Mongolia achieved stronger-than-expected and broad-based economic growth in 2004 and early 2005, benefiting from good weather and high world mineral prices, the IMF said in its annual economic review. Strongly performing agriculture (specifically, livestock) and copper and gold mining sectors contributed to robust growth. Increases in tourism and private transfers also helped offset the negative impact of more costly oil imports.
Inflationary pressures increased sharply over the year through mid-2005, however, particularly because of rising fuel and meat prices. Consumer prices rose 10.6 percent in 2004— more than double the increase in 2003. While commending the national authorities for the recent robust growth performance and maintenance of broad economic stability, the IMF Executive Board urged further tightening of the monetary stance to counter the threat posed by higher inflation to hard-won gains in macroeconomic stabilization in recent years.
|CPI (12-month change to year-end)||1.7||4.7||10.6||10.0|
|(percent of GDP)|
|Overall fiscal balance||-5.9||-4.2||-2.2||-1.8|
|(millions of dollars)|
|Gold and copper||258||319||524||580|
Fiscal performance was good in 2004 and prospects for 2005 are excellent, the IMF review noted. The Board welcomed the national authorities’ aim to keep the overall budget deficit in 2005 well below the original target, taking into account inflationary pressures and a projected weaker current account.
Medium-term economic prospects are considered broadly favorable, provided the authorities manage to bring annual inflation back down to single digits and sustain supportive fiscal policies. Although the potential for large increases in mineral extraction strengthens the medium-term outlook, the Board warned that Mongolia remains vulnerable to pronounced declines in copper prices and to adverse weather conditions that would affect the productivity of the agriculture sector. It also encouraged the national authorities to implement structural reforms, giving particular priority to improving the environment for private sector activity, while maintaining efforts to reduce poverty and continuing to make progress on debt reduction.