In its newly released Mongolia Economic Update, the
Three years of growth-oriented economic policies have successfully supported double-digit economic growth but also led to large economic imbalances. The Government and monetary authorities implemented strong economic stimulus measures in 2013 as the country gradually was losing growth momentum amidst falling foreign investment and the weakening global minerals market. Expansionary policies relying on quantitative easing and external debt-financing contributed to the country maintaining double-digit economic growth last year despite the weakening external environment. The policy-induced high growth, however, also came with significant balance of payments pressure and high inflation. The current account deficit remained close to 30 percent of GDP in 2013 for the third consecutive year, while the foreign direct investment (FDI) in 2013 dropped to half of its level from the year before. Double-digit inflation continued since mid-2013 and picked up to 13.7 percent in May.
"In 2014, the economy is undergoing an adjustment in response to the large external and internal imbalances. Domestic demand is now under growing pressure from high inflation and continued currency depreciation. Inflation rate exceeded nominal household income growth in the first quarter according to the
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
Monetary policy needs to be tightened to address high inflation. Recent indicators show signs of a gradual tightening of the expanded balance sheet of the central bank. Continued tapering of quantitative easing would help ease inflationary pressure over time. Financial sector policy should focus on ensuring financial stability and enforce proper prudential regulations to banking operations including policy lending programs. Fiscal policy should adhere to the fiscal discipline of the Fiscal Stability Law. Legal institution for fiscal discipline is already in place, but implementation still remains questionable. Under the current trend, overall fiscal deficit will reach 10 percent of GDP due to continuous off-budget spending after 10.9 percent of GDP last year. Off-budget spending needs to be consolidated into the budget and the fiscal deficit needs to be kept within the target of the Fiscal Stability Law.
"No one can deny the great potential that
TNS 18EstebanLiz-140704-30FurigayJane-4787805 30FurigayJane
Most Popular Stories
- Cedeno Named USHCC Businessman of the Year
- Missouri GM Plant Adding 750 jobs
- Parameters Being Drawn for IS Action
- Can Kobach Keep Taylor's Name on Ballot?
- Mercedes Rolls Out S550 Plug-in Hybrid
- Aaron Hernandez: I Felt Helpless to Refuse Police
- Anheuser-Busch, Visa Voice NFL Disapproval
- Rackspace Ends Talks About Possible Acquisition
- Poverty Rate Drops for First Time Since 2006
- Two-thirds of Hispanics Doubt Media Accuracy