Mongolia

Politics:

• Analysis

  Mongolia politics: Quick View - MPRP threatens to leave governing coalition

  Event

  One week after a successful government bond sale, Mongolia faced new challenges when a junior partner in the ruling coalition, the Mongolian People's Revolutionary Party (MPRP), threatened to exit the government.

  Analysis

  Some Mongolia watchers and political analysts have been predicting the break-up of the coalition government since its formation in July, and this scenario now looks more plausible. The MPRP, which holds four of the 19 cabinet positions, declared its intention to withdraw from the government in a hastily organised press conference on December 5th.

  The deputy chairman of the MPRP, Dendev Terbishdagvaa, stated that his party's decision to exit the government was based on perceived human rights abuses and mistreatment of the MPRP leader and former president, Nambar Enkhbayar, who was jailed in August on corruption charges. The announcement sent Mongolian bond interest rates sharply higher, mere days after the government raised US$1.5bn on the international bond market.

  Since then, however, the interest rate on Mongolia's bonds has largely rebounded and political wrangling has been muted. It is possible that the MPRP announcement was little more than a bluff intended at pressuring the government and the courts to reduce Mr Enkhbayar's four-year sentence. If this is the case, it would appear that the declaration had its intended effect; on December 7th the Supreme Court reduced Mr Enkhbayar's sentence to two and a half years.

  Volatility has been a part of the political landscape in Mongolia for the past 15 years and the latest spat between parties within the coalition was not unusual. But with the country now increasingly monitored by international investors, Mongolian politicians are fast learning that their actions, however insignificant in the local context, can considerably impact the economic fortunes of the country. The reduction of Mr Enkhbayar's sentence, and the ensuing silence by the MPRP, indicates that the threat of government dissolution has abated for the moment. We advise caution to investors but do not expect major changes in the political landscape as a result of the MPRP announcement.

  December 12, 2012

• Background

  Mongolia: Political forces

  The former communists are still a powerful force

  Originally communist, the MPRP now regards itself as a social democratic party. In addition to the political parties, there are pressure groups, such as the Mongolian Democratic Union, which spearheaded demands for reform in 1989-90. A law on non-governmental organisations (NGOs), in force since 1997, has improved the status of lobby groups, and NGOs actively promote human rights within civil society. Women's NGOs work to improve social and economic conditions for women, whose presence in national politics is limited.

  April 13, 2007

• Structure

  Mongolia: Political structure

  Official name

  Mongolia

  Form of state

  Republic

  The executive

  The Democratic Party (DP) won the largest number of parliamentary seats in the general election held in June 2012 but fell short of a majority. (The DP left the previous coalition government in January ahead of the election.) After weeks of bargaining, in July the DP formed a new ruling coalition with the Mongolian People's Revolutionary Party (MPRP) and other smaller parties

  Head of state

  The president, Tsakhiagiin Elbegdorj of the DP

  National legislature

  A single-chamber parliament, the State Great Khural, which has 76 members

  National elections

  Presidential election: May 2009. Parliamentary election: June 2012. The next elections are due by May 2013 (presidential) and June 2017 (parliamentary)

  Main political organisations

  The DP and the main opposition Mongolian People's Party (MPP). The MPP was formerly known as the MPRP, but changed its name in 2010. The current MPRP was formed in early 2011 by a faction that split off from the MPP. The MPRP and the Mongolian National Democratic Party are together known as the Justice Coalition

  Key ministers

  Prime minister: Norovyn Altankhuyag

  Deputy prime minister: Dendev Terbishdagva

  Cabinet office: Chimed Saikhanbileg

  Construction & urban development: Tsevelmaa Bayarsaikhan

  Culture, sports & tourism: Tsedevdamba Oyungerel

  Defence: Dashdemberel Bat-Erdene

  Economic development: Nyamjav Batbayar

  Education & science: Luvsannyam Gantumur

  Foreign affairs: Luvsanvandan Bold

  Industry & agriculture: Khaltmaa Battulga

  Justice: Khishigdemberel Temuujin

  Labour: Yadamsuren Sanjmyatav

  Mining: Davaajav Gankhuyag

  Population development & social welfare: Sodnomzundui Erdene

  Roads & transport: Amarjagal Gabsukh

  Central bank governor

  L Purevdorj

  Chairman of the State Great Khural (national assembly)

  Zandaakhuu Enkhbold

  November 19, 2012

Economy:

• Background

  Mongolia: Population

  Mongolia is sparsely settled

  Mongolia's population stood at 2.6m in 2006. The population grew by 2.8% a year between 1970 and 1990, but the growth rate slowed to an annual average of 1.2% between 1990 and 2006. One-third of the population is currently under 15 years of age. Population density is low, at 1.5 people per sq km. About one-half of the population was urbanised by 1990, but high urban unemployment encouraged a return to the countryside in the early 1990s. This has now been reversed, and around 36% of the population currently lives in the capital, Ulaanbaatar.

  About 260,000 people (or 20% of the working-age population) were estimated to be unemployed at the end of 2006, with urban areas worse affected than rural areas. One-half of the unemployed are under 35 years of age, and more women than men are unemployed.

  Population and health indicators, 2006
  (per 1,000 population unless otherwise indicated)
  Total population (m)	2.59
  Population growth rate (%)	1.2
  Life expectancy (years)	64.6(a)
  Crude birth rate (per 1,000 live births)	18.3
  Crude death rate	6.0
  Infant mortality (per 1,000 live births)	41.0(a)
  Maternal mortality (per 1,000 live births)	1.0(a)
  (a) 2004.
  Sources: National Statistical Office of Mongolia, Mongolian Statistical Yearbook 2005; Human Development Report Mongolia 2006.

  Download text file (csv format)

  April 13, 2007

• Structure

  Mongolia: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (Tg bn)	6,555.6	6,590.6	8,414.5	7,743.0	10,319.5
  GDP (US$ bn)	5.6	4.6	6.2	6.1	7.6
  Real GDP growth (%)	8.9	-1.3	6.4	17.3	11.7
  Consumer price inflation (av; %)	25.1	6.3	10.1	9.5	14.3
  Population (m)	2.7	2.7	2.8	2.8	2.8
  Foreign-exchange reserves excl gold (US$ m)	561.5	1,294.5	2,196.7	2,275.2	–
  Exchange rate (av) Tg:US$	1,166	1,438	1,357	1,266	1,354
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2011a	% of total	Components of gross domestic product 2011a	% of total
  Mining	16.4	Private consumption	50.8
  Transport & communications	15.4	Government consumption	14.0
  Agriculture	13.7	Gross fixed capital formation	48.6
  Trade	11.3	Exports of goods & services	63.5
  Manufacturing	5.9	Imports of goods & services	-86.1
  Principal exports 2010b	US$m	Principal imports 2010b	US$m
  Mineral products	2,354.0	Mineral products	754.9
  Textiles & textile articles	216.3	Machinery, equipment & electrical appliances	681.3
  Natural or coloured stones, precious metals & jewellery	178.4	Transport equipment, vehicles & spare parts	607.6
  Main destinations of exports 2011c	% of total	Main origins of imports 2011c	% of total
  China	85.7	China	43.3
  Canada	6.3	Russia	23.3
  Russia	2.1	South Korea	5.6
  South Korea	1.4	Japan	5.1
  a Asian Development Bank. b National Statistical Office. c IMF, Direction of Trade Statistics.

  Download the numbers in Excel

  Download text file (csv format)

  November 19, 2012

• Outlook

  Mongolia: Country outlook

  Mongolia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: Tensions and disagreements between the Democratic Party (DP), which won the June 28th parliamentary election, and the formerly ruling Mongolian People's Party (MPP) could pose risks to political stability in the 2013-14 forecast period. The new DP-led government is a coalition including smaller populist parties. Ideological differences and historical enmity between the coalition partners could lead to political turbulence. The DP may come under pressure from its coalition partners and the public to take a more nationalistic approach to mining policy, but the government is unlikely to be able to alter the substance of recent resource deals. Despite strong GDP growth and higher tax receipts, rapidly rising government expenditure will lead to wide, albeit shrinking, fiscal deficits in 2013-14. Real GDP growth slowed from 17.3% in 2011 to an estimated 11.7% in 2012, but it will pick up again in 2013-14 to an average of 14.2% a year. Investment in the mining sector will continue to drive economic expansion. Inflation will pose a major threat to economic stability. The average rate of inflation accelerated to an estimated 14.3% in 2012 and will remain rapid in 2013-14, at 11.7% a year.

  DOMESTIC POLITICS: The longer-term prospects for political stability in the country are improving, especially as the economy will continue to grow rapidly in the next few years. Nevertheless, a number of issues could become sources of tension. The most recent was the indecisive outcome of the June 2012 general election, in which no party secured a majority in the 76-seat parliament. The inconclusive result led to weeks of political wrangling that culminated in the announcement in July of a new government composed of the DP and a grouping of two smaller populist parties known as the Justice Coalition. The new government faced several immediate challenges in the aftermath of the election, not least the MPP's refusal to accept the results, but these risks to political stability have diminished. Another threat to political stability has also passed without triggering destabilising unrest: the arrest and eventual conviction on graft charges of the leader of the Mongolian Revolutionary People's Party (MPRP, a faction that broke from the MPP in 2011) and previous president, Nambaryn Enkhbayar. It appears that the MPRP's supporters have been appeased by the party's prominent role in the new government. Nevertheless, the composition of the government means that concerns about political volatility will persist. The centre-left DP now needs to govern in concert with its erstwhile rival, the MPRP, which has called for increased nationalisation of the country's mineral wealth. The government's decision to allow foreign companies a role in developing the country's huge mineral resources will remain a potentially destabilising issue at the popular level. Many in the country still have doubts about this strategy, and there is a risk that nationalist sentiment could be exploited to bring protesters back on to the streets. The new cabinet includes several figures, most significantly the new mining minister, who have urged a reduction in the foreign stake in Mongolia's largest mine, Oyu Tolgoi. Overseas investors will closely monitor the government's implementation of its controversial new foreign investment law, which was enacted in May 2012 and limits foreign ownership in strategic industries to 49%.Inflation is another potential source of tension, given the adverse impact of rapidly increasing prices on the living standards of most Mongolians. Given the continued hardship faced by many lower-skilled workers and poor herders, the longer-term potential for social unrest could increase if the resources boom skews wealth distribution in what has traditionally been a relatively equal society. In the medium term, however, strong economic growth should generate employment, especially in the mining and related sectors, helping to raise living standards and reduce political and social tensions. Politics can be turbulent, with frequent changes in the make-up of ruling coalitions and the membership of the cabinet. The next presidential election will be held in 2013. Early indications in the aftermath of the 2012 elections are that the MPP will remain in a weakened state. Conversely, the DP has taken a fresh, more accessible approach to governing that has further boosted its popularity in recent months, particularly in the capital, Ulaanbaatar. In addition, the re-emergence of the MPRP has eaten into the MPP's traditional support base. The MPP will need to adjust to its opposition role and revive its appeal ahead of the next general election, which will be held in 2016.

  INTERNATIONAL RELATIONS: The government is expected to continue its pragmatic approach towards foreign policy, reflecting the influence of its larger and more powerful neighbours. The chief focus will remain the need to balance relations with Russia, on which Mongolia depends for energy, against ties with China, on which it relies as an export market. The government has sought to strengthen links with both countries, and also with what it calls "third neighbours" (countries that are supportive of Mongolia's young democracy even if they are not geographically close). Foremost among these are the US, Japan and South Korea, which are important counterweights to the country's dependence on Russia and China.

  POLICY TRENDS: The environment for foreign investors remains difficult, amid policy volatility and lingering uncertainty over the direction that the government is taking to develop the mining sector. Politicians periodically raise the possibility of a wholesale renegotiation of the Oyu Tolgoi and Tavan Tolgoi agreements to make them less advantageous to foreign shareholders, but so far these have proved empty threats. The Economist Intelligence Unit expects that actual government policy is less likely to waver, given the moderate views of the prime minister and other centrist policymakers who ultimately control DP strategy. The country's abundance of natural resources promises major economic benefits for the country, but the exploitation of mineral wealth can sometimes hinder a country's wider long-term development. The officials have signalled that they recognise these potential challenges, and they are looking at the example of countries such as Chile to learn how they have managed their mineral wealth while maintaining social and macroeconomic stability. For example, the World Bank has credited local officials for basing Mongolia's fiscal-responsibility legislation on Chile's successful precedent. After recording a budget deficit in 2011, the government announced further major increases in spending on transfers and public-sector salaries in the run-up to the June 2012 election. These policies have exacerbated inflationary pressures that were already rising, and at the same time have made the country's fiscal position more vulnerable to a fall in global commodity prices (the fiscal balance suffered when such prices slumped in late 2008 and early 2009). Mongolia's government is prohibited from running a budget deficit by fiscal-responsibility legislation, which requires a gradual reduction in the deficit and also prescribes measures to save revenue generated from high commodity prices. However, it remains to be seen whether the laws will be effective. We expect the budget deficit to narrow steadily over 2013-14, having widened to an estimated 5.3% of GDP in 2012. The size of the deficit will steadily reduce in 2013-14, although the government's planned deficit of 2% of GDP next year relies on ambitious assumptions about global commodity prices and royalties from mining projects. Inflationary forces remain a cause for serious concern and will add to pressure for the Bank of Mongolia (the central bank) to continue its current policy of gradually pushing up interest rates. Further rate rises are likely in 2013.

  ECONOMIC GROWTH: Mongolia's economy has recovered strongly from the domestic downturn in 2009, expanding by 6.4% in 2010 and by 17.3% in 2011, but expansion has lost momentum over the course of 2012. Growth had slowed to 10.2% by the third quarter, largely owing to a sharp decline in coal exports to China. Industrial production data for August showed a drop-off in mining activity as coal output contracted. However, the agricultural sector is staging a strong recovery from the effects of the zud (a summer drought followed by an unusually harsh winter) in 2009 and early 2010. This, coupled with strong growth in construction and services sector activity associated with the mining industry, has kept GDP growth in double-digit territory in 2012, at an estimated 11.7%. Although we have revised down our growth forecasts for 2013-14, we still expect economic expansion to accelerate to an average of 14.2% a year. In expenditure terms, GDP growth will be led by investment in the mining sector; overall investment growth is forecast to average 22.6% a year in 2013-14. This will be accompanied by a continuing surge in mining-related imports of plant and machinery, as well as fuel. Exports will rise strongly as several mines expand production. Some of the biggest new mining projects are set to come on stream imminently: Oyu Tolgoi, for example, is due to begin commercial production in 2013. Rising government expenditure will provide a further boost to growth as taxes from the mining sector support spending on social welfare. One of the main downside risks to our GDP growth forecast is the possibility of continued rapid inflation, which could undermine consumer confidence and deter mining investment owing to the increase in costs. Another risk is the threat of a sharper or prolonged downturn in the economy of neighbouring China, the main market for Mongolian minerals, although this is not our central forecast. A dramatic decline in global commodity prices would also hold back economic expansion, while putting pressure on the public finances.

  EXTERNAL ACCOUNT: The trade deficit expanded to a record US$1.7bn in 2011 and has widened in 2012. The shortfall stood at US$1.4bn in January-July this year, according to the latest available data. Export growth has slowed over the course of 2012 as a result of weaker demand from Mongolia's main trading partner, China. However, imports continue to grow rapidly as a result of purchases of mining-related equipment, machinery and fuel. China is the destination of almost all of Mongolia's sales abroad, and export earnings would therefore suffer in the event of a sharp downturn in Chinese economic growth. Such a development is not our central forecast at present; property construction in China cooled in 2012, restraining Mongolia's export growth and exerting a moderating influence on global commodity prices, but we expect Chinese construction to pick up again in 2013. Export growth will be especially strong in 2013, in line with strengthening demand from China and higher global prices for copper and coal. Export earnings will be boosted further by the Oyu Tolgoi mine in 2013. According to a 2011 estimate by the facility's operator, annual output will average 1.2bn lbs of copper, 650,000 oz of gold and 3m oz of silver during the mine's first decade in operation. Import demand will also continue to rise in 2013-14 as domestic demand picks up. Investments linked to the Oyu Tolgoi mine and other mining operations will suck in imports, and the trade gap is therefore likely to widen, but the deficit's expansion will be financed by flows of foreign investment into the mining sector.

  November 19, 2012

View detailed map

Country Briefing

Land area

1,566,500 sq km

Population

2.755m (2010 census)

Main towns

Ulaanbaatar (capital): 994,300 (end-2006)

Darkhan: 87,800 (end-2004)

Climate

Continental, with extremes of temperature from -35°C in winter to over 40°C in summer in some regions

Weather in Ulaanbaatar (altitude 1,350 metres)

Rainy season, June-August; mean winter temperature, -24°C; mean summer temperature, 20°C, but with wide daily fluctuations

Language

Mongolian

Measures

Metric system

Currency

Togrog. Average exchange rate in 2010: Tg1,357:US$1

Fiscal year

January-December

Time

8 hours ahead of GMT

Public holidays

New Year's Day (January 1st); Tsagaan Sar, Mongolian Lunar New Year (February 3rd-5th); International Women's Day (March 8th); Mothers' and Children's Day (June 1st); National Holiday, or Naadam (July 11th-13th); Constitution Day (November 26th)

August 04, 2011