Is there quality in the quantity?

These days, it is said that Mongolia is the fastest growing economy with a GDP growth of 17.3%. There is expected to be even more real GDP growth of around 20.8%. But while the numbers are rising, is there actually an improvement in the livelihoods of the people? Is there sustainable development in the future? Economists and experts are afraid that this is not the reality. For example one need only look at the bitter experiences of Nigeria, Sierra Leon and Equatoreal Guinea. 

Let us examine the example that gave rise to the term “Dutch-disease”. In Holland, in 1959, due to the discovery of natural gas reserves the country expected more and more economic growth. After 5 years, the GDP started reducing. The main reason was that exports provided a large amount of GNP, but because of the appreciation of the Dutch guilder, exported goods were more expensive to purchase abroad. Thus, this one system of resource mismanagement was named after Holland as the “Dutch-disease”; though modern day Netherlands is one of richest and highest ranked countries in the Human Development Index.

In Mongolia, statistics show that exports do not exceed the import rate, which can cause trade deficits. The trading goods of Mongolia do not number highly, meaning that we don’t really have to worry about export decline, despite the fact that there are so few (from 2008 both exports and imports have been steadily rising). But what we, the people, the parliament and the government, have to ponder is the efficient spending of the windfall of mining. But it seems today, instead of proper financial management, the government is ‘throwing money from helicopters’. 

The consequences? Almost no real improvement with nominally higher wages, stipends and pensions, whilst the inflation rate absorbs the real increase of goods they can be purchase. In the end, there are excessive and wasteful amounts of government spending, higher inflation, and poverty stricken households.

The National Statistical Organization has just released the average price of consumer goods on the 18th April. The average price of beef on the markets is 7000 MNT and in some bigger supermarkets downtown, it is more than 10000 MNT. The minimum wage is 140,400 MNT, which means with only one month’s salary, a citizen buy only 17kg of beef. But thankfully, the average price of other consumer goods was lower.

As the country’s income has increase, Government spending has risen shockingly by 56% last year. The wages, pensions and transactions constitute large amount of the budget. Unfortunately, while these increases do occur, the price of commodities goes up and lowers real income. The CPI inflation became 11.1%. However, fortunately the Bank of Mongolia (BOM) announced that in the near future inflation will hold at 8-9%. 

Despite the excessive amount of budget spending, the BOM still warns the government about the increasing inflation. They have increased their policy rate by 0.5 which is a good measure against inflation. Maybe, due to the actions taken from the BOM, the average price is falling gradually. The Asian Development Bank (ADB) expressed their appreciation to the BOM. Moreover they recommend for the authorities to focus on environmental and educational sectors in order to reach long-term development. 

Mongolia is experiencing a window of opportunity where the percentage of labor age people is at its highest period; there is a large potential labor force. If used well this can be a great opportunity for development. But unemployment rates were still over 60 thousand according to the statistic of 2011. Nevertheless, there is an opportunity to change this. 

No matter how much amount of a natural resource is endowed in a country, it has its limits. Large amounts of spending with no real outcome, except the creation of the ‘temporarily’ rich, will have severe consequences when the resource runs out. The consequences are: poverty, hunger, indebtedness and lagging sectors. 

As a student of economics myself, I am against giving away cash to every citizen instead of investing in the industrial sectors, rural areas and diversifying agriculture.