The coronavirus crisis has hit commodity-dependent countries hard as economic lockdowns have shattered global demand for their exports.
According to forecasts by the International Monetary Fund and the World Bank, for example, Mongolia’s GDP is expected to shrink by almost 11% in 2020 largely due to the pandemic’s impact on global demand for the nation’s coal, copper and zinc concentrate exports. In the case of Mongolia, practically all these commodities are exported to China; this leaves Ulaanbaatar highly dependent on the economic health of its southern neighbour.
The significant loss in revenues from commodity exports leaves governments strapped for cash as they grapple to bolster public health infrastructure and provide safety nets for those suffering the most.
In Mongolia, for example, the government’s budget has shrunk by more than 10% due to an almost 40% drop in mineral exports during the first quarter of 2020.
To sustain increased expenditures on health and other coronavirus-related services, the government may have to borrow more from international private and public sources, which could raise its already worrying 222% external debt to GDP ratio.