Following a contraction of 4.4 percent in 2020 and 1.4 percent growth in 2021, the World Bank’s latest Mongolia Economic Update projects that the economy will grow by 2.5 percent in 2022, reflecting lingering border frictions with China and the impact of the war in Ukraine.

Despite continued policy support and higher commodity prices, economic growth is dragged down by protracted trade disruptions and logistical bottlenecks amid border closures. Headline inflation rose sharply by 14.4 percent (y/y) by March 2022, weighing down real incomes and household consumption. The war in Ukraine amplified external risks resulting in increased demand for foreign exchange, and further erosion of international reserves, says the report.

Over the medium-term, the report projects economic growth to accelerate to above 6 percent in 2023-2024, as the underground mining phase of Mongolia’s largest copper mine Oyu Tolgoi (OT) is expected to become operational during the second half of 2023.

Meanwhile, public debt, including the central bank’s swap agreement, increased sharply to about 92 percent of GDP in 2021, driven by large COVID-related fiscal measures to support the economy.

The headline budget deficit nonetheless narrowed to 3.1 percent of GDP – with a one-off tax arrears collection (2.3 percent of GDP) and the financing of the Child Money Program through the Future Heritage Fund, which weakened the fiscal framework and long-term sustainability.