RAPID ECONOMIC DEVELOPMENT CALLS FOR INFRASTRUCTURE INVESTMENT AND MACROECONOMIC STABILITY
ADB’S FLAGSHIP ANNUAL ECONOMIC PUBLICATION, ASIAN DEVELOPMENT OUTLOOK 2012 (ADO 2012), RELEASED TODAY, FORECASTS GROSS DOMESTIC PRODUCT (GDP) GROWTH IN MONGOLIA AT 15% IN 2012 AND 17.5% IN 2013, DRIVEN BY MINING-RELATED INVESTMENT AND OUTPUT. GDP EXPANDED BY 17.3% IN 2011.
Substantial public investment in infrastructure is particularly needed to boost employment and increase access to essential services like water and sanitation. Infrastructure investments will be needed to diversify the economy, and to develop the natural resource sector in an environmentally-sustainable and equitable manner. However, overly expansionary fiscal policy, in particular universal cash payments from the Human Development Fund, have created inflationary pressures and made the economy vulnerable to external shocks. While the Bank of Mongolia (BOM) has tightened monetary policy since early 2010, inflation increased to 12.5% in February 2012 and is expected to remain in double digits in the coming two years.
The need for expenditure policies that support inclusive growth without undermining fiscal sustainability and macroeconomic balance, requires re-direction of government expenditure towards long-term investments that create employment, such as transport and energy infrastructure, water and sanitation, education and health. The recent introduction of a mean-tested poverty benefit, replacing the universal cash transfers, represents a major step toward a fiscally-sustainable social protection system that effectively supports the poorest. The ADO notes the importance of effective implementation of the Fiscal Stability Law for achieving sustainable and inclusive growth.
The banking sector has recovered considerably since 2009 when it experienced a period of severe financial distress. However, rapid expansion in bank lending – up by more than 70% year-on-year in December 2011 – is fueling demand and increasing the banks’ vulnerability. It is critical that the BOM closely monitors financial risks and enforces full compliance of Mongolian banks with current prudential regulations.
Mongolia’s economy remains highly vulnerable to commodity price fluctuations and developments in international financial markets. Continued uncertainties surrounding the resolution of sovereign debt problems in the eurozone pose the biggest threat to the world economic outlook. For Mongolia, an important medium-term challenge will be to improve its economic and political institutions so as to ensure transparent, accountable and equitable management of natural resource revenue.
In a separate chapter on rising inequality in Asia, the ADO 2012 concludes that while Asian developing countries have grown and reduced poverty faster than any other region of the world over the past two decades, income divisions have risen markedly. Key elements of a strategy for inclusive growth that equitably benefits all income groups are (i) increased government spending on education and health, especially for the poorer; (ii) better targeted social protection schemes; (iii) improved connectivity for lagging regions; and (iv) policies that facilitate economic diversification and support the development of small and medium enterprises.
Substantial public investment in infrastructure is particularly needed to boost employment and increase access to essential services like water and sanitation. Infrastructure investments will be needed to diversify the economy, and to develop the natural resource sector in an environmentally-sustainable and equitable manner. However, overly expansionary fiscal policy, in particular universal cash payments from the Human Development Fund, have created inflationary pressures and made the economy vulnerable to external shocks. While the Bank of Mongolia (BOM) has tightened monetary policy since early 2010, inflation increased to 12.5% in February 2012 and is expected to remain in double digits in the coming two years.
The need for expenditure policies that support inclusive growth without undermining fiscal sustainability and macroeconomic balance, requires re-direction of government expenditure towards long-term investments that create employment, such as transport and energy infrastructure, water and sanitation, education and health. The recent introduction of a mean-tested poverty benefit, replacing the universal cash transfers, represents a major step toward a fiscally-sustainable social protection system that effectively supports the poorest. The ADO notes the importance of effective implementation of the Fiscal Stability Law for achieving sustainable and inclusive growth.
The banking sector has recovered considerably since 2009 when it experienced a period of severe financial distress. However, rapid expansion in bank lending – up by more than 70% year-on-year in December 2011 – is fueling demand and increasing the banks’ vulnerability. It is critical that the BOM closely monitors financial risks and enforces full compliance of Mongolian banks with current prudential regulations.
Mongolia’s economy remains highly vulnerable to commodity price fluctuations and developments in international financial markets. Continued uncertainties surrounding the resolution of sovereign debt problems in the eurozone pose the biggest threat to the world economic outlook. For Mongolia, an important medium-term challenge will be to improve its economic and political institutions so as to ensure transparent, accountable and equitable management of natural resource revenue.
In a separate chapter on rising inequality in Asia, the ADO 2012 concludes that while Asian developing countries have grown and reduced poverty faster than any other region of the world over the past two decades, income divisions have risen markedly. Key elements of a strategy for inclusive growth that equitably benefits all income groups are (i) increased government spending on education and health, especially for the poorer; (ii) better targeted social protection schemes; (iii) improved connectivity for lagging regions; and (iv) policies that facilitate economic diversification and support the development of small and medium enterprises.
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