A few days ago, the reporter conducted an interview with the Mongolian economist Na Enkhbayar.
Q: At present, the economic situation is grim. What do you think is causing it?
A: Our economic cycle is short. The economy as a whole depends on raw materials, and agriculture is linked to natural weather. As a result, the economic growth cycle is 3-3.5 years. Economic growth has never exceeded a four-year period of stability. Such a short-cycle economy would be disrupted by any external factor. For example, pandemics, natural disasters, global economic crises and geopolitical situations. This shows the fragility of Mongolia's economy. If we have a balanced economy like Vietnam's, we can withstand external shocks. During the COVID-19 pandemic, Vietnam's economy has not been negatively affected, with the current economic growth rate of 5.3%. The geopolitical situation began when Mongolia participated in the International Monetary Fund's expansion finance program in 2017, the economy slowed during the COVID-19 pandemic, and the forecast turned into growth. On top of that, Mongolia's main trading neighbours are also involved, and the economy is facing difficulties due to the risks associated with the main products imported at the price of petroleum products. In particular, the uncertainty of an export-oriented economy and port operations exacerbates the difficulties. Under normal circumstances, the current foreign exchange reserves are expected to meet the import demand for 7 months. Normal means that import costs can be paid with export earnings. However, when export earnings are interrupted, central banks will have to pay for imports from their foreign exchange reserves, and foreign exchange reserves will begin to decrease.
Q: You say the economic growth cycle is short, so can you predict a slowdown?
A: Economic growth is divided into three cycles. First, the dependence on raw materials, it will not change easily. Since there are no other industries, this will continue for 20 years. We must make major structural changes. Second, the business cycle. This depends on many factors that grow in any supportive environment. Once the support ends, the economy will begin to slow. Third, the political cycle is elections. The political cycle is not an economic cycle, but budget spending cannot be cut during an election year, and the budget begins to expand. This will have a negative impact on the economy. This has been mentioned many times by international research institutions. Even if budget savings are saved in years without elections, election years increase deficits and debt. Because of these three conditions, Mongolia's economy is in trouble.
The economic situation can now be predicted on the basis of international research information and data from domestic research institutions. Decision makers listen to this prediction and make a decision, which is reflected in laws, regulations and policies.
Q: What challenges will Mongolia's economy face in the near future? What can be done to overcome this challenge?
A: Inflation will be a difficult challenge for the world and Mongolia. Mongolia also faces two major challenges. The first is food safety. Under normal circumstances, we harvest food to meet domestic demand. However, due to the international situation triggering economic sanctions, imported fertilizers will not be available this year. With no fertilizer, yields per hectare would decline. Neither Russia nor Ukraine can export food, so we cannot procure food seeds. So this year we will grow commercial wheat. Wheat seeds are different, yielding more per hectare than commercial wheat. This year we are planting our existing wheat. But the harvest will not be as good as last year. This, in turn, affects commodity prices.
The other is a shortage of electricity. There are two problems with our electricity. First, there is a shortage of production capacity installation. Since 2000, only low-capacity power plants have been built, but consumption has grown even more. The energy minister said that attention should be paid to the balance between energy production and consumption in Mongolia. This cannot be the case with electricity, because the generation of electricity must exceed the demand to ensure safety. The second is the peak winter hour. Peak summer hours are 2-3 times lower than winter. Thermal power plants cannot fill this gap. What has the capacity to make up for it are nuclear power and hydropower plants. For Mongolia, nuclear energy is not yet feasible in terms of technology, security and finance. The solution to peak hour electricity supply is hydropower plants. The construction of the Erdenbrun hydropower station is crucial, but since it will be built in the western region, it will have little energy impact on the central region. Then, how to reduce the power supply pressure during peak hours in the central region is a problem facing in the near future. The longer we can't solve it, the more energy constraints there will be.
Q: You said inflation is a difficult global challenge. The Government of Mongolia has submitted draft laws to implement policies to stabilize meat, flour and fuel prices. Is this the right solution?
A: Since the 1990s, Mongolia has shifted to a market economy, but there is still a part of the planned economy. In the energy sector, the state sector dominates in many areas. Even in developing countries in Asia, certain types of products are regulated by governments. In Southeast Asia, for example, rice prices are regulated. The same is true in Mongolia. Electricity, heat, water and public transport prices are regulated by the government. If the economy is successfully liberalized, government involvement will be reduced. So the short-term solution now is to stabilize prices, but it's not a long-term solution. In the long run, there is a need to improve the volume of transport at border crossings.
In 2019, Mongolian coal performed the best and achieved profitability. This is the result of 360 days of continuous operation of the port throughout the year, meaning that there are no delays or restrictions. The cumulative export of copper concentrate, iron ore and coal totaled 50 million tons. Therefore, with a capacity of 50 million tons at our southern port, the economy will be normal. Last year, the volume of physical exports halved. However, the price increase did not affect revenue. Instead of talking about economic diversification and other factors, the first thing to do is to increase port capacity. To do this, other issues that can be postponed need to be postponed. Mongolia made a mistake by not making that choice.
Q: How to increase port capacity? As part of the new rejuvenation policy, the issue of improving port operations has been raised. Can this be implemented?
A: China has 82 highway ports. In terms of capacity, Mongolia's ports are very small. In terms of economic content, it does not matter whether Mongolia's ports are open or closed to China. However, because of the purchase of coking coal, It is needed in Baotou and Ordos, Inner Mongolia, China. In order to increase port capacity, the port will only operate effectively if there is a common interest between the two sides. Mongolia's southern neighbor has no interest in Mongolia's ports, so no company is willing to contribute to it, no interest in increasing the volume of goods or improving technology. Ports are bilateral issues, especially international trade issues. Therefore, if multiple parties have interests, they will have the conditions to develop better. The first thing Mongolia needs to do is to operate at the Gashun Suhaitu and Zamenwud ports with the participation of both sides. There is no need for too much. If the Chinese side participates in at least 30%, the other party will contribute. Otherwise, Mongolia unilaterally does not have the conditions.
Q: How do I seek such investors from China?
A: Mongolian legislation does not allow this. Especially in the border areas. Therefore, a legal environment needs to be created. For example, to enter the Altan Prague Free Zone, you must meet all the requirements for entry into Mongolia and stamp it on your passport, but the main content of the Free Zone is different and requires a slightly different status. Mongolian border regulations do not allow freedom. The port is exactly the same. To give the right to have a joint venture, the location does not have to be in Mongolia. The transshipment party can be in the Chinese side. The end result is that Mongolian exports will be unimpeded. If this issue is resolved in the near future, it will be of vital importance to mongolia's economy. Export earnings will not decrease, and if they remain high, they will stabilize the economy. Export income is stable, foreign trade is a surplus, currency supply and demand are balanced, and foreign exchange reserves are not exhausted. This is one of the basic factors that form the economy.
Source: "Colorful Mongolia" public number