2015 Index of Economic Freedom

Mongolia

overall score59.2
world rank96
Rule of Law

Property Rights30.0

Freedom From Corruption38.0

Limited Government

Government Spending35.6

Fiscal Freedom83.9

Regulatory Efficiency

Business Freedom68.2

Labor Freedom82.7

Monetary Freedom69.2

Open Markets

Trade Freedom74.8

Investment Freedom50.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 2.9 million
  • GDP (PPP):
    • $17.1 billion
    • 11.7% growth
    • 9.2% 5-year compound annual growth
    • $5,885 per capita
  • Unemployment:
    • 4.9%
  • Inflation (CPI):
    • 9.6%
  • FDI Inflow:
    • $2.0 billion
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Mongolia’s economic freedom score is 59.2, making its economy the 96th freest in the 2015 Index. Its overall score has increased by 0.3 point since last year, with improvements in four of the 10 economic freedoms, led by freedom from corruption and fiscal freedom, outweighing declines in business freedom, the management of public spending, and monetary freedom. Mongolia is ranked 19th out of 42 countries in the Asia–Pacific region, and its overall score is above the regional average but below the world average.

A massive investment boom has reshaped Mongolia’s economy into a leading coal exporter. However, gains in economic freedom made after 2011 have been undermined by a subsequent decline that revealed underlying structural weaknesses and has pushed Mongolia into the “mostly unfree” category.

At the root of this negative development are increasing fiscal indiscipline and weak rule of law. The government’s direct interest in the coal project has exposed it to cyclical revenue changes. The budgetary outlook discounts benefits from future mining windfalls by expanding spending in the short term. The judicial framework remains vulnerable to political influence, and the perceived level of corruption is still high.

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Background

Mongolia emerged from the shadow of the former Soviet Union in 1990 with a new constitution and a multi-party system. Its transition to democracy has been accompanied by the gradual introduction of free-market reforms. Despite political tensions exacerbated by the 2009 economic crisis, Mongolia has enjoyed relative political stability in recent years. President Tsakhiagiin Elbegdorj, whose Democratic Party coalition controls parliament, is serving his second term and cannot run for re-election. Agriculture and mining are the most important sectors of the economy, although uncertainty over investment rules has caused investment in the mineral sector to ebb and flow. While improving overall relations with the U.S., Japan, and South Korea, Mongolia has maintained strong ties with Russia and China.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 38.0 Create a Graph using this measurement

Corruption is viewed as pervasive. Graft is endemic, and weak institutions do not enforce anti-corruption measures effectively. The judiciary is independent but inefficient and vulnerable to political interference. Corruption persists among judges. Property and contractual rights are recognized, but enforcement is weak. The government lacks the capacity to enforce intellectual property rights laws.

Limited GovernmentView Methodology

Mongolia’s top individual income tax rate is 10 percent, and its top corporate tax rate is 25 percent. Other taxes include a value-added tax and an excise tax. The total tax burden equals 29.8 percent of domestic income, and public spending equals 46.3 percent of domestic production. Public debt has increased to over half the size of the economy.

Regulatory EfficiencyView Methodology

The minimum capital requirement for incorporating has been removed, and starting a business takes only five procedures, but completing licensing requirements still takes over 130 days. Despite some progress, the labor market still lacks dynamism and remains segmented. The central bank’s large mortgage subsidy program and liquidity injection in 2013 distorted markets and ratcheted up inflation.

Open MarketsView Methodology

Mongolia has a 5.1 percent average tariff rate. Importing goods is time-consuming. The 2012 Strategic Entities Foreign Investment Law limits investment in some sectors of the economy. The financial system, dominated by banks, has undergone restructuring and modernization. In recent years, the banking sector has had vulnerabilities arising from highly concentrated loan portfolios and high loan-to-deposit ratios.

Country's Score Over Time

Bar Graph of Mongolia Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong89.6-0.5
2Singapore89.40.0
3New Zealand82.10.9
4Australia81.4-0.6
5Taiwan75.11.2
6Japan73.30.9
7South Korea71.50.3
8Malaysia 70.81.2
9Macau70.3-1.0
10Brunei Darussalam68.9-0.1
11Kazakhstan63.3-0.4
12Thailand 62.4-0.9
13Philippines62.22.1
14Samoa61.90.8
15Kyrgyz Republic 61.30.2
16Vanuatu61.11.6
17Azerbaijan61-0.3
18Tonga59.31.1
19Mongolia59.20.3
20Fiji590.3
21Sri Lanka58.6-1.4
22Indonesia58.1-0.4
23Cambodia57.50.1
24Bhutan57.40.7
25Pakistan 55.60.4
26India54.6-1.1
27Bangladesh 53.9-0.2
28Maldives53.42.4
29Papua New Guinea53.1-0.8
30China52.70.2
31Tajikistan52.70.7
32Vietnam51.70.9
33Laos51.40.2
34Nepal51.31.2
35Micronesia49.6-0.2
36Solomon Islands470.8
37Uzbekistan470.5
38Burma46.90.4
39Kiribati46.40.1
40Timor-Leste45.52.3
41Turkmenistan41.4-0.8
42North Korea1.30.3
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