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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007
MONGOLIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Politic and Economic Environment
Notwithstanding the advances that have been
made since Mongolia held its first elections in
1992, the country's young democracy will
remain fragile in 2006-07. There are three
main threats to political stability over the short
term. The first is the question of whether the
Mongolian People's Revolutionary Party will
be able to maintain the stability of the
fractious four-party coalition that it currently
leads. The second is how far the government
will be able to assert its legitimacy. The third
risk is the turbulence within the parties
themselves. Mongolia's political parties are
fragile creatures that are held together less
by agreement on ideological goals and more
by loyalties to political clans and strong
political leaders.
The new government is maintaining its
predecessor's pragmatic approach to foreign
policy, largely reflecting the need to balance
its own interests against those of its larger
and more powerful neighbours. The key
driver of foreign policy will therefore remain
the need to balance relations with Russia, on
which Mongolia depends for energy, and
those with China, on which it relies for export
markets. At the same time the US and Japan,
which are important aid donors, will continue
to be seen as useful counterweights to
dependence on Russia and China. The need
for balance will also ensure that Mongolia
continues to court India actively.
Poverty reduction will remain a key policy
priority for the new government, not least
because, as the demonstrations in April this
year suggested, the government badly needs
success in this area in order to broaden its
support base. Mongolia remains one of the
world's poorest countries, with around 40% of
the population of 2.5 million living below the
poverty line, defined as living on an income
of Tg25,000 (US$ 20) a month. The potential
for this to spill over further into political
discontent has been increased by the wide
income disparities created in the transition to
a market economy and the continued scares
over diseases such as avian influenza (bird
flu) and foot-and-mouth disease that threaten
the already precarious livelihoods of the
country' still-large agricultural population.
Economic Outlook
Mongolia's economic outlook in 2006-07 is
fair, with real GDP likely to grow by 5-6% a
year in the two-year period. However, prices
for key mineral exports are likely to fall over
the forecast period. The textile sector will also
continue to struggle, although there could be
some relief this year as the EU generalised
system of preferences scheme opens up
markets in Europe to Mongolian goods.
Foreign direct investment (FDI) flows,
particularly into the mining sector, should,
however, be supportive of growth. This
depends on the government's being able to
maintain an investment environment
favourable to inward FDI.
Mongolia is likely to be hit hard by continued
high prices for oil, on which it is importdependent.
This could produce some
volatility in consumer price inflation, although
the influx of cheaper Chinese-made
consumer goods should help to keep the lid
on inflationary pressures overall.
Mongolia's merchandise trade deficit
narrowed to US$ 95 million in 2005, from
US$ 158 million in 2004. However, this
improvement is not expected to be sustained.
This will largely reflect continued high global
prices for oil–mineral products typically
account for just over one-fifth of the total
import bill. We forecast that oil (dated Brent
Blend) will average US$ 60/barrel this year,
up from US$ 54.7/b in 2005, and will ease
only modestly to US$ 55.3/b in 2007. Export
revenue, meanwhile, will be hit by declining
prices for key products such as copper, gold
and zinc, even if demand from Mongolia's
largest export market, China, remains brisk.
But the external position will continue to be
supported by inflows of aid and credit, all of
which will be on concessional terms.
According to the report of the Bank of
Mongolia, at the end of October of 2006
money supply (M2) increased by 0.4%
against September, reaching 1,546.3 billion
togrogs. At the end of October 2006 currency
issued in circulation decreased by 0.8%
compared to previous month. Saving time
deposits increased by 4.8%. As for foreign
currency deposits, they increased by 3.8%.
At the end of October, 2006 the remainder of
loans outstanding increased by 0.7% over the
previous month of which loans in the public
sector decreased by 4.9% and other sectors
decreased by 0.3% and private sectors and
individuals loans increased by 1.3 and 2.2%
respectively. Meanwhile, principals in arrears
decreased by 14.4% and substandard,
doubtful, loss loans decreased by 2.1%.
The non-performing loans reached 5.9% of
the total loans outstanding.
In October of 2006, tugrugs average annual
weighted lending rate of banks reached 27.6
which increased by 1.5 point, and dollars
average annual weighted lending rate
reached 16.1%, increased by 0.8 points
compared to previous month.*
* The Economic Intelligence Unit Ltd, May 2006
Key Information Contacts
Parliament of Mongolia: www.pmis.gov.mn
Ministry of Finance: www.mof.pmis.gov.mn
Financial Regulatory Commission: www.frc.mn
The Central Bank of Mongolia: www.mongolbank.mn
Mongolian Chamber of Commerce & Industry: www.mongolchamber.mn
National Statistical Office of Mongolia: www.nso.mn
2004-ORIGINS OF GROSS DOMESTIC PRODUCT (%) (a)
2005-COMPONENTS OF GROSS DOMESTIC PRODUCT (%) (b)
Industry
Services
Trade Agriculture, hunting & forestry
Transport Communications Construction
Private consumption Government consumption Gross fixed capital formation
Change in stocks Net exports of goods & services Statistical discrepancy
25.6
60
57.8
24.6
50
2.6
3.0
9.7
40
30
20
14.8
31.0
13.2
21.3
10
0
-10
3.7
-7.2
* World Bank reports
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