Mongolia WT/TPR/S/145 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. Mongolia, formerly a centrally planned economy,  landlocked between the Russian Federation 
and China, began its transition to a market-based economy in 1991.  It is sparsely populated with 
2.5 million inhabitants, and GDP per capita was US$4 50 in 2002 (Table I.1).  Infrastructure, including 
transportation and communications, is underdevel oped.  Mongolia's main economic activities are 
mining, agriculture, and services.  Clothing, especi ally cashmere products, and foodstuffs are also 
important.  Copper, gold, and cashmere account fo r some three quarters of exports.  Agriculture, 
especially nomadic herding of goats for cashmere , has suffered from droughts and harsh winters 
(dzuds).  Mongolia is ranked 117th overall on the UN Human Development Index.  Some one-third of 
the population live in poverty. 
Table I.1 
Main social and economic indicators, 2002 
Land area 3.8 million km2 Urban share of population  56.7% 
Population  
- Density 2.5 million 
1.5 persons per km2 Nominal GDP (current market  prices)  Tog 1,240.8 billion 
Annual population growth  1.3% GDP per capita  US$450 
UN human development index  GDP per capita  average growth rate (1999-02) 1.3% 
- Overall ranking 
- Category 
 
 - Ranking within category 
 
UN human poverty index in developing countries 
- Ranking 117
th 
Medium human 
development  
62nd 
 
 
38th Nominal GDP at current prices (1995 shares in 
brackets): 
- Primary 
 - agriculture, hunting and forestry  - mining and quarrying 
- Manufacturing 
- Services  - wholesale and retail trade 
 - transport, storage and communications   
 
33% (50%) 
20% (38%) 13% (12%) 
6% (12%) 
61% (38%) 27% (17%) 
14% (6%) 
Life expectancy at birth Infant mortality rate per '000 
Adult literacy 65.5 years 
61.0 
98.5% Enrolment ratio in education (2000) 
- pre-school 
- primary - secondary  
28.7% 
98.8% 61.1% 
Source:  World Bank, World Development Indicators ;  United Nations Development Programme, Human Development 
 Report 2004 ;  and the Mongolian authorities.  
2. Despite impressive progress in economic and po litical transition, the economy has endured 
various setbacks, aggravated by exogenous devel opments, such as the Soviet Union's collapse and 
termination of its aid, and the Asian and Russian  economic crises in 1997 and 1998, respectively.  
Sweeping reforms were speedily implemented, incl uding farm privatization and price deregulation, 
financial sector liberalization, and significant priva tization of state entities.  Laws and regulations 
were also changed to create a legal framework to support a market economy.  While there were 
frequent changes of government in the 1990s, and a political crisis in 1998-99, they have generally 
remained committed to parliamentary democracy and to dismantling the command economy, albeit 
with different priorities and views on the pace of reform.1 
3. Economic performance has improved.  Mong olia, like most transitional economies, 
experienced an initial "transformational recession".2  However, real GDP bottomed out in 1993, after 
slumping by 9.2% and 9.5% in 1991 and 1992.  Although growth remains volatile, Mongolia's 
transition, while still facing severe economic challe nges, has been smoother than for other similar 
                                                      
1 There was no prime minister for six months during the political crisis. 
2 Cheng (2003), and IMF (2002). WT/TPR/S/145 Trade Policy Review 
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regional economies.  Aggregate real  GDP had rebounded to pre-transiti on levels by 2001.  Evidence 
suggests that the early market-oriented reforms, in cluding establishment of an open trade regime and a 
floating exchange rate, significantly helped the reco very.  Available data on total factor productivity 
(TFP), a key indicator of efficiency and international competitiveness, indicates that it turned positive 
and increased from the mid 1990s as resource efficien cy gains induced by structural reforms and a 
more competitive economy began driving growth.   
(2) RECENT ECONOMIC DEVELOPMENTS  
4. While volatile, real GDP has grown in each year since 1993, and averaged 3.3% during 
1994-03.  After stagnating at around 1% in 2000 and 2001, growth recovered in 2002 to 4% and to 
5.6% in 2003 (Table I.2).  As a result, GDP per capita, after falling significantly in the early 1990s, 
exceeded 1993 levels by almost two thirds in 2002 , although still well below pre-transition levels.  
Growth largely reflected a turn around in agriculture and a c ontinued buoyant services sector.  
Agricultural output again expanded (for the first ti me since 1999) with improved weather conditions.  
Labour productivity remains low, however.  Non- agricultural growth remained relatively strong, 
averaging 10% annually during 2000-02.  Services gr ew substantially, accounti ng in 2003 for 61.0% 
of GDP (48.5% in 1999) and about half of employme nt.  Export growth was helped by higher mineral 
prices.  Inflation, reduced to 1.6% in 2002, incr eased to 4.7% in 2003, when  unemployment also rose 
from 3.4% to 3.5%.3  The informal sector, including gold mining and transportation services, is 
estimated to account for as much as one third of GDP. 
Table I.2 
Selected macroeconom ic indicators, 1999-03  
 1999 2000 2001 2002 2003a 
National accounts (Per cent)  
Real GDP growth (constant 1995 prices) 3.2 1.1 1.0 4.0 5.6 
Nominal GDP growth (current prices) 13.2 10.1 9.5 11.2 17.8 
Private consumption 14.2 15.5 14.3 14.8 7.0 
Government consumption 7.2 15.9 18.7 8.8 7.1 
Gross fixed capital formation 17.9 -0.5 9.2 2.7 38.1 
Net exports of goods and non-factor services -16.8 -32.0 24.3 25.2 7.8 
Unemployment rate (%) 4.7 4.6 4.6 3.4 3.5 
Productivity (Percentage change) 
Total labour productivity  0.5 1.7 -1.7 .. .. 
Total capital productivity (1990 = 100) 2.6 0.4 -0.7 .. .. 
Prices and interest rates (Per cent) 
Inflation (CPI, percentage annua l change) 10.0 8.1 8.0 1.6 4.7 
Bank loan interest rate 37.7 30.3 31.8 26.6 25.6 
Bank deposit interest rate 19.8 13.8 13.2 14.0 14.0 
Central Bank Bills (weighted aver age rate) 11.4 8. 6 8.6 9.9 11.5 
Money and credit (end period) (Percentage change) 
Broad money supply (M2)b 31.7 17.5 27.9 42.0 49.6 
Credit to private sector (end period) -39.7 29.5 141.9 72.4 54.4 
Table I.2 (cont'd)  
                                                      
3 This official unemployment figure is expected to be a gross underestimate, and 17% is suggested as a 
more realistic level based on international measur ement standards (Asian Development Bank, 2003a). Mongolia WT/TPR/S/145 
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 1999 2000 2001 2002 2003a 
Exchange rate      
Togrogs per US$ (period average)  1,072.4 1,097.0 1,102.0 1,125.0 1,168.0 
Nominal effective exchange rate -12.2 22.4 -2.5 -14.1 -15.0 
Real effective exchange rate -6.2 13.9 26.8 -5.8 -10.5 
Fiscal policy (Per cent of GDP unless otherwise indicated)  
Current fiscal balance -0.3 3.2 5.7 4.4 8.1 
Current revenue 26.8 34.0 38.5 37.9 40.0 
Tax revenue 19.7 25.6 29.4 28.9 30.9 
Current expenditure 27.1 30.8 32.9 33.5 31.9 
Total revenue (including grants) 27.5 34.4 39.4 38.4 40.7 
Total expenditure 39.4 42.2 43.9 44.4 45.2 
Overall balance  -11.9 -7.7 -4.5 -6.0 -4.5 
Total public debt 100.1 97.1 93.6 91.9 92.9 
Domestic 8.7 8.7 4.8 3.1 0.3 
Saving and investment      
Gross national saving 14.2 9.8 8.5 9.5 .. 
Gross domestic investment 37.0 36.2 35.8 29.0 .. 
Saving-investment gap -22.8 -26.4 -27.3 -19.5 .. 
External sector      
Current account balance (excluding official tr ansfers)  -13.9 -18.1 -16.7 -16.0 -14.6 
Net merchandise trade  -13.1 -15.1 -16.8 -20.5 -15.7 
Exports 52.6 57.7 51.7 46.9 49.2 
Imports 65.7 72.8 68.5 67.4 64.9 
Services balance -1.6 -1.9 -2.2 -0.8 -3.9 
Capital and financial acc ount 7.9 9.7 11.6 14.1 0.4 
Direct investment 3.5 5.8 6.2 7.0 10.3 
Balance of payments  4.7 0.1 1.5 6.0 -7.6 
Terms of trade (percentage change) -4.8 10.8 -9.5 -6.9 2.1 
Merchandise exports (percentage change) -1.8 18.0 -2.4 0.1 19.7 
Merchandise imports (percentage change) -2.6 19.2 2.5 8.6 9.8 
Service exports (percentage change) -8.9 9.2 46.5 62.6 12.7 
Service imports (percentage change) -4.8 11.6 42.7 42.9 32.6 
Gross official reserves (US$  million) 155.9 190. 9 206.7 268.2 203.4 
(in weeks of imports of goods) 14.3 14.7 15.6 18.6 12.8 
Total external debt (US$ million;  end period, % of 
GDP in brackets)c 828.0 
(91.4) 837.0 
(86.3) 902.0 
(88.8) 985.0 
(88.9) 1,109.0 
(92.6) 
Debt service ratiod 5.7 3.8 5.3 4.5 4.8 
.. Not available. 
a Estimates. 
b M1 (currency) + quasi money (togrog denominate d time deposits and foreign currency deposits). 
c Excludes Russian debt and quasi-fiscal operations by the Bank of  Mongolia.  Russian debt was resolved in December 2003 with 
98% written off subject to a cash settlement paid by Mongolia of US$250 million. 
d Debt service in per cent of exports of goods and services. 
Source:  Bank of Mongolia, Annual Report 2003,  and information provided by the Mongolian authorities.  
5. With gross domestic investment significantly  exceeding gross national saving, the current 
account balance is in substantial deficit.  It p eaked at 18.1% of GDP in 2000 (excluding official 
transfers) before falling to 14.6% in 2003.  This la rgely reflected a negative trade balance, equivalent WT/TPR/S/145 Trade Policy Review 
Page 4 
 
 
to 15.7% of GDP in 2003 (20.5% in 2002), and a relatively small services deficit (3.9% of GDP in 
2003).  These deficits have been met by capital inflow s, particularly overseas aid, official loans from 
bilateral and multilateral donors, and more recently ri sing foreign direct investment.  International 
reserves accumulated continuously from 1999 to reach US$268.2 million in 2002, but fell to 
US$203.4 million in 2003 (12.8 weeks of merchandise im ports).  While external  public debt remained 
high, at US$1.1 billion, or 92.6% of GDP, in 2003, the debt service ratio of 4.8% was relatively low due to the high proportion of concessional debt.  Gove rnment policy is to restrict debt servicing to 
below 10% of GDP.
4  Mongolia retired all external arrears in 2002, and resolved the treatment of 
pre-1991 Soviet Union debt in December 2003.5 
6. Improved macro-stabilization and ongoing struct ural reforms have contributed to the 
economy's recovery.  These policy reforms featured  strongly in the Government's 2000-04 Action 
Programme, and were reinforced in its Economic  Growth Support and Poverty Reduction Strategy 
(EGSPRS), adopted in July 2003.  Fiscal and pub lic sector accountability, planning, and management 
were improved in 2003, with impl ementation of the 2002 Public Sect or Management and Financial 
Law (PSMFL), and adoption of a Medium-Ter m Budget Framework as well as a single treasury 
account to centralize government cash balances.  The General Budget Law was amended in 2003 to 
strengthen fiscal governance by preventing govern ment recourse to non-transparent quasi-fiscal 
operations that had added substan tially to public debt.  The authorities have continued to improve 
monetary management.  Legislative changes in 2003 prohibited the Bank of Mongolia (BOM) from 
undertaking quasi-fiscal activities, such as borrowi ng funds overseas or providing loan guarantees, 
and an independent Supervisory Board has been  established to oversee its operations, including 
ensuring that accounting, auditing, and reporting re quirements meet international standards.  The 
Government has generally resisted protectionist pr essures and adopted, by and large, open trade and 
investment regimes.  
(3) MACROECONOMIC POLICIES  
(i) Fiscal policy 
7. Fiscal consolidation and reforms would re duce Mongolia's considerable overall budget 
deficits.  These have declined significantly, from 11 .9% of GDP in 1999 to 4.5% in 2003.  However, 
while well below targeted levels of 6% in the EG SPRS and ahead of projections to achieve such a 
target in 2006, reduced deficits have been achie ved mainly by expanding tax revenues rather than 
rationalizing expenditure.  The latter has risen con tinuously from 39.4% of GDP in 1999 to 45.2% in 
2003.  Expenditure pressures, including wage a nd pension increases for civil servants, pose ongoing 
threats to fiscal consolidation.6  Tax and other revenue (excluding official aids) have grown faster than 
expenditure, rising from 27.5% of GDP in 1999 to 40 .7% in 2003.  Tax collection has been improved, 
and several taxes increased, including the VAT by two percentage points to 15%, and excise taxes on 
alcoholic and tobacco products by 50%;  and the uniform tariff of 5% was re-introduced for the 
majority of tariff lines in September 1999.7  The Government's objective is to reduce revenues as a 
share of GDP to 36.3% by 2005.  All domestic debt service arrears have been eliminated, and interest 
on government bonds paid on time.  Efforts are u nder way to reduce arrear s accumulated by state 
entities. 
                                                      
4 Government of Mongolia (2003), p. 66. 
5 The 11.4 billion transferable rouble debt was set at  US$11.4 billion (as per Paris Club practice).  The 
Russian Federation agreed to write off 98% of the debt on payment of the balance (US$250 million).  This was 
paid in 2004, partly by Government borrowings from the BOM, including US$100 million in foreign exchange.   
6 Civil servant wages and pensions were raised by 20% from October 2002.    
7 MFN applied tariff rates were zero for all imports between May 1997 and September 1999. Mongolia WT/TPR/S/145 
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8. Corporate and personal income tax rates were  reduced in December 2003.  The 2004 Budget 
provided for a further 25% rise in civil servants' salaries, and pension increases.8  The 2004 Budget 
allowed for no significant increase in revenue while rais ing planned expenditure by almost 4%;  this is 
likely to raise the overall budget deficit for 2004, which was initially forecasted at 5.7%.   Containing 
the overall fiscal deficit in 2005 will be particularly  challenging if election commitments are to be 
met, such as the Money for Hope project to provide Tog 10,000 monthly to all children under 18 
years of age (estimated cost of Tog 124 billion in 2005).  The Government's medium-term fiscal 
objective is to reduce the overall budget deficit to 3% of GDP by 2008. 
(ii) Monetary and exchange rate policy  
9. The BOM formulates and implements monetary policy by regulating money supply through 
changes in reserve money to achieve its main objective of currency stability (Central Bank Law, 
1996).  The Government is not empowered to interfere  in monetary policy setting;  the Bank presents 
its targets annually to Parliament in the State Monetary Policy Guidelines.9  The BOM has focused on 
price and exchange rate stability, while ensuring ad equate money supply.  It  aims to contain annual 
CPI inflation to around 5% (met in 2003).10  However, it would appear that inflation has currently 
accelerated to double-digit levels, partly due to ri sing petroleum prices, and this guideline rate is 
unattainable in 2004.   Monetary policy was generally expansio nary in 2003, allowing substantial 
liquidity to accumulate as a result of money suppl y and bank credit growth.  Monetary (M2) growth 
accelerated from 17.5% in 2000 to 49.6% in 2003.  This reflected restored financial intermediation 
and growth of domestic and forei gn currency deposits partly due to greater confidence in the banking 
system.  Substantial unofficial "dollarization" also exists.11  The primary monetary variable is reserve 
money (banks' reserves plus mone y outside banks) and the main BOM instruments are open market 
operations, using Central Bank Bills in primar y and secondary markets, along with reserve 
requirements.12  A rediscount financing facility operates, and "repo" arrangement s were introduced in 
2002.  The Central Bank Bill rate rose from 9.9% to  11.5% in 2003.  Monetary policy, eased in the 
last quarter of 2003, was tightened in 2004 by BOM se lling Bills to curb rising inflation, and raising 
the Bill rate further to 16%.    
10. Mongolia moved from a fixed U.S. dollar excha nge rate to a floating system in May 1993.13  
The BOM's 2004 State Monetary Policy Guideline st ates that the exchange rate will be free and 
depend on market demand and supply.  However, it has at times intervened over prolonged periods 
beyond that needed to smooth out fluctuations, in or der to maintain a stable nominal US$ exchange 
rate.14  According to the authorities, there is no target  exchange rate, and the market sets the togrog's 
value.15  With large trade and current account deficits , Mongolia's external balance depends on capital 
                                                      
8 The minimum monthly wage has increased substantially, from Tog 18,000 in 2000, to Tog 24,750 in 
2001, Tog 30,000 in 2002, and Tog 40,000 from March 2004.  
9 The BOM formally reports to Pa rliament in accordance with the Central Bank Law (Article 30).  
10 Bank of Mongolia (2004c). 
11 Mongolia is a "middle dollarized economy" (Bank of Mongolia, 2002b). 
12 Reserve money growth is tied closely to BOM gold purchases and government loans to temporarily 
finance budget deficits.  BOM may provide government with temporary credit, to be repaid within the financial 
year, of up to 10% of fiscal revenues accumulated over the previous three years (Central Bank Law, 1996).  This 
facility was used for the first time since the 1990s for government borrowings to settle outstanding Russian debt.  Special parliamentary approval was obtained since the borrowings exceeded the 10% legislative limit.     
13 Mongolia accepted the obligations of  IMF Article VIII, Sections 2, 3 and 4, on 1 February 1996.  Its 
exchange rate system is free from restrictions on paymen ts and transfers for current international transactions.   
14 IMF (2003), p. 37.  The togrog de preciated nominally against the ri sing (until recently ) US$ by about 
3% in 2003 and 1% in 2002. 
15 The BOM is decreasing its presen ce in the interbank foreign exchange market, and now participates 
only when requested by commercial banks. WT/TPR/S/145 Trade Policy Review 
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inflows, especially aid and other official transfers.16  However, such inflows have contributed to a 
higher exchange rate, which has appreciated in r eal terms by 30% during 1996-03, after allowing for 
real depreciation of 5.8% and 10.5% in 2002 and 2003.17  Such real appreciation may have 
undermined Mongolia's external competitiveness.  In 2003, the BOM began adjusting its midpoint 
exchange rate daily instead of weekly and wi dened its buy-sell margins to improve flexibility.18  
While the marketing of gold was deregulated in 2002 and the BOM is no longer the sole trader, it still 
buys most gold.  There are no restrictions on foreign exchange transactions.   
(iii) Structural policies 
(a) Financial system 
11. Efforts to restructure the banking sector duri ng the 1990s had limited success, with three 
banking crises requiring bank closures and costly inj ections of public funds (Chapter IV).  However, 
since 2000, financial sector reform has progressed, esp ecially bank restructuring and privatization.  
Financial intermediation has d eepened, and the sector's perfo rmance has improved, generating 
renewed confidence in banks and non- bank financial institutions (NBFIs).  While the sector's share of 
non-performing loans (NPLs) at 8.1% at end 2003 was slightly above the 2002 level (7.0%), it 
remained well below previous levels (over 50% in  1996 and 1999 for banks alone).  Nevertheless, 
such trends largely reflected rapid growth in ba nk loans, and NPLs continued to rise, to reach 
Tog 37.7 billion in 2003.  Moreover, the NPL shar e for banks rose from 7.2% to 7.9%;  and while 
lower for NBFIs (6.5% at end 2003), it is much higher for savings and loan associations (11.2%).  The 
BOM is strengthening, as a high priority, the prudential and supervisory framework, including 
detection and compliance, for banks and NBFIs, a nd intends to implement Basle Core principles not 
yet fully implemented by Mongolia.  Minimum bank capital requirements were raised to Tog 4 billion 
in September 2001 (fully implemented by April 2004), and are to be further increased to Tog 8 billion 
for all banks by 2006. 
(b) Public sector reforms 
12. The Public Sector Management and Financial Law (PSMFL) is aimed at strengthening public 
sector governance along with improving efficiency and performance.  Efforts are being made to 
enhance transparency and accountability, and to improve efficiency of service delivery.  The PSMFL requires the Government to develop annual financ ial statements in accordance with international 
accounting standards.  Expenditure is to be rationa lized and curtailed, and subsidies to state-owned 
entities reduced.  The public pension system, which a ccounts for some one fifth of public expenditure, 
is to be reformed.  A medium-term budget statemen t was prepared in 2003 and 2004.  The Treasury 
Department was established in July 2002, and a Single Treasury Account system, which was 
introduced progressively, now operates fully. 
(c) State-owned enterprises (SOEs) and privatization 
13. Improved efficiency of SOEs is a high governme nt priority, including enhanced management 
and accountability, commercialization, and eventual privatization.  Large SO Es have dominated key 
sectors, undermined competition, and burdened public finances.  By 2002, all SOEs had implemented 
                                                     
 
16 Remittances from overseas workers have also in creased.  The Asian Development Bank accounts for 
over half of Mongolia's external debt, followed by Japan, the World Bank, Germany, and the IMF.  
17 Bank of Mongolia (2002d).  Increased U.S. dollar ho ldings, partly in response to rising inflation, 
placed pressure on th e togrog during 2004. 
18 The buy-sell margin around the mid-point exchange rate was changed from +/-1 togrog to +/-2 
togrog in April 2003 and to +/-3 togrog in July 2003.  Mongolia WT/TPR/S/145 
 Page 7 
 
 
international accounting standards.  The privati zation programme was revitalized in 2001.  New 
guidelines focussed on divestment of "most valued  companies" (MVCs) through competitive tender, 
in accordance with annual action plans adopted by  the Government (Privatisation Guidelines for 
2001-04).  Despite delays, due also to lack of privat e interest, divestment has accelerated wi th several 
recent sales.  Apart from banking, the largest insura nce company was sold completely to a consortium 
with Russian interests in July 200 3, and NIC, a petroleum import company, in February 2004.  Gobi, 
the largest cashmere manufacturer, is due to be pr ivatized in 2005 after several unsuccessful attempts, 
and management of the national airline, MIAT, has been contracted to a foreign company in 
preparation for privatization.  All MVCs are to be privatized.  However, Erdenet Mining Company 
and Ulaanbaatar Railways are exempt from privati zation.  The Privatisation Guidelines also lay out 
the Government's sector-specific restructuring and divestment plans, such as for energy, 
telecommunications, roads, and railways.  SOEs now number about 80, including 13 partially and 
26 fully owned entities, and cover mainly air, railw ays, communications, and energy.  A separate list 
of "social sector entities" to be privatized w as released in 2003.  New 2005-08 Privatisation 
Guidelines are being prepared for parliamentary a pproval.  The private sector's share of GDP has 
increased to around 80%.19  In 2003, 16 partly state-owned and 22 fully state-owned entities were 
privatized.  Total privatization receipts for 2000-03 were Tog 58 billi on, and an additional 
Tog 19 billion is expected in 2004.20 
(4) DEVELOPMENTS IN MERCHANDISE TRADE  
14. Since 1999, the ratio to GDP of Mongolia's exports of goods and non-factor services has 
decreased from 52.6% to 49.2% (2003).  Corresponding figures for imports were 65.7% and 64.9%. 
(i) Composition of trade 
15. Some three quarters of exports are primary pr oducts, with minerals representing over half of 
total exports (Chart I.1).  Agricultural exports dec lined from 17.2% of total exports in 1999 to 12.5% 
in 2003, while mining (excluding gold) rose from 32.3% to 35.5%.  Gold exports also increased during the period.  Mongolia's exports remain heav ily concentrated in a few items, namely copper 
concentrate (26.6% in 2003), gold, and textiles a nd clothing, especially cashmere (18.9%).  Import 
composition has changed since 1999.  The share of manufactured products declined from 71.3% to 64.5% in 2003, while mining imports, especially fuels, rose from 16.4% to 20.4%.  The share of food imports increased from 11.7% to 14.4%.  The main  manufactured products imported in 2003 were 
non-electrical machinery (12.7%), transport equipm ent (11.4%), other semi-manufactures (11.1%), 
and textiles and clothing (9.9%). 
(ii) Direction of trade 
16. The direction of trade, especially of exports, has changed since 1999 (Chart I.2).  While China 
remains by far Mongolia's main export market (46.2% of total exports in 2003, up from 45.8% in 1999), the United States has overtaken the Russian Federation as its second largest destination, 
increasing its share from 17.2% in 1999 to 23.2% in 2003 .  This is due largely to growth in clothing 
exports, which enter quota-free but may be adversely affected by the planned removal of U.S. quotas 
in 2005.  Mongolia's export dependence on China and the Russian Federation declined over the 
period, from 56.4% of total exports in 1999 to 52.9% in 2003.  The EU's share of exports also fell, 
from 12.0% in 1999 to 7.3% in 2003.  The Russian Fe deration is the main source of imports (33.1% in 
2003) followed by East Asian economies (43.8%), especially China (21.5%). 
                                                     
 
19 Private-sector shares of GDP in 2000 were :  98% for agriculture, 90% for trade, 79% for 
manufacturing, 17% for transportation, 5% for communications, and 0% for energy. 
20 From 1997-00, privatization recei pts amounted to about 5% of GDP. WT/TPR/S/145 Trade Policy Review 
Page 8 
 
 
Chart I.1
Product composition of merchandise trade, 1999 and 2003
1999 2003
(a)    Exports (f.o.b.)
Gold
21.8
Manufactures
28.6
Total:   US$454.2 million Total:  US$615.9 million
(b)    Imports (c.i.f.)
Fuels
16.0Food
11.7
Transport 
equipment
10.6 Mining
16.4
Non-electrical
machinery
16.3Manufactures
71.3
Chemicals
4.2
Office machines 
& telecom.
3.7Other electrical
machines  
15.6Other mining
0.4
Other mining
0.5Textiles & clothing
9.9
Other electrical 
machines  3.3Mining
20.4
Other 
semi-manuf.
11.1Transport
equipment
11.4
Fuels
19.9Manufactures
64.5
Chemicals
5.8
Total:   US$512.8 million Total:   US$801.0 millionPer cent
Manufactures
29.3Gold
22.7
Sheep & lamb
 skin leather
5.5Agriculture
12.5
Other manuf.   
16.9
Non-electrical
machinery
12.7Other consumer goods 
5.8
Textiles & clothing
8.7Mining
35.5
Other
 mining 
0.6Food
4.8Food
2..7
Copper ore & 
concentrates
26.6
Office machines
& telecom.
4.5Other ores 
& minerals
6.3Agricultural raw material
9.8Agricultural raw 
material
12.4
Source :  UNSD, Comtrade database (SITC Rev.3);  and the authorities of Mongolia.Other  consumer goods  
5.0Food
14.4Clothing
18.9Other manufactures
4.9
Other 
mining
2.7Clothing
11.7Copper ore &
 concentrates
26.2
Other ores & 
minerals  5.5
Other 
semi-manuf.
7.3Mining
32.3Agriculture
17.2
Agriculture
15.0Agriculture
12.3 Agric. raw 
material   0.6 Agric. raw 
material   0.6
 Mongolia WT/TPR/S/145 
 Page 9 
 
 
Chart I.2
Direction of merchandise trade, 1999 and 2003
1999 2003
(a)    Exports (f.o.b.)
Other  E. Asia 1.0
East Asia
49.2
Total:   US$454.2 million Total:  US$615.9 million
(b)    Imports (c.i.f.)
Other  1.1Other E. Asia
5.5China
13.4
EU15
10.5
Russian Federation
29.4Other Europe
4.6 United States
6.2
EU15
10.8China
21.5    Hong Kong, 
China 
3.0
Other 
Europe
5.8United States
2.9
Total:   US$512.8 million Total:   US$801.0 millionPer cent
East Asia
54.9Other E. Asia  3.0
Russian Federation
6.7Japan   2.4
Russian Federation
33.1Korea,
  Rep. of
8.4Korea, 
Rep. of
6.9United States
17.2Other 
 11.0 Australia  5.6
Other E. Asia
3.0United States
23.2Other  2.2
Source :  UNSD, Comtrade database (SITC Rev.3);  and the authorities of Mongolia.Japan
7.9China
46.2Singapore
5.7
EU15
7.3China
45.8
Russian Federation
10.6EU15
12.0
East Asia
43.8East Asia
48.2Japan
22.4
Other  1.2Australia  2.5
 WT/TPR/S/145 Trade Policy Review 
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(5) TRENDS AND PATTERNS IN FOREIGN INVESTMENT  
17. Foreign direct investment (FDI) increased continuously from US$93.0 million in 1999 to 
US$204.3 million in 2003 (based on regi stration details), an average annual rise of 28%.  FDI inflows 
as a percentage of GDP increased from 9.5% to 17.3%.  Cumulative FDI inflows (1990-03) stood at 
US$1.0 billion, of which US$0.6 billion occurred afte r 2000.  Some two thirds of total investment is 
foreign.  FDI is found mainly in mining, includ ing exploration and petroleum (33.4%), trade and 
foodstuffs (13.0%), light industry (8.3%), and processing of animal-originated raw materials (5.0%).  
FDI has come mainly from China (33.2%), followed by Canada (13.2%), Korea (8.1%), and Japan (6.0%).  Foreign companies provide substantial employment (creating over 67,000 new jobs) and 
underpin Mongolia's export base.  They account for al most all of its mining exports (100% of copper, 
molybdenum, and oil, and 73% of fluorspa r) and substantial exports of wool.   
18. Mongolia was ranked 69
th in UNCTAD's Inward FDI Poten tial Index for the period 1999-01, 
and 48th on its Inward FDI Performance Index, sugges ting that it was a "front runner" economy with 
high FDI potential and performance.21 
(6) OUTLOOK  
19. The Government's EGSPRS objective is to achiev e annual real economic growth of 5.5-6.0%.  
This was achieved ahead of schedule in 2003 (5.6%) , and higher growth is forecast.  Latest official 
projections are for growth of 8.1% in 2004, revi sed upwards from 6.0% due to continued agricultural 
expansion and rising mineral exports in value te rms from mainly improved commodity prices, and 
6.1% in 2005 and 2006 .22  However, inflation (CPI) is expected  to rise substantially above the Bank's 
guideline rate of 5% to double-digit levels, at least  in 2004.  The share of government expenditure is 
projected to fall to 42.1% in 2005 and 40.6% in 200 6.  The overall budget deficit is forecast to rise 
from 5.0% to 5.5% of GDP in 2005 and to decrease to 4.8% in 2006.  The trade deficit is expected to 
fall in 2004 to 14.5% of GDP and to 13.9% in 2005,  helped by continued merchandise export growth 
of 17.7% in 2004 and 9.5% in 2005.   
20. The Government recognizes the need for Mongolia to diversify its industrial structure into 
manufacturing and services;  the concentration of its current economic base mainly in mining and 
agricultural economic make it vulnerable to world commodity prices and weather conditions.  While 
agriculture is of particular importance to Mongo lia, pronounced declines in many commodity prices 
in the past decade have meant that, by and large, ag ricultural exporters face declining terms of trade;  
if this downward trend continues over the long term, increasing volumes of these products may need 
to be exported in exchange for the same value of manufactured goods and services.  Mongolia's future 
economic performance will also depend to a large extent  on external factors, such as the pace of 
recovery in the world economy, incl uding especially growth of its main  markets, China and to a lesser 
extent Russia.  Of greatest importance, however, to Mongolia's longer-term growth prospects will be 
its own policy efforts to ensure macroeconomic stability and to implement structural and other 
economic reforms needed for sustainable growth .  This will require further improvements in 
                                                      
21 The Inward FDI Potential Index is calculated as an unweighted average of the scores assigned to 
eight quantifiable economic and social factors (i.e. real GDP growth, GDP per capita, total exports, telephone lines, energy use, education, and R& D expenditure) thought to affect an economy's attractiveness to foreign 
investors.  The Inward FDI Performance Index is the ratio of a country's share in global  FDI flows to its share in 
global GDP and, ther efore, ranks countrie s according to the FDI received re lative to their economic size.  
(UNCTAD, 2004). 
22 Data provided by the Ministry of  Finance.  These revised growth forecasts exceed earlier projections, 
including those by the Asian Development Bank, which projected growth of close to 6% in 2004 and 2005 (Asian Development Bank, 2004, p.62).  Mongolia WT/TPR/S/145 
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Mongolia's capacity to attract FDI, continued trad e opening, in particular resisting protectionist 
pressures to raise tariffs and re-introduce agricultu ral assistance, as well as added strengthening of the 
financial sector.