An IMF study finds Mongolia’s fiscal multipliers are low due to high import leakages, with capital spending having the strongest and most lasting economic impact. It urges a shift from current spending to infrastructure investment and cautions against overreliance on tax cuts for growth.
A new working paper by the International Monetary Fund (IMF), titled "Fiscal Multipliers in Mongolia" and authored by Tigran Poghosyan from the IMF’s Asia and Pacific Department, offers a rigorous analysis of how government spending and tax policies shape Mongolia’s economic trajectory. The study benefits from the collaboration of key institutions such as the IMF Resident Representative Office in Mongolia and the World Bank’s Mongolia office. Using a structural vector autoregressive (SVAR) model and more than two decades of quarterly data from 2000 to 2023, the research reveals that Mongolia’s fiscal multipliers, indicators that measure the effect of fiscal policy on economic output, remain disappointingly low. The findings indicate that both spending and revenue multipliers are well below one, reflecting a constrained fiscal environment where much of the intended stimulus dissipates through import leakages and structural inefficiencies.
Why Stimulus Measures Often Fall Short in Mongolia
Mongolia’s economy has long relied on fiscal tools due to its relatively rigid exchange rate and limited monetary flexibility. The government has typically used public spending, particularly in the form of current expenditures like wages, pensions, and social support programs, to stimulate economic activity. However, these measures often fail to deliver robust or sustained growth. The study points out that these recurrent outlays, especially in election years, are politically motivated and not strategically aligned with long-term development goals. Tax exemptions are also frequently employed as a short-term fix, but they have had minimal impact on improving competitiveness or encouraging private sector investment.
Adding to the challenge is Mongolia’s high vulnerability to global commodity cycles, given its dependency on mineral exports. With public debt increasingly dominated by foreign currency instruments, the country is exposed to significant fiscal risks during external shocks. In this setting, the paper seeks to measure the true effectiveness of different types of fiscal interventions.
Low Multipliers and High Leakages: The Empirical Findings
The results are striking. The total government spending multiplier peaks at a mere 0.3, implying that for every additional tögrög spent by the government, GDP rises by only 0.3 tögrög. The multiplier effect dissipates after a few quarters, highlighting the fleeting impact of government expenditures. Meanwhile, the revenue multiplier, a measure of GDP change following a reduction in taxes or increase in government income, is even lower, peaking at -0.1 and losing statistical significance after just two quarters. These low figures suggest that a significant portion of fiscal stimulus leaks out of the economy, largely through imports.
When the study adjusts for special circumstances such as IMF program periods, economic crises, and parliamentary elections, the results change only marginally. This indicates that Mongolia’s fiscal constraints are not simply a product of temporary crises or political cycles but stem from deeper structural characteristics.
A more granular analysis reveals that the composition of government spending matters greatly. Capital expenditures, such as infrastructure projects, are significantly more effective than current spending. The capital spending multiplier starts at 0.3 and peaks at 0.6 between the fifth and seventh quarters, maintaining its impact for a longer period. In contrast, the current spending multiplier tops out at just 0.2 and fades quickly. These results align with previous global research, including findings by Ilzetzki and colleagues, which show that infrastructure and investment-related expenditures tend to have stronger and more durable economic impacts.
This contrast underscores a major policy lesson: capital investment not only delivers better immediate returns but also helps lay the foundation for future growth. The persistence and scale of capital multipliers make a compelling case for reorienting fiscal strategy toward long-term investment rather than short-term consumption.
Rethinking Tax Policy and Revenue Dependence
On the revenue side, the story is equally sobering. Tax and non-tax revenues both show weak multiplier effects. The tax revenue multiplier is -0.1, while the non-tax revenue multiplier, which includes earnings from Mongolia’s mineral wealth, peaks at -0.2 and quickly loses relevance. There is little difference in their effects, and both fail to provide any sustained lift to GDP. Compounding the problem, Mongolia rarely undertakes major tax policy reforms, limiting the ability to assess or optimize revenue strategies. Furthermore, due to the lack of disaggregated quarterly data, the study could not separate mining and non-mining revenues, an omission that, if addressed, might yield further insights into sector-specific dynamics.
Policy Lessons: Prioritize Investment, Build Resilience
The implications for policymakers are clear. With fiscal multipliers below one, Mongolia cannot expect spending or tax cuts alone to meaningfully boost economic growth, especially when much of the stimulus leaks out through imports. The paper urges the government to avoid cutting capital investments during fiscal consolidations, as these have the most growth potential. Likewise, tax cuts should be approached cautiously, since their ability to spur the economy appears marginal at best.
Instead, Mongolia should focus on improving tax collection efficiency, reducing its dependence on volatile non-tax revenues, and investing more in productive infrastructure. Diversifying the economy away from mining and reducing trade-related vulnerabilities will also be crucial. Finally, future research should explore the role of governance, the interaction between fiscal and monetary policy, and the broader institutional environment to fully understand the drivers and limits of fiscal effectiveness in Mongolia.
In a country seeking to balance growth, stability, and fiscal sustainability, this IMF study serves as a critical roadmap, pointing not just to what isn’t working, but also to what could.

Published Date:2025-05-28