Mongolia Country Risk Report Q4 2018
The landslide victory of the Mongolian People's Party (MPP) in the parliamentary elections on June 29 2016 will usher in a period of relative political stability and improved policy coordination over the coming years. Meanwhile, Mongolia remains highly economically dependent on China, and we expect relations between the two countries to advance over the coming years, which will likely benefit the landlocked nation's trade and investment amid greater cooperation.
Mongolia is progressing well on its nascent recovery, which began in 2017, and we expect economic growth to head higher over the coming quarters. Growth will likely be boosted by robust investment activity, helped by an accommodative monetary policy, while commodity export growth recovers.
We still expect the Mongolian Togrog (MNT) to face depreciatory pressures due to narrowing real interest rate differentials relative to the US, which will be mainly driven by rising inflation in Mongolia.
Mongolia's public finances have started to improve in 2017, following a significant deterioration in 2016, and they are likely to get better over the coming years. The MPP-led government aims to contain spending while increasing revenue by raising personal income taxes.Major Forecast Changes
We have raised our 2018 real GDP growth forecast to 6.0% (from 5.5% previously).
We have revised our 2018 average forecast to MNT2,445/USD (from MNT2,420/USD previously) to reflect our expectations for further weakness.
Upside Risk: An aggressive ramp-up of major mining projects such as the second phase expansion of the Oyu Tolgoi project and the Tavan Tolgoi coal mine would help galvanise investment activity significantly. Downside Risk: In a worst-case scenario, a significant slowdown in Chinese economic growth and, by extension, demand for commodity imports would seriously hamper Mongolia's growth prospects. Any deterioration in the country's business environment due to delays in other major mining projects and the failure to rein in its fiscal deficit could weaken investor confidence, which could force the Bank of Mongolia to hike rates unexpectedly (to the detriment of the banking sector), in order to shore up the currency.
Learn how to effectively navigate the market research process to help guide your organization on the journey to success.Download eBook