Economy

Domestic risks are the biggest threat...

2019  |  October   |  023

The uncertainty revolves in the global economy, affecting the export and investment activities due to the trade war between the U.S and China according to the World Bank. Especially the demand in China is diminishing and testing the economic resilience of the region. The International Monetary Fund, on the other hand, lowered the 2019 GDP growth of the world’s biggest economy, the U.S by 0.2 percentage point to 2.4 percent. As for China, the growth outlook was lowered from 5.8 percent to 6.1 percent. As such, international research institutions are concluding the economies around the world to be lower this year. Let us present to you the positions of the economists who attended the discussion on “Trade War and Economic Risk”.

Anchor B.Batmanlai: International research institutions are warning of key risks based on their estimations. How will these forecasts affect Mongolia? What is your position on this issue?

N.Enkhbayar, Economist: The trade war between the U.S and China has been going around for quite some time now. Not just the trade war. The technology war is also waging at the moment. But we have to consider how it will affect Mongolia. The Bank of Mongolia and the Ministry of Finance, who are responsible for next year’s fiscal and monetary policies, need a thorough study to prepare a plan. 
The impact on Mongolia’s economy needs to be based on numbers. This will give a clear indication of foreign trade, showing the impact.

Sh.Altantsetseg, Economist: The economic downturn of 2008-2010 and 2013-2015 had their special features. The 2013-2015 recession was fully caused by the metal price shock. As for this time, it is too early to say if we will have a global economic slowdown. If we do, the reason would be fairly different from the previous ones. The main cause might probably be the trade war. If the biggest economies continue, global economic activities will diminish. As for our country, we maintain our economic growth by supplying goods to China. 

The drop in metal prices will have a huge impact on our economy. Also, Mongolia’s debt remains significantly high. This will create a difficult situation if the export shrinks. Because commodity exports make up 80 percent of the total export of Mongolia. Over 50 percent of FDI is coming from the OT project only. This, in turn, increases the vulnerability of the economy to foreign shock and volatility. Which is why we have to start preparing what to do if China’s local import lowers. So we need a strong monetary policy discipline. What will happen once the IMF program completes next year? We need to make policy measures considering that. These have to be wide and immediate.

B.Tuvshintugs, President of the Economic Research Institute: The solution is the one that has been talked repeatedly, which is the economic diversification. But, indeed, it is not realizing. A massive amount of money is spent on inefficient projects under diversification. But the situation remains the same because of the governance. A part of the income from the mining industry must be collected to the “Future Heritage Fund”. It is useless even if we talk about risks if we do not improve revenue governance. 

The risks never once changed during this time. We have been talking about the trade war. The U.S is imposing a new set of tariffs on USD 550 billion worth of Chinese goods. while China is imposing tariffs on USD 180 billion worth U.S goods. The main issue is China’s policy on coal. The risks have been there. They impose limitations on coal every year. It seems that we need to accept that. 

Anchor B.Batmanlai: The external environment is shifting. But we have failed to take the required measures in favorable times.

J.Delgersaikhan, Professor of the University of Finance and Economy: The global economic growth is slowing. Central banks around the world have eased their interest. China has been taking the same measures in the trade war and is now softening the terms. 

Therefore, it is certain that the trade war would bring the risks that we fear. Many types of research have already started on this issue. This will harm countries that are dependent on minerals such as ours. On the other hand, Southeast Asian countries where industries are booming, including Indonesia and Vietnam, will be able to make plays on the gap of about USD 500 billion. Mongolia’s inaction is becoming the biggest risk as the trade war is looming over the global economy. Regrettably, the monetary policy is going in the opposite direction. It will be better to focus on internal risks instead of external ones. 

Anchor B.Batmanlai: Instead of external risks, you said it is best to focus on the internal ones. There has not been much improvement recently. What should we focus on to move forward?

N.Enkhbayar, Economist: The first tool that we can control is the fiscal and monetary policies. We have to prepare for debt repayments. About three years ago, we talked about what we have done to reduce the budget deficit in previous years. Compared to that time, we now have objectives to reduce the budget deficit. 

But the 2020 budget bill presented to the Parliament, the expenditure growth remains too high. This is massive for a country with such a small GDP. Also, the under-funded objects will pile up to the 2020 budget, adding pressure. The fiscal stability council needs to work on reducing the budget expenditure. It is below to overcome the upcoming risks. The fact that 2020 is an election has to be considered. Also, the Presidential election of the U.S will take place next year. We do not know what will happen this time. These need to be analyzed. 

B.Tuvshintugs, President of the University of Finance and Economy: No matter how well and good the strategy is, trillions of MNT is spent on debt interests. The Law on Fiscal Stability must be tightened in the future. For instance, the budget is approved with over MNT 1.5 trillion in FDI. Then the implementation adds up to only MNT 700 billion. The remainder piles on to next year’s budget. A huge amount of money is allocated to projects without blueprints. Also, the projects have too many faults on paper. It is time to deal with that. The budget deficit needs to be annulled.

Sh.Altantsetseg, Economist: The analysis of international organizations highlight Mongolia’s political uncertainty and governance. As for the fiscal and monetary policies, it only avoids the risks involving the decision-makers. So it is best to prepare for the 2021 debt settlements and reducing the vulnerability and dependence. 

J.Delgersaikhan, Professor at the University of Finance and Economy: It would not be wrong to say the State policies have no vision. They just set a number. It does not matter if they do not reach that target. The outcome of failing to reach the target is unclear. The investment yields are low. There are also no actions in choosing the required investment. 

The mistake of welfare policy is still repeating. If we want to stop all these, the debt management and regulations of the Law on Fiscal Stability must be strictly followed. The majority of the decisions are very politicized, creating more difficulties.  

B.Tuvshintugs, President of the Economic Research Institute: According to the initial plan, MNT 1 trillion shall be saved up in the “Future Heritage Fund”. On the other hand, there is the debt. But the IMF warned against saving funds and suggest settling the debt. 
It could be true but the country does not have good governance. The mining income has to be forcefully saved and the debt management needs to be good. This issue will soon pile up to become a trouble.

N.Enkhbayar, Economist: In our current society, we need the dentists to be dentists and engineers to be engineers. Instead of jumping into other fields. 

Anchor B.Batmanlai: We are talking about overcoming the risks. Will these measures help overcome the risks?

N.Enkhbayar, Economist:  Reviews of international organizations give suggestions before the risks realize, saying “The commodity prices are about to fall. Your current account is increasing”. The IMF report of last July detailed every external risk. Even if they warned that “the export remains unreliable”, the Government refuted the warning, saying it will increase and decided against them. In reality, they are being outrun by the truth. If do not use the suggestions of organizations that are recognized not just domestically, but globally, the upcoming financial crisis will have a drastic impact on Mongolia. The current authorities must leave behind a country that is not debt-ridden and bankrupt. It does not matter who is responsible for what position. Rich or poor, we will all die the same. 



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