Economic Overview

The former Soviet Union (USSR) supported Mongolia during the Communist era. It built most of Mongolia's roads, buildings, railroads, airports, etc. With the USSR's collapse, 40 percent of Mongolia's economy vanished virtually overnight. Responding to this loss, Mongolia opened its doors to international investment and trade. Once empty markets now overflow with imported foodstuffs and other goods. Newly established private businesses flourish. The capital explodes with construction projects including hotels, restaurants, stores, apartment buildings, and single family dwellings.

An important factor in the growth and change of the economy during the past 10 years has been the large amount of external assistance. Such donors as the U.S., Japan, Germany, the World Bank, the United Nations, and the Asian Development Bank provide Mongolia with most of its aid. However, donors have told Mongolia that it must complete its economic reforms and wean itself from aid.

Public guaranteed external debt has now risen to nearly $1 billion dollars, an amount approximately equal to the country's GDP. Mongolia's official rate of growth during 2000 and 2001 was approximately 1 percent. The rate of growth for 2002 is estimated at 3 percent. Although some estimate the real rate of growth to be higher, the high rate of indebtedness and low growth rate are clearly beginning to limit the Government's ability to finance long-term competing needs.

Although Mongolia has a relatively high external debt and relatively low GDP per capita, the
prospects for its economic development are still strong. It has abundant natural resources: coal, oil, gas, and a range of non-fuel minerals. These include copper, molybdenum, iron, phosphates, tin, nickel, zinc, wolfram, fluorspar, gold, silver, and uranium. In addition, the population has a high literacy rate, it is trainable, and wages are relatively low. While the agriculture sector still comprises the biggest portion of the country's GDP, the mining and manufacturing sectors are growing rapidly. In particular, cashmere, leather, and wool processing has significantly increased.

Mongolia is aggressively continuing to privatize. It successfully completed the first phase of the privatization of state property, which covered most of the small- and medium-sized enterprises and livestock. In 2001, the government approved a four-year plan to complete the sale of the largest, most valued state-owned industries. Recently, the Government sold its stake in one of Mongolia's largest banks, the Trade and Development Bank. Future sales include the national airline, oil distribution company, power system, and the cashmere milling factory. Other areas of the Mongolian economy are also continuing to change rapidly. In 1997, Mongolia privatized all residential dwellings. Today, both Mongolians and foreigners may legally buy structures. Mongolian law allows Mongolian citizens to own land, but foreigners are still prohibited from doing so. However, both foreign and Mongolian individuals may lease land.

The Mongolian Stock Exchange (MSE), first created in 1991, has now grown to over 75 listed
companies. However, the trading volume has remained modest. The MSE web site www.mse.mn offers investors more detailed information.

In foreign trade, Mongolia is actively broadening relations with partners all over the world. China is now Mongolia’s biggest trading partner.

Mongolia is also a member of the World Trade Organization (WTO) and has adopted the World Intellectual Property Organization (WIPO) treaties.