Has Mongolia Finally Beaten the Resource Curse?

Mongolia finds itself at a critical juncture as it enters election season riding high on a booming mining-fueled economy. With growth soaring to 7.8% in the first quarter of 2024 and an impressive 7% growth in 2023, the future looks bright on paper. However, a closer examination reveals a fragile reality where short-term thinking could squander Mongolia's resource wealth and leave the nation still ensnared by the resource curse.

At the heart of Mongolia's challenge is the fundamental tension between leveraging its current mining riches to build a resilient, diversified economy for the long-term, and the political expediency of unsustainable populist policies aimed at short-term electoral gain. The latest victim of this tension may be the newly-established Natural Wealth Fund, intended to channel resource revenues into investments that could wean Mongolia off its mining dependence. But early signs are discouraging, with the fund already being tapped to finance popular but economically questionable subsidized mortgage programs.

Similarly concerning is the government's multi-year 5 trillion tugrik (around 8% of GDP) soft loan program for herders devastated by the recent dzud winter. While providing vital relief, the program lacks complementary investments in climate-resilient infrastructure and sustainable practices, perpetuating dependence rather than resilience in the herding sector. The central bank's recent interest rate cut, while stimulating growth, may be politically motivated window-dressing that store up problems for after the elections.

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