Mongolia's 2016 GDP Slowest in 7 Years as Investments Fall
Ulaanbaatar. Mongolia's economy grew at its slowest pace in seven years in 2016, and it may slip into recession when austerity measures imposed on the country for a debt bailout are rolled out.
The landlocked country's once booming mining sector has been hit by falling commodity prices and a rapid decline in foreign investment.
The National Statistics Office announced on Wednesday (15/02) that gross domestic product expanded 1 percent in 2016, at less than half the pace of the previous year.
Mongolia saw double-digit annual growth over 2011-2013 as foreign investors rushed in to take advantage of its vast and mostly untapped mineral deposits, but since last year it has been embroiled in an economic crisis caused by government overspending and declining revenues from commodity exports.
Mongolia's currency, the tugrik, lost nearly a quarter of its value against the dollar last year, prompting interest rate hikes and austerity measures.
"With third quarter growth going negative for the first time since the global financial crisis, we could have easily hit a recession in the fourth quarter," said Bardral Munkhdul, chief executive officer of market intelligence group Cover Mongolia.
The 2016 full-year growth rate was higher than some forecasts, with the International Monetary Fund predicting zero growth for the year. The economy grew 2.4 percent in 2015.
"The government should not be patting themselves on the back just yet for beating international forecasts," Munkhdul said, adding that Mongolia "got very lucky" as a result of a surprise increase in coking coal prices last year.
The cash-strapped country is in talks with the IMF and China to help refinance billions of dollars of debt as it scrambles to meet a $580 million sovereign-guaranteed debt payment due in March.
A deal with the IMF is expected to be announced soon after lawmakers voted last week to meet one of the key conditions of the bailout.
"Mongolia is transitioning away from a debt crisis and potentially into a growth crisis, as IMF-imposed austerity in isolation could tip the country into recession," said Nick Cousyn, chief operating officer for Ulaanbaatar-based brokerage BDSec.
Government officials have also held talks with Beijing for crisis relief, which would likely include an expansion to its currency swap arrangement with the People's Bank of China.
The government is cutting costs where it can, and is even closing embassies in Indonesia and Brazil as well as consulates in Japan and China.
Earlier this month, citizens also promised to donate their own cash, rings and even horses to make ends meet.
Delays to mining and infrastructure projects, caused in part by political uncertainties, have also held back growth.
"The government needs to privatise assets and move infrastructure projects forward in order to grow the economy," said Cousyn. "The first order of business should be the completion of their rail project into China, which would provide much needed export growth."
Reuters
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