A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in Mongolia.

Mongolia has been hit hard by global shocks and problems at both its borders. Despite the government’s laudable success in bringing the pandemic under control and opening Mongolia’s borders to international travel, China’s persistent border closures have disrupted Mongolia’s ability to export and reap the windfall from an improvement in export prices. Disruptions in food imports via Russia and from China, and other supply disruptions are also hurting economic activity and heightening food security risks, compounding the economic hardships posed by rising global fuel and food prices. Inflation has well exceeded the BOM target on account of these factors, and has accelerated since the war in Ukraine started. Weaker export volumes and rising imports due to higher prices and the unleashing of pent-up demand, have led to mounting FX pressures and dwindling international reserves.

The much-anticipated post-pandemic recovery will be delayed. The outlook is for stagflation. The economy is expected to expand at a modest 1 percent in 2022, instead of the 7 percent forecasted in November 2021, as longer-lasting Chinese border closures weigh on exports and domestic activity, and declining real wages hurt domestic consumption. Import disruptions from Russia and China are also likely to hurt activity. Inflation is expected to remain high at an average rate of 14½ percent in 2022, reflecting global price increases.

The outlook is uncertain and subject to significant downside risksstemming from commodity price volatility; extended Chinese border closures; an escalation of sanctions on Russia; tighter global financing conditions, and the risk of a pandemic resurgence. In the worst-case scenario, the economy could come to a near-standstill if disruptions in correspondent banking relations due to sanctions on Russia are not resolved in a timely manner.

The medium-term outlook remains favorable. If border disruptions and geopolitical shocks were to be resolved by end-year, Mongolia is well placed to reap an economic windfall from favorable commodity prices and from the Oyu Tolgoi underground mine production starting in 2023. An acceleration in growth to above 6 percent in 2023-25, and strong commodity prices could lift up external and budget balances.