AKIPRESS.COM - Mongolia’s economic growth is expected to moderate but remain solid in 2019 and 2020 as the country moves to a more sustainable growth path, the ADB reported.

In its Asian Development Outlook (ADO) 2019 Update, the Asian Development Bank (ADB) projects Mongolia’s economic growth at 6.7% in 2019 and 6.1% in 2020, from the 7.2% growth rate recorded in 2018. ADO is ADB’s flagship annual economic publication.

Growth in the first half of 2019 was boosted by strong domestic demand and expanding mining and construction sectors. The remainder of the year will see growth easing due to lower demand in the People’s Republic of China (PRC) and import growth fueled by domestic demand, according to the report.

“Economic growth was faster than expected in the first half of 2019,” said ADB’s Country Director for Mongolia Ms. Yolanda Fernandez Lommen. “Mongolia’s growth prospects continue to be positive going into 2019 and 2020, although slowing growth in the PRC will have an impact on Mongolia’s export sector. Should the government build on the strong macroeconomic performance since 2017, this will help sustain investor confidence and improve macroeconomic stability. Mongolia remains vulnerable to external shocks, particularly in the commodity sector, so sensible macroeconomic policies that allow the country to build up buffers will help reduce Mongolia’s vulnerability to boom-bust cycles going forward. Structural reforms, particularly in the banking sector, remain important, and using this high growth period to address these issues would make sense.”

Apart from domestic demand, foreign direct investment continues to play an important role and this is set to continue. Services will continue to be important to growth, while agriculture is expected to continue its recovery.

Average inflation rose by 8.1% year on year in June and will average 8.5% in 2019 due to rising domestic demand and higher food prices. These effects will be less pronounced in 2020, allowing inflation to ease to 7.5%. The current account deficit narrowed to 10.2% in the first half of 2019 and import demand will mean that it will widen further in 2020. The budget recorded a surplus of 4.7% of gross domestic product in the first half of 2019 and credit expansion eased with the growth of newly issued loans remaining moderate at 5.0% in the first 6 months. Nonperforming loans climbed to 10.6% of total outstanding loans.

Mongolia remains vulnerable to external shocks, particularly in mineral price fluctuations or the impact of lower growth in the PRC. Domestically, potential disruption to the finalization of bank recapitalization program, as agreed under the International Monetary Fund program, poses risks.