Country Report Mongolia May 2009

Outlook for 2009-10

The political scene is set to remain volatile following a turbulent general election in June 2008. The election was won by the ruling Mongolian Peoples Revolutionary Party (MPRP), although the opposition Democratic Party (DP) decided to join the government, despite disputing the election results. The political scene will continue to be unstable as the government attempts to cope with the ongoing economic crisis. Real GDP growth will slow sharply in 2009, to just 2.5%, owing to falling commodity prices and a tighter monetary policy.

The political scene

Campaigning has begun for Mongolias next presidential election, which is to be held on May 24th. The election is effectively a choice between candidates from the two main political parties, the MPRP and the DP. Although the president's powers are limited, he has the authority to veto new legislation. In March the prime minister, Sanjaagiin Bayar, held talks with the Russian prime minister, Vladimir Putin, who has agreed to extend a loan of US$300m.

Economic policy

Amid a sharp contraction in the economy, collapsing commodity prices and a serious banking crisis, in early March the parliament approved a Tg1.5trn (US$984m) stimulus package. The money will be spent on efforts to stabilise the exchange rate and the banking sector. Mongolia has also been successful in gaining an 18-month stand-by loan of US$224m from the IMF, as well as combined loans worth US$160m from the World Bank, the Asian Development Bank and the government of Japan. The government has unveiled a new budget, which aims to keep the budget deficit to 5.4% of GDP in 2009. Interest rates have also been raised in an attempt to support the exchange rate.

The domestic economy

The National Statistical Office reported a fall in output in the key mining and quarrying sectors in the first quarter of 2009. The World Bank has downgraded its real GDP growth forecast to 2.7% for 2009. Inflation has fallen in the past few months in response to weaker domestic demand and lower commodity and food prices. The government has approved in principal a long-delayed investment agreement allowing a Canadian firm, Ivanoe Mines, to develop the Oyu Tolgoi copper-mine. But the deal still needs to be approved by parliament.

Foreign trade and payments

The merchandise trade deficit reached US$71.5m in the first quarter of 2009, amid a sharp fall in both exports and imports. The deterioration in the merchandise trade deficit combined with government intervention to support the currency has led to a fall in the level of foreign-exchange reserves.

This report covers the following industry codes:
SIC Code: 48;70;15;49;60;10
NAICS Code: 517;72;23;22;52;212