Mongolia should diversify its economy in the face of climate change and other stresses, as reliance on mining at the expense of its livestock industry has put people at risk of commodity price shocks and rising unemployment, an international aid group said.

Ramesh Singh, Mongolia director for Mercy Corps, said strengthening rural livestock markets and establishing centres of economic activity outside the over-stretched capital would enrich the nation's coffers, provide work for young people, and boost the country's resilience.

Mongolia has struggled with an economic crisis since 2016 due to government over-spending and declining revenues from its exports, which include copper and coal.

In February, the Red Cross appealed for $654,000 to support thousands of Mongolian herder families suffering from a second consecutive "dzud" in which a summer drought is followed by harsh winter conditions, leading to widespread livestock deaths.

Climate change could lead to more erratic rainfall and increase the frequency of droughts and dzuds, said the Mercy Corps report. But Singh said a profitable, modern herding system attractive to young people could be developed.

"There is a huge market potential from China and Russia which are ready to buy meat from Mongolia. There's an opportunity to develop another export market here," he told the Thomson Reuters Foundation by phone.

Mercy Corps is supporting a law to protect grazing land, and hopes to join planned efforts to map how many animals the country's pastures can support.

Its report also recommends educating herders to keep fewer, better-quality livestock, as well as developing financing to protect herders from climate threats, including insurance.

The world's first index-based livestock insurance was launched in Mongolia in 2005 but take-up has been slow due to a lack of awareness and affordability. (Dailymail)