Mongolia faces challenges to achieve inclusive growth amid mining boom

ULAN BATOR, May 9 (Xinhua) -- Mongolia's economic growth, driven by mining, significantly accelerated last year to nearly 17 percent and would be 15 to 20 percent in 2012 and 2013, an economist said Wednesday.

"The giant Oyu tolgoi copper-gold mine will start commercial production next year, that will give another boost to economic growth and export revenue," Jan Hansen, a senior economist of the Asian Development Bank (ADB) Mongolia Resident Mission said in an interview with Xinhua.

Although economic growth prospects were promising, Mongolia still faced many challenges, led by a high dependence on natural resources, he said.

Hansen said natural resource dependence often led to growing income disparities, as resource extraction creates relatively few jobs.

He said Mongolia, which historically had a comparatively balanced income distribution, had in recent years experienced an increasing inequality which could undermine social cohesion and stability.

He suggested Mongolia should further improve its economic and political institutions to ensure transparent, accountable and equitable management of natural resource revenue and further diversify the economy by supporting investment in non-resource sectors.

Another major threat to the economy was the country's over-expansionary fiscal policy, Hansen said.

Government spending had significantly increased in the past two years, which had led to high inflation. The inflation rate reached 15.3 percent in March and the ADB expected it would remain in double digits in 2012 and 2013, he said.

Rising inflation indicated there was an increasing risk of the economy overheating, which would have negative impacts on the poor and increase vulnerability of the economy, Hansen said.

He highlighted the role of the Central Bank of Mongolia in combating the high inflation and cooling the overheating economy, but he recommended the central bank take even more proactive measures by increasing the policy rate and reserve ratio.

Hansen also warned the high average growth of the Mongolian economy in the past few years had insufficiently translated into poverty reduction. GDP had grown on average by nearly 8 percent since 2003, but some 29 percent of the population still lived in poverty in 2011.

He said fiscal resources generated from mining revenue had to be spent much more efficiently to solve the problem. The universal cash payments from the government's Human Development Fund, which will be phased out in near future, were not effectively protecting the poor, but increasing demand pressure and fueling price rises. The universal cash payments also did not create many jobs, which was particularly hitting the poor and further increasing the vulnerability of the economy to external shocks, in particular fluctuations in commodity prices.

Hansen said the government's fiscal policy had to strike a balance between ensuring macroeconomic balance and supporting sustainable and inclusive growth through funding long-term investments and effective social protection programs.

Editor: Tang Danlu

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