Ulaanbaatar, August 4, 2025 - A new World Bank report highlights the opportunity of the current mining boom to strengthen fiscal policy by advancing critical fiscal reforms in Mongolia.
Following three challenging years marked by overlapping external shocks, Mongolia has emerged with improved fiscal and macroeconomic outcomes, according to the Mongolia Public Finance Review, titled "Making this time different: Fiscal reforms for stable, sustainable, and inclusive development." Robust growth, driven by strong coal exports, has led to reduced public debt and increased external buffers while proactive debt management helped ease rollover risks, resulting in narrower bond spreads and higher sovereign credit ratings.
Despite these improvements, some underlying fiscal vulnerabilities persist. The influx of mining revenue has supported expansionary public spending, with expenditure as a share of GDP exceeding pre-pandemic levels and peer benchmarks. Quasi-fiscal operations-such as the subsidized housing mortgage scheme and off-budget transfers through state-owned enterprises-add to expansionary policies and could risk undermining recent progress.
The report identifies opportunities to enhance the efficiency of public spending. Mongolia's social assistance system contributes significantly to poverty and inequality reduction, but the system is expensive and targeting could be improved. Enhancing more equitable access to health and education while addressing disparities across regions and income groups would lay the foundation for better human capital outcomes, not just for improved well-being, but also for stronger future growth. Public investment could benefit from improved prioritization, planning and oversight, especially given the government's objective of scaling up infrastructure investment to boost future growth under the government's New Recovery Policy and action program. Although revenues are strong, tax reforms could broaden the tax base away from heavy reliance on mining revenues while enhancing progressivity and making the tax system more growth-friendly.
Such reforms would help further stabilize the economy, ease inflationary and external pressures, and create space for investments in physical and human capital. "Mongolia stands at a pivotal moment. The current economic boom creates a unique opportunity to strengthen the country's fiscal position, but also risks repeating past boom-bust cycles if reforms are delayed," said Taehyun Lee, World Bank Country Manager for Mongolia. "Now is the time to strenghten fiscal foundations, improve spending efficiency, and create space for sustainable and inclusive growth. The recently approved amended budget reflects the government's efforts to maintain fiscal prudence in the face of revenue volatility and global uncertainty."
