ADB: Mongolia’s economy to lag Asian growth rates in 2015

Ulaanbaatar /MONTSAME/ Developing Asia will maintain its strong economic growth in 2015 supported by soft commodity prices and recovery in the major industrial economies, says a new Asian Development Bank (ADB) report. ADB’s flagship annual economic publication, Asian Development Outlook 2015 (ADO), released March 24, forecasts developing Asia will achieve gross domestic product (GDP) growth of 6.3 percent in both 2015 and 2016, the same as in 2014. Growth in Mongolia is forecasted to be 3.0 percent and 5.0 percent in the same period, from 7.8 percent in 2014. Growth in the United States is leading major industrial economies. While signs are mixed in the euro area and Japan, soft oil prices and accommodative monetary policy will support growth. As a group, these economies are forecast to expand by 2.2 percent in 2015, up 0.6 percentage points from 2014, and 2.4 percent in 2016. Growth in the People’s Republic of China (PRC) is forecast at 7.2 percent in 2015 and 7.0 percent in 2016. Risks to the outlook include possible difficulties in the PRC as it adjusts to lower growth rates, less decisive action on reforms in India than anticipated, potential spillover effect of the Greek debt crisis and the deepening recession in the Russian Federation. The imp[ending rise in US interest rates may reverse capital flows to the region, requiring monetary responses to maintain stability. Financing Asia’s Future Growth, the special theme chapter in the ADO, demonstrates that safeguarding financial stability is important for growth and economic inclusion. For Mongolia, growth is forecasted to slow to 3.0 percent in 2015, reflecting necessary fiscal and monetary tightening to contain inflationary and balance of payments pressures. Assuming a stable external environment and the resumption of major investment in mining in 2015, economic growth should recover to 5.0 percent in 2016. Consumer price inflation, which peaked in July 2014 at 14.9 percent year on year following expansionary monetary and fiscal policies and currency depreciation, dropped to 9.3 percent in February 2015 as monetary policy was tightened and is expected to meet the central bank’s policy target of 7.0 percent by the end of 2016. The Government’s immediate policy challenge is to tighten monetary and fiscal policy to address pressure on the balance of payments, while safeguarding financial sector stability, debt sustainability, and the welfare of the population, especially for citizens living under the poverty line. Nominal public debt to GDP, including the central bank’s foreign liabilities, rose from 31.0 percent in 2010 to 77.4 percent in 2014 with the consolidated deficit peaking at 11.5 percent of GDP last year. While some recent fiscal reforms are steps in the right direction, - such as bringing Development Bank of Mongolia expenditures partly on budget – there is a need to strengthen debt management, especially by ensuring that borrowed funds are invested in a manner that increases the competitiveness of Mongolia’s key economic sectors. It is also important to prepare for the repayment of significant liabilities in 2017-2018. Diversification of the economy also remains a central challenge, to ensure more consistent growth patterns, and for generating jobs, which the capital-intensive minerals sector is less apt to do, reported the ADB on March 24.