ANALYSIS ON MONGOLIA'S CURRENT ECONOMIC STABILITY

14 Danish Scientific Journal No102, 2025 ECONOMIC SCIENCES ANALYSIS ON MONGOLIA'S CURRENT ECONOMIC STABILITY Davaasuren Avirmed doctor (Sc,D), Professor, The Institute of International Studies of Mongolian Science Academy, Mongolia Bat-Erdene Ochir Doctor (Ph,D), Professor, The Mongolian Chamber of Professional Engineers and Inventors, Mongolia Batmunkh Batsukh Doctor (Ph,D), Professor, Senior teacher of the School of Science, the Mongolian National University https://doi.org/10.5281/zenodo.17740976 Abstract The main purpose of this article is to analyze and evaluate how well balanced the Mongolian economy is currently. The main criterion that determines the economic balance of any country is the internal balance of supply and demand. According to our research, in 2024, 76.3% of our country's total demand was met by domestic production, and the remaining 23.7% by imports. This shows that the Mongolian economy is imbalanced in its self-sustainability. As the Mongolian economy becomes more efficient and more competitive in the long run, it should become self-sustaining. One of the main factors leading to the internal imbalance of the Mongolian economy is the underdeveloped structure of the industry. In the analysis of the economic structure, special attention is paid to the share of the primary sector, i.e. agriculture and mining, in the GDP. The high share of this primary sector in the country's economy is considered to be backward in the economic structure. According to the 2024 data of Mongolia released by the World Bank, the primary sector occupies a very high 38.5 percent of Mongolia's GDP, which indicates that Mongolia, which belongs to the low-middle income countries category, is 15.8 percent higher than the countries of this group. The two main economic sectors of Mongolia, agriculture and mining, are highly dependent on natural and climatic conditions, and when drought and harsh winter affect the animal husbandry sector, the number of livestock decreases causing production lag. In addition to the internal imbalance of the Mongolian economy, the imbalance of external economic relations is of particular interest. First of all, this is manifested by the continuous increase in the amount of foreign debt. Another phenomenon that indicates the imbalance of the Mongolian economy is the excessive dependence on imports. It can be seen that the share of imports in the total economic resources was 23.7 percent in 2024. It is necessary to draw conclusions from this analysis and implement a policy to ensure economic balance in Mongolia for its future development. Keywords: Economy, sustainable development, Mongolian economy, economic balance, economic analysis The main goal of this paper is to analyze, evaluate and draw conclusions about the stability of the current Mongolian economy. The economy of a country at any level of development has a common factor characterized by two main parts: demand and supply. The main criterion for determining the stability of a country's economy is the internal balance of its demand and supply. At the macro level, demand consists of consumption and exports, which represents the amount of goods and services needed by an economy, both domestically and internationally. Supply, on the other hand, represents how much of that demand is met by production and imports. Although, demand and supply should always be in balance in a given year, the internal structures could be off-balance. According to the consolidated national accounts included in the 2024 statistical compilation of Mongolia, the indicators on supply and demand were as follows. Danish Scientific Journal No102, 2025 15 Table 1. Mongolia's macro-level demand and supply indicators for 2024 (billion tugriks, at market prices) DEMAND SUPPLY 1.Total Domestic Consumption 207732.9 1. Total Domestic Production 179568.4 Interim Consumption 99612.1 Final Consumption 52840.4 Savings, others 27607.9 2. Export 55280.4 2. Import 55772.1 TOTAL 235340.5 TOTAL 235340.5 Source: Statistical Bulletin 2024 by National Statistics Office The table shows that in 2024, Mongolia met 76.3 percent of its total demand through domestic production, and the remaining 23.7 percent through imports. We can see that the total domestic production (TDP) was 179.5 trillion tugriks, while the total domestic consumption (TDC) was 207.7 trillion tugriks, indicating that the lack of domestic resources has been compensated by external resources. This basically shows that Mongolian economy is imbalanced and has a weak selfsustaining capacity. The concept of economic self-sufficiency was officially mentioned in the "Economic security section" of the “National Security Concepts”, an official policy document of the Mongolian state, as part of the interrelated concepts of “ensuring economic independence and development” and “building economic self-sufficiency”. Economic self-sufficiency is related to the efficient operation of economic activities using internal resources. This concept is one of the main criteria for expressing the country’s economic security. In addition, this concept reflects the internal stability of the economy. Unfortunately, we see the burden of external debt on the Mongolian economy continues to this day. Thus, for Mongolia to have a long-tern solution to its external debt burden is to increase its economic selfsufficiency. By improving its economic efficiency and competitiveness Mongolia will eventually reach selfsufficiency. The National Consolidated Accounts prepared by the National Statistics Office of Mongolia allows us to assess and draw conclusions about the current Mongolian economy. The first 6 of the national accounts show how the Gross Domestic Product (GDP) is created, how it is broken down into primary incomes - profits, wages, net taxes, and depreciation of fixed assets, and how the remaining primary income - gross national income and gross national property income - is transformed from there, how total savings are created, what they are spent on, and whether the country is left with money in the end. Let's look at these factors using the data from the 2024 integrated national accounts. The formula below shows how Mongolia's GDP was formed by production in 2024. Here, by subtracting Interim Consumption (IC) from Total Domestic Production (TDP), the GDP is 79.9 trillion tugriks. 𝐺𝐷𝑃 (79956.3 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) = 𝑇𝐷𝑃 (179568.4 𝑏𝑖𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) − 𝐼𝐶 (99612.1 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) The calculation below shows how National Income (NI) is generated by adjusting this GDP with factors including Net Factor Income from Abroad (NFIA) and Remittance (R) outside Mongolia. 𝑁𝐼 (70866.6 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) = 𝐺𝐷𝑃 (79956.3 𝑏𝑖𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) + 𝑁𝐹𝐼𝐴 (11501.5 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) − 𝑅 (20591.2 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) Mongolia's national income (NI) in 2024 was 70866.6 billion tugriks, i.e., 9089.7 billion tugriks less than the GDP, which is due to the fact that remittances exceeded the overall inflows by this amount. Remittances include salaries, profits, and other incomes transferred to foreign entities from foreign enterprises in Mongolia. In 2024, Mongolia's Gross National Income (GNI) was 72,382.9 billion tugriks. This is calculated by adding current transfers received from abroad to NI, and subtracting current transfers transferred to foreign countries. In addition, when final consumption expenditure (FCE) is deducted from the GNI as shown below, we can determine Mongolia's total savings. 𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑣𝑖𝑛𝑔𝑠 (19542.5 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) = 𝐺𝑁𝐼 (72832.9 𝑏𝑖𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) − 𝐹𝐶𝐸 (52840.4 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) GNI is the total amount of distributable income owned by Mongolian government. We have seen from the above calculations that this income originates from the GDP and is transformed into NI, which then gets adjusted through current transfers to reach GNI of 72832.9 billion tugriks. By deducting FCE from this income, a residual savings of 19542.5 billion tugriks has been created. Now this total saving is first and foremost spent on fixed assets, and the rest is spent on the purchase of tangible current and valuables for the year. When we trace the main macro-level revenues of Mongolian economy in 2024 and what they were spent on, we can see that the total savings generated in the domestic economy in 2024 amounted to 19542.5 billion tugriks. On the other hand, the Fixed Assets Savings (FAS) alone in that year reached 21430.1 billion tugriks in practice, exceeding the total savings by 1887.6 billion tugriks. This shows that the total savings generated in our economy in one year are not sufficient for the savings of fixed assets in that year and are not able to support itself. In addition, since the actual expenses of 5595.8 billion tugriks were incurred for the expenses of working capital and the purchase of valuables in that year, the total economic result was 7483.4 billion tugriks short, which was financed by external sources. For this reason, our economy ended up with a net deficit of the above amount in 2024 as shown below. 𝐷𝑒𝑓𝑖𝑐𝑖𝑡 (−7483.4 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) = 𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑣𝑖𝑛𝑔𝑠 (19542.5 𝑏𝑖𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) − 𝐹𝐴𝑆 (21430.1 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) − 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 𝑎𝑛𝑑 𝑣𝑎𝑙𝑢𝑎𝑏𝑙𝑒𝑠 16 Danish Scientific Journal No102, 2025 (5595.8 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑡𝑢𝑔𝑟𝑖𝑘𝑠) The balancing indicator of the the capital account, the 6th account of the national accounts, is determined by the percentage of net debt in the GDP and it measures the economy's ability to self-sustain. Table 2. Net debt as a percentage of GDP Year 2010 2015 2024 GDP (billion tugriks) 9756.6 23134.1 79956.3 Net debt (billion tugriks) - 1326.3 - 1174.7 - 7483.8 Net debt as a percentage of GDP (%) - 13.6 - 5.1 - 9.4 Table 2 shows that Mongolia's capital account has always been in the red, with a deficit of 1326.3 trillion tugriks, equivalent to 13.6 percent of its GDP, in 2010, but it increased further in 2024, reaching a deficit of 7483.8 billion tugriks. Nevertheless, in 2024, the deficit decreased to 9.4 percent of the GDP, down by 4 percent from 2010. This shows that Mongolia has used financial resources equivalent to 9.4 percent of its GDP in the form of foreign loans and aid, and that domestic resources were completely inadequate. One of the main factors that leads to the internal imbalances in Mongolian economy is the antiquated sectoral structure. The structural analysis of the economy is carried out according to the common international methodology based on the so-called “three-sector model” developed by the famous statisticians and economists A. Fisher, K. Clark, and J. Fourastié. This threesector model consists of the following large-scale sectors: • Primary i.e., agricultural (A-Agro sector) sector. This includes agriculture and mining industries. • Secondary i.e., industrial (I-Industrial sector) sector. This includes manufacturing, electricity, heat, clean water production and distribution, as well as the construction sector. • Tertiary i.e., service (SService sector) sector. This includes all types of services. When drawing conclusions from the analysis of the economic structure, the share of the primary sector, i.e. agriculture and mining, in GDP is given special attention. A high share of this primary sector in the economy of a country is considered to indicate that the economic structure is underdeveloped. This is because this sector, which supplies agricultural raw materials and unprocessed natural resources rather than final products, has low added value, low labor productivity, and weak competitiveness. Therefore, it is not considered to contribute significantly to the long-term development of the economy. On the contrary, service sectors account for a high percentage in the economies of developed countries. Table 3. Comparison of Mongolia's three economic sectors' shares in its GDP vs other countries' divided by income groups by World Bank in 2023 (by percentage) Primary Secondary Tertiary Low-income countries 42.9 24.8 32.3 Lower-middle-income countries 22.7 27.6 49.7 Upper-middle-income countries 10.2 35.3 54.5 High-income countries 1.4 32.6 66.0 World averege 11.8 26.4 61.8 Mongolia 38.5 12.9 48.6 Source: World Development Indicators by World Bank, 2024 According to the 2023 data from the World Bank, the share of primary sector in the GDP of low-income and underdeveloped countries was highest among the sectors at 42.9 percent. As the income of countries increases, this share decreases, and the share of this sector in the economy of high-income developed countries was only 1.4 percent. According to the data of Mongolia released by the World Bank, the share of the primary sector in Mongolia's GDP was 38.5 percent as of 2024. As a country classified as a lower-middle-income country, Mongolia is 15.8 percentage behind the average in this group, which indicates that its economic structure is lagging. Table 4. The percentage of Mongolia's economic sectors in its GDP throughout the years Year 1995 2016 2024 Primary sector (agriculture and mining) 50.0 32.2 35.2 Secondary sector (manufacturing and construction) 15.6 15.7 12.4 Tertiary sector (service) 34.4 52.1 52.4 Source: Statistical Bulletin 2017 and 2024 by National Statistics Office Due to progressive changes in the sectoral structure in Mongolia since 1995, there has been a significant decrease in the primary sector share in the GDP, from 50 percent since 1995 to 35.2 percent in 2024. The share of the service sector has also increased from 34.4 to 52.4 percent. Despite these changes, the main sector of agriculture and mining is vulnerable and have highly Danish Scientific Journal No102, 2025 17 volatile growth. Agriculture is highly dependent on natural and climatic conditions, and when affected by droughts and harsh winters, the livestock numbers decline, the livestock sector suffers and results in production decreases. On the other hand, the mining sector is highly dependent on commodity prices on the world market, with volatile growth that is characterized by repeated declines and recoveries. Due to this sector's volatility, Mongolia's GDP had high fluctuations over the years, which you can see from Figure 1 below. Figure 1. Change in Mongolian annual GDP, 1990-2024, (equalized for inflation, by percent) Looking at the growth and decline of Mongolia's GDP over the past 34 years, we can see that economic growth has been very unstable, with 2-3 consecutive years of growth followed by declines. On the other hand, this is an indication that the regular balance of the economy has been lost. The decline in GDP in 19901993 was related to the difficulties of the first years of the transition from a centrally planned economy to a market economy, while the sharp decline in 2008 to 2009 was due to the decline in the livestock sector due to the difficulties of a harsh winter. Furthermore, the sharp decline in the economy in 2020 was directly related to the pandemic. In addition, the decline in raw material prices in the mining sector between 2013-2016 also slowed down economic growth. This shows that the two main contributors to Mongolia's economy, agriculture and mining, not only continue to have a significant impact on economic growth but also disrupt the stability and balance of its growth. In addition to Mongolia's internal economic imbalances, the imbalances in its external economic relations are of particular concern. This is primarily manifested in the continuously increasing amount of external debt as seen in Table 5. Table 5. Total end of year external debt of Mongolia (by million US dollars) Year 2020 2021 2022 2023 2024 Total external debt 32361.8 33805.5 33344.8 34569.5 37237.4 Of which: Governmental 8653.8 8454.2 8012.5 8105.1 8397.1 Central bank 2221.0 2610.0 2179.0 1784.8 1086.3 Savings institutions 1650.9 1626.5 1532.6 1733.2 2601.8 Other sectors 8430.28 8842.5 8436.0 7865.8 7897.9 Direct investments 11405.9 12272.2 13184.8 15080.6 17254.3 Source: Statistical Bulletin 2024 by National Statistics Office The increase in external debt was driven by the government’s $1.5 billion “Chinggis” bond sold in late 2012, the $600 million “Samurai” bond issued in 2014, and the 1-billion-yuan bond issued in September 2015. In addition, private sector companies have borrowed significantly from abroad. Mongolia’s total external debt has increased from $21.6 billion in 2015 to $32.3 billion by the end of 2020 and $37.2 billion by the end of 2024. When the Mongolian government headed my prime minister Altankhuyag sold the Chinggis bond in December 2012 and raised funds, there was no plan ready or scheduled for what exactly it would be spent on. The democratic party, which was in power at the time, spent it on various things at the request of its fractions. 40% of the funds was spent on infrastructure, such as road and energy development and the expansion of highway junctions in the capital. As a result of spending the funds raised from Chinggis bond, which was meant to be a short-term commercial loan, on things that do not yield quick returns, the debt burden has been deepened. In recent years, Mongolia has been under heavy external debt. In 2019-2020, 202.6 million USD was paid annually towards external debts, while 600 million USD was paid in 2021 for Mazaalai bond. Continually, the 1 billion USD Chinggis bond debt was paid off in 2022, 800 million USD towards Gerege bonds were paid in 2023, and 500 million USD in Samurai bonds were paid in 2024. -2,5 -9,2 -9,5 -3,0 2,3 6,3 2,4 4,0 3,5 3,2 1,1 1,0 4,0 5,6 10,7 6,2 8,6 10,2 8,9 -1,3 6,1 17,3 12,3 11,6 7,9 2,4 1,2 5,3 7,2 5,2 -4,6 1,6 5,0 7,4 4,9 -15 -10 -5 0 5 10 15 20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Percentage Year 18 Danish Scientific Journal No102, 2025 Figure 2. Government repayments (million USD) The Parliament set the debt ceiling at 58.5 percent of the GDP in 2016. At the same time, amendments to the Law on Fiscal Stability stipulated that loans for mining, railway, and energy projects would not be included in the national debt ceiling. As of 2024, the total external debt in tugriks will reach 134 trillion tugriks, 1.6 times higher than the GDP. This shows that the debt ceiling has already been exceeded several times. Another phenomenon that indicates the instability of the Mongolian economy is its overdependence on imports. Article 3.2.5.1 of the Mongolian National Security Concept states that “...reducing the vulnerability of the national economy that is overdependent on imports,” but this policy objective has not been sufficiently implemented. For countries with a high level of development, a high share of imports in the economy is not a problem, but for small developing countries like Mongolia, with a small population and weak overall economic potential, being heavily dependent on imports increases the risk to economic security. Table 6. Share of imports in the total economic resource throughout the years Year 2005 2010 2015 2020 2024 Total economic resource (billion tugriks) 7741.7 24447.4 53375.3 97995.1 235340.5 Total production by basic prices (billion tugriks) 5495.3 17919.9 41154.9 73773.1 171272.4 Total import (billion tugriks) 1934.7 5529.2 10334.7 20666.1 55772.1 Share of total production (percent) 71.0 73.3 76.8 75.3 72.8 Share of total import (percent) 25.0 22.6 19.6 21.1 23.7 Source: Statistical Bulletin 201, 2015, and 2024 by National Statistics Office According to table 6, imports accounted for 23.7 percent of Mongolia's total economic resources in 2024. Unless the share of imports in total resources decrease significantly, Mongolia remains a country with fragile economy that heavily dependents on imports. References: 1. Statistical Bulletin 2024 by National Statistics Office 2. Jean-Baptiste Say. "A treatise on Political Economy." Translated from the 4th edition by C.R. Prinser. New York 3. National Consolidated Accounts data from Statistical Bulletin 2024 by National Statistics Office 4. Fisher, Allan GB. “Production: primary, secondary, and tertiary”. Economic Record 15.1(1939) :24-38. 5. World Bank, World Development Indicators, 2024 6. National Statistics Office, Statistical information fund, 1212.mn 786,2 876,8 202,6 202,6 702,6 1151,7 1186,5 651,1 0 200 400 600 800 1000 1200 1400 2017 2018 2019 2020 2021 2022 2023 2024 Repayment amount (million USD) Year