ECONOMICS

Main Crops: Wheat, barley, potatoes, forage crops; sheep, goats, cattle, camels, horses .

Natural Resources: oil, coal, copper, molybdenum, tungsten, phosphates, tin, nickel, zinc, wolfram, fluorspar, gold.

Major Industries: Copper, construction materials, mining (particularly coal); food and beverage, processing of animal products .

The rapid political changes of 1990-91 marked the beginning of Mongolia's efforts to develop a market economy, but these efforts have been complicated and disrupted by the dissolution and continuing deterioration of the economy of the former Soviet Union. Prior to 1991, 80% of Mongolia's trade was with the former Soviet Union, and 15% was with other Council for Mutual Economic Assistance (CMEA) countries. Mongolia was heavily dependent upon the former Soviet Union for fuel, medicine, and spare parts for its factories and power plants.

The former U.S.S.R. also served as the primary market for Mongolian industry. In the 1980s, Mongolia's industrial sector became increasingly important. By 1989, it accounted for an estimated 34% of material products, compared to 18% from agriculture. However, minerals, animals, and animal-derived products still constitute a large proportion of the country's exports. Principal imports included machinery, petroleum, cloth, and building materials.

In the late 1980s, the government began to improve links with noncommunist Asia and the West, and a tourism sector developed. As of January 1, 1991, Mongolia and the former Soviet Union agreed to conduct bilateral trade in hard currency at world prices.

Despite its external trade difficulties, Mongolia has continued to press ahead with reform. Privatization of small shops and enterprises is largely complete, and most prices have been freed. Privatization of large state enterprises has begun. Tax reforms also have begun, and the barter and official exchange rates were unified in early 1992.

Between 1990 and 1993, Mongolia suffered triple-digit inflation, rising unemployment, shortages of basic goods, and food rationing. During that period, economic output contracted by one-third. As market reforms and private enterprise took hold, economic growth began again in 1994-95. Unfortunately, since this growth was fueled in part by over-allocation of bank credit, especially to the remaining state-owned enterprises, economic growth was accompanied by a severe weakening of the banking sector. GDP grew by about 6% in 1995, thanks largely to a boom in copper prices. Average real economic growth leveled off to about 3.5% in 1996-99 due to the Asian financial crisis, the collapse of the Russian ruble in mid-1999, and worsening commodity prices, especially copper and gold.

Mongolia's GDP growth fell from 3.2% in 1999 to 1.1% in 2000 and 1.0% in 2001. The disappointing results can be attributed to the loss of 2.4 million livestock in bad weather and natural disasters in 2000 and 2001. Prospects for development outside the traditional reliance on nomadic, livestock-based agriculture are constrained by Mongolia's landlocked location and lack of basic infrastructure. Mongolia's best hope for accelerated growth is to attract more foreign investment. From 1990 to 2002, more than 2,399 foreign companies from 72 countries have invested a total of $660.5 million in Mongolia. Many believe this number could be dramatically increased if investors had more confidence that their investments would be adequately protected.

Foreign direct investment in Mongolia's extractive industries – which are based on extensive deposits of copper, gold, coal, molybdenum, fluorspar, uranium, tin, and tungsten - has transformed Mongolia's landlocked economy from its traditional dependence on herding and agriculture. Exports now account for more than 40% of GDP. Mongolia depends on China for more than 60% of its external trade - China receives some 90% of Mongolia's exports and supplies Mongolia with more than one-third of its imports. Mongolia also relies on Russia for 90% of its energy supplies, leaving it vulnerable to price increases. Remittances from Mongolians working abroad, particularly in South Korea, are significant.

Growth averaged nearly 9% per year in 2004-08 largely because of high copper prices globally and new gold production. By late 2008, Mongolia was hit by the global financial crisis and Mongolia's real economy contracted 1.3% in 2009. In early 2009, the IMF reached a $236 million Stand-by Arrangement with Mongolia and it emerged from the crisis with a stronger banking sector and better fiscal management. In October 2009, Mongolia passed long-awaited legislation on an investment agreement to develop the Oyu Tolgoi (OT) mine, among the world's largest untapped copper-gold deposits. However, a dispute with foreign investors developing OT called into question the attractiveness of Mongolia as a destination for foreign investment. This caused a severe drop in FDI, and a slowing economy, leading to the dismissal of Prime Minister Norovyn ALTANKHUYAG in November 2014. The economy had grown more than 10% per year between 2011 and 2013 - largely on the strength of commodity exports and high government spending - before slowing to 7.8% in 2014, and falling to the 2% level in 2015. Growth rebounded from a brief 1.6% contraction in the third quarter of 2016 to 5.8% during the first three quarters of 2017, largely due to rising commodity prices.

The May 2015 agreement with Rio Tinto to restart the OT mine and the subsequent $4.4 billion finance package signing in December 2015 stemmed the loss of investor confidence. The current government has made restoring investor trust and reviving the economy its top priority, but has failed to invigorate the economy in the face of the large drop-off in foreign direct investment, mounting external debt, and a sizeable budget deficit. Mongolia secured a $5.5 billion financial assistance package from the IMF and a host of international creditors in May 2017, which is expected to improve Mongolia’s long-term fiscal and economic stability as long as Ulaanbaatar can advance the agreement’s difficult contingent reforms, such as consolidating the government’s off-balance sheet liabilities and rehabilitating the Mongolian banking sector.