Imports are rising fast, reported the Central Bank of Mongolia last week, contributing to a record deficit of USD 1.4 billion. The external trade condition index, a comparison of 10 products that make up about 90 percent of exports and imports of now and 2000, is up for the first time in 12 months.

In the third quarter, external trade in Mongolia increased 92.4 percent year-on-year to reach USD 8.2 billion. Exports are up by 66.7 percent at USD 3.3 billion, while imports are up 114.7 percent at USD 4.8 billion.

Almost all of Mongolia's products in the eternal trade condition index are from the minerals sector. Coal makes up 41.8 percent of all exports, while copper is 22.3 percent, iron is 9 percent, and crude oil is 5.3 percent. The growth in exports resulted from an increased volume of exports and price growth in minerals. However, copper concentrate, non-monetized gold, moly, and cashmere have all experienced a decline in volume traded. A combination of increased imports of heavy machinery and mechanisms, equipment, and spare parts; petroleum; and vehicles have all contributed to a doubling of imports received in Mongolia.

“A booming mining industry, especially the Oyu Tolgoi ramp up, spurred these imports, especially for transport equipment and machinery,” said Frontier Securities Chief Market Strategist Dale Choi. “Mongolians are also spending more on consumption as a result of higher incomes.”

Choi said Mongolia benefited from nearly all of the price hikes in commodities, especially in coal. Coal will continue to lead Mongolia's exports until Oyu Tolgoi reaches operation.

Imports have, however, increased Mongolia's deficit to a record USD 1.4 billion. How Mongolia fares in the future will depend mainly on demand from China. If commodity prices fall, exports and government revenue will take a dramatic hit.