Mongolia is a landlocked country with a population of approximately three million people. Most economic activity in Mongolia is based on livestock and agriculture, but the country also has extensive mineral deposits.
Soviet assistance, at its height accounted for one-third of gross domestic product (GDP), but disappeared almost overnight in 1990 and 1991 at the time of the dismantlement of the USSR. The following decade saw Mongolia endure both deep recession due to political inaction and natural disasters, as well as some economic growth because of a reform embracing the market economy and the privatisation of most of the state-run bodies.
Severe winters and summer droughts in 2000-2002 resulted in massive livestock die-off and negative GDP growth. This was compounded by falling prices for Mongolia’s primary sector exports and widespread opposition to privatisation. The average growth of close to 9% per year between 2004 and 2008 was largely due to high copper prices and new gold production. Until late 2008 Mongolia experienced galloping inflation, which went up to nearly 40%.
With the aid of international financial institutions and the community of donors, Mongolia has made considerable progress in terms of the democratisation process, establishing sustainable macro-economic foundations. The country adopted a new constitution in 1992 which includes the principles of democracy and private property. The country has also become one of the most open economies in the region, in order to facilitate private initiatives.
It was in late 2008 that the country began to feel the effects of the global financial crisis. Falling commodity prices helped to lower inflation, but also reduced government revenues and led to cuts in spending. In early 2009, the International Monetary Fund granted 236 million USD in a stand-by arrangement to Mongolia and the country started to move out of the crisis.
The economy grew by 6.1% in 2010, largely on the strength of exports to neighbouring countries. Mongolia’s economy continues to be heavily influenced by its neighbours. It purchases 95% of its petroleum products and a substantial amount of electric power from Russia, leaving it very vulnerable to price increases.
Trade with China represents more than half of Mongolia’s total external trade. In exchange, China receives over three-quarters of Mongolia’s exports. Remittances form Mongolians working abroad are sizeable, but have fallen due to the economic crisis.