The Asian Development Bank (ADB) virtually presented its flagship economic report, “Asian Development Outlook 2021” (ADO), on Wednesday morning, outlining that the Mongolian economy is set to rebound to 4.8 percent in 2021, supported by favorable terms of trade and higher export demand.
The projected resurgence follows a 5.3 percent contraction in 2020. Growth is forecast to further accelerate to 5.7 percent in 2022, boosted by domestic demand, investment, increased private credit, and a full recovery across economic sectors.
After noting that this year marks the 30th anniversary of Mongolia’s membership in ADB, Country Director for Mongolia Pavit Ramachandran shared highlights of ADO, particularly the outlook for developing Asia.
“The highlight of the ADO 2021 captures key points to our benefit. First, the key message is that the COVID-19 pandemic still far from beaten. We’re seeing the second and third waves in a number of countries. We’re bracing for it here through the lockdown and vaccine rollouts are still in the initial stages. There are still challenges countries are facing in terms of rapid procurement and deployment of vaccines. The report notes that 600 million doses of the vaccines have been delivered by end of March and a more recent update by WHO notes it’s up to 900 million doses. But still, given the scale of the normality of the challenges, a significant amount of vaccinations still need to be done,” he remarked.
“The economic recovery in developing Asia is diverging. But beneath it all, I think there is a clear demonstration of the underlying resilience of the region. Some economies are returning to normal and are seeing great boost primarily by exports and a great turnaround by the manufacturing sector, while others are still contending with domestic outbreaks, local containments, restrictions and lockdowns. COVID-19 cases are picking up again in the region since March and it’s the same here in Mongolia. After a regional 0.2 percent contraction in 2020, progress on vaccination rollouts and recovering global demand will foster a 7.3 percent economic recovery in developing Asia in 2021. This will be led primarily by China and India. Developing Asia’s growth is expected to moderate to 5.3 percent in 2022.”
Growth prospects for Mongolia in 2021 and 2022 will largely depend on the course of the COVID-19 pandemic, the pace of economic recovery in neighboring China, the rebounding of commodity exports, the overall investment climate and private sector credit growth, according to ADB. Until the vaccination target of 60 percent of the population is achieved, concerns over public health is expected to continue to dampen domestic demand and business confidence, which results in an uneven recovery outside of the mining sector. However, business sentiment and eco-nomic prospects will be better in 2022 as COVID-19 concerns ease. The report suggests that average inflation will accelerate to 6.9 percent in 2021 and 8.5 percent in 2022, rising above the 6 percent medium-term inflation target as the economy and demand recover, fuel prices increase, and exchange rate effects pass through to prices for imported goods. The current account deficit is projected to widen to equal 8.3 percent of GDP in 2021 and 10.7 percent of GDP in 2022, mainly on an expected increase in imports of goods and services in conjunction with rising domestic demand, higher imports of machinery and equipment as mining recovers, and higher international oil prices. Downside risks to the outlook would be prolonged impacts from COVID-19 on economic activity, and/or slow implementation of the vaccination program, and deterioration in the investment climate. Possible problems in designing and implementing the economic stimulus program and its financing schemes could have adverse implications for recovery.
ADB representatives answered some questions after the briefing.
Bank reform is a very important issue right now. The deadline for banks to transform into a joint-stock company is nearing and the public has high expectations for the re- form. What are the underlying risks in relation to this work
Chief economist S.Bold: The banking reform is definitely attracting attention. The law has set specific timeframe. By June 30, 2022, all banks are ordered to become joint-stock companies. There are about 12 months until the deadline now amid the lockdown and rising COVID-19 cases. People are looking closely at whether banks can all release an IPO and fulfill their ob- ligations within this set time. It’s very important to know what the pre-IPO conditions and requirements are and ensure they are met. If this is achieved, the banking reform can be conducted realistically and efficiently.
What are the key sectors ADB is willing to provide its financing toward throughout the region in 2021? Can you elaborate the key financing needs for developing economies, including Mongolia, especially in post-COVID-19?
Deputy Country Director Declan Magee: At the moment, the big- gest priority for us is to support our member countries in responding to COVID-19. This is in terms of being able to get the support to access the vaccinations they are looking for vaccinating the populations and ensure they have the support needed to respond to the economic impacts that we’ve seen from COVID-19. It’s similar in Mongolia. We’ve been providing support around the response to the virus and we’re in the process of looking to support efforts in vaccinations and support Mongolia to build forward better. By linking our support for COVID-19 to some medium-term reforms we will not only help Mongolia emerge strongly from the situation but also make sure the country is on a sustainable path to development.
This year, we will have a new partnership strategy, which we will agree with the government. The idea behind this strategy is to do two things: 1) support recovery from COVID-19 to building forward better, and 2) work with the government and the people of Mongolia to continue to invest in building blocks for long-term, inclusive and sustainable growth.
ADO has a theme chapter on financing a green and inclusive recovery. Mongolia has already approved a strategy for green development. What are the key issues and opportunities in Mongolia in going through with this green path after the pandemic?
Country Director Pavit Ramachandran: In Mongolia, ADB has been through various channels in attracting resources and looking at intermediations through participating commercial banks and channels for energy efficiency and affordable green housing. There is a range of interventions we’re involved and we will take them forward in the forthcoming country partnership strategy.
