Case Study: Mongolia Economic Growth Since 1990

Mongolia has experienced fluctuating economic growth rates. Study shows that the economic growth of Mongolia has been low between 1990 and 2010. However, remarkable economic growth was evident in 2012. Conventionally, agriculture and herding were the main forms of economic activity in this country. Its large economic deposits have drawn investors and Mongolia is currently undergoing a great economic change because of the mining boom (Central Intelligence Agency, 2011). This paper shows that various political and socio-economic factors have shaped the economic growth of Mongolia. The essay explicitly highlights the factors that have enhanced the country’s economic growth rate over the years and those that have suppressed its growth. The essay also explains how various economic indicators like education, healthcare, productivity, poverty and inequality, changed over the years.

How the Growth rate of Mongolia has Changed over the Years

In Mongolia, you will find deposits such as fluorspar, copper, uranium, tin, coal, tungsten, gold, and molybdenum, and many others. The mining industry accounts for a greater part of government revenue and foreign direct investment. Soviet aid contributed to around a third of the country’s GDP but it disappeared instantly between 1990 and 1991 after the obliteration of USSR (Central Intelligence Agency, 2011).
The following decade saw a low economic growth in the nation manifesting through recession. The main causes for this were natural disasters and political inaction apart from the free-market economics and the increased privatization of the initially state-run economy. Summer droughts and several winters between 2000 and 2002 led to an immense livestock die-off and a negative GDP growth. The drop in Mongolia’s main exports and increased opposition to privatization compounded the situation. Between 2004 and 2008, the average growth was around 9% per year resulting from the new production of gold and the rising copper prices.

In 2008, the growth was low because of the annual inflation rate of about 30 percent. This was the highest rate of inflation in that decade. During late 2008, the nation went through external shocks because of the worldwide financial crisis, and a drastic fall in commodity prices lowered the government revenue. In 2009, Mongolia started recovering from its crisis because the International Monetary Fund offered $236 million support. As a result, the national banking industry is getting out of instability. Moreover, the government has begun enacting stricter supervision regulations (Central Intelligence Agency, 2011).

In October 2009, the country passed a significant legislation of an investment agreement supporting the development of the Oyu Tolgoi mine, which is among the greatest untapped copper deposits in the world. A similar process is underway for the investment agreement of developing the Tavan Tolgoi massive coalmine. The National Security Council reviewed the agreement and rejected the proposal because the draft did not meet set legal requirements.

Generally, the average growth rate of Mongolia between 1991 and 2012 was 4.86 percent. In March 2012, the growth rate had an all time high of 16.50 percent. In December 1992, the growth was lowest at an average of -9.30 (Trading Economics, 2012). The graph below shows the country’s annual growth rate:

The economy grew by 6.1% and 9.8% in 2010 and 2011 respectively mainly because of the nation’s exports to the neighboring countries. In November 2012, the country’s exports reduced to 348.30 million dollars from 418.10 million dollars in October 2012. Historically the average exports of Mongolia between 1997 and 2012 were 241.71 million dollars and reached the highest point of 649.50 million dollars in December 2007 (Central Intelligence Agency, 2011).

On the other hand, Mongolia recorded the lowest export value of 62 million dollars in February 2009. Mongolia exports several mineral products including coal, copper, gold, copper, tin, tungsten and molybdenum. Other export products are cultured or natural stones, animal origin products, textiles, skins and hides, and jewelry. China is Mongolia’s major export partner and the country’s 89 percent of exports goes to China. Other export partners are Russia and Canada (Trading Economics, 2012). Here is a chart with historical data for the nation’s exports:
Source: www.tradingeconomics.com

Mongolia buys 95 percent of petroleum products plus a larger portion of electric power from Russia, which leaves it vulnerable to increase in prices. With the expected growth in Mongolia’s mining revenue, the nation is facing the challenge of evading the overheated economy. Renewed concerns are emerging over regulating inflation that was at least 10 percent for much of 2010 to 2011, partly due to the rising food prices (Central Intelligence Agency, 2011).

Increased government spending is a major cause of concerns over inflation. The remittances from those Mongolians that work in foreign nations, especially South Korea, are very important. Money laundering causes major concerns. In a bid to improve the growth rate, Mongolia opened the fledgling stock exchange during 1991. In 1997, the country became part of World Trade Organization and works at enlarging its participation in the regional trade and economic regimes.

How Other Development Indicators Have Changed Over the Years in Mongolia

In the past, the country departed from disease treatment and embraced the health promotion strategy that puts emphasis on the preventive rather than the curative approach to health care. Additionally, there was a shift from supporting bigger, urban-based hospitals to offering primary healthcare. Financial restrictions made it hard for the health industry to conduct its roles effectively.

This compelled policy makers to address better ways of offering health services mainly by involving the private sector. In a bid to establish the self-financing health care system, the government instituted a national health insurance program. The aim of this program was to let everyone access health care. Nevertheless, everybody was to pay a certain fee to benefit from the health services. This fee overburdened 40 percent of the poor population that could not afford the health care services (Yaqub, 1997).

The level of parental education and their residential places influenced the health and growth patterns of their children. Children whose parents lacked education had a 50 to 60 percent likelihood of becoming stunted. The quality of education that a country provides usually affects its development. The transition process affected the education sector of Mongolia. Between 1991 and 1996, the expenditure per capita towards education reduced by 53 percent.

This reduction led to a restricted access to facilities and affected the education quality. The direct impacts were the drop in the number of teachers, erosion of salary and wages in the sector, low availability of learning materials and low staff morale. Although the government embarked on the restoration of the educational standards, there were many challenges. The broader economic and social changes were the main cause of the problems in the education sector (Yaqub, 1997).

Mongolia has a higher literacy rate. By 1989, up to 40 percent of its population had completed secondary school and the nation had around 15 percent graduates from tertiary institutions. Despite the high literacy rates in this country, the transition process has ruined the education industry, leading to a higher number of dropouts. Between 1989 and 1996, around 166,000 students dropped from school. A growth in the national industry, services and commerce will require vocational skills. However, the low number of college graduates, following dropouts, poses possible problems to the future development of Mongolia.

The withdrawal of students’ benefits and need to pay fees caused many students to face difficulty. The government provides a loan scheme that only helps a section of the students based on both their needs and academic merit. The needy without exceptional academic ability may find it hard to continue schooling. Students rely on their arid relatives and families, and most of these relatives experience poverty that makes it hard for them to support the students (Gropello, Andon and Yusuf, 2011).

Conclusion

The essay addressed a number of factors that suppressed the growth of Mongolia between 1990 and 2010 and those that boosted it after 2010. The factors that suppressed its economic growth include withdrawal of support from Soviet aid after the dismantling of the USSR, poor government policies of education and health, and recession. On the other hand, factor that improved the growth of Mongolia is mainly the export of its mineral deposits. This shows that if Mongolia has to maintain a growth, it should increase its exports and invest in the other sectors, as well.

 
Reference List

Central Intelligence Agency (2011). The CIA World Fact Book. New York, NY: Skyhorse Publishing Inc.
Gropello, E., Andon, P., and Yusuf, S. (2011). Putting Higher Education to Work: Skills and Research for Growth in East Asia. Washington DC: World Bank Publications
Trading Economies (2012). Mongolia Exports. Retrieved from http://www.tradingeconomics.com/mongolia/exports
Trading Economics, (2012). Mongolia GDP Annual Growth Rate. Retrieved from http://www.tradingeconomics.com/mongolia/gdp-growth-annual
Yaqub, S. et al. (1997). Human Development Report Mongolia 1997. Ulaanbaatar: DS Consulting.