Mining and Domestic Demand Bolster Mongolia’s Economy, According to New World Bank Report

ULAANBAATAR, November 29, 2024 - Mongolia's economy is projected to grow by 5.3 percent in 2024 and 6.5 percent in 2025, amid the robust mining production and domestic demand, according to the World Bank's latest semi-annual Mongolia Economic Update.

Economic growth held steady at 5.7 percent year-on-year in the first half of 2024, with recent high-frequency data indicating continued momentum into the third quarter. The strong performance is attributed largely to a sustained surge in mining and transportation services, despite contraction in the agriculture sector caused by harsh climate conditions. Domestic demand was a key driver of growth, but is putting pressure on the balance of payments as imports outpace revenues from commodity exports.

The medium-term growth outlook remains positive, at 6.0 percent over 2026-2027. After a surge in output from the Oyu Tolgoi gold and copper mine in 2025, mining output is projected to moderate, with growth increasingly driven by other sectors, including trade and other services, and agriculture. Increased public consumption and investments under the government's four-year action plan are also expected to accelerate the growth.

This outlook faces several downside risks. Greater-than-expected fiscal spending could elevate inflationary pressures and widen fiscal and current account deficits. Climate change heightens the risk of more frequent and severe natural disasters, posing significant economic risks for Mongolia, especially for poor and vulnerable households. Slower-than-expected global growth could weaken external demand and reduce prices for key export commodities. Escalating geopolitical tensions could drive up fuel prices, resulting in higher imported inflation, increased production costs, and a larger import bill.

"While Mongolia's ongoing mineral export boom is delivering positive macro-fiscal outcomes for the second consecutive year, maintaining these gains will require prudent macroeconomic management," said World Bank Country Manager for Mongolia Taehyun Lee. "The continued reliance on mining leaves Mongolia vulnerable to external shocks and structural reforms to diversify the economy and increase its resilience remain important."

In addition to providing assessment of recent economic developments, the report also provides insights into the distributional effects of Mongolia's fiscal system, focusing on the impact of taxes and social spending on poverty and inequality. The findings show that while Mongolia's fiscal system is effective in reducing poverty and income inequality, its reliance on broad-based programs makes it costly. The report recommends (i) prioritizing reforms to increase the progressivity of the personal income tax system and (ii) reallocating funds toward more cost-effective poverty-targeting programs.