If you are keen on following up international business news, then it should not be your first time hearing about the economic crisis in Mongolia. The country is famous for its mineral wealth. The fact that it went into crisis even with its wealth shows that it is not about the number of natural resources that a country has that determines its economy but the leadership and managerial skills of the leaders in that particular country.
What led to economic crisis in Mongolia?
One of the mistakes Mongolia made is its over dependence on the exports it was sending to China. The money which was coming from the exports was a lot, and the citizens became used to high living standards. This meant that never expected agriculture to sustain the standards of living they expect. The standards have been maintained from 1990 when there was a peaceful revolution in the country
Moving away from that, what anyone would be wondering about is how the country was brought to its knees without the leaders noticing and taking measures to prevent that from happening. It is true that an economic crisis does not happen overnight. There are usually danger signs which can be noticed early and rectified immediately to prevent a disaster. Nonetheless, this can only happen if the leadership is dedicated.
China was relying on exports from Mongolia given the high population growth rate which was been witnessed in China since the 90’s. It meant that Mongolia was getting a lot of money with the estimated GDP per capital estimated at four thousand dollars. However, since the government imposed birth control measures to curb the rapid population growth, a steady decline in the population was witnessed. Mongolian leaders did not make plans prior on how to maintain their stable economy even with the demand fro their exports to China dwindling.
Sovereign debt
In 2011, the Mongolian government took a loan to finance construction projects. In the year 2012, the government had to sell $1.5 billion US dollars to pay for the projects. Remember this was in sovereign debts. This is a habit that has been sustained through the following years. On the other hand, growth was slowing down, and the boom which had been witnessed was fading at a rapid rate.
In June 2016, elections were held in the country, and the democratic party lost. MPP ( Mongolian People’s Party) made a come back. The main reason the Democratic party lost is that the citizens were anxious due to the rapidly deteriorating economic status of the country.
Nevertheless, the leadership has been facing problems because they have to fix the mess that was made by their predecessors. The estimates growth for the year 2016 is at 0.4% which is not much given the situation the country is in. The American credit rating agency aggravated the situation when it gave Mongolia a negative outlook on matters about economy. Their credit worthiness is sliding lower and lower each passing day.
The reserves of the country are almost spent which means that the government is having difficulties in meeting the pay roll for the civil servants. They have resulted in cutting the salaries. The reduction in some fields is almost sixty percent. The collapse of the local currency is not helping the matters too. As of August 2016, the government was forced to increase interest rates by 4.5% in response to the weakening of the local currency. The devaluation of the currency against the US dollar is at 12% currently. The sovereign debts are now at three billion US dollars.
Foreign investment
Financial experts will tell you that foreign investment is one of the best ways to improve and sustain the economy in a country. Also, it helps in strengthening the currency. The bad news is that a large number of foreign investors in the country pulled away when things started going south and many of them are not willing to go back. This is adding to the woes of the country.
However, all hope is not lost since the government admitted to the crisis which prepares the citizens for the worse times which are yet to come. Nonetheless, the fact that they have acknowledged that they have a problem is the initial step towards finding help from the outside. Hopefully, they will be able to go back to where they were before the crisis is not better.