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Quick Facts
- Population:
- GDP (PPP):
- $43.5 billion
- 6.9% growth
- 4.7% 5-year compound annual growth
- $13,447 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Mongolia’s economic freedom score is 55.9, making its economy the 127th freest in the 2020 Index. Its overall score has increased by 0.5 point because of an increase in the score for government integrity. Mongolia is ranked 30th among 42 countries in the Asia–Pacific region, and its overall score is well below the regional and world averages.
Economic freedom has deteriorated in Mongolia in recent years. GDP growth, however, has continued at a good pace due to stronger coal and copper prices and increasing exports to China.
One of the biggest obstacles to more economic freedom is the country’s woefully inadequate rule of law. Government corruption is pervasive, and courts are unreliable. Some minor measures to increase transparency have been proposed, but introduction of more substantive measures such as bans on unethical business practices, increased mandatory sentences for corruption offenses, or tougher anticorruption efforts is not likely.
Background
After adopting a new constitution in 1992, Mongolia was transformed from a closed single-party Communist state to a dynamic multiparty democracy. This transition has been accompanied by the gradual introduction of free-market reforms and relatively well-maintained political stability. Nevertheless, the Soviet-era Mongolian People’s Party (MPP) won a parliamentary majority in 2016, and the MPP’s Khaltmaagiin Battulga was elected president in 2017. Economic issues figured prominently in both elections. Agriculture and mining remain the most important sectors of the economy. Internationally, Mongolia enjoys observer status in the Shanghai Cooperation Organization and is being considered for membership in the Asia–Pacific Economic Cooperation forum. The majority of ethnic Mongolians today live in the People’s Republic of China.
Although there is a well-established register for real property, there is no central register for use rights, and purchasers have no easy way to learn who might have conflicting rights. A new regulation adopted in April 2019 simplifies the president’s ability to remove judges and prosecutors and is seen as a potential threat to judicial independence. Corruption is endemic.
The individual income tax rate is a flat 10 percent, and the top corporate tax rate is 25 percent. Other taxes include value-added and excise taxes. The overall tax burden equals 23.2 percent of total domestic income. Government spending has amounted to 33.4 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 7.4 percent of GDP. Public debt is equivalent to 73.3 percent of GDP.
Legislation is often drafted and implemented with little input from businesses. Fees that plaintiffs pay were recently reduced, but businesses report long delays in attaining judgments and then again before the judgments are enforced. Labor laws are not restrictive. Many professional categories requiring advanced degrees face labor shortages. Higher mining revenues have helped to reduce budget deficits.
The total value of exports and imports of goods and services equals 123.8 percent of GDP. The average applied tariff rate is 5.5 percent, and nontariff barriers constrain the freedom to trade. Foreign investment is welcome, but the legislative framework is still developing. In 2019, Mongolia opened its one-stop center for foreign investors. The financial system has undergone modernization, and the banking sector remains relatively well capitalized.