jobs. Also, a high percentage of working age people between the ages of 25 and 29 are neither looking for jobs, nor are in school. These idle people, considered discouraged workers, have mostly upper secondary or tertiary education and live in urban areas. The country specific labor market incentive mechanisms on the supply and demand sides combined with evolving population dynamics need to be looked at in addressing this constraint over the long term.

# **_3.4.2 Environmental degradation and natural resource use_**

The country and many of its people are dependent on natural resources such as grasslands, soils, forests, air and water, yet the quality of these is eroding even as their contributions to the public and shadow economies are increasing. Existing empirical and anecdotal evidence clearly indicates that illegal logging and wildlife trade, the mining sector, particularly artisanal mining, water and air pollution are responsible for the increasing economic costs of environmental degradation.

# **_3.4.3 Macroeconomic environment._**

Monetary and fiscal policies have insured macroeconomic stability in recent years and have not been a constraint to growth. In 2005 inflationary pressures accelerated due to a rise in fuel and meat prices and administrative price adjustments in utilities. Given the windfall revenues the Government is currently reaping due to the surge in international mineral prices and the changing structure of the real economy towards a highly concentrated production and export base in mining and livestock sectors, the key challenge will be to maintain macro-stability over the long-term and reduce the economy’s vulnerability to international commodity price fluctuations. The harsh weather, that has in the past extinguished a third of the country’s total livestock herd in one year (in 2000-01), makes management of this volatility even more difficult.

# **4. CONCLUDING REMARKS**

The analysis presented here, and the “binding constraints” we have arrived at, constitute only a first step in looking at what it will take for Mongolia to continue its current high levels of economic growth. The next step is to look more in depth at country-specific factors and policies that need to be implemented over the short to medium term. In-depth sectoral expertise, country knowledge and policy analysis are needed in order to judge which specific policies to propose, under what scenarios and, of these, which are politically feasible at the time to implement without derailing the momentum for reform in the country. A look at sectoral strategies, results of appropriate stakeholder surveys/political analyses, and micro-level sectoral diagnostics (such as investment climate assessments and public expenditure reviews) will provide an essential supplement in arriving at an informed decision in this regard. Finally, in a rapidly growing economy like Mongolia, or for any growth process for that matter, as one constraint is lifted, another will emerge and become “binding” for economic growth (Hausmann, Rodrik and Pritchett, 2004). Therefore, the growth diagnostic should be revisited in order to ensure that policies in place service the growth objectives of governments.

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