Mongolia: socio-economic challenges

During the years of democratic reforms, Mongolia has achieved great success in economic development. Thus, GDP per capita has increased threefold over the past 20 years and was about $5,000 in 2022.

As of August 2023, Mongolia’s GDP reached $16.940 billion, and economic growth this year was 6.4 percent. The use of natural resources that are abundant in Mongolia plays a significant role in the growth of the country’s economy.

Mongolia is rich in natural resources. Among the most significant reserves are copper, coal, iron ore, gold, zinc, fluorspar, uranium ore, and oil.

Mongolia also has significant reserves of rare earth metals, which are increasingly in demand for the production of electric cars, computer chips, and other electronic components. Two large industrial conglomerates operate in Mongolia to produce copper concentrate, one of which is the world leader in copper mining, the transnational corporation Rio Tinto.

However, it should be noted that the large dependence on world market prices for raw materials, such as copper and coal, greatly influences the economic development of the country, and therefore the government is trying to diversify the economy, especially since Mongolia has traditionally been an agricultural country, with a relatively developed livestock farming sector and related fields of the consumer and food industries.

There is a need for long-term policy at the macroeconomic level to improve the management of natural resource usage in order to avoid “resource curses,” when a significant role is given to the creation of the Mongolia Welfare Fund. This project has been discussed for quite a while, namely throughout almost five convocations of Parliament, i.e. almost 20 years. The use of natural resources must be accompanied by improved technology and strict adherence to modern standards for the mining industry, which is important for preserving the very fragile ecological system of Mongolia that is increasingly subject to the deterioration of land resources, one of the signs of which is the increasing frequency of sand and dust storms reaching the territories of China, South Korea, and even Japan.

Therefore, the initiative of the President of Mongolia, Ukhnaagiin Khurelsukh, to plant “a billion trees” throughout the country, including areas increasingly prone to drought and soil erosion, found a wide response among the country’s population.

Along with the sharp growth of the mining industry, the rapid increase in the number of livestock, which has reached almost 70 million heads, poses great problems for the ecological balance of Mongolia. Exclusive pasture livestock farming has led to soil impoverishment, especially with the growth in goat populations, which is associated with the ever-increasing consumption of goat down and the production and export of cashmere.

Infrastructure development plays a very important role for the Mongolian economy. Logistics today is one of the key problems that requires modern solutions and, most importantly, quite significant investments. Mongolia is located between the Russian Federation and China. The country is landlocked, but based on trade and transport agreements with these two neighbors, Mongolia uses the seaports of Tianjin in China and Vladivostok in Russia. However, constant transit through the territories of these countries ultimately leads to Mongolia’s economic and strategic dependence on both China and Russia. This dependence has especially manifested itself recently on the Chinese side and was very noticeable during the pandemic. Besides, due to Russia’s special military operation in Ukraine, transportation by land from Europe has become a very difficult undertaking.

One of the main tasks for the coming years is both improving the technical condition and significantly increasing the capacity of roads and railways, improving the efficiency and effectiveness of river ports and the Mongolian customs service.

Long-term regional cooperation and integration with the countries of the region provide additional opportunities for the development of the country’s economy.

The energy sector remains one of the problem areas for Mongolia. The country has great potential for using renewable energy, such as wind and solar generation. The use of water energy is also of great importance, but it requires reaching new agreements with the Russian side.

Heavy dependence on Russian oil and electricity, especially in the western provinces of Mongolia, remains one of the major challenges the country’s government faces, and the solution could be the ongoing construction of an oil refinery in Dornogobi aimag and the Erdeneburen hydroelectric power station in Khovd aimag.

However, coal-fired thermal power plants lead to incredible air pollution, which reaches critical levels in winter. The capital of Mongolia, Ulaanbaatar, home to almost one and a half million people, which, in fact, comprises half of the country’s population, is one of the most polluted cities in the world.

One of Mongolia’s most serious problems in the social sphere is the state of healthcare. The country has a very vast territory with a very small population. Mongolia has 21 provinces (aimags) and 330 administrative units (sums), where an average of 2,000 people live, but they require general education schools, hospitals, and all the attributes of government structures, which makes the country’s economy inefficient and vulnerable, while free services that the state offers in education and healthcare leaves much to be desired in terms of quality. Unemployment in Mongolia is rising, especially in rural areas. Almost 28.4% of the population lives below the poverty level (latest data for 2018).

Corruption remains one of the burning social issues that requires decisive measures to combat this evil. The International Monetary Fund (IMF), where Mongolia has been a member since 1991, noted in one of its recommendations to the country’s government that the stability of the position of civil servants, i.e. the “merit” principle is seriously violated due to the cycles of parliamentary elections. The principle is based on consistency and career advancement of civil servants. Such a system is assumed to be independent. In Mongolia, this principle is violated, because after the parliamentary elections, the winning party appoints its ministers, who in turn almost completely change the composition of the ministries, where people, who previously took an active part in their election campaigns, begin to work, which in turn leads to low professionalism and to huge staff turnover.

In addition, low salaries of civil servants lead to corruption observed at all levels, and the independence of law enforcement agencies is increasingly questionable.

The World Bank, in its recent study, identified the following challenges for the sustainable development of Mongolia: the vulnerability of the macroeconomy, the need to diversify the economy, poverty and unemployment, the need to improve infrastructure, logistics and environmental protection, as well as issues related to forms of government. The International Development Agency (USA) noted Mongolia’s geopolitical position, inflation in the country, and food security among the problems. In brief, the above remarks are the main socio-economic challenges for the country, both currently and in the coming years.

In general, it can be said that Mongolia is a country with an open economy, bordering China, which is the most dynamically developing economy in the world and provides advantages for the development of trade and economic relations.

The level of education among the population is quite high. Recently, the country’s Parliament approved English as the second official language of Mongolia, which means that it will become mandatory for the country’s general education system.

Mongolia is rich in history, famous throughout the world for its unique culture, and is proud of its diverse nature, which undoubtedly attracts tourists from all over the world. A strong civil society, independent and open media, a multi-party system, and frequent parliamentary and presidential elections make Mongolia an attractive country for foreign investment in sectors such as mining, agriculture, textiles and many others.