Mongolias Growth: What next

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Mongolias Growth What next?

• Some Observations on Mongolias Economy By
  Arshad Sayed,
• Country Manager Resident Representative,
• The World Bank

Thanks to the World Bank Economics Team DECPG
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Recent Economic Developments in Mongolia

• Rapid economic growth with inflationary pressures
• High international prices of copper and gold
• Fiscal policy is expansionary
• Signs of overheating (as defined by aggregate
  demand exceeding supply capacity)

World Bank Mongolia Quarterly G. Boyreau
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In 2007, economic growth accelerated and so did
consumer prices
World Bank Mongolia Quarterly G. Boyreau
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Public expenditures are expanding rapidly
World Bank Mongolia Quarterly G. Boyreau
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2007 inflation is the highest in the decade
and food is the main driver.

• Higher price for imported food contributed but
• Domestic food prices increased by even more!

World Bank Mongolia Quarterly G. Boyreau
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Mongolia Whats next?
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Should Mongolia worry about Inflation?

• Absolutely, for many reasons
• Affects poor most
• Can eat away into welfare gains
• If unchecked, it can cause imbalances
• But is Mongolia alone? No, Food price inflation
  (Jan 07-Jan 08) rose significantly across range
  of countries e.g. China (18), Sri Lanka (34),
  Moldova (15)
• So this situation is not unique to Mongoliaand
  therefore Mongolia needs to deal with it like
  everyone else

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So what is different about Mongolia?

• The challenge for Mongolia is not that you need
  to manage the current situation.This is a given.
• But can Mongolia manage not just its current, but
  even a higher stage of growth? A different growth
  trajectory and level? And how?

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Can Mongolia continue to grow, perhaps with
double digits?

• Yes.But, need to prioritize and act now to
  benefit from current global conditions. Terms of
  trade for commodities are quite favorable
• Learn from countries that have had double digit
  growth for past 10 years or more, Kuwait, Dubai,
  Maldives.how did they do this? And avoid
  mistakes

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Can Mongolia continue to grow, perhaps with
double digits?

• Most important is can Mongolias institutions
  keep pace with its growth?
• Legal and judicial system
• Capable administration
• Education Services/Skills
• Health Services
• Vibrant private sector
• Responsible Press
• Why are institutions so important?

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Growth is key in long run.
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How to sustain growth?.
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What underlies growth?.
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Can Mongolia continue to grow, perhaps with
double digits?

• Key Questions
• How do you meet the institutional demands of a
  rapidly growing economy? Where to invest? How to
  prioritize?
• How to manage supply constraints?
• How to spend wisely?
• How to develop new skills?
• How to ensure policy stability from one
  government to another?
• How to get more out of existing investments, e.g.
  utilities and free up resources from lagging
  investments to dynamic new areas of growth
• How to ensure growth of enterprise, private
  sector, and employment generating activities?

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The Beginning.