Coal’s Collapse Forces Mongolia to Rethink Its Mega-Project Ambitions

Just a year ago, Mongolia’s government was riding high on the back of record commodity prices, touting a bold “14 mega-projects” agenda to transform the country’s infrastructure and economy.

That ambitious blueprint, promising everything from mineral refineries to hydropower dams, was deemed so essential that it prompted the ruling Mongolian People's Party to form an unprecedented coalition with its rivals after the 2024 election, specifically to secure political consensus for its rapid implementation.

Today, that vision has collided with harsh fiscal reality.

A 40% plunge in global coal prices has blown a 3.3 trillion MNT (about $960 million) hole in the 2025 budget, forcing Ulaanbaatar to shelve most grand projects and embrace austerity.

The government’s revised budget, released on June 24, projects a deficit of 1.365 trillion MNT (1.5% of GDP)—a sharp reversal from last year’s optimism. The shortfall is driven by a 1.8 trillion MNT drop in mineral royalties and a 1.35 trillion MNT slide in corporate tax receipts, with coal at the epicenter. Budget assumptions had pegged coal at $105 per ton; the market delivered closer to $72.

Mongolia’s experience is a stark reminder of the perils of commodity dependence. The end of the China commodities supercycle seems to be forcing the country to confront the urgent need for diversification. New strategies in learning to anticipate and adapt to shifting Chinese demand are still in early stages.

Prime Minister Gombojavyn Zandanshatar and his cabinet, formed in June 2025 now faces internal strains. While the government has so far protected public salaries, pensions, and social welfare from cuts, deeper divisions are emerging within the ruling party.

Loyalists to the previous prime minister and ministers overseeing key portfolios are pushing back against budget cuts, raising the risk of policy reversals and political instability.

If public services deteriorate sharply it could fuel social discontent. The past shows how quickly frustration can boil over.

Austerity is already biting. Several high-profile projects, such as the Bogd Khan mountain tunnel, are likely to be halted after billions of MNT in sunk costs. The process, led by First Deputy Prime Minister Nyam-Osoryn Uchral, has been driven by financial necessity, with little public consultation.

Mongolia’s external debt remains high, but buffers are healthier than during the 2017 crisis. Sovereign credit ratings have stabilized. Official foreign exchange reserves hit $5.2 billion in June, covering 6–7 months of imports. The country is not in immediate danger of default, but high external obligations and volatile earnings mean any major shock could force a pivot to international assistance.

The government’s ability to maintain fiscal discipline while supporting growth will be critical in the months ahead.

Mega-projects spared from the axe are overwhelmingly those with external, ring-fenced financing, such as the Indian-backed oil refinery, Chinese-funded hydropower and French Orano’s uranium project. Critical rail links to China, vital for mineral exports, are also prioritized.

But ambitious projects, such as the national satellite, wind and solar developments, and the Orkhon and Kherlen river diversions face indefinite delays.

Mongolia’s strategy of leveraging foreign-financed infrastructure is a double-edged sword. While it brings capital and expertise, it also deepens dependence on regional powers. The country is courting Western investment to diversify its partnerships, but success will hinge on consistent policy and political stability.

Mongolia’s fiscal reckoning is both a warning and an opportunity. The crash has exposed the fragility of a resource-dependent model and accelerated a necessary “house cleaning” of inefficient spending. Yet the path to true diversification remains uncertain.

For now, Mongolia’s grand ambitions are on hold—its future, as ever, tied to the volatile fortunes of the Chinese resource market.