IMF Conducts 2023 Article IV Consultation with Mongolia
Mongolia’s Economic Outlook Positive with Growth Rebound and Stable External Position
The International Monetary Fund (IMF) has concluded its Article IV consultation with Mongolia, expressing a positive outlook for the country’s economy. The IMF Executive Board considered and endorsed the staff appraisal without a meeting on September 14, 2023.
Mongolia experienced a significant rebound in growth, with a 5.0 percent increase in 2022. This growth was attributed to China’s reopening, the government’s efforts to boost exports, and private sector financing inflows. The external position of the country also stabilized as a result of these factors.
During the first half of 2023, headline inflation gradually declined to 10.6 percent in June. This was largely due to falling global prices. Core inflation also started to moderate, reflecting a more stable economic environment. In line with these positive developments, a supplementary budget for 2023 was passed in June, introducing permanent increases in wages, benefits, and pensions.
The mining sector, a key driver of Mongolia’s economy, remains strong, and the fiscal expansion is expected to support robust growth in 2023. However, the IMF warns that the procyclical fiscal expansion may lead to increased inflation and external pressures if fiscal policies remain unchanged. These factors could have a negative impact on the non-mining sector and the overall growth outlook from 2024 onwards.
The IMF emphasized the importance of implementing consolidation measures to prevent the fiscal balance from deteriorating and to address the risk of public debt increasing. Without such measures, Mongolia may face a large fiscal deficit by 2024, which could pose a threat to the country’s economic stabilization.
The report also highlights several risks to Mongolia’s economic stability. The country’s high external debt and limited external buffers, combined with its dependence on imports and commodity exports, make it vulnerable to external shocks. Furthermore, any policy slippages before the June 2024 Parliamentary elections could pose additional risks to macroeconomic stability. Lower than targeted coal exports are also mentioned as a potential risk factor.
It is important for Mongolia to take these risks into consideration and to implement appropriate policies and reforms to ensure sustained economic growth and stability.
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