Mongolia - 0-Executive SummaryMongolia - Executive Summary

Mongolia’s tremendous mineral reserves, agricultural endowments, and proximity to the vast Asia market continue to make it an attractive foreign direct investment (FDI) destination in the medium to long term. However, ongoing stagnation in global commodities markets, limited infrastructure, policy missteps, and the Government of Mongolia's (GOM) lack of responsiveness to foreign investor concerns warrant caution in the short term. In addition to these factors, an economic downturn and fiscal crisis hamper the GOM’s ability to attract foreign investment, grow the economy, and address its many challenges.

Against this backdrop, the new majority government, elected in June 2016, which came to power on a wave of voter discontent with the previous government’s perceived mismanagement of the economy, has taken some encouraging steps. First, the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment, or Transparency Agreement, went into effect on March 20, 2017. Warmly welcomed by U.S. and foreign investors alike, it will establish clear processes for drafting and commenting on new legislation and regulations and require strict transparency related to laws involving trade and investment. A copy of the Transparency Agreement is available here.

Second, in 2017 the GOM and the International Monetary Fund (IMF) reached an agreement on a comprehensive USD $5.5 billion package that will not only stave off default on Mongolia’s large public debt, but also bring with it necessary discipline and budget reforms, as well as a detailed banking assessment. The IMF agreement has enabled the GOM to refinance on the international market bonds that came due in 2017, a more attractive and politically palatable alternative to relying exclusively on Chinese financing. Although investors recognize that the IMF program’s budget tightening will initially dampen economic growth, they praise the GOM’s commitment to reform its fiscal and borrowing practices, improve its banking sector, and complete long-delayed regulatory reforms. The IMF and the Mongolian government anticipate low, flat economic growth in 2017 and 2018, but expect higher sustainable growth to return in 2019.

The GOM’s commitment to taking these bold, pragmatic steps could help create and nurture a business-enabling environment, but U.S. and foreign investors continue to call for further efforts, including: (1) rooting out the pervasive corruption that threatens the foundational institutions of Mongolian democracy; (2) creating in reality the judicial independence the Mongolian constitution establishes in principle; (3) facilitating the emergence of private sector small- and medium-sized enterprises as the primary engine of economic diversification; (4) putting in place a more transparent, inclusive, and effective rule-making process for drafting and implementing commercial legislation; (5) modernizing traditional Mongolian business sectors such as agriculture and animal husbandry; and (6) improving Mongolia's physical infrastructure.

Challenges notwithstanding, there is significant longer term upside to the Mongolian investment climate. Promising signs include recently implemented legislation and programs to support large-scale development of the domestic agriculture sector, the second largest contributor to GDP and employment after mining. Agriculture and animal husbandry, along with renewable energy, are sectors in which Mongolia has natural advantages and which provide promise for economic diversification while offering significant opportunities for U.S. exporters of goods, services, and technologies.

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