Amid rising global trade tensions, Mongolia faces growing economic risks. The International Monetary Fund’s Resident Representative for Mongolia, Tigran Poghosyan, warns that the country must adopt greater fiscal prudence and enhance exchange rate flexibility. These steps will help Mongolia navigate challenges stemming from global uncertainties, especially trade conflicts between the United States and China.
Asia’s economic outlook has dimmed sharply. The US has imposed tariffs at levels unseen in a century, mainly targeting Asian countries. As a result, the region’s growth, which accounted for nearly 60% of the world’s expansion in 2024, will slow down considerably. Experts forecast a decline from 4.6% growth in 2024 to just 3.9% in 2025. Advanced Asian economies are expected to grow at a mere 1.2%, while emerging markets will slow to 4.5%. These numbers reflect the broad impact of trade tensions and protectionist policies.
Although Mongolia is not directly involved in the trade disputes, the effects still hit hard. China absorbs more than 90% of Mongolia’s exports, mainly coal and copper. Therefore, any slowdown in Chinese demand risks dragging down Mongolia’s economy. Furthermore, falling commodity prices amid global uncertainty will reduce Mongolia’s national income and government revenue. As a result, external imbalances may widen, putting pressure on the country’s financial stability.
Moreover, weaker investor confidence may reduce foreign investments in Mongolia. Such a decline would delay critical infrastructure and mining projects. These projects are vital for the country’s economic diversification and development goals. Additionally, the Tugrik, Mongolia’s currency, has weakened due to lower foreign currency inflows. This depreciation increases the cost of imports, including fuel and machinery, pushing inflation higher and squeezing households.
Given these challenges, Mongolia needs a clear policy response. First, the government must exercise greater fiscal prudence. It should contain spending, especially on imports, and boost non-mining tax revenue collections. Planned cuts to non-mining taxes should be reconsidered to protect fiscal buffers. Second, the Bank of Mongolia must keep monetary policy tight to control inflation. Raising policy rates further and managing liquidity through reserve requirements will help stabilize the economy.
Furthermore, harmonizing debt service limits across financial sectors will prevent excessive credit growth. Strengthening the central bank’s independence through legal amendments and recapitalization will increase its credibility. Finally, increasing exchange rate flexibility will improve Mongolia’s ability to absorb external shocks and maintain economic resilience.
In conclusion, Mongolia must act decisively by adopting greater fiscal prudence and exchange rate flexibility to withstand the mounting trade tensions. These measures will help stabilize the economy and safeguard long-term growth in a challenging global environment.
