Despite global uncertainty, Mongolia's new government is working to maintain economic growth which is fuelled by strong export performance and fiscal expansion. But structural challenges such as the severe contraction of the agricultural sector due to harsh weather conditions, potential disruptions resulting from factors such as petroleum supply from Russia, a slowing Chinese economy and increased budget spending could test the country's resilience.
Following Mongolia’s 2024 election, a new government faces the challenge of sustaining economic growth amid rising global uncertainty. Strong export performance and fiscal expansion fuel optimism, but structural challenges may test the country’s resilience.
The Mongolian economy is continuing its recovery from COVID-19-related slowdown. Economic growth was 4.9 per cent in 2024, which is significantly lower than the 7.4 per cent growth in 2023 and the average growth rate of 6.4 per cent over the past 18 years. The industrial sector grew by 5 per cent, with the mining sector expanding by 5.7 per cent.
But the agricultural sector, which accounted for around 10 per cent of GDP, contracted by 25 per cent in the first three quarters of 2024. This decline is attributed to severe winter and spring weather conditions, known as the ‘Dzud’, which led to the loss of 8.1 million animals — 12.5 per cent of total livestock.
Total exports increased moderately by 3.9 per cent compared to the previous year, reaching US$15.8 billion, while imports rose sharply by 25.5 per cent to reach US$11.6 billion, both marking historical highs.
Export growth was primarily driven by a significant increase in copper exports. The volume of copper exports reached a record 1.7 million tons, up 11.1 per cent from the previous year, while the average border price of copper increased by US$236 per ton, boosting the value of copper exports by 26 per cent. Though coal export volume grew by over 20 per cent to a historic high of 83.7 million tons in 2024, the price of coal fell by US$25.4 per ton, leading to a 2.3 per cent decline in the value of coal exports.
Economic growth in 2024 was fuelled by significant expansion on the demand side. With relatively favourable conditions for commodity exports and a positive outlook of the near future, the state budget revenue and grants increased by 28.7 per cent from 2023, reaching a historic high of 31.4 trillion Mongolian togrog (US$9.1 billion). Budget expenditure expanded by 34.9 per cent, reaching another historic high of 30.4 trillion Mongolian togrog (US$8.8 billion). Private consumption and investment also rose by 27.8 per cent and 26.8 per cent respectively in the first three quarters of 2024.
Inflation remained within the central bank’s target range, averaging 6.6 per cent in 2024. This was despite ongoing uncertainties in the external environment, capacity constraints in energy, transport and logistics sectors, significant demand-side expansion and negative supply shocks in animal husbandry.
The labour force participation rate continued its steady rise, reaching 63 per cent in the third quarter of 2024, while the unemployment rate rose to 6.1 per cent.
The rise in exports also improved the country’s foreign exchange reserves, which registered a record high of US$5.5 billion. This milestone is especially significant considering the Bank of Mongolia made payments of around US$1.1 billion in foreign debt. The togrog remained relatively stable against the US dollar throughout 2024.
The government’s debt management strategy for 2023–25 stipulates that new foreign securities will be issued solely for the purpose of refinancing existing debt. Following implementation, as well as abovementioned positive changes in the economy, the government’s sovereign bond spread reached the lowest in history — 2.3 per cent — in 2024. As a result, credit rating agencies S&P Global and Fitch Ratings upgraded the country’s credit rating to B+ and B2 respectively, marking the highest rating in the past decade.
Mongolia saw the formation of its first 126-member parliament following the 2024 parliamentary election. The election — based on a mixed electoral system — led to five parties winning seats, with 78 members elected from constituencies and 48 from party lists. Notably, 25 per cent were women — the highest level of female participation in recent generations.
Though the Mongolian People’s Party won the majority of seats, it formed a coalition government with the Democratic Party and the HUN Party, giving it a 94 per cent supermajority. The current coalition government is aiming to implement 14 mega-projects in the next four years, having endorsed linking the railway border connection with China — which should boost coal export revenue by 2.8 times — and uranium mining in collaboration with the French ‘Orano’ group.
The new parliament finally adopted the Law on the Sovereign Wealth Fund after many years of deliberation. The fund is composed of three sub-funds, designed to accumulate wealth, finance large state investments and support social measures. Budget discussions were notably intense, resulting in the adoption of a zero-deficit budget for 2025.
But the Fiscal Stability Law, which has been in effect since 2013, was amended to remove the upper limit on the overall budget deficit, replacing it with a lower limit on the primary balance surplus. The long-term impact of this change has not been fully assessed, nor has its potential to ensure fiscal stability.
Looking ahead to 2025, factors such as disruptions in petroleum supply from Russia, a slowdown in Chinese economy, expanding budget spending, spiralling wage increase, surges in electricity and heat prices and the continued impact of the Dzud will continue to put pressure on inflation and economic growth.
By: Tuvshintugs Batdelger is the Director at the Economic Research Institute, Mongolia and Professor at the National University of Mongolia.
Nomun Enkhbold is a Researcher at the Economic Research Institute, Mongolia
This article is part of an EAF special feature series on 2024 in review and the year ahead.
https://doi.org/10.59425/eabc.1740780000