitations in public goods such as education, health and infrastructure. Without these public goods in place, foreign and domestic companies face challenges in finding the right people, and in conducting their daily operations. In particular, the quality and quantity of infrastructure in Mongolia is “extremely limited,” presenting a significant barrier to investment and growth.
According to the World Bank, “Mongolia’s long term growth prospects remain strong.” However, in the short term the country faces challenges due to the global decline in commodity prices.
The World Bank recommends reasonable reforms which are expected to strengthen the internal resiliency of the Mongolian economy and ensure that the “most efficient and adaptable companies can succeed” and grow.