The World Bank’s Economic Update for January says Mongolia’s medium-term growth outlook is favorable. However, the upcoming mining boom does carry with it the attendant “Dutch disease” risks and a return to the profligate populism of the past. Other risks relate to resolving the ongoing solvency problems in the banking sector and to near-term fiscal pressures before the sharp increases in mineral revenues associated with the OT project in later years. Accordingly, it remains crucial to continue the policy reforms started in 2009.

These include the adoption of the planned fiscal stability law to move away from the boom and bust cycle of mineral prices; improvements to the budget process and to the proper planning and management of public investment; and putting in place a framework to support future infrastructure investment. Implementation of a targeted poverty benefit should ensure that in the future the poor are protected from mining boom-and-busts in a fiscally sustainable manner.

Similarly, addressing the banking sector problems in a decisive and transparent manner is urgently needed to prepare the sector for the upturn in economic activity, and investment and capital inflows in the years ahead. Finally, continued reforms in the mining sector will enhance incentives for new exploration and environmentally and socially sustainable development in a sector that is a key driver of medium to long term growth.

For complete World Bank Monthly Economic Update for January, see BCM website, Resources – Mongolia Reports.