ADB: GDP growth in Mongolia will accelerate to 2.5 % this year

E.Orgil GoGo.mn

2017-04-06 15:39 GMT+8

Asian Development Bank presents the Asian Development Outlook 2017 today. Yolanda Fernandez Lommen, ADB`s Country Director for Mongolia stated that:

"ADB forecasts GDP growth in Asia and the Pacific to reach 5.7 % in 2017 and 2018. Regional consumer price inflation is projected to accelerate to 3% in 2017 and 3.2% in 2018 on the back of stronger consumer demand and increasingly rising global commodity prices. 

Risks to the outlook include higher interest rates in the US, which could accelerate capital outflows, although this risk is mitigated to some degree by abundant liquidity throughout the region. The effects of US monetary policy tightening are, nevertheless, likely to materialize only gradually, giving governments in Asia and the Pacific time to prepare. 

In Mongolia, GDP growth will accelerate this year to 2.5% on large mining investments, and moderate to 2% in 2018 as coal production reaches full capacity. Looking ahead, Mongolia`s long-term prospects are promising. Large ongoing mining projects are expected to turn the balance of the fiscal budget and the balance of payments into surpluses in the years ahead. While successfully managing this mineral wealth is the key for Mongolia`s future, ensuring macroeconomic stability and making mining-led growth inclusive are among the greatest development priorities, in addition to economic diversification and higher productivity growth".

Following Akiko Tereda-Hagiwara, senior economist in ADB Headquarters in Manila presented the Mongolia`s economic outlook 2017. 

KEY MESSAGES

  • Growth will accelerate this year to 2.5% on large mining investments, then moderate in 2018 to 2.0% as coal production reaches full capacity. 
  • Inflation will rise in both years, and the current account will remain in deficit on the surge of imports for mining works. 
  • Cooperation with the international community is key to addressing financing gaps and preserving economic and social stability. 

GROWTH TO PICK UP IN 2017 AND 2018

  • Higher commodity prices, successful refinancing of a $580 million bond in March, and approval of a program supported by the IMF and the IFIs. 
  • Growth to accelerate to 2.5% this year but moderate slightly to 2.0% in 2018 on the base effect of the surge in coal production in 2017. 
  • 2nd phase of the Oyu Tolgoi mine to invest $1.0 billion in 2017 and $1.2 billion in 2018. Depressed household consumption and public capital expenditure and some transfers. 
  • Net exports add to growth in 2017 as strong momentum in coal exports continues before subtracting from it in 2018 as imports rise on capital-intensive investment in Oyu Tolgoi.

INFLATION TO RISE BUT STILL MODEST 

  • Inflation will rise to 3.5% in 2017 and 3.9% in 2018.
  • Prices for imported goods increase when converted into a weaker currency. 
  • Fuel prices will edge higher as excise taxes are raised. 
  • But meat prices are expected to remain stable on the combined effect of improved supply and the depletion of government reserves. 

CURRENT ACCOUNT DEFICIT TO REMAIN WITH CAPITAL IMPORTS 

  • The current account deficit will narrow to 2.1% of GDP in 2017 on strong coal exports but widen again to 6.3% in 2018 as imports continue to expand while exports stabilize. 
  • The expected pickup in foreign direct investment will ease pressure on the balance of payments. 

ENHANCING THE MANAGEMENT OF NATURAL RESOURCE REVENUES

Established Fiscal Stability Fund in 2010 and the Future Heritage Fund in 2017 to set aside funds for future generations. 

  1. Need more fiscal revenues.
  2. Crucial to avoid procyclical fiscal policies.
  3. Should be used only in extreme emergencies. 

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members 48 from the region.

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