- Mongolia's economy is benefiting from a mining boom, mainly driven by higher copper production and prices. This is supporting growth, exports, international reserves, and fiscal revenues.
- The 2026 supplementary and 2027 draft budgets could increase vulnerabilities as it foresees a large fiscal expansion due to permanent spending hikes, financed with volatile mining revenue and one-off dividends.
- Recent food and fuel price shocks have pushed inflation well above the Bank of Mongolia's (BOM) target range. The proposed large fiscal expansion in 2026-27 risks making inflation pressures more persistent.
- The mining windfall should be used to rebuild fiscal buffers, the effectiveness of fiscal rules should be restored, and non-mining tax cuts should be reconsidered. If the proposed fiscal expansion were implemented, monetary policy should be tightened further.
Washington D.C: An International Monetary Fund (IMF) team led by Mr. Tahsin Saadi Sedik visited Mongolia during September 23-29, 2026, to discuss recent macroeconomic developments. At the end of the mission, Mr. Saadi Sedik issued the following statement:
"Mongolian economy grew faster than expected in the first half of 2026 supported by a booming mining production, with growth reaching 7.7 percent. Aided by high prices for copper and coal, the external position and fiscal outturn also improved: gross international reserves rose to USD 8.9 billion by end-September, and buoyant mining revenues balanced the budget despite a 20 percent y-o-y increase in spending through August. Bank credit growth slowed to about 14 percent y-o-y in August, reflecting earlier macroprudential and monetary tightening.
"Inflation accelerated to 12.9 percent in September, well above the BOM's target range of 6±2 percent, amid a food price shock and acute fuel shortages caused by intermittent supply disruptions. Although there has been no impact on mining operations so far, the economy remains vulnerable to renewed supply disruptions. Core inflation edged up, and inflation expectations rose. In August, the BOM raised the policy rate and domestic reserve requirements by 50 basis points each, to 12.5 and 14.5 percent, respectively.
"For 2026 overall, economic growth is expected to remain robust at 6.2 percent, as stronger mining activity offsets weaker growth in other sectors. The external position is also expected to improve, driven by mining exports.
"In this context of a mining boom and supply-side shocks, the 2026 supplementary and 2027 draft budgets propose a large fiscal expansion, with large tax cuts, substantial increases in social programs, higher public wages and pensions, and an ambitious increase in investment. Most of the additional spending is financed by one-off dividends from SOEs and the copper mining company Oyu Tolgoi (OT). The envisaged fiscal expansion is likely to lift the deficit and debt paths. Moreover, draft legislation accompanying the budget documents would further undermine the effectiveness of fiscal rules. Overall, fiscal vulnerabilities will increase with large permanent spending increases financed by volatile mining revenues. In the event of large revenue shortfalls, sharp fiscal adjustment would be needed to preserve macroeconomic and external stability.
"Inflation is likely to stay above the target range through end-2027 amid expansionary fiscal policies and rising nominal wages. Headline inflation is projected to stay around 13 percent by end-2026. By end-2027, fuel and food price inflation is expected to ease gradually. However, core inflation is likely to increase further, keeping headline inflation at about 8½ percent at end-2027.
"Downside risks to the outlook have intensified, reflecting global and regional instability and domestic pressures for further tax cuts and spending increases. Further supply disruptions and global petroleum price increases could reignite fuel shortages, adding to inflation and weakening activity, especially if shortages spread to mining operations. Further fiscal expansion and public sector wage increases could pose a risk of a wage-inflation spiral.
"Fiscal policy should focus on rebuilding buffers and reducing vulnerabilities. The proposed tax cut package should be reconsidered, and requests for further reduction in non-mining taxes should be resisted. The mining revenue windfall gains-which may be partially transitory-should be largely directed to rebuilding fiscal buffers, while spending needs to be targeted and rely less on volatile mining revenue.
"Domestic monetary conditions should be tightened further amid elevated inflationary pressures and fiscal expansion. Monetary conditions have eased recently as real interest rates have declined, while inflation expectations and nominal wages have been rising. Strengthening the BOM's operational autonomy remains critical. Revisions to the central bank law should be finalized and enacted promptly to establish the foundation for an independent, accountable, and effective central bank. Furthermore, timely amendments to the Banking Law are needed to strengthen governance, recalibrate shareholder limits and support effective management and operations of banks.
"An IMF team visited Ulaanbaatar during September 23-29, 2026, to hold discussions with the Mongolian authorities. The mission would like to express its deep appreciation to the Mongolian authorities and all other counterparts for their open, candid, and constructive engagement and for their warm hospitality.
