ULAANBAATAR, Dec 20 (Reuters) – Mongolia’s economy is outpacing growth expectations this year despite budget cuts as the coal trade has been strong even as exports slowed in the second half, an International Monetary Fund official said.
Growth has proved “more durable than anticipated”, IMF Resident Representative Neil Saker told Reuters.
In 2016, Mongolia was hit by an economic crisis due to government overspending and declining revenue from commodity exports. Saker said the country is now headed toward recovery.
The IMF has raised its 2017 growth projection for Mongolia to 3.3 percent from 2.0 percent.
The Fund has dispersed $79.1 million from a $5.5 billion bailout fund to relieve the Northeast Asian country’s debt burden and stabilise the local currency.
The IMF has committed to a three-year extended fund facility worth $434.3 million, while Mongolia also has loans from Japan and South Korea as well as a currency swap agreement with China.
The growth forecast was upgraded even though Mongolia’s government made budget cuts to reduce the fiscal deficit to 7.5 percent of gross domestic product instead of 17 percent.
The stronger growth stems from higher coal prices paid by Mongolia’s number-one trade partner, China.
Mongolian miners have seen greater demand this year after the closure of some of China’s mines and Beijing’s ban on coal imports from North Korea.
However, Mongolia’s coal exports have slowed since July, as customs authorities have allowed fewer coal trucks into China amid a crackdown on smuggling of meat and other goods.
Saker said growth diminished into the fourth quarter as the momentum from coal slowed, but “greater private investment and growing consumption and other mining exports would boost growth in 2018.”
“It’s not just coal any more,” he said.
In the first 11 months of this year, coal made up 38 percent of Mongolia’s exports and nearly half of its mineral exports, data from its national statistics office show.
Longer-term, the IMF is encouraging a diversification of the economy away from mineral resources.
“Crucially important for diversification are macro-economic stability, low inflation and a competitive exchange rate,” Saker said.
He added that the banking reforms now being implemented would help bring investment to sectors other than mining.