The Mongolian economy is facing challenges from the large balance of payments pressure and high inflation, said the latest update of Mongolian Economy by the World Bank (WB) released in June.
The World Bank underscored that the economic vulnerability will likely continue under the current growth-oriented policies and urged that monetary and fiscal policies be tightened in order to restore economic stability and maintain financial soundness.
Large balance of payments pressure will likely persist in 2014. The current account deficit will likely narrow in 2014 due to weak imports and stronger copper exports. However, surplus of capital and financial account is also dropping amidst further dampening of the FDI. The overall external financing gap of the balance of payments is easing this year compared with the year before but the financing gap of the first five months still remained high, reaching over five percent of expected annual GDP of 2014.
The international reserve level in May declined to US$1.6 billion, down by 61 percent from its peak at the end of 2012. The reserve level is still enough to cover around three months of imports and the bilateral currency swap line with neighboring China will be able to provide a significant buffer. However, economic policies need to focus on addressing the large external imbalance to ensure stable and sustainable economic growth, the WB says.